As filed with the Securities and Exchange Commission on July 27, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.___ [ ] Post-Effective Amendment No.___
PAINEWEBBER INVESTMENT SERIES
(Exact Name of Registrant as Specified in Charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of Principal Executive Offices)
(212) 713-2000
(Registrant's Area Code and Telephone Number)
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.
LINDA L. RITTENHOUSE, ESQ.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. Accordingly, no filing fee is payable herewith. The Registrant filed
on December 22, 1994, the notice required by Rule 24f-2 for its fiscal year
ended October 31, 1994.
It is proposed that this filing will become effective on August 28, 1995
pursuant to Rule 488.
<PAGE>
PAINEWEBBER INVESTMENT SERIES
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER INVESTMENT SERIES
Form N-14 Cross Reference Sheet
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
--------------- -----------------
1. Beginning of Cover Page
Registration Statement
and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Synopsis Information Synopsis; Comparison of
and Risk Factors Principal Risk Factors
4. Information About the Synopsis; The Proposed
Transaction Transaction
5. Information About the Synopsis; Comparison of
Registrant Principal Risk Factors;
Additional Information
About PW Fund; See Also
--- ----
the Prospectus of
PaineWebber Global
Income Fund
6. Information About the Synopsis; Comparison of
Company Being Acquired Principal Risk Factors;
See Also the Prospectus
--- ----
of Mitchell Hutchins/
Kidder, Peabody Global
Fixed Income Fund
7. Voting Information Voting Information
8. Interest of Certain Not Applicable
Persons and Experts
9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information Statement of Additional
About the Registrant Information of
PaineWebber Global
Income Fund
13. Additional Information Statement of Additional
About the Company Being Information of Mitchell
Acquired Hutchins/Kidder, Peabody
Global Fixed Income Fund
14. Financial Statements Financial Statements of
PaineWebber Global
Income Fund for Fiscal
Year Ended October 31,
1994, and Financial
Statements of Mitchell
Hutchins/Kidder, Peabody
Global Fixed Income Fund
for Fiscal Year Ended
August 31, 1994
<PAGE>
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>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
(a series of Mitchell Hutchins/Kidder, Peabody Investment Trust)
August ___, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund ("MH/KP Fund") reorganize and
become part of PaineWebber Global Income Fund ("PW Fund"). If the proposal is
approved and implemented, each shareholder of MH/KP Fund automatically would
become a shareholder of PW Fund.
Your board of trustees recommends a vote FOR the reorganization proposal.
The board believes that combining the two Funds will benefit MH/KP Fund's
shareholders by providing them with a portfolio that has an investment
objective similar to the investment objective of MH/KP Fund and that will have
lower operating expenses as a percentage of net assets. The attached proxy
materials provide more information about the proposed reorganization and the
two Funds.
Your vote is important no matter how many shares you own. Voting your
shares early will permit MH/KP Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, Mitchell Hutchins/
Kidder, Peabody Investment Trust
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
GLOBAL FIXED INCOME FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust)
-------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
October 5, 1995
------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of Mitchell Hutchins/Kidder,
Peabody Global Fixed Income Fund ("MH/KP Fund"), a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust, will be held on October 5, 1995 at
10:00 a.m., eastern time, at 1285 Avenue of the Americas, 38th Floor, New York,
New York 10019, for the following purposes:
(1) To consider an Amended and Restated Agreement and Plan of
Reorganization and Termination under which PaineWebber Global Income Fund ("PW
Fund"), a series of PaineWebber Investment Series, would acquire the assets of
MH/KP Fund in exchange solely for shares of beneficial interest in PW Fund and
the assumption by PW Fund of MH/KP Fund's liabilities, followed by the
distribution of those shares to the shareholders of MH/KP Fund, all as
described in the accompanying Prospectus/Proxy statement; and
(2) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of MH/KP Fund at the close of business on August 25, 1995. If you
attend the Meeting, you may vote your shares in person. If you do not expect
to attend the Meeting, please complete, date, sign and return the enclosed
proxy card in the enclosed postage paid envelope.
By order of the board of trustees,
DIANNE E. O'DONNELL
Secretary
August ___, 1995
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed
proxy card, date and sign the card, and return it in the
envelope provided. IF YOU SIGN, DATE AND RETURN THE PROXY CARD
BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSAL NOTICED ABOVE. In order to avoid the
additional expense to MH/KP Fund of further solicitation, we
ask your cooperation in mailing in your proxy card promptly.
Unless proxy cards submitted by corporations and partnerships
are signed by the appropriate persons as indicated in the
voting instructions on the proxy card, they will not be voted.
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
(a series of PaineWebber Investment Series)
MITCHELL HUTCHINS/KIDDER, PEABODY
GLOBAL FIXED INCOME FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust)
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
PROSPECTUS/PROXY STATEMENT
August __, 1995
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund
("MH/KP Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust
("MH/KP Trust"), in connection with the solicitation of proxies by MH/KP
Trust's board of trustees for use at a special meeting of MH/KP Fund
shareholders to be held on October 5, 1995, at 10:00 a.m., eastern time, and at
any adjournment thereof ("Meeting").
As more fully described in this Proxy Statement, the primary purpose of
the Meeting is to vote on a proposed reorganization ("Reorganization"). Under
the Reorganization, PaineWebber Global Income Fund ("PW Fund"), a series of
PaineWebber Investment Series ("PW Trust"), would acquire the assets of MH/KP
Fund, in exchange solely for shares of beneficial interest in PW Fund and the
assumption by PW Fund of MH/KP Fund's liabilities. Those PW Fund shares then
would be distributed to the shareholders of MH/KP Fund, by class, so that each
shareholder of MH/KP Fund would receive a number of full and fractional shares
of the applicable class of PW Fund having an aggregate value that, on the
effective date of the Reorganization, is equal to the aggregate net asset value
of the shareholder's shares of the corresponding class in MH/KP Fund.
Following the distribution, MH/KP Fund will be terminated as soon as
practicable.
PW Fund is a non-diversified series of PW Trust, which is an open-end
management investment company. PW Fund's primary investment objective is high
current income consistent with prudent investment risk, with capital
appreciation as a secondary objective. PW Fund seeks to achieve its investment
objectives by investing principally in high quality foreign and domestic debt
securities.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the Reorganization and PW Fund that a
shareholder should know before voting. This Proxy Statement is accompanied by
the Prospectus of PW Fund dated March 1, 1995, and by its Annual Report to
Shareholders for the fiscal year ended October 31, 1994, which are incorporated
by this reference into this Proxy Statement. A Statement of Additional
Information dated August ___, 1995, including historical financial statements,
has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by this reference. A Prospectus for MH/KP Fund dated
December 29, 1994 (as supplemented June 22, 1995 and June 30, 1995), a
Statement of Additional Information for MH/KP Fund dated December 29, 1994, and
a Statement of Additional Information for PW Fund, dated March 1, 1995, have
been filed with the SEC and also are incorporated herein by this reference.
Copies of these documents, as well as MH/KP Fund's annual report and each
Fund's semi-annual report, if applicable, may be obtained without charge and
further inquiries may be made by contacting your PaineWebber Incorporated
("PaineWebber") investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
APPROVAL OF THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . 2
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMPARISON OF PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . . . . . . 12
THE PROPOSED TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . 14
ADDITIONAL INFORMATION ABOUT PW FUND . . . . . . . . . . . . . . . . . . . 19
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
APPENDIX A - AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
GLOBAL FIXED INCOME FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust)
------------------------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
To Be Held On
October 5, 1995
------------------------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund
("MH/KP Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust
("MH/KP Trust"), in connection with the solicitation of proxies by its board of
trustees for use at a special meeting of shareholders to be held on October 5,
1995, and at any adjournment thereof ("Meeting"). This Proxy Statement will
first be mailed to shareholders on or about August 31, 1995.
At least thirty percent of MH/KP Fund's outstanding shares on August 25,
1995, represented in person or by proxy, must be present for the transaction of
business at the Meeting. If a quorum is not present at the Meeting or a quorum
is present but sufficient votes to approve the proposal are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote FOR the proposal in favor of such an adjournment and
will vote those proxies required to be voted AGAINST the proposal against such
adjournment. A shareholder vote may be taken on the proposal in this Proxy
Statement prior to any such adjournment if sufficient votes have been received
and it is otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners
or other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be
counted as shares present for purposes of determining whether a quorum is
present but will not be voted for or against any adjournment or proposal.
Accordingly, abstentions and broker non-votes effectively will be a vote
against adjournment or against the proposal where the required vote is a
percentage of the shares present or outstanding. Abstentions and broker
non-votes will not be counted, however, as votes cast for purposes of
determining whether sufficient votes have been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your direction as indicated thereon if your proxy card is
received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of the
Amended Agreement and Plan of Reorganization and Termination dated as of July
25, 1995 ("Reorganization Plan"), which is attached to this Proxy Statement as
Appendix A. Under the Reorganization Plan, PaineWebber Global Income Fund ("PW
Fund"), a series of PaineWebber Investment Series ("PW Trust"), would acquire
the assets of MH/KP Fund in exchange solely for shares of beneficial interest
in PW Fund and the assumption by PW Fund of MH/KP Fund's liabilities; those PW
Fund shares then would be distributed to MH/KP Fund's shareholders. (These
transactions are collectively referred to herein as the "Reorganization" and
MH/KP Fund and PW Fund may be referred to herein individually as a "Fund" or,
collectively, as "Funds".) After completion of the Reorganization, MH/KP Fund
will be terminated.
<PAGE>
In addition, if you sign, date and return the enclosed proxy card, but
give no voting instructions, the duly appointed proxies may vote your shares,
in their discretion, upon such other matters as may come before the Meeting.
The proxy card may be revoked by giving another proxy or by letter or telegram
revoking your proxy. To be effective, such revocation must be received by
MH/KP Trust prior to the Meeting and must indicate your name and account
number. If you attend the Meeting in person you may, if you wish, vote by
ballot at the Meeting, thereby canceling any proxy previously given.
As of the record date, August 25, 1995 ("Record Date"), MH/KP Fund had
_______ shares of beneficial interest outstanding. The solicitation of
proxies, the cost of which will be borne by the Funds in proportion to their
respective net assets, will be made primarily by mail but also may include
telephone or oral communications by representatives of Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), who will not receive any compensation
therefor from the Funds, or by Shareholder Communications Corporation,
professional proxy solicitors retained by MH/KP Fund, who will be paid fees and
expenses of up to approximately $50,000 for soliciting services. Management
does not know of any other person who owns beneficially 5% or more of the
shares of MH/KP Fund. Trustees and officers of MH/KP Trust own in the
aggregate less than 1% of the shares of MH/KP Fund.
Approval of the Reorganization Plan requires the affirmative vote of a
"majority of the outstanding voting securities" of MH/KP Fund. As defined in
the Investment Company Act of 1940 ("1940 Act"), "majority of the outstanding
voting securities" means the lesser of (1) 67% of MH/KP Fund's shares present
at a meeting of shareholders if the owners of more than 50% of MH/KP Fund's
shares then outstanding are present in person or by proxy or (2) more than 50%
of MH/KP Fund's outstanding shares. Each outstanding full share of MH/KP Fund
is entitled to one vote, and each outstanding fractional share thereof is
entitled to a proportionate fractional share of one vote. If the
Reorganization Plan is not approved by the requisite vote of shareholders of
MH/KP Fund, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Although the
shareholders of MH/KP Fund may exchange or redeem out of the Fund, they do not
have appraisal rights which may be accorded to shareholders of corporations
that propose similar reorganizations under the laws of some states.
APPROVAL OF THE REORGANIZATION
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the prospectus for each Fund, which are incorporated
herein by reference, and the Reorganization Plan. Shareholders should read
this Proxy Statement and the Prospectus of PW Fund carefully. As discussed
more fully below, MH/KP Trust's board of trustees believes that the
Reorganization will benefit MH/KP Fund's shareholders. PW Fund has an
investment objective generally similar to the investment objective of MH/KP
Fund, although its investment strategy may differ from the investment strategy
of MH/KP Fund in some material respects. It is anticipated that, following the
Reorganization, the former shareholders of MH/KP Fund will, as shareholders of
PW Fund, be subject to lower total operating expenses as a percentage of net
assets.
The Proposed Reorganization
MH/KP Trust's board of trustees approved a reorganization plan at a
meeting held on April 26, 1995. The Reorganization Plan, in its final form as
revised to include certain changes, was considered and approved by MH/KP
Trust's board of trustees at a meeting held on July 20, 1995. The
Reorganization Plan provides for the acquisition of the assets of MH/KP Fund by
PW Fund, in exchange solely for shares of PW Fund and the assumption by PW Fund
of the liabilities of MH/KP Fund. MH/KP Fund will then distribute those shares
2
<PAGE>
of PW Fund to its shareholders, by class, so that each MH/KP Fund shareholder
will receive the number of full and fractional shares of the class of PW Fund
that corresponds most closely in terms of fees and other characteristics
("Corresponding Class") and that equals in value such shareholder's holdings in
MH/KP Fund as of the Closing Date (defined below). MH/KP Fund then will be
terminated as soon as practicable thereafter.
The exchange of MH/KP Fund's assets for PW Fund shares and PW Fund's
assumption of its liabilities will occur as of 4:00 pm., eastern time, on
October 27, 1995 or such later date as the conditions to the closing are
satisfied ("Closing Date").
PW Fund currently offers for sale four classes of shares (each a "Class"
and collectively, "Classes"), designated as Class A, Class B, Class C and Class
D shares. In the Reorganization, PW Fund will issue only Class A, Class C and
Class D shares in exchange for MH/KP Fund's assets. Class B shares of PW Fund
will not be issued. MH/KP Fund has three classes of shares, designated as
Class A, Class B and Class C shares. Shareholders of Class A shares of MH/KP
Fund will receive Class A shares of PW Fund, holders of Class B shares of MH/KP
Fund will receive Class D shares of PW Fund, and holders of Class C shares of
MH/KP Fund will receive Class C shares of PW Fund.
For the reasons set forth below under "The Proposed Transaction -- Reasons
for the Reorganization," MH/KP Trust's board of trustees, including the
trustees who are not "interested persons" of MH/KP Trust or PW Trust as that
term is defined in the 1940 Act ("Independent Trustees"), has determined that
the Reorganization is in the best interests of MH/KP Fund, that the terms of
the Reorganization are fair and reasonable and that the interests of MH/KP
Fund's shareholders will not be diluted as a result of the Reorganization.
Accordingly, MH/KP Trust's board of trustees recommends approval of the
transaction. In addition, PW Trust's board of trustees, including its
Independent Trustees, has determined that the Reorganization is in the best
interests of PW Fund, that the terms of the Reorganization are fair and
reasonable, and that the interests of PW Fund's shareholders will not be
diluted as a result of the Reorganization.
Comparative Fee Table
Certain fees and expenses that MH/KP Fund's shareholders pay, directly or
indirectly, are different from those incurred by PW Fund shareholders. MH/KP
Fund's Class A shares are sold with a maximum initial sales charge of up to
2.25% of the public offering price. PW Fund's Class A shares normally are sold
with a maximum sales charge of up to 4% of the public offering price. The
Class A shares of PW Fund that will be distributed to shareholders of MH/KP
Fund as part of the Reorganization will not be subject to an initial sales
charge. However, following the Reorganization, new purchases of Class A shares
of PW Fund will be subject to an initial sales charge of up to 4%.
Shareholders of MH/KP Fund are not charged a fee for each exchange of shares
for shares of a corresponding class of other PaineWebber or Mitchell
Hutchins/Kidder Peabody mutual funds. PW Fund shareholders pay a $5.00 fee for
each exchange.
Mitchell Hutchins, the administrator and investment manager of MH/KP Fund,
is currently paid a management fee at the annual rate of 0.70% of average daily
net assets of that Fund. PW Fund pays Mitchell Hutchins an annual investment
advisory and administration fee, computed daily and paid monthly, at a rate of
0.750% of average daily net assets up to $500 million, 0.725% of average daily
net assets in excess of $500 million up to $1 billion, 0.700% of average daily
net assets in excess of $1 billion up to $1.5 billion, 0.675% of average daily
net assets in excess of $1.5 billion up to $2.0 billion, and 0.650% of average
daily net assets over $2.0 billion. Based on PW Fund's net assets of
$1,204,496,732, as of April 30, 1995, PW Fund paid an investment advisory and
3
<PAGE>
administrative fee at the effective annual rate of 0.73% of average daily net
assets, which is higher than the current fee paid by MH/KP Fund. On June 30,
1995, PW Fund acquired the assets of Global Income Plus Fund, Inc. As a
result, PW Fund's assets increased by approximately $231 million on that date.
The effective annual rate of the management fee paid by PW Fund is expected to
remain 0.73% of average daily net assets. The acquisition of the assets of
Global Income Plus Fund, Inc., however, would have an effect on other expenses
of the combined Fund. Thus, the "Annual Fund Operating Expense" table below
gives expense information with respect to the combined Fund, including the
assets of Global Income Plus Fund, Inc.
The Class A and Class B shares of MH/KP Fund pay 12b-1 fees that are
identical to those paid by the Class A and Class D shares, respectively, of PW
Fund. No 12b-1 fees are paid by the Class C shareholders of either Fund, but
Class C shareholders of either Fund who hold their Class C shares through the
INSIGHT Investment Advisory Program(SM) ("INSIGHT program") must pay an annual
investment advisory fee of up to 1.50% of the average daily value of the
shares.
The following tables show (i) shareholder transaction expenses currently
incurred by Class A, Class B and Class C shares of MH/KP Fund, and shareholder
transaction expenses that each Class issued in the Reorganization will incur
after giving effect to the Reorganization; (ii) the current fees and expenses
incurred by the Class A, Class B and Class C shares of MH/KP Fund and Class A,
Class C and Class D shares of PW Fund for the fiscal years ended August 31,
1994 and October 31, 1994, respectively, and (iii) pro forma fees for PW Fund's
Class A, Class C and Class D shares after giving effect to the Reorganization.
Shareholder Transaction Expenses
MH/KP Fund Combined Fund
Class A Class B Class C Class A Class D Class C
Maximum sales
charge (as a
percentage of
public offering
price) 2.25% NONE NONE 4.00% NONE NONE
Exchange fee NONE NONE NONE $5.00 $5.00 N/A*
Maximum
contingent
deferred sales
charge (as a
percentage of
redemption
proceeds) NONE NONE NONE NONE NONE NONE
* Class C shares are not exchangeable.
4
<PAGE>
<TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<CAPTION>
MH/KP Fund PW Fund
---------- -------
(Fiscal Year Ended (Fiscal Year Ended Combined Fund
------------------- ------------------ -------------
August 31, 1994) October 31, 1994)(6) (Estimated)(1)
---------------- -------------------- --------------
Class Class Class Class Class Class Class Class Class
A(3) B(4) C(5) A D C A D C
<S> <C> <C> <C>
Manage- 0.70% 0.70% 0.70% 0.72% 0.72% 0.72% 0.72% 0.72% 0.72%
ment Fees
12b-1 0.25% 0.75% 0.00% 0.25% 0.75% 0.00% 0.25% 0.75% 0.00%
Fees(2)
Other
Expenses 0.24% 0.23% 0.24% 0.20% 0.21% 0.16% 0.18% 0.19% 0.15%
Total Fund
Operating
Expenses 1.68% 0.94% 1.17% 1.68% 0.88% 1.15% 1.66% 0.87%
1.19%
__________________________________
(1) Reflects consummation of the reorganization with Global Income Plus Fund,
Inc. on June 30, 1995.
(2) 12b-1 fees have two components, as follows:
Both Funds MH/KP Fund PW Fund
Class A Class B Class D
12b-1 service fee 0.25% 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50% 0.50%
(3) Class A shares of MH/KP Fund will be exchanged for Class A shares of PW
Fund.
(4) Class B shares of MH/KP Fund will be exchanged for Class D shares of PW
Fund.
(5) Class C shares of MH/KP Fund will be exchanged for Class C shares of PW
Fund.
(6) PW Fund offers Class A, B, C and D shares; however, Class B shares are not
involved in the Reorganization.
5
<PAGE>
Example of Effect on Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and the expenses stated above, assuming a 5% annual
return. The fees shown below reflect a maximum initial sales charge of 2.25%
of the public offering price that normally is charged in connection with the
sale of MH/KP Fund's Class A shares and a maximum initial sales charge of 4.0%
of the public offering price that normally is charged in connection with the
sale of PW Fund's Class A shares. No initial sales charge will be charged in
connection with Class A shares of PW Fund distributed to Class A shareholders
of MH/KP Fund as part of the Reorganization.
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS(3)
---- ----- ----- --------
MH/KP Fund
Class A shares $34 $59 $86 $164
Class B shares $17 $53 $91 $199
Class C shares $10 $30 $52 $115
PW Fund
Class A shares $51 $76 $102 $176
Class D shares $17 $53 $91 $199
Class C shares $9 $28 $49 $108
Combined Fund(2)
Class A
shares(1) $51 $75 $101 $174
Class D shares $17 $52 $90 $197
Class C shares $9 $28 $48 $107
______________________________
(1) Assumes deduction at the time of purchase of the maximum 4% initial
sales charge.
(2) Reflects consummation of reorganization with Global Income Plus Fund,
Inc. on June 30, 1995.
(3) For PW Fund and the Combined Fund, ten-year figures assume conversion
of Class B shares to Class A shares at end of sixth year.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. ("NASD") rules regarding investment companies. This
Example assumes that all dividends and other distributions are reinvested and
that the percentage amounts listed under Annual Fund Operating Expenses remain
the same in the years shown. The above tables and the assumption in the
Example of a 5% annual return are required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of any Class of the Funds' shares.
This Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses attributable to each Class of a Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
6
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Forms of Organization
PW Trust and MH/KP Trust (each a "Trust" and collectively, "Trusts") are
open-end management investment companies organized as Massachusetts business
trusts. Each Trust's Declaration of Trust authorizes its trustees to create
separate series and, within each series, separate Classes, of an unlimited
number of shares of beneficial interest, par value of $.001 per share. PW
Fund, a non-diversified series of PW Trust, commenced operations on March 20,
1987. MH/KP Fund, a non-diversified series of MH/KP Trust, commenced
operations on December 24, 1992. The Trusts are not required to (and do not)
hold annual shareholder meetings.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust of each Trust expressly disclaims, and provides
indemnification against, such liability. Accordingly, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations, a possibility that Mitchell Hutchins, the investment adviser or
investment manager of each Fund, believes is remote and thus does not pose a
material risk.
Investment Objectives and Policies
The investment objective(s) and policies of each Fund are set forth below.
PW Fund has an investment objective generally similar to the investment
objective of MH/KP Fund, although its investment strategy may differ from the
investment strategy of MH/KP Fund in some material respects. There can be no
assurance that either Fund will achieve its investment objective(s), and each
Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities.
PW Fund. The primary investment objective of PW Fund is high current
income consistent with prudent investment risk; capital appreciation is a
secondary objective. In seeking to achieve these objectives, PW Fund normally
invests 65% of its total assets in the following types of debt securities rated
in the two highest grades assigned by Standard & Poor's Ratings Group ("S&P"),
Moody's Investors Service, Inc. ("Moody's") or another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, determined by
Mitchell Hutchins to be of comparable quality: (1) debt securities issued or
guaranteed by U.S. or foreign governments or their agencies, instrumentalities
or political subdivisions, (2) debt securities issued or guaranteed by
supranational organizations such as the International Bank for Reconstruction
and Development, (3) U.S. or foreign corporate debt securities, including
commercial paper, (4) high quality debt obligations of banks and bank holding
companies and (5) repurchase agreements involving these securities. PW Fund
may invest up to 35% of its assets in debt securities rated below the two
highest grades assigned by an NRSRO but rated BBB or better by S&P, Baa or
better by Moody's or comparably rated by another NRSRO or, if unrated,
determined by Mitchell Hutchins to be of comparable quality. Within this 35%
limitation, PW Fund may invest up to 20% of its total assets in sovereign debt
securities rated below BBB by S&P, Baa by Moody's or comparably rated by
another NRSRO, but no lower than BB by S&P, Ba by Moody's or comparably rated
by another NRSRO or, in the case of such securities assigned a commercial paper
rating, no lower than B by S&P or comparably rated by another NRSRO or, if not
so rated, determined by Mitchell Hutchins to be of comparable quality.
Normally, at least 65% of PW Fund's total assets are invested in high
quality debt securities, denominated in foreign currencies or U.S. dollars, of
issuers located in at least three of the following countries: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, Thailand, the United Kingdom and the
United States. No more than 40% of PW Fund's assets normally are invested in
securities of issuers located in any one country.
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PW Fund may invest up to 5% of its total assets in debt securities
convertible into equity securities, but it is not otherwise authorized to
invest in preferred stock or other equity securities. Mitchell Hutchins
expects that normally more than 50% of PW Fund's assets will be invested in
U.S. and foreign government securities in order to minimize credit risk and to
take advantage of opportunities that historically have been presented by, and
are perceived to exist today with respect to, such instruments. PW Fund may
invest up to 10% of its net assets in illiquid securities and is authorized to
lend up to 10% of the total value of its portfolio securities to broker-dealers
or other institutional investors that Mitchell Hutchins deems qualified. PW
Fund may engage in reverse repurchase agreements with banks and broker-dealers
up to an aggregate value of not more than 10% of its total assets.
MH/KP Fund. MH/KP Fund's investment objective is total return, consisting
of current income and capital appreciation. MH/KP Fund seeks to achieve its
investment objective through an actively managed portfolio consisting of a wide
range of fixed income securities issued primarily by government authorities,
foreign government related issuers and supranational organizations that are
listed primarily on foreign securities exchanges or traded in foreign
over-the-counter markets. MH/KP Fund invests at least 65% of its net assets in
securities rated in the two highest rating categories of recognized rating
agencies, but it may invest up to 35% of its net assets in securities rated in
the third highest rating category and, within this 35% limitation, may invest
up to 10% of its net assets in securities rated in the fourth highest rating
category. Under normal conditions, MH/KP Fund invests at least 65% of its
total assets in fixed income obligations (including debentures, bonds, notes
and paper) issued or guaranteed by (1) governments, including the U.S.
government, or by any of their political subdivisions, authorities, agencies or
instrumentalities, (2) foreign government related issuers and (3) supranational
organizations. MH/KP Fund may, under normal market conditions, invest up to
35% of its assets in corporate debt obligations, such as debentures, bonds and
notes, and in money market instruments. Under normal circumstances, at least
65% of MH/KP Fund's assets are invested in no fewer than three different
countries and at least 80% of the assets are invested in developed countries.
MH/KP Fund is subject to no restriction on the maturities of the
obligations it holds; those maturities may range from overnight to 30 years or
more. MH/KP Fund generally invests in intermediate fixed income securities
with the result that, under normal market conditions, the weighted average life
of its portfolio will be between three and ten years. MH/KP Fund may invest up
to 15% of its net assets in illiquid securities and may lend up to 33-1/3% of
the total value of its portfolio securities to well-known and recognized U.S.
and foreign brokers, dealers and banks. MH/KP Fund also may engage in short
sales (that is, sell securities that it does not own).
Other Policies of Both Funds. Each Fund may engage in certain options,
futures contracts, forward currency contracts and interest rate protection
transactions to attempt to hedge against the overall level of risk associated
with their respective investments.
Operations of PW Fund Following the Reorganization
There are differences in the investment objectives and some of the
investment policies of the Funds. It is not expected, however, that PW Fund
will revise its investment objectives or policies following the Reorganization
to reflect those of MH/KP Fund. Mitchell Hutchins believes that most, if not
all, of the assets held by MH/KP Fund will be consistent with the investment
policies of PW Fund and thus could be transferred to and held by PW Fund if the
Reorganization is approved. If the Reorganization is approved, MH/KP Fund will
sell any assets that are inconsistent with the investment policies of PW Fund
prior to the effective time of the Reorganization, and the proceeds thereof
will be held in temporary investments or reinvested in assets that qualify to
be held by PW Fund. The necessity for MH/KP Fund to dispose of assets prior to
the effective time of the Reorganization may result in selling securities at a
disadvantageous time and could result in MH/KP Fund realizing losses that would
not otherwise have been realized.
After the Reorganization, the trustees and officers of PW Trust and PW
Fund's investment adviser, distributor, exclusive dealer and other outside
agents will continue to serve PW Fund in their current capacities. Stuart
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Waugh, who currently is the portfolio manager for PW Fund and MH/KP Fund and
who has been primarily responsible for the day-to-day portfolio management of
PW Fund since its inception, will continue as the portfolio manager of PW Fund.
Mr. Waugh is a vice president of PW Trust and is a managing director of
Mitchell Hutchins for global fixed income investments. Mr. Waugh has been
employed by Mitchell Hutchins as a portfolio manager for the last eight years.
Effective on or about November 1, 1995, PW Fund's Class C and Class D
shares will be renamed Class Y and Class C shares, respectively. In addition,
Class A shares purchased after that date which are purchased without an initial
sales charge due to a sales charge waiver for purchases of $1 million or more,
and held less than one year, and Class D shares that are held for less than one
year, will be subject to a contingent deferred sales charge ("CDSC") of 1% of
the lower of (i) the NAV of the shares at the time of purchase, or (ii) the NAV
of the shares at the time of redemption.
Purchases
Shares of PW Fund are available through PaineWebber and its correspondent
firms or, for investors who are not clients of PaineWebber, through PFPC Inc.,
each Fund's transfer agent ("Transfer Agent"). The minimum initial investment
in PW Fund Class A, B or D shares is $1,000; each additional investment must
be $100 or more. PW Fund's Class A shares normally are sold with a maximum
initial sales charge of up to 4% of the public offering price. The PW Fund
Class A shares that will be distributed to shareholders of MH/KP Fund as part
of the Reorganization will not be subject to an initial sales charge.
However, following the Reorganization, new purchases of Class A shares of PW
Fund will be subject to an initial sales charge up to 4%, and any Class B or
Class D shares of PW Fund that are purchased by former MH/KP Fund shareholders
will be subject to their respective terms.
PW Fund's Class B shares are sold subject to a maximum contingent deferred
sales charge ("CDSC") of 5% of redemption proceeds, which declines to zero
after six years, when those Class B shares automatically convert into Class A
shares. Class D shares of PW Fund are sold without an initial sales charge or
CDSC. No initial sales charge or CDSC is imposed with respect to Class A or
Class B shares, respectively, of PW Fund that are purchased with reinvested
dividends or other distributions on those Classes of shares. MH/KP Fund's
Class A shares normally are sold with a maximum initial sales charge of 2.25%
of the public offering price. MH/KP Fund's Class B and Class C shares are sold
without an initial sales charge or CDSC.
Class C shares of PW Fund are sold to eligible investors at the net asset
value next determined (see "Valuation of Shares") after the purchase order is
received. No initial or contingent deferred sales charge is imposed, nor are
Class C shares subject to Rule 12b-1 distribution or service fees. PW Fund
and Mitchell Hutchins reserve the right to reject any purchase order and to
suspend the offering of the Class C shares for a period of time.
The Class C shares currently are offered for sale only to the trustee of
the PaineWebber Savings Investment Plan ("PW SIP"), a defined contribution
plan sponsored by Paine Webber Group Inc. ("PW Group"). The trustee of the PW
SIP purchases Class C shares to implement the investment choices of individual
plan participants with respect to their PW SIP contributions. Class C shares
also may be acquired by present holders of Class C shares of a Mitchell
Hutchins/Kidder, Peabody mutual fund when those shares are issued in
connection with the reorganization of that Mitchell Hutchins/Kidder, Peabody
mutual fund into PW Fund. This category includes participants in INSIGHT,
former employees of Kidder, Peabody & Co., Incorporated ("Kidder Peabody"),
their associated accounts, present and former directors and trustees of the
Mitchell Hutchins/Kidder, Peabody mutual funds. Effective November 1, 1995,
PW Fund's Class C shares (renamed Class Y shares) will be available for
purchase by INSIGHT participants when purchased through that program.
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INSIGHT. An investor who purchases $50,000 or more of shares of the
PaineWebber or Mitchell Hutchins/Kidder, Peabody mutual funds that are in the
Flexible Pricing System may participate in INSIGHT, a total portfolio asset
allocation program sponsored by PaineWebber, and thus become eligible to
purchase Class C shares. INSIGHT offers comprehensive investment services,
including a personalized asset allocation investment strategy using an
appropriate combination of funds, professional investment advice regarding
investment among the funds by portfolio specialists, monitoring of investment
performance and comprehensive quarterly reports that cover market trends,
portfolio summaries and personalized account information. Participation in
INSIGHT is subject to payment of an advisory fee to PaineWebber at the maximum
annual rate of 1.5% of assets held through the program (generally charged
quarterly in advance), which covers all INSIGHT investment advisory services
and program administration fees. Employees of PaineWebber and its affiliates
are entitled to a 50% reduction in the fee otherwise payable for participation
in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees charged to
their PaineWebber accounts (by the automatic redemption of money market fund
shares) or another of their PaineWebber accounts or billed separately.
Redemptions
Shareholders of each Fund may submit redemption requests to their
investment executives or correspondent firms in person or by telephone, mail or
wire. As each Fund's agent, PaineWebber may honor a redemption request by
repurchasing shares from a redeeming shareholder at the shares' net asset value
next determined after receipt of the request by PaineWebber's New York City
offices. Within three Business Days after receipt of the request, repurchase
proceeds (less any applicable contingent deferred sales charge) will be paid by
check or credited to the shareholder's brokerage account at the election of the
shareholder. PaineWebber investment executives and correspondent firms are
responsible for promptly forwarding redemption requests to PaineWebber's New
York City offices.
PaineWebber reserves the right not to honor any redemption request, in
which case PaineWebber promptly will forward the request to the Transfer Agent
for treatment as described below.
Shareholders of each Fund also may redeem shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. A redemption request will be executed at the net asset value
next computed after it is received in "good order," and redemption proceeds
will be paid within seven days of the receipt of the request. "Good order"
means that the request must be accompanied by the following: (1) a letter of
instruction or a stock assignment specifying the number of shares or amount of
investment to be redeemed (or that all shares credited to the Fund account be
redeemed), signed by all registered owners of the shares in the exact names in
which they are registered, (2) a guarantee of the signature of each registered
owner by an eligible institution acceptable to the Transfer Agent and in
accordance with SEC rules, such as a commercial bank, trust company or member
of a recognized stock exchange, (3) other supporting legal documents for
estates, trusts, guardianships, custodianships, partnerships and corporations
and (4) duly endorsed share certificates, if any. Shareholders are responsible
for ensuring that a request for redemption is received in "good order."
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A shareholder (other than a participant in the PW SIP) may have redemption
proceeds of $1 million or more wired to the shareholder's PaineWebber brokerage
account or a commercial bank account designated by the shareholder. Questions
about this option, or redemption requirements generally, should be referred to
the shareholder's PaineWebber investment executive or correspondent firm. If a
shareholder requests redemption of shares which were purchased recently, the
Fund may delay payment until it is assured that good payment has been received.
In the case of purchases by check, this can take up to 15 days.
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to redeem all Fund shares in any
shareholder account having a net asset value below the lesser of $500 or the
current minimum for initial purchasers. If the Fund elects to do so, it will
notify the shareholder and provide the shareholder the opportunity to increase
the amount invested to the minimum required level or more within 60 days of the
notice. The Fund will not redeem accounts that fall below the minimum required
level solely as a result of a reduction in net asset value per share.
If the Reorganization is approved, shares of MH/KP Fund will cease to be
offered on October ___, 1995, so that shares of MH/KP Fund will no longer be
available for purchase or exchange starting on that date. If the Meeting is
adjourned and the Reorganization is approved on a later date, MH/KP Fund shares
will no longer be available for purchase or exchange on the business day
following the date on which the Reorganization is approved and all
contingencies have been met. Redemptions of MH/KP Fund's shares and exchanges
of such shares for shares of any other PaineWebber or Mitchell Hutchins/Kidder
Peabody fund may be effected through the Closing Date.
Exchanges
Class A, B and D shares of each Fund may be exchanged for shares of the
Corresponding Class of other PaineWebber and Mitchell Hutchins/Kidder, Peabody
funds, and Class A, B and D shares of both Funds may be acquired through an
exchange of shares of the Corresponding Class of other PaineWebber and Mitchell
Hutchins/Kidder, Peabody funds, as provided in each Fund's prospectus. No
initial sales charge is imposed on the shares being acquired, and no CDSC is
imposed on the shares being disposed of, through an exchange. However, a CDSC
may apply to redemptions of a PaineWebber fund's Class B shares acquired
through an exchange. Exchanges may be subject to minimum investment and other
requirements of the fund into which exchanges are made. As noted above, the
$5.00 service fee currently imposed on each exchange of shares of PW Fund for
shares of any other PaineWebber or Mitchell Hutchins/Kidder, Peabody funds will
continue to be imposed following the Reorganization.
Dividends and Other Distributions
PW Fund distributes substantially all of its net investment income and
realized net gains to shareholders each year. Dividends are declared monthly,
and monthly dividends may be accompanied by distributions of net realized
short-term capital gains and net realized gains from foreign currency
transactions. PW Fund also distributes, at least annually, substantially all
of its net capital gain (the excess of net long-term capital gain over net
short-term capital loss) and any undistributed net short-term capital gain and
net gains from foreign currency transactions. Dividends from net investment
income of MH/KP Fund are declared daily and distributed monthly, and
distributions of any net realized capital gains of that Fund are distributed
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annually after the close of the fiscal year in which they are earned. Both
Funds may make additional distributions if necessary to avoid a 4% excise tax
on certain undistributed income and capital gain.
PW Fund's dividends and other distributions on its shares are paid in
additional shares of the applicable Class at net asset value unless the
shareholder has requested cash payments. Shareholders who wish to receive
dividends and/or other distributions in cash, either mailed to the shareholder
by check or credited to the shareholder's PaineWebber account, should contact
their PaineWebber investment executives or correspondent firms. For PW SIP
participants, PW Fund's Class C dividends and distributions are paid in
additional Class C shares at net asset value unless the Transfer Agent is
instructed otherwise.
On or before the Closing Date, MH/KP Fund will declare as a distribution
substantially all of its net investment income, net capital gain, net
short-term capital gain and net realized foreign currency gains in order to
continue to maintain its tax status as a regulated investment company. MH/KP
Fund will pay these distributions only in cash. On or before the Closing Date,
PW Fund also may declare and distribute as a dividend substantially all of any
previously undistributed net investment income. MH/KP Fund will pay these
distributions only in cash.
Federal Income Tax Consequences of the Reorganization
PW Trust has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and MH/KP Trust has received an opinion of Willkie Farr & Gallagher,
its counsel, each to the effect that the Reorganization will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended ("Code"). Accordingly, no gain or
loss will be recognized to either Fund or its shareholders as a result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Considerations," page [ ].
COMPARISON OF PRINCIPAL RISK FACTORS
Because PW Fund's primary investment objective and investment policies are
generally similar to those of MH/KP Fund, the investment risks of the two Funds
are generally similar. These risks are those typically associated with
investing in a global fixed income fund. Certain differences are identified
below. See the prospectus of PW Fund, which accompanies this Proxy Statement,
for a more detailed discussion of the investment risks of PW Fund.
Foreign Securities. Each Fund, under normal circumstances, invests a
substantial portion of its assets in foreign securities. MH/KP Fund emphasizes
investments in developed countries and maintains at all times at least 80% of
its assets invested in those countries. PW Fund normally invests at least 65%
of its total assets in high quality debt securities of issuers located in at
least three of the following countries: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand, the United Kingdom and the United States. PW Fund thus
may invest a higher portion of its assets in securities of issuers located in
emerging market countries.
Investing in foreign securities involves special risks, which include
possible adverse political and economic developments abroad, differing
regulatory systems and differing characteristics of foreign economies and
markets, as well as the fact that there is often less information publicly
available about foreign issuers. Many of the securities held by each Fund may
be denominated in foreign currencies, and the value of each Fund's investment
can be adversely affected by fluctuations in foreign currency values. Some
foreign currencies can be volatile and may be subject to governmental controls
or intervention.
The foreign securities in which the Funds may invest include securities of
issuers located in emerging market countries. PW Fund may invest a larger
portion of its assets in these securities than MH/KP Fund. The risks of
investing in foreign securities may be greater with respect to securities of
issuers in, or denominated in the currencies of, emerging market countries.
The securities markets of emerging market countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of
the United States and other developed countries. Disclosure and regulatory
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standards in many respects are less stringent in emerging market countries than
in the United States and other major markets. Investing in local markets,
particularly in emerging market countries, may require a Fund to adopt special
procedures, seek local government approvals or take other actions, each of
which may involve additional costs to the Fund. Certain emerging market
countries may also restrict investment opportunities in issuers in industries
deemed important to national interests.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in
foreign currency exchange rates may affect each Fund's NAV, the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and capital gains, if any, to be
distributed to shareholders by a Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of Fund assets denominated in that
currency will increase; correspondingly, if the value of a foreign currency
declines against the U.S. dollar, the value of Fund assets denominated in that
currency will decrease. The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in the currency exchange
markets, international balances of payments, speculation and other economic and
political conditions. In addition, some foreign currency values may be
volatile and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets. Any of these
factors could adversely affect a Fund.
Debt Securities. Each Fund is permitted to purchase investment grade debt
securities. PW Fund may invest in lower rated debt securities and accordingly
may be subject to greater investment risk than MH/KP Fund. Each Fund is
permitted to invest up to 35% of its assets in securities rated below the two
highest rating categories by an NRSRO. MH/KP Fund, however, may not invest
more than 10% of its net assets in securities rated in the fourth highest
rating category, while PW Fund may invest up to 35% of its total assets in such
securities. The fourth highest rating category includes securities rated BBB
by S&P, Baa by Moody's or comparably rated by another NRSRO. These securities
are investment grade, although Moody's considers securities rated Baa to have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity for these
securities to make principal and interest payments than is the case for higher
rated securities. MH/KP Fund is not authorized to purchase securities rated
below investment grade. In contrast, the 35% of total assets that PW Fund may
invest in securities rated below the two highest rating categories of an NRSRO
may include up to 20% of its total assets in sovereign debt securities rated as
low as BB by S&P, Ba by Moody's or comparably rated by another NRSRO or, in the
case of such securities assigned a commercial paper rating, B by S&P or
comparably rated by another NRSRO. Both Funds are also permitted to purchase
debt securities that are not rated by an NRSRO but which Mitchell Hutchins
determines to be of comparable quality to that of rated securities in which the
Funds may invest. Such securities are included in the computation of any
percentage limitations applicable to the comparably rated securities.
Securities rated below investment grade are considered by the rating NRSRO to
be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. These securities are commonly referred to as "junk bonds."
The market value of debt securities generally varies inversely with
interest rate changes. Ratings of debt securities represent the NRSRO's
opinion regarding their quality, are not a guarantee of quality and may be
reduced after a Fund has acquired the security. In the event that, due to a
downgrade of one or more debt securities, an amount in excess of 20% of PW
Fund's total assets is held in securities rated below investment grade and
comparable unrated securities, Mitchell Hutchins will engage in an orderly
disposition of these securities to the extent necessary to ensure that PW
Fund's holdings of these securities do not exceed 20% of its total assets.
Lower rated debt securities generally offer a higher current yield than
that available from higher grade issues, but they involve higher risks, in that
they are especially subject to adverse changes in general economic conditions
and in the industries in which the issuers are engaged, to changes in the
financial condition of the issuers and to price fluctuations in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress, which
could adversely affect their ability to make payments of interest and principal
and increase the possibility of default. In addition, such issuers may not
have more traditional methods of financing available to them and may be unable
to repay debt at maturity by refinancing. The risk of loss due to default by
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such issuers is significantly greater because such securities are frequently
unsecured and subordinated to the prior payment of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on such securities rose dramatically.
However, such higher yields did not reflect the value of the income stream that
holders of such securities expected, but rather the risk that holders of such
securities could lose a substantial portion of their value as a result of the
issuer's financial restructuring or default. There can be no assurance that
such declines will not recur. The market for lower rated debt securities
generally is thinner and less active than that for higher quality securities,
which may limit a Fund's ability to sell such securities at their fair value in
response to changes in the economy or the financial markets. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
also decrease the value and liquidity of lower rated securities, especially in
a thinly traded market.
Hedging Strategies. Each Fund may use options, futures contracts, forward
currency contracts and interest rate protection transactions. There can be no
assurance, however, that any strategy utilizing these instruments will succeed.
If Mitchell Hutchins incorrectly forecasts interest rates, market values or
other economic factors in utilizing a hedging strategy for a Fund, the Fund
might have been in a better position had the Fund not hedged at all. The use
of these instruments involves certain special risks, including (1) the fact
that skills needed to use hedging instruments are different from those needed
to select the Funds' securities, (2) possible imperfect correlation, or even no
correlation, between price movements of hedging instruments and price movements
of the investments being hedged, (3) the fact that, while hedging strategies
can reduce the risk of loss, they can also reduce the opportunity for gain, or
even result in losses, by offsetting favorable price movements in hedged
investments and (4) the possible inability of a Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions and the possible
inability of a Fund to close out or to liquidate its hedged position.
Other Investment Policies and Strategies. There are several other
differences between the two Funds' investment policies and strategies. MH/KP
Fund may lend up to 33-1/3% of the value of its portfolio securities to U.S.
and foreign brokers, dealers and banks, which exposes MH/KP Fund to the risks
associated with any extension of credit, including possible loss of rights in
the collateral should the borrower fail financially. In contrast, PW Fund is
authorized to lend only up to 10% of the value of its portfolio securities to
broker-dealers and other institutional investors. MH/KP Fund also is
authorized to enter into short sales, transactions in which MH/KP Fund sells
securities it does not own (but has borrowed) in anticipation of a decline in
the market price of the securities. PW Fund is not authorized to enter into
short sales except for short sales "against the box" -- i.e., PW Fund must
----
own the securities being sold short, or securities convertible into such
securities.
THE PROPOSED TRANSACTION
Reorganization Plan
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Reorganization Plan. Significant provisions
of the Reorganization Plan are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Plan, which is
attached as Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) PW Fund's acquiring on the
Closing Date the assets of MH/KP Fund in exchange solely for PW Fund shares and
the assumption by PW Fund of MH/KP Fund's liabilities and (b) the constructive
distribution of such shares to the shareholders of MH/KP Fund, by Class.
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The assets of MH/KP Fund to be acquired by PW Fund include all cash, cash
equivalents, securities, receivables and other property owned by MH/KP Fund.
PW Fund will assume from MH/KP Fund all debts, liabilities, obligations and
duties of MH/KP Fund of whatever kind or nature; provided, however, that MH/KP
Fund will use its best efforts, to the extent practicable, to discharge all of
its known debts, liabilities, obligations and duties prior to the Closing Date.
PW Fund also will deliver to MH/KP Fund shares of PW Fund, which then will be
constructively distributed to MH/KP Fund's shareholders.
The value of MH/KP Fund's assets to be acquired, and the amount of MH/KP
Fund's liabilities to be assumed, by PW Fund and the NAV of a Class A, a Class
C and a Class D share of PW Fund will be determined as of the close of regular
trading on the New York Stock Exchange, Inc. ("NYSE") on the Closing Date.
Where market quotations are readily available, portfolio securities will be
valued based upon such market quotations, provided such quotations adequately
reflect, in Mitchell Hutchins' judgment, fair value of the security. Where
such market quotations are not readily available, such securities will be
valued based upon appraisals received from a pricing service using a
computerized matrix system or based upon appraisals derived from information
concerning the security or similar securities received from recognized dealers
in those securities. The amortized cost method of valuation generally will be
used to value debt instruments with 60 days or less remaining to maturity,
unless MH/KP Trust's board of trustees (with respect to MH/KP Fund) or PW
Trust's board of trustees (with respect to PW Fund) determines that this does
not represent fair value. All other securities and assets will be valued at
fair value as determined in good faith by or under the direction of each
Trust's board of trustees, as applicable. All investments quoted in foreign
currencies will be valued in U.S. dollars on the basis of the foreign currency
exchange rates prevailing at the time such valuation is determined by each
Fund's custodian.
On, or as soon as practicable after, the Closing Date, MH/KP Fund will
distribute to its shareholders of record the shares of PW Fund it received, by
Class, so that each shareholder of MH/KP Fund will receive a number of full and
fractional shares of the Corresponding Class or Classes of PW Fund equal in
value to the shareholder's holdings in MH/KP Fund; MH/KP Fund will be
terminated as soon as practicable thereafter. Such distribution will be
accomplished by opening accounts on the books of PW Fund in the names of MH/KP
Fund shareholders and by transferring thereto the shares of each Class
previously credited to the account of MH/KP Fund on those books. Fractional
shares in each Class of PW Fund will be rounded to the third decimal place.
Accordingly, immediately after the Reorganization, each former shareholder
of MH/KP Fund will own shares of the Class of PW Fund that will equal the value
of that shareholder's shares of the Corresponding Class of MH/KP Fund
immediately prior to the Reorganization. Moreover, because shares of each
Class of PW Fund will be issued at NAV in exchange for the net assets
applicable to the Corresponding Class of MH/KP Fund, the aggregate value of
each Class of PW Fund so issued will equal the aggregate value of shares of the
Corresponding Class of MH/KP Fund. The NAV per share of PW Fund will be
unchanged by the transaction. Thus, the Reorganization will not result in a
dilution of any shareholder interest.
Any transfer taxes payable upon issuance of shares of PW Fund in a name
other than that of the registered holder of the shares on the books of MH/KP
Fund shall be paid by the person to whom such shares are to be issued as a
condition of such transfer. Any reporting responsibility of MH/KP Fund will
continue to be its responsibility up to and including the Closing Date and such
later date on which MH/KP Fund is terminated.
The cost of the Reorganization, including professional fees and the cost
of soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation,
will be borne by both Funds in proportion to their respective net assets.
Mitchell Hutchins recommended this method of expense allocation to the trustees
of the Trusts. Mitchell Hutchins based its recommendations on its belief that
the method is fair because, for the reasons discussed under "Reasons for the
Reorganization," the Reorganization has the potential to benefit both Funds.
The trustees of each Trust considered the expense allocation method in
approving the Reorganization and in finding that the Reorganization is in the
best interests of their respective Fund.
15
<PAGE>
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
each Trust. In addition, the Reorganization Plan may be amended in any
mutually agreeable manner, except that no amendment may be made subsequent to
the Meeting that has a material adverse effect on the shareholders' interests.
Reasons for the Reorganization
MH/KP Trust's board of trustees, including a majority of its Independent
Trustees, has determined that the Reorganization is in the best interests of
MH/KP Fund, that the terms of the Reorganization are fair and reasonable, and
that the interests of the shareholders of MH/KP Fund will not be diluted as a
result of the Reorganization. PW Trust's board of trustees, including a
majority of its Independent Trustees, has determined that the Reorganization is
in the best interests of PW Fund, that the terms of the Reorganization are fair
and reasonable, and that the interests of the shareholders of PW Fund will not
be diluted as a result of the Reorganization.
In considering the Reorganization, the boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the effect of the Reorganization on expected investment
performance;
(3) the effect of the Reorganization on the expense ratio of PW Fund
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including
continuing to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
including Mitchell Hutchins and PaineWebber.
The Reorganization was recommended to the trustees by Mitchell Hutchins at
meetings of the boards of trustees of MH/KP Trust and PW Trust held on April
26, 1995 and April 28, 1995, respectively. Subsequently, amendments to the
Reorganization Plan were approved at meetings held on July 20, 1995. In
recommending the Reorganization, Mitchell Hutchins advised the boards of
trustees that the proposed total operating expenses for the combined Fund
following the Reorganization would be approximately the same as that currently
in effect for PW Fund and lower than that currently in effect for MH/KP Fund.
Mitchell Hutchins also noted that the investment advisory and administration
fee for PW Fund has breakpoints and will decrease if its assets increase, as is
expected following the Reorganization. The trustees also considered the fact
that former MH/KP Fund shareholders would benefit by the opportunity to
continue investing in a fund that invests primarily in global fixed income
securities.
The trustees were advised by Mitchell Hutchins that the Funds have
generally similar investment objectives and policies, with the material
differences noted. Mitchell Hutchins also noted its belief that there is no
reason to maintain and market two substantially similar funds. In approving
the proposed transaction, the trustees noted that PW Fund's overall objective
of high current income consistent with prudent investment risk, and capital
appreciation as a secondary objective, remains an appropriate one to offer to
investors as part of an overall investment strategy. Mitchell Hutchins further
advised the trustees that while past performance is no guarantee of future
results, it expects that the combined Fund, as managed by Mitchell Hutchins in
accordance with the investment policies of PW Fund, will continue to produce
competitive investment results without excessive volatility. In considering
the proposed transaction, the trustees of MH/KP Trust were advised by Mitchell
Hutchins that, because PW Fund has greater net assets than MH/KP Fund,
combining the two Funds would reduce the expenses borne by the shareholders of
MH/KP Fund as a percentage of net assets.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE
SHAREHOLDERS OF MH/KP FUND VOTE "FOR" THE
REORGANIZATION
16
<PAGE>
Description of Securities to be Issued
PW Trust is registered with the SEC as an open-end management investment
company. Its trustees are authorized to issue an unlimited number of shares of
beneficial interest of separate series (par value $.001 per share). The
trustees have established PW Fund as one of PW Trust's four series and have
authorized the public offering of four Classes of shares of PW Fund. Each
share in a Class represents an equal proportionate interest in PW Fund with
each other share in that Class. Shares of PW Fund entitle their holders to one
vote per full share and fractional votes for fractional shares held, except
that each Class of shares has exclusive voting rights on matters pertaining to
its plan of distribution.
On the Closing Date, PW Fund will have outstanding four Classes of shares,
designated as Class A, Class B, Class C and Class D shares. Only Class A,
Class C and Class D shares will be issued as part of the Reorganization. Each
Class represents interests in the same assets of the Fund. The Classes differ
as follows: (1) Class A, Class B and Class D have exclusive voting rights on
matters pertaining to their plans of distribution; (2) Class A shares are
subject to an initial sales charge; (3) Class B shares bear ongoing
distribution fees, are subject to a CDSC upon certain redemptions and
automatically convert to Class A shares approximately six years after issuance;
(4) Class C shares have no sales charge, and bear no service or distribution
fees, but may be purchased only by certain categories of purchasers; (5) Class
D shares are subject to neither an initial sales charge nor a CDSC, bear
ongoing distribution fees and do not convert into another Class; and (6) each
Class may bear differing amounts of certain Class-specific expenses. Each
share of each Class of PW Fund is entitled to participate equally in dividends
and other distributions and the proceeds of any liquidation, except that
because of the higher expenses resulting from the distribution fees borne by
the PW Fund Class B and Class D shares, dividends on those shares are expected
to be lower than those for its Class A and Class C shares. For the same
reason, dividends on Class B shares of PW Fund are expected to be lower than
those on its Class D shares. Dividends on each Class also might be affected
differently by the allocation of other Class-specific expenses.
PW Trust does not hold annual meetings of shareholders. There normally
will be no meetings of shareholders for the purpose of electing trustees unless
fewer than a majority of the trustees holding office has been elected by
shareholders, at which time the trustees then in office will call a
shareholders' meeting for the election of trustees. Under the 1940 Act,
shareholders of record of at least two-thirds of the outstanding shares of an
investment company may remove a trustee by votes cast in person or by proxy at
a meeting called for that purpose. The trustees are required to call a meeting
of shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the shareholders of record
holding at least 10% of PW Trust's outstanding shares.
Federal Income Tax Considerations
The exchange of MH/KP Fund's assets for PW Fund shares and PW Fund's
assumption of MH/KP Fund's liabilities is intended to qualify for federal
income tax purposes as a tax-free reorganization under section 368(a)(1)(C) of
the Code. PW Trust has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and MH/KP Trust received an opinion of Willkie Farr & Gallagher, its
counsel, each substantially to the effect that --
(i) PW Fund's acquisition of MH/KP Fund's assets in exchange solely for
PW Fund shares and PW Fund's assumption of MH/KP Fund's liabilities,
followed by MH/KP Fund's distribution of those shares to its shareholders
constructively in exchange for their MH/KP Fund shares, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) of the Code,
and each Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(ii) No gain or loss will be recognized to MH/KP Fund on the transfer to
PW Fund of its assets in exchange solely for PW Fund shares and PW Fund's
assumption of MH/KP Fund's liabilities or on the subsequent distribution
17
<PAGE>
of those shares to MH/KP Fund's shareholders in constructive exchange for
their MH/KP Fund shares;
(iii) No gain or loss will be recognized to PW Fund on its receipt of
the transferred assets in exchange solely for PW Fund shares and its
assumption of MH/KP Fund's liabilities;
(iv) PW Fund's basis for the transferred assets will be the same as the
basis thereof in MH/KP Fund's hands immediately prior to the
Reorganization, and PW Fund's holding period for those assets will include
MH/KP Fund's holding period therefor;
(v) An MH/KP Fund shareholder will recognize no gain or loss on the
constructive exchange of all its MH/KP Fund shares solely for PW Fund
shares pursuant to the Reorganization; and
(vi) An MH/KP Fund shareholder's basis for the PW Fund shares to be
received by it in the Reorganization will be the same as the basis for its
MH/KP Fund shares to be constructively surrendered in exchange for those
PW Fund shares, and its holding period for those PW Fund shares will
include its holding period for those MH/KP Fund shares, provided they are
held as capital assets by the shareholder on the Closing Date.
Each such opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder (regarding the recognition
of gain or loss and/or the determination of the basis or holding period) with
respect to any asset (including certain options, futures and forward contracts)
as to which any unrealized gain or loss is required to be recognized for
federal income tax purposes at the end of a taxable year (or on the termination
or transfer thereof) under a mark-to-market system of accounting.
Utilization by PW Fund after the Reorganizations of pre-Reorganization
capital losses realized by MH/KP Fund could be subject to limitation in future
years under the Code.
Shareholders of MH/KP Fund should consult their tax advisers regarding the
effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, those shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
Capitalization
The following table shows the capitalization of each Fund as of the twelve
months ended April 30, 1995 and on a pro forma combined basis (unaudited)
giving effect to the Reorganization:
</TABLE>
<TABLE><CAPTION>
Pro Forma
PW Fund(1) MH/KP Fund Combined(1)
---------- ---------- -----------
<S> <C> <C> <C>
Net Assets
Class A . . . . . . . . . . $777,503,341 $100,916,270 $878,419,611
Class B(2) . . . . . . . . 575,409,083 20,095,961 575,409,083
Class C . . . . . . . . . . 12,477,569 17,277,541 29,755,110
Class D . . . . . . . . . . 70,413,147 -- 90,509,108
NAV Per Share
Class A . . . . . . . . . . $10.23 $12.82 $10.23
Class B(2) . . . . . . . . 10.20 12.82 10.20
18
<PAGE>
Class C . . . . . . . . . . 10.24 12.84 10.24
Class D . . . . . . . . . . 10.22 -- 10.22
Shares Outstanding
Class A . . . . . . . . . . 75,985,276 7,869,230 85,846,813
Class B(2) . . . . . . . . 56,410,220 1,567,213 56,410,220
Class C . . . . . . . . . . 1,218,507 878,642 2,320,242
Class D . . . . . . . . . . 6,889,670 -- 8,855,587
<FN>
(1) Reflects reorganization with Global Income Plus Fund, Inc., which was
consummated on June 30, 1995.
(2) Class B shares of MH/KP Fund will be exchanged for Class D shares of
PW Fund.
</TABLE>
ADDITIONAL INFORMATION ABOUT PW FUND
Financial Highlights
The table below provides condensed financial information concerning income
and capital charges for one Class A, one Class C and one Class D share of PW
Fund for the periods shown. (No Class B shares of PW Fund will be issued in
connection with the Reorganization.) This information is supplemented by the
financial statements and accompanying notes appearing in PW Fund's Annual
Report to Shareholders for the fiscal year ended October 31, 1994, and the
unaudited financial statements and accompanying notes in PW Fund's Semi-Annual
Report to Shareholders for the six months ended April 30, 1995, which are
incorporated herein by this reference. The financial statements and notes for
the fiscal year ended October 31, 1994 and the financial information in the
table below, insofar as it relates to the five years in the period ended
October 31, 1994, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon is included in the Annual Report to
Shareholders that accompanies this Proxy Statement.
Selected data for a Class A, a Class C and a Class D share of beneficial
interest of PW Fund outstanding throughout each period is presented below:
<TABLE><CAPTION>
Class A
-----------------------------------------------------------------------
For the Six
Months For the Period
ended April For the Years Ended October 31, July 1, 1991(3)
30, 1995 --------------------------------- to October 31,
(unaudited) 1994 1993 1992 1991
----------- ---- ---- ---- ----
<S> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . . $ 9.99 $ 10.97 $ 10.64 $ 10.75 $ 10.40
-------- -------- -------- -------- --------
Income (loss) from investment
operations:
Net investment income . . . . . 0.39 0.72 0.59 0.83 0.20
Net realized and unrealized
gains (losses) from investment
and foreign currency
transactions . . . . . . . . . . 0.17 (1.05) 0.68 (0.12) 0.40
-------- -------- -------- -------- --------
Total income (loss) from investment
operations . . . . . . . . . . . . 0.56 (0.33) 1.27 0.71 0.60
-------- -------- -------- -------- --------
19
<PAGE>
Less dividends and distributions
to/from:
Net investment income . . . . . (0.32) (0.33) (0.80) (0.64) (0.23)
Net realized gains on
investments and foreign currency
transactions . . . . . . . . . . ___ ___ (0.14) (0.18) (0.02)
Paid in capital . . . . . . . . -- (0.32) -- -- --
-------- --------- -------- -------- --------
Total dividends and distributions . (0.32) (0.65) (0.94) (0.82) (0.25)
-------- --------- -------- -------- --------
Net asset value, end of period . . $ 10.23 $ 9.99 $ 10.97 $ 10.64 $ 10.75
======== ========= ======== ======== ========
Total investment return(4) . . . . 5.71% (3.10)% 12.41% 6.70% 5.79%
======== ========= ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period
(000's) . . . . . . . . . . . . $546,197 $611,855 $648,853 $107,033 $16,501
Ratio of expenses to average net
assets . . . . . . . . . . . . . 1.20%(1) 1.17% 1.32%(2) 1.21% 1.35%
Ratio of net investment income
to average net assets . . . . . 7.57% 6.94% 6.82% 7.84% 8.59%
Portfolio turnover rate . . . . 92.0% 108% 90% 92% 53%
<FN>
(1) Annualized
(2) Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
(3) Commencement of operations.
(4) Total investment return is calculated assuming a 1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
<TABLE><CAPTION>
Class B
-----------------------------------------------------------
For the Six
Months
ended April For the Years Ended October 31,
30, 1995 ------------------------------------------
(unaudited) 1994 1993 1992 1991
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . $ 9.96 $ 10.95 $ 10.62 $ 10.74 $ 11.07
Income (loss) from investment operations: 0.54 0.86 0.78 0.94 0.85
Net investment income . . . . . . . . . . . . . .
Net realized and unrealized gains (losses) from (0.01) (1.28) 0.40 (0.32) (0.09)
investment and foreign currency transactions . . . ------ ------ ---- ------ ------
Total income (loss) from investment operations . . . 0.53 (0.42) 1.18 0.62 0.76
---- ------ ---- ----
Less dividends and distributions to/from: (0.29) (0.29) (0.71) (0.56) (0.97)
Net investment income . . . . . . . . . . . . . .
Net realized gains on investments and foreign - - (0.14) (0.18) (0.12)
currency transactions . . . . . . . . . . . . .
Paid in capital . . . . . . . . . . . . . . . . . - (0.28) - - -
Total dividends and distributions . . . . . . . . . . (0.29) (0.57) (0.85) (0.74) (1.09)
Net asset value, end of period . . . . . . . . . . . $ 10.20 $ 9.96 $ 10.95 $ 10.62 $ 10.74
======== ======== ======== ======== ========
Total investment return(1) . . . . . . . . . . . . . 5.39% (3.90%) 11.45% 5.93% 7.39%
==== ===== ===== ==== ====
20
<PAGE>
Ratios/Supplemental Data:
Net assets, end of period (000's) . . . . . . . . $575,409 $725,553 $1,188,890 $1,542,255 $1,593,814
Ratio of expenses to average net assets . . . . . 1.97% 1.94% 2.11%(2) 1.98% 1.94%
Ratio of net investment income to average net 6.79%(1) 6.05% 5.97%(2) 7.11% 8.09%
assets . . . . . . . . . . . . . . . . . . . . . .
Portfolio turnover rate . . . . . . . . . . . . . 92.00% 108.00% 90.00% 92.00% 33.00%
<FN>
- -------------------------------------
(1) Annualized
(2) Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
(3) Commencement of operations.
(4) Total investment return is calculated assuming a 1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
<TABLE><CAPTION>
Class C
---------------------------------------------------------------
For the Six
Months For the Period
ended April For the Years Ended October 31, July 1, 1991(3)
30, 1995 --------------------------------- to October 31,
(unaudited) 1994 1993 1992 1991
----------- ---- ---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period . . . $ 9.99 $10.97 $ 10.64 $ 10.76 $ 10.53
Income (loss) from investment operations: 0.41 0.75 0.71 0.81 0.17
Net investment income . . . . . . . . .
Net realized and unrealized gains (losses) 0.18 (1.06) 0.58 (0.08) 0.32
from investment and foreign currency ---- ------ ---- ------ ----
transactions . . . . . . . . . . . . . .
Total income (loss) from investment 0.59 (0.31) 1.29 0.73 0.49
operations . . . . . . . . . . . . . . . . ---- ------ ---- ---- ----
Less dividends and distributions to/from: (0.34) (0.34) (0.82) (0.67) (0.24)
Net investment income . . . . . . . . .
Net realized gains on investments and - - (0.14) (0.18) (0.02)
foreign currency transactions . . . . .
Paid in capital . . . . . . . . . . . . - (0.33) - - -
Total dividends and distributions . . . . . (0.34) (0.67) (0.96) (0.85) (0.26)
Net asset value, end of period . . . . . . $ 10.24 $ 9.99 $ 10.97 $ 10.64 $ 10.76
======= ======= ======= ======= =======
Total investment return(1) . . . . . . . . 5.84% (2.86%) 12.60% 6.98% 4.63%
===== ======= ====== ===== =====
Ratios/Supplemental Data: $12,478 $12,975 $12,043 $7,252 $2,565
Net assets, end of period (000's) . . .
Ratio of expenses to average net assets 0.91%(1) 0.88% 1.06%(2) 0.94% 1.09%(1)
Ratio of net investment income to average 7.86%(1) 7.23% 7.00%(2) 8.15% 8.79%(1)
net assets . . . . . . . . . . .
Portfolio turnover rate . . . . . . . . 92% 108% 90% 92% 53%
21
<PAGE>
<FN>
- -----------------------------------
(1) Annualized
(2) Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
(3) Commencement of operations.
(4) Total investment return is calculated assuming a 1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
<TABLE><CAPTION>
Class D
-----------------------------------------------------
For the Six
Months For the Year Ended For the Period
ended April October 31, July 1, 1991(3)
30, 1995 --------------------- to October 31,
(unaudited) 1994 1993 1991
----------- ---- ---- ----
<S> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . . . . $ 9.98 $ 10.96 $ 10.64 $ 10.94
Income (loss) from investment operations:
Net investment income . . . . . . . . . 0.40 0.70 0.68 0.20
Net realized and unrealized gains
(losses) from nvestment and foreign
currency transactions . . . . . . . . 0.14 (1.09) 0.52 (0.13)
---- ------ ---- ------
Total income (loss) from investment
operations . . . . . . . . . . . . . . . . 0.54 (0.39) 1.20 0.07
---- ------ ---- ----
Less dividends and distributions to/from:
Net investment income . . . . . . . . . (0.30) (0.30) (0.74) (0.21)
Net realized gains on investments and
foreign currency transactions . . . . - - (0.14) (0.16)
Paid in capital . . . . . . . . . . . . - (0.29) - -
Total dividends and distributions . . . . . (0.30) (0.59) (0.88) (0.37)
Net asset value, end of period . . . . . . $ 10.22 $ 9.98 $ 10.96 $ 10.64
Total investment return (1) . . . . . . . . 5.49% (3.56%) 11.64% 0.61%
======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period ('000's) . . . $70,413 $92,480 $135,847 $36,598
Ratio of expenses to average net assets 1.70%(2) 1.68% 1.83%(2) 1.75%(1)
Ratio of net investment income to
average net assets . . . . . . . . . . 7.05%(1) 6.34% 6.17%(2) 7.02%(1)
Portfolio turnover rate . . . . . . . . 92.00% 108.00% 90.00% 92.00%
<FN>
- ---------------------------------
(1) Annualized
(2) Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
(3) Commencement of operations.
(4) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, investment of all dividends
and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges; results for
Class A and Class B shares would be lower if sales charges were
included. Total investment returns for periods of less than one year
have not been annualized.
</TABLE>
22
<PAGE>
MISCELLANEOUS
Available Information
MH/KP Trust and PW Trust are subject to the information requirements of
the Securities Exchange Act of 1934 and the 1940 Act and in accordance
therewith file reports, proxy material and other information with the SEC.
Such reports, proxy material and other information can be inspected and copied
at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20459 at prescribed
rates.
Legal Matters
Certain legal matters in connection with the issuance of PW Fund shares
will be passed upon by Kirkpatrick & Lockhart LLP, counsel to PW Trust.
Experts
The audited financial statements of PW Fund and MH/KP Fund, incorporated
herein by reference or included in their respective Statements of Additional
Information, have been audited by Price Waterhouse LLP and Deloitte & Touche
LLP, independent accountants, respectively, whose reports thereon are included
in the Fund's Annual Report to Shareholders for the fiscal year ended October
31, 1994 and August 31, 1994, respectively, and in MH/KP Fund's semi-annual
report to shareholders for the six-month period ended February 28, 1995. The
financial statements audited by Price Waterhouse LLP and Deloitte & Touche LLP
have been incorporated herein by reference in reliance on the reports given on
their authority as experts in auditing and accounting.
23
<PAGE>
Appendix A
AMENDED AND RESTATED
--------------------
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION ("Agreement") is made as of July 25, 1995, between PaineWebber
Investment Series, a Massachusetts business trust ("PW Trust"), on behalf of
PaineWebber Global Income Fund, a segregated portfolio of assets ("series")
thereof ("Acquiring Fund"), and Mitchell Hutchins/Kidder, Peabody Investment
Trust, a Massachusetts business trust ("MHKP Trust"), on behalf of its Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund series ("Target").
(Acquiring Fund and Target are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and PW Trust and MHKP Trust are some-
times referred to herein collectively as the "Investment Companies.")
RECITAL
The parties entered into an Agreement and Plan of Reorganization and
Termination dated as of May 19, 1995 ("Original Agreement"), which provided,
inter alia, for Target shareholders to receive Acquiring Fund shares pursuant
to the transactions contemplated thereby. The parties now desire to amend and
restate the Original Agreement to reflect a change in the class of Acquiring
Fund shares to be distributed to holders of Class C Target Shares (as defined
below). Therefore, the Original Agreement is hereby amended and restated to
read in its entirety as follows:
AMENDED AND RESTATED PROVISIONS
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the assump-
tion by Acquiring Fund of Target's liabilities, followed by the constructive
distribution of the Acquiring Fund Shares to the holders of shares of
beneficial interest in Target ("Target Shares") in exchange therefor, all upon
the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by PW Trust on behalf of
Acquiring Fund and by MHKP Trust on behalf of Target.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring
Fund Shares," respectively). Except as noted in the following sentence, these
classes differ only with respect to the sales charges imposed on the purchase
of shares and the fees ("12b-1 fees") payable by each class pursuant to plans
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adopted under Rule 12b-1 promulgated under the Investment Company Act of 1940
("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are offered at net
asset value ("NAV") plus a sales charge, if applicable, and are subject to a
12b-1 service fee at the annual rate of 0.25% of the average daily net assets
attributable to the class ("class assets"); (2) Class B Acquiring Fund Shares
are offered at NAV without imposition of any sales charge and are subject to a
contingent deferred sales charge and 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.75% of class assets; (3) Class C
Acquiring Fund Shares are offered, currently only to the trustee of the
PaineWebber Savings Investment Plan on behalf of that plan, at NAV without
imposition of any sales charge and are not subject to any 12b-1 fee; and
(4) Class D Acquiring Fund Shares are offered at NAV without imposition of any
sales charge and are subject to 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.50% of class assets. These classes also
may differ from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees. Only Classes A, C and D Acquiring
Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A, Class
B, and Class C shares ("Class A Target Shares," "Class B Target Shares," and
"Class C Target Shares," respectively). Apart from differences in certain
ancillary class-specific expenses, these classes differ only with respect to
the sales charges imposed on the purchase of shares and the 12b-1 fees, as
follows: (1) Class A Target Shares are offered at NAV plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25%
of class assets; (2) Class B Target Shares are offered at NAV without
imposition of any sales charge and are subject to 12b-1 service and
distribution fees at the respective annual rates of 0.25% and 0.50% of class
assets; and (3) Class C Target Shares are offered, currently to a limited group
of investors (consisting of former employees of Kidder, Peabody & Co. Incor-
porated ("Kidder") and their associated accounts, directors and trustees of
mutual funds formerly distributed by Kidder (now known as Mitchell Hutch-
ins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds), Kidder's
employee benefit plans, and participants in a certain portfolio asset allo-
cation program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
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1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set
forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class D
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Acquiring Fund Shares determined by dividing the Target Value attributable
to the Class B Target Shares by the NAV (as so computed) of a Class D
Acquiring Fund Share, and (iii) Class C Acquiring Fund Shares determined
by dividing the Target Value attributable to the Class C Target Shares by
the NAV (as so computed) of a Class C Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph
3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses described in
paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare
and pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such dis-
tribution shall be accomplished by the Funds' transfer agent ("Transfer Agent")
opening accounts on Acquiring Fund's share transfer books in the Shareholders'
names and transferring such Acquiring Fund Shares thereto. Each Shareholder's
account shall be credited with the respective pro rata number of full and
fractional (rounded to the third decimal place) Acquiring Fund Shares due that
Shareholder, by class (i.e., the account for a Shareholder of Class A Target
Shares shall be credited with the respective pro rata number of Class A
Acquiring Fund Shares due that Shareholder, the account for a Shareholder of
Class B Target Shares shall be credited with the respective pro rata number of
Class D Acquiring Fund Shares due that Shareholder, and the account for a
Shareholder of Class C Target Shares shall be credited with the respective pro
rata number of Class C Acquiring Fund Shares due that Shareholder). All out-
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standing Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as
a series of MHKP Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
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2.1. For purposes of paragraph 1.1(a), Target's net value shall be
(a) the value of the Assets computed as of the close of regular trading on the
New York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation
Time"), using the valuation procedures set forth in Target's then-current pro-
spectus and statement of additional information less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring
Fund Share, a Class C Acquiring Fund Share, and a Class D Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
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3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
October 27, 1995, or at such other place and/or on such other date as the par-
ties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as the parties may agree ("Effective Time"). If, immediately before
the Valuation Time, (a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
is disrupted, so that accurate appraisal of the net value of Target and the NAV
per Acquiring Fund Share is impracticable, the Effective Time shall be
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postponed until the first business day after the day when such trading shall
have been fully resumed and such reporting shall have been restored.
3.2. MHKP Trust shall deliver to PW Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred
to Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunc-
tion with the delivery of the Assets, including all applicable federal and
state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3. MHKP Trust shall deliver to PW Trust at the Closing a list of the
names and addresses of the Shareholders and the number (by class) of
outstanding Target Shares owned by each Shareholder, all as of the Effective
Time, certified by the Secretary or Assistant Secretary of Target. The
Transfer Agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders' names.
PW Trust shall issue and deliver a confirmation to MHKP Trust evidencing the
Acquiring Fund Shares (by class) to be credited to Target at the Effective Time
or provide evidence satisfactory to MHKP Trust that such Acquiring Fund Shares
have been credited to Target's account on Acquiring Fund's books. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts, or other documents as the other
party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to
the effect that the representations and warranties it made in this Agreement
are true and correct at the Effective Time except as they may be affected by
the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
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4.1. Target represents and warrants as follows:
4.1.1. MHKP Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and
a copy of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. MHKP Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of MHKP
Trust;
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4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act
and the rules and regulations thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
MHKP Trust's Declaration of Trust or By-Laws or of any agreement, instru-
ment, lease, or other undertaking to which Target is a party or by which
it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as previously
disclosed in writing to and accepted by PW Trust;
4.1.7. Except as disclosed in writing to and accepted by PW Trust,
all material contracts and other commitments of or applicable to Target
(other than this Agreement and investment contracts, including options,
futures, and forward contracts) will be terminated, or provision for
discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to be
taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
PW Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Target's
knowledge) threatened against MHKP Trust with respect to Target or any of
its properties or assets that, if adversely determined, would materially
and adversely affect Target's financial condition or the conduct of its
business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is
not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially or adversely
affects its business or its ability to consummate the transactions
contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on
the part of MHKP Trust's board of trustees, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to approval by Target's shareholders and receipt of any necessary
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exemptive relief or no-action assurances requested from the Securities and
Exchange Commission ("SEC") or its staff with respect to sections 17(a)
and 17(d) of the 1940 Act, this Agreement will constitute a valid and
legally binding obligation of Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of
this Agreement by MHKP Trust, except for (a) the filing with the SEC of a
registration statement by PW Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a prospectus/proxy statement
("Proxy Statement"), (b) receipt of the exemptive relief referenced in
subparagraph 4.1.9, and (c) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by PW Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
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4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Trust is a Business Trust; it is duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and a copy of its Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.2.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
PW Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and
validly issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable, except to the extent that under Massachusetts law
shareholders of a Business Trust may, under certain circumstances, be held
personally liable for its obligations. Except as contemplated by this
Agreement, Acquiring Fund does not have outstanding any options, warrants,
or other rights to subscribe for or purchase any of its shares, nor is
there outstanding any security convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of addi-
tional information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regu-
lations thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law
or any provision of PW Trust's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
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which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by MHKP Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by
MHKP Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against PW Trust with respect to
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund knows
of no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on
the part of PW Trust's board of trustees, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to receipt of any necessary exemptive relief or no-action assurances
requested from the SEC or its staff with respect to sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by PW Trust, except for
(a) the filing with the SEC of the Registration Statement, (b) the filing
with the SEC of a post-effective amendment to the registration statement
of PW Trust ("PEA"), (c) receipt of the exemptive relief referenced in
subparagraph 4.2.9, and (d) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MHKP Trust for use therein;
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4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2)
of the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its cur-
rent taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M
did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for dispositions
made in the ordinary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M of the Code, and
(c) expects to retain substantially all the Assets in the same form as it
receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock or securities of five or fewer
issuers; and
4.2.17. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when received
by the Shareholders, will be approximately equal to the fair market value of
their Target Shares constructively surrendered in exchange therefor;
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4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis. Nor
does its management anticipate that there will be extraordinary
redemptions of Acquiring Fund Shares immediately following the Reorganiza-
tion;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to im-
mediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made
to conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is
an employee of Target will be separate consideration for, or allocable to,
any of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
A-11
<PAGE>
4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the Closing;
provided that Target shall not dispose of more than an insignificant portion of
its historic business assets during such period without Acquiring Fund's prior
consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval
of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist PW Trust in obtaining such
information as PW Trust reasonably requests concerning the beneficial ownership
of Target Shares.
5.5. Target covenants that Target's books and records (including all
books and records required to be maintained under the 1940 Act and the rules
and regulations thereunder) will be turned over to PW Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when re-
quested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and
possession of all the Assets, and (b) Target, title to and possession of the
Acquiring Fund Shares to be delivered hereunder, and otherwise to carry out the
intent and purpose hereof.
5.8. PW Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to
be taken all actions, and to do or cause to be done all things, reasonably
A-12
<PAGE>
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before
the Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by MHKP Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement and the PEA shall
have become effective under the 1933 Act, no stop orders suspending the
effectiveness thereof shall have been issued, and the SEC shall not have issued
an unfavorable report with respect to the Reorganization under section 25(b) of
the 1940 Act nor instituted any proceedings seeking to enjoin consummation of
the transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory authori-
ties (including the SEC and state securities authorities) deemed necessary by
either Fund to permit consummation, in all material respects, of the transac-
tions contemplated hereby shall have been obtained, except where failure to
obtain same would not involve a risk of a material adverse effect on the assets
or properties of either Fund, provided that either Fund may for itself waive
any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. MHKP Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to PW Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of PW Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such
counsel, to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Acquiring Fund and (b) assuming due
A-13
<PAGE>
authorization, execution, and delivery of this Agreement by MHKP Trust on
behalf of Target, is a valid and legally binding obligation of PW Trust
with respect to Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, except to the extent
that under Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obligations, and
no shareholder of Acquiring Fund has any preemptive right to subscribe for
or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate PW Trust's Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel, without any independent inquiry or
investigation) to which PW Trust (with respect to Acquiring Fund) is a
party or by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in the accel-
eration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which PW Trust (with respect to Ac-
quiring Fund) is a party or by which it is bound, except as set forth in
such opinion or as previously disclosed in writing to and accepted by MHKP
Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
PW Trust on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934
Act, and the 1940 Act and such as may be required under state securities
laws;
6.4.6. PW Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to PW Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring Fund and
(b) PW Trust (with respect to Acquiring Fund) is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Acquiring Fund's
business, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by MHKP Trust.
A-14
<PAGE>
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with such firm who have devoted sub-
stantive attention to matters directly related to this Agreement and the
Reorganization.
6.5. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MHKP Trust, substantially to the effect that:
6.5.
1. Target is a duly established series of MHKP Trust, a Business Trust duly
organized and validly existing under the laws of the Commonwealth of Massa-
chusetts with power under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on its business as
presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by MHKP Trust on behalf of Target and (b) assuming due author-
ization, execution, and delivery of this Agreement by PW Trust on behalf
of Acquiring Fund, is a valid and legally binding obligation of MHKP Trust
with respect to Target, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate MHKP Trust's Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel, without any independent inquiry or
investigation) to which MHKP Trust (with respect to Target) is a party or
by which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which MHKP Trust (with respect to Target) is a
party or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by PW Trust;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
MHKP Trust on behalf of Target of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act, and
the 1940 Act and such as may be required under state securities laws;
6.5.5. MHKP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
A-15
<PAGE>
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to MHKP Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) MHKP
Trust (with respect to Target) is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by PW Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with such firm who have devoted sub-
stantive attention to matters directly related to this Agreement and the
Reorganization.
6.6. MHKP Trust shall have received an opinion of Willkie Farr &
Gallagher, its counsel, addressed to and in form and substance satisfactory to
MHKP Trust, and PW Trust shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance satisfactory
to PW Trust, each as to the federal income tax consequences mentioned below
(each a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may
rely as to factual matters, exclusively and without independent verification,
on the representations made in this Agreement (or in separate letters addressed
to such counsel) and the certificates delivered pursuant to paragraph 3.4.
Each Tax Opinion shall be substantially to the effect that, based on the facts
and assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabili-
ties, followed by Target's distribution of those shares to the Sharehol-
ders constructively in exchange for the Shareholders' Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C) of
the Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in construc-
tive exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
A-16
<PAGE>
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares, and its holding period for those Acquiring Fund
Shares will include its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder (regarding the recognition of gain or loss and/or the determination
of the basis or holding period) with respect to any asset (including certain
options, futures, and forward contracts included in the Assets) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of PW Trust's board of trustees, such
waiver will not have a material adverse effect on its shareholders' interests,
and (b) Target may waive any of the foregoing conditions if, in the judgment of
MHKP Trust's board of trustees, such waiver will not have a material adverse
effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by the Funds proportionately, as follows:
each such expense will be borne by the Funds in proportion to their respective
net assets as of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement; (b) expenses associated with the preparation and filing of the
Registration Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident as of the
date of the mailing of the Proxy Statement to such shareholders; (d) printing
A-17
<PAGE>
and postage expenses; (e) legal and accounting fees; and (f) solicitation
costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed
at or prior to the Effective Time, (b) if a condition to its obligations has
not been met and it reasonably appears that such condition will not or cannot
be met, or (c) if the Closing has not occurred on or before December 31, 1995;
or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers
of either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts; provided that, in
the case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
A-18
<PAGE>
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of
each Investment Company's trustees solely in their capacity as trustees, and
not individually, and that each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its trustees,
officers, or shareholders, but are only binding on and enforceable against the
respective Funds' assets and property. Each Fund agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the other Fund's
assets and property in settlement of such rights or claims and not to such
trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: PAINEWEBBER INVESTMENT SERIES,
on behalf of its series,
PAINEWEBBER GLOBAL INCOME FUND
By: /s/Ilene Shore /s/Dianne E. O'Donnell
----------------------------- ------------------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER,
PEABODY INVESTMENT TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER,
PEABODY GLOBAL FIXED INCOME
FUND
By: /s/Stephanie Hemphill-Johnson /s/Scott H. Griff
----------------------------- -----------------------------
Assistant Secretary Vice President
A-19
<PAGE>
- --------------------------------------------------------------------------------
PaineWebber Global Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- March 1, 1995.
- --------------------------------------------------------------------------------
PaineWebber Global Income Fund ("Fund") is a series of PaineWebber Investment
Series ("Trust"). This Prospectus concisely sets forth information about the
Fund a prospective investor should know before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
March 1, 1995 (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
can be obtained without charge, and further inquiries can be made, by
contacting the Fund, your PaineWebber investment executive or PaineWebber's
correspondent firms or by calling toll-free 1-800-647-1568.
.Professional Management
.Dividend and Capital Gain
Reinvestment
.Flexible Pricing (SM)
.Low Minimum Investment
.Automatic Investment Plan
.Systematic Withdrawal Plan
.Exchange Privileges
.Suitable For Retirement Plans
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE WISCONSIN INVESTORS SHOULD NOTE THAT THE FUND MAY INVEST UP TO
10% OF ITS NET ASSETS IN RESTRICTED SECURITIES (OTHER THAN RULE 144A
SECURITIES DETERMINED TO BE LIQUID BY THE TRUST'S BOARD OF TRUSTEES).
INVESTMENT IN RESTRICTED SECURITIES (OTHER THAN SUCH RULE 144A
SECURITIES) IN EXCESS OF 5% OF THE FUND'S TOTAL ASSETS MAY BE
CONSIDERED A SPECULATIVE ACTIVITY AND MAY RESULT IN GREATER RISK
AND INCREASED FUND EXPENSES.
- --------------------------------------------------------------------------------
Prospectus Page 1
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 6
Flexible Pricing System.................................................... 8
Investment Objectives and Policies......................................... 9
Purchases ................................................................. 16
Exchanges.................................................................. 18
Redemptions................................................................ 19
Conversion of Class B Shares............................................... 20
Other Services and Information............................................. 21
Dividends and Taxes........................................................ 22
Valuation of Shares........................................................ 23
Management................................................................. 23
Performance Information.................................................... 25
General Information........................................................ 26
Appendix................................................................... 27
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Prospectus Summary
- --------------------------------------------------------------------------------
See the body of the Prospectus for more information on the topics discussed in
this summary.
<TABLE>
<S> <C>
The Fund: PaineWebber Global Income Fund ("Fund") is a non-diversified se-
ries of an open-end, management investment company.
Investment Objectives High current income consistent with prudent investment risk; capi-
and tal appreciation is a secondary objective; invests principally in
Policies: high quality debt securities issued or guaranteed by foreign gov-
ernments, by the U.S. government, by their respective agencies or
instrumentalities or by supranational organizations, or issued by
foreign or U.S. companies.
Total Net Assets: $1.28 billion at January 31, 1995.
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an
asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), manages approximately $39.3 billion in assets.
See "Management."
Purchases: Shares of beneficial interest are available exclusively through
PaineWebber and its correspondent firms for investors who are cli-
ents of PaineWebber or those firms ("PaineWebber clients") and,
for other investors, through PFPC Inc., the Fund's transfer agent
("Transfer Agent").
Flexible Pricing System: Investors may select Class A, Class B or Class D shares, each with
a public offering price that reflects different sales charges and
expense levels. See "Flexible Pricing System," "Purchases," "Re-
demptions" and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales charge (maxi-
mum is 4% of public offering price).
Class B Shares Offered at net asset value (a maximum contingent deferred sales
charge of 5% of redemption proceeds is imposed on certain redemp-
tions made within six years of date of purchase). Class B shares
automatically convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.
Class D Shares Offered at net asset value without an initial or contingent de-
ferred sales charge. Class D shares pay higher ongoing expenses
than Class A shares and do not convert into another Class.
Exchanges: Shares may be exchanged for shares of the corresponding Class of
most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber; other share-
holders must redeem through the Transfer Agent.
Dividends: Declared and paid quarterly; net capital gain is distributed annu-
ally. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are paid in Fund
shares of the same Class at net asset value unless the shareholder
has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent purchases.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial
Systematic withdrawal plan sales charge 365-day reinstate-
Rights of accumulation ment privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class D Shares Automatic investment plan Systematic withdrawal plan
</TABLE>
------------------
WHO SHOULD INVEST. The Fund invests principally in high quality debt securities
issued or guaranteed by foreign governments, by the U.S. government, by their
respective agencies or instrumentalities or by supranational organizations, or
issued by foreign or U.S. companies. The Fund is designed for investors seeking
high current income and, secondarily, capital appreciation. While the Fund is
not intended to provide a complete or balanced investment program, it can serve
as one component of an investor's long-term program to accumulate assets for
retirement, college tuition or other major goals.
RISK FACTORS. Investors in the Fund should be able to assume the special risks
of investing in foreign securities, which include possible adverse political,
social and economic developments abroad and differing characteristics of
foreign economies and markets. There is often less information publicly
available about foreign issuers. These risks are greater with respect to
securities of issuers located in emerging markets, in which the Fund may invest
a portion of its assets. Most of the foreign securities held by the Fund are
denominated in foreign currencies, and the value of these investments thus can
be adversely affected by fluctuations in foreign currency values. Some foreign
currencies can be volatile and may be subject to governmental controls or
intervention. Prospective investors are urged to read "Investment Objectives
and Policies" for more complete information about risk factors.
There can be no assurance that the Fund will achieve its investment objectives,
and the Fund's net asset value will fluctuate based upon changes in the value
of its portfolio securities.
Certain investment grade debt securities in which the Fund may invest have
speculative characteristics. The Fund is permitted to purchase debt securities
rated lower than investment grade by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or another nationally
recognized statistical rating organization ("NRSRO") or, if not so rated,
determined by Mitchell Hutchins to be of comparable quality. Such securities
are subject to greater risks of default or price fluctuation than investment
grade securities and are considered predominantly speculative. The use of
options, futures contracts, forward currency contracts and interest rate
protection transactions also entails special risks.
As a non-diversified fund, the Fund is subject to greater risk with respect to
its portfolio securities than investment companies that have a broader range of
investments, because changes in the financial condition or market assessment of
a single issuer may cause greater fluctuation in the Fund's total return and
the price of its shares.
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES(1)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
percentage of public offering price).................. 4% None None
Sales charge on reinvested dividends................... None None None
Exchange fee........................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds).................... None 5% None
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Management fees......................................... 0.72% 0.72% 0.72%
12b-1 fees(3)........................................... 0.25 1.00 0.75
Other expenses.......................................... 0.20 0.22 0.21
---- ---- ----
Total operating expenses................................ 1.17% 1.94% 1.68%
==== ==== ====
</TABLE>
- -------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge generally declines by 1% annually
thereafter, reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. All expenses are those
actually incurred for the fiscal year ended October 31, 1994.
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees................................ 0.25% 0.25% 0.25%
12b-1 distribution fees........................... 0.00 0.75 0.50
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A Shares(1)..................................... $51 $76 $102 $176
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $70 $91 $125 $188
Assuming no redemption (3).......................... $20 $61 $105 $188
Class D Shares........................................ $17 $53 $ 91 $199
</TABLE>
- -------
(1) Assumes deduction at the time of purchase of the maximum 4% initial sales
charge.
(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same in the years shown. The above tables and the assumption in the
Example of a 5% annual return are required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Financial Highlights
- --------------------------------------------------------------------------------
The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of the Fund for each of the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Fund's Annual Report to Shareholders for
the fiscal year ended October 31, 1994, which are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes and the financial information in the tables below insofar as it relates
to each of the periods presented in the five year period ended October 31, 1994
have been audited by Price Waterhouse LLP, independent accountants, whose
unqualified report thereon is included in the Annual Report to Shareholders.
Further information about the Fund's performance also is included in the Annual
Report to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- -----------------------------------------------
FOR THE
PERIOD
FOR THE YEARS ENDED JULY 1, FOR THE YEARS ENDED
OCTOBER 31, 1991+ TO OCTOBER 31,
------------------------------- OCTOBER 31, -----------------------------------------------
1994 1993 1992 1991 1994 1993 1992 1991
-------- -------- -------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.97 $ 10.64 $ 10.75 $ 10.40 $ 10.95 $ 10.62 $ 10.74 $ 11.07
-------- -------- -------- ------- -------- ---------- ---------- ----------
Income (loss) from
investment operations:
Net investment income... 0.72 0.59 0.83 0.20 0.86 0.78 0.94 0.85
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions.. (1.05) 0.68 (0.12) 0.40 (1.28) 0.40 (0.32) (0.09)
-------- -------- -------- ------- -------- ---------- ---------- ----------
Total income (loss) from
investment operations... (0.33) 1.27 0.71 0.60 (0.42) 1.18 0.62 0.76
-------- -------- -------- ------- -------- ---------- ---------- ----------
Less dividends and
distributions from:
Net investment income... (0.33) (0.80) (0.64) (0.23) (0.29) (0.71) (0.56) (0.97)
Net realized gains on
investments and foreign
currency transactions.. -- (0.14) (0.18) (0.02) -- (0.14) (0.18) (0.12)
Paid-in capital......... (0.32) -- -- -- (0.28) -- -- --
-------- -------- -------- ------- -------- ---------- ---------- ----------
Total dividends and
distributions........... (0.65) (0.94) (0.82) (0.25) (0.57) (0.85) (0.74) (1.09)
-------- -------- -------- ------- -------- ---------- ---------- ----------
Net asset value, end of
period.................. $ 9.99 $ 10.97 $ 10.64 $ 10.75 $ 9.96 $ 10.95 $ 10.62 $ 10.74
======== ======== ======== ======= ======== ========== ========== ==========
Total return(1).......... (3.10)% 12.41% 6.70% 5.79% (3.90)% 11.45% 5.93% 7.39%
======== ======== ======== ======= ======== ========== ========== ==========
Ratios/Supplemental data:
Net assets, end of
period (000's)......... $611,855 $648,853 $107,033 $16,501 $725,553 $1,188,890 $1,542,255 $1,593,814
Ratio of expenses to
average net assets..... 1.17% 1.32%** 1.21% 1.35%* 1.94% 2.11%** 1.98% 1.94%
Ratio of net investment
income to average net
assets................. 6.94% 6.82%** 7.84% 8.59%* 6.05% 5.97%** 7.11% 8.09%
Portfolio turnover rate. 108.48% 89.65% 91.72% 53.32% 108.48% 89.65% 91.72% 53.32%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B shares would be lower
if sales charges were included. Total return information for periods less
than one year is not annualized.
- --------------------------------------------------------------------------------
Prospectus Page 6
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS D
----------------------------------------------- ---------------------------------
FOR THE FOR THE FOR THE
PERIOD YEARS PERIOD
MARCH 20, ENDED JULY 2,
FOR THE YEARS ENDED OCTOBER 31, 1987+ TO OCTOBER 31, 1992+ TO
---------------------------------- OCTOBER 31, ------------------ OCTOBER 31,
1990 1989 1988 1987 1994 1993 1992
---------- ---------- ---------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.08 $ 11.10 $ 10.28 $ 10.00 $ 10.96 $ 10.64 $ 10.94
---------- ---------- ---------- -------- ------- -------- -------
Income (loss) from
investment operations:
Net investment income.. 1.01 1.01 0.98 0.47 0.70 0.68 0.20
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions. 0.96 (0.64) 1.15 0.13 (1.09) 0.52 (0.13)
---------- ---------- ---------- -------- ------- -------- -------
Total income (loss) from
investment operations.. 1.97 0.37 2.13 0.60 (0.39) 1.20 0.07
---------- ---------- ---------- -------- ------- -------- -------
Less dividends and
distributions from:
Net investment income.. (0.98) (0.94) (1.06) (0.32) (0.21) (0.74) (0.21)
Net realized gains on
investments and
foreign currency
transactions.......... -- (0.45) (0.25) -- (0.16) (0.14) (0.16)
Paid-in capital........ -- -- -- -- (0.29) -- --
---------- ---------- ---------- -------- ------- -------- -------
Total dividends and
distributions.......... (0.98) (1.39) (1.31) (0.32) (0.59) (0.88) (0.37)
---------- ---------- ---------- -------- ------- -------- -------
Net asset value, end of
period................. $ 11.07 $ 10.08 $ 11.10 $ 10.28 $ 9.98 $ 10.96 $ 10.64
========== ========== ========== ======== ======= ======== =======
Total return(1)......... 20.32% 3.66% 18.29% 6.00% (3.56)% 11.64% 0.61%
========== ========== ========== ======== ======= ======== =======
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $1,323,495 $1,085,851 $1,145,460 $737,056 $92,480 $135,847 $36,598
Ratio of expenses to
average net assets.... 1.90% 1.95% 2.05% 2.08%* 1.68% 1.83%** 1.75%*
Ratio of net investment
income to average net
assets................ 9.88% 9.73% 9.13% 8.39%* 6.34% 6.17%** 7.02%*
Portfolio turnover
rate.................. 126.31% 124.02% 119.98% 52.47% 108.48% 89.65% 91.72%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B shares would be lower
if sales charges were included. Total return information for periods less
than one year is not annualized.
- --------------------------------------------------------------------------------
Prospectus Page 7
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Flexible Pricing System
- --------------------------------------------------------------------------------
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of Service fee of 0.25% Initial sales charge
4% of the public offering price waived or reduced
for certain purchases
Class B Maximum contingent deferred sales Service fee of 0.25%; Shares convert to Class
charge of 5% of redemption proceeds; distribution fee of A shares approximately
declines to zero after six years 0.75% six years after issuance
Class D None Service fee of 0.25%; --
distribution fee of
0.50%
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 4% of the public offering price. Because of this initial sales
charge, not all of a Class A shareholder's purchase price is invested in the
Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 5% of the redemption proceeds applies to
redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$100,000 and Class A share purchases made under the Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B shares pay an annual
12b-1 distribution fee of 0.75% of average daily net assets. Class D shares pay
an annual 12b-1 distribution fee of 0.50% of average daily net assets. Annual
12b-1 distribution fees are a form of asset-based sales charge. An investor
should consider both ongoing annual expenses and initial or contingent deferred
sales charges in estimating the costs of investing in the respective Classes of
Fund shares over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on the Class B
- -------------------------------------------------------------------------------
Prospectus Page 8
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
and Class D shares would approximate the expense of the 4% maximum initial
sales charge on the Class A shares if the shares were held for approximately 5
1/2 years in the case of the Class B shares and approximately 8 years in the
case of the Class D shares. Class B shares convert to Class A shares (which do
not bear the expense of ongoing distribution fees) approximately six years
after purchase. The cumulative distribution fees on the Fund's Class D shares
would approximate the cumulative distribution fees on the Class B shares if the
shares were held for 9 years. Thus, an investor who would be subject to the
maximum initial sales charge and who expects to hold Fund shares for less than
8 years generally should expect to pay the lowest cumulative expenses by
purchasing Class D shares.
The foregoing example does not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net
asset value of Fund shares, which will affect the actual amount of expenses
paid. Expenses borne by Classes may differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows for the Fund the cumulative expenses an
investor would pay over time on a hypothetical investment in each Class of Fund
shares, assuming an annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensation
for selling one particular Class of Fund shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for distribution
services.
See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of the Fund. See also
"Conversion of Class B Shares," "Dividends and Taxes," "Valuation of Shares"
and "General Information" for other differences among the three Classes.
- --------------------------------------------------------------------------------
Investment Objectives and Policies
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS
The Fund's primary investment objective is high current income consistent with
prudent investment risk; capital appreciation is a secondary objective. The
Fund seeks to achieve these objectives by investing principally in high quality
debt securities issued or guaranteed by foreign governments, by the U.S.
government, by their respective agencies or instrumentalities or by
supranational organizations, or issued by U.S. or foreign companies.
There can be no assurance that the Fund will achieve its investment objectives.
The Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities. The Fund's investment objectives and certain investment
limitations as described in the Statement of Additional Information are
fundamental policies that may not be changed without shareholder approval. All
other investment policies may be changed by the board of trustees without
shareholder approval.
Normally, at least 65% of the Fund's total assets are invested in high quality
debt securities, denominated in foreign currencies or U.S. dollars, of issuers
located in at least three of the following countries: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, Thailand, the United Kingdom and the United States. No
more than 40% of the Fund's assets normally are invested in securities of
issuers located in any one country.
The Fund's portfolio consists primarily of debt securities rated within one of
the two highest grades assigned by S&P, Moody's or another NRSRO or, if
unrated, determined by Mitchell Hutchins to be of comparable quality. Under
normal market conditions, at least 65% of its total assets are invested in the
following: (1) high
- --------------------------------------------------------------------------------
Prospectus Page 9
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
quality debt securities issued or guaranteed by U.S. or foreign governments or
their agencies, instrumentalities or political subdivisions, (2) high quality
debt securities issued or guaranteed by supranational organizations such as the
International Bank for Reconstruction and Development ("World Bank"), (3) high
quality U.S. or foreign corporate debt securities, including commercial paper,
(4) high quality debt obligations of banks and bank holding companies and (5)
repurchase agreements involving these securities. Up to 5% of the Fund's total
assets may be invested in debt securities convertible into equity securities,
although the Fund has no current intention of converting such securities or
holding them as equity securities upon conversion. Mitchell Hutchins expects
that normally more than 50% of the Fund's assets will be invested in U.S. and
foreign government securities in order to minimize credit risk and to take
advantage of opportunities that historically have been presented by, and are
perceived to exist today with respect to, such instruments. The Fund may invest
up to 35% of its total assets in debt securities rated below the two highest
grades assigned by a NRSRO but rated BBB or better by S&P, Baa or better by
Moody's or comparably rated by another NRSRO or, if unrated, determined by
Mitchell Hutchins to be of comparable quality.
The Fund may invest up to 20% of its total assets in sovereign debt securities
rated below BBB by S&P, Baa by Moody's or comparably rated by another NRSRO but
no lower than BB by S&P, Ba by Moody's or comparably rated by another NRSRO or,
in the case of such securities assigned a commercial paper rating, no lower
than B by S&P or comparably rated by another NRSRO or, if not so rated,
determined by Mitchell Hutchins to be of comparable quality. Mitchell Hutchins
will purchase such securities for the Fund only when it concludes that the
anticipated return to the Fund on such investment warrants exposure to the
additional level of risk.
As of the end of its 1994 fiscal year, the Fund had 100% of its net assets in
debt securities that received a rating from a NRSRO. The Fund had the following
percentages of its net assets invested in rated securities: AAA/Aaa (including
cash and cash equivalents)--82.5%, AA/Aa--4.7%, A/A--2.5%, BBB/Baa--6.2%,
BB/Ba--2.9% and B--1.1%. It should be noted that this information reflects the
composition of the Fund's assets as of the end of the 1994 fiscal year, and is
not necessarily representative of the Fund's assets as of any other time in the
1994 fiscal year, the current fiscal year or any other time in the future.
Fundamental economic strength, credit quality and currency and interest rate
trends are the principal determinants of the various country, geographic and
industry sector weightings within the Fund's portfolio. See "Other Investment
Policies and Risk Factors--Debt Securities."
OTHER INVESTMENT POLICIES AND RISK FACTORS
FOREIGN SECURITIES. The Fund's investment policies are designed to enable it to
capitalize on unique investment opportunities presented throughout the world
and in international financial markets influenced by the increasing
interdependence of economic cycles and currency exchange rates. As of December
31, 1994, more than 63% of the Salomon Brothers World Government Bond Market
Index was represented by securities denominated in currencies other than the
U.S. dollar.
Over the past eight years, debt securities offered by certain foreign
governments provided higher investment returns than U.S. government debt
securities. Such returns reflect interest rates and other market conditions
prevailing in those countries and the effect of gains and losses in the
denominated currencies, which have had a substantial impact on investment in
foreign fixed income securities. The relative performance of various countries'
fixed income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
Mitchell Hutchins believes that over time investment in a composite of foreign
fixed income markets and in the U.S. government and in corporate bond markets
is less risky than a portfolio comprised exclusively of foreign securities and
provides investors with the potential to earn a higher return than a portfolio
invested exclusively in U.S. debt securities.
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. These risks may include expropriation,
- --------------------------------------------------------------------------------
Prospectus Page 10
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
confiscatory taxation, withholding taxes on interest, limitations on the use or
transfer of Fund assets and political or social instability or diplomatic
developments. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Securities of many foreign companies may be less
liquid and their prices more volatile than securities of comparable U.S.
companies. While the Fund generally invests only in securities that are traded
on recognized exchanges or in over-the-counter markets, from time to time
foreign securities may be difficult to liquidate rapidly without significantly
depressing the price of such securities. There may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. companies. Transactions in foreign securities may be
subject to less efficient settlement practices. Foreign securities trading
practices, including those involving securities settlement where Fund assets
may be released prior to receipt of payment, may expose the Fund to increased
risk in the event of a failed trade or the insolvency of a foreign broker-
dealer. Legal remedies for defaults and disputes may have to be pursued in
foreign courts, whose procedures differ substantially from those of U.S.
courts.
Because foreign securities ordinarily are denominated in currencies other than
the U.S. dollar (as are some securities of U.S. issuers), changes in foreign
currency exchange rates will affect the Fund's net asset value, the value of
interest earned, gains and losses realized on the sale of securities and net
investment income and capital gains, if any, to be distributed to shareholders
by the Fund. If the value of a foreign currency rises against the U.S. dollar,
the value of Fund assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of Fund assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and other currencies are determined
by supply and demand in the currency exchange markets, international balances
of payments, speculation and other economic and political conditions. In
addition, some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets. Any of these factors could adversely affect
the Fund.
The costs attributable to foreign investing that the Fund must bear frequently
are higher than those attributable to domestic investing. For example, the
costs of maintaining custody of securities in foreign countries exceed
custodian costs related to domestic securities.
The Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with
respect to securities of issuers in, or denominated in the currencies of,
emerging market countries. The economies of emerging market countries generally
are heavily dependent upon international trade and, accordingly, have been and
may continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade. Many emerging market
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain emerging market countries. The
securities markets of emerging market countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other developed countries. Disclosure and regulatory
standards in many respects are less stringent in emerging market countries than
in the United States and other major markets. There also may be a lower level
of monitoring and regulation of emerging markets and the activities of
investors in such markets, and enforcement of existing regulations may be
extremely limited. Investing in local markets, particularly in emerging market
countries, may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve
additional costs to the Fund. Certain emerging market countries may also
restrict investment opportunities in issuers in industries deemed important to
national interests.
DEBT SECURITIES. The market value of debt securities generally varies inversely
with interest
- --------------------------------------------------------------------------------
Prospectus Page 11
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
rate changes. Ratings of debt securities represent the NRSROs' opinions
regarding their quality, are not a guarantee of quality and may be reduced
after the Fund has acquired the security. Mitchell Hutchins would consider such
an event in determining whether the Fund should continue to hold the security
but is not required to dispose of it. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not reflect an assessment of
the volatility of the security's market value or the liquidity of an investment
in the security. Also, NRSROs may fail to make timely changes in credit ratings
in response to subsequent events, so that an issuer's financial condition may
be better or worse than the rating indicates. See the Statement of Additional
Information for more information about S&P's and Moody's ratings.
The Fund is permitted to invest up to 35% of its total assets in securities
rated BBB by S&P or Baa by Moody's. These securities are investment grade but
Moody's considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity for such securities to make principal and interest
payments than is the case for higher-rated securities. The Fund may invest up
to 20% of its total assets in sovereign debt securities rated below investment
grade but no lower than BB by S&P, Ba by Moody's or comparably rated by another
NRSRO or, in the case of such securities assigned a commercial paper rating, no
lower than B by S&P or comparably rated by another NRSRO. These securities are
deemed by those NRSROs to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. Such securities are commonly referred to
as "junk bonds." Commercial paper rated B by S&P is regarded by it as having
only an adequate capacity for timely payment. The Fund is also permitted to
purchase debt securities that are not rated by a NRSRO but Mitchell Hutchins
determines to be of comparable quality to that of rated securities in which the
Fund may invest. Such securities are included in the computation of any
percentage limitations applicable to the comparable rated securities. In the
event that, due to a downgrade of one or more debt securities, an amount in
excess of 20% of the Fund's total assets is held in securities rated below
investment grade and comparable unrated securities, Mitchell Hutchins will
engage in an orderly disposition of such securities to the extent necessary to
ensure that the Fund's holdings of such securities do not exceed 20% of the
Fund's total assets.
Debt securities rated below investment grade generally offer a higher current
yield than that available for higher grade issues, but they involve higher
risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers and to price fluctuations in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial
stress, which could adversely affect their ability to make payments of interest
and principal and increase the possibility of default. In addition, such
issuers may not have more traditional methods of financing available to them,
and may be unable to repay debt at maturity by refinancing. The risk of loss
due to default by such issuers is significantly greater because such securities
frequently are unsecured and subordinated to the prior payment of senior
indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk
that holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower rated debt
securities generally is thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease
the values and liquidity of lower rated securities, especially in a thinly
traded market.
U.S. AND FOREIGN GOVERNMENT SECURITIES. The U.S. government securities in which
the Fund may invest include direct obligations of the U.S. government (such as
Treasury bills, notes and bonds) and obligations issued or guaranteed by U.S.
government agencies and instrumentalities,
- --------------------------------------------------------------------------------
Prospectus Page 12
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
including securities that are backed by the full faith and credit of the United
States (such as Government National Mortgage Association certificates),
securities that are supported primarily or solely by the creditworthiness of
the issuer (such as securities issued by the Resolution Funding Corporation and
the Tennessee Valley Authority) and securities that are supported primarily or
solely by specific pools of assets and the creditworthiness of a U.S.
government-related issuer (such as securities issued by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation). The Fund
is authorized to invest in mortgage-backed securities guaranteed by the
Government National Mortgage Association but has no current intention of
investing more than 10% of its total assets in such securities.
The Fund may invest in "zero coupon" Treasury securities, which are U.S.
Treasury bills, notes and bonds that have been stripped of their unmatured
interest coupons, and receipts or certificates representing interest in such
stripped debt obligations and coupons. A zero coupon security pays no cash
interest to its holder prior to maturity. Accordingly, these securities usually
are issued and traded at a deep discount from their face or par value and will
be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities that make current
distributions of interest. Federal tax law requires that the holder of a zero
coupon security include in gross income each year the original issue discount
that accrues on the security for the year, even though the holder receives no
interest payment on the security during the year. For additional discussion of
the tax treatment of zero coupon Treasury securities, see "Taxes" in the
Statement of Additional Information.
The foreign government securities in which the Fund may invest generally
consist of obligations supported by national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational entities, which include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development, international banking institutions and
related government agencies. Examples include the World Bank, the European Coal
and Steel Community, the Asian Development Bank and the InterAmerican
Development Bank.
Foreign government securities also include debt securities of "quasi-
governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit ("ECU"). An ECU
represents specified amounts of the currencies of certain member states of the
European Union. Debt securities of quasi-governmental agencies are issued by
entities owned by either a national, state or equivalent government or are
obligations of a political unit that is not backed by the national government's
full faith and credit and general taxing powers. Foreign government securities
also include mortgage-related securities issued or guaranteed by national,
state or provincial governmental instrumentalities, including quasi-
governmental agencies.
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 Fund may have limited
legal recourse in the event of default. Political conditions, especially a
sovereign entity's willingness to meet the terms of its debt obligations, are
of considerable significance.
HEDGING AND RELATED INCOME STRATEGIES. The Fund may use options (both
exchange-traded and over-the-counter) and futures contracts to attempt to
enhance income and may attempt to reduce the overall risk of its investments
(hedge) by using options, futures contracts and forward currency contracts.
Hedging strategies may be used in an attempt to manage the Fund's foreign
currency exposure, its average duration, and other risks of the Fund's
investments that can cause fluctuations in its net asset value. The Fund's
ability to use these strategies may be limited by market conditions, regulatory
limits and tax considerations. The Appendix to this Prospectus describes the
hedging instruments that the Fund may use and the Statement of Additional
Information contains further information on these strategies.
The Fund may enter into forward currency contracts, buy or sell foreign
currency futures contracts, write (sell) covered put or call options and buy
put or call options on securities,
- --------------------------------------------------------------------------------
Prospectus Page 13
<PAGE>
- -------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- -------------------------------------------------------------------------------
securities indices, foreign currencies and such futures contracts. The Fund may
enter into options and futures contracts under which up to 100% of its
portfolio is at risk.
The Fund may enter into forward currency contracts for the purchase or sale of
a specified currency at a specified future date either with respect to specific
transactions or with respect to portfolio positions. For example, when Mitchell
Hutchins anticipates making a currency exchange transaction in connection with
the purchase or sale of a security, the Fund may enter into a forward contract
in order to set the exchange rate at which the transaction will be made. The
Fund also may enter into a forward contract to sell an amount of a foreign
currency approximating the value of some or all of the Fund's securities
denominated in such currency. The Fund may use forward contracts in one
currency or a basket of currencies to hedge against fluctuations in the value
of another currency when Mitchell Hutchins anticipates there will be a
correlation between the two and may use forward currency contracts to shift the
Fund's exposure to foreign currency fluctuations from one country to another.
The purpose of entering into these contracts is to minimize the risk to the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies.
The Fund may enter into interest rate protection transactions, including
interest rate swaps and interest rate caps, collars and floors, for hedging
purposes. For example, the Fund may enter into interest rate protection
transactions to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund will enter
into interest rate protection transactions only with banks and recognized
securities dealers believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the Trust's board of
trustees.
The Fund might not employ any of the strategies described above, and there can
be no assurance that any strategy used will succeed. If Mitchell Hutchins
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a strategy for the Fund, the Fund might have been in a better
position had it not hedged at all. The use of these strategies involves certain
special risks, including (1) the fact that skills needed to use hedging
instruments are different from those needed to select the Fund's securities,
(2) possible imperfect correlation, or even no correlation, between price
movements of hedging instruments and price movements of the investments being
hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments and (4) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to the
need for the Fund to maintain "cover" or to segregate securities in connection
with hedging transactions and the possible inability of the Fund to close out
or to liquidate its hedged position.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment objectives and regulatory and tax considerations.
REPURCHASE AGREEMENTS. The Fund may use repurchase agreements. Repurchase
agreements are transactions in which the Fund purchases securities from a bank
or recognized securities dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible decline in the market
value of the underlying securities and delays and costs to the Fund if the
other party to the repurchase agreement becomes insolvent. The Fund intends to
enter into repurchase agreements only with banks and dealers in transactions
believed by Mitchell Hutchins to present minimum credit risks in accordance
with guidelines established by the Trust's board of trustees.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 10% of its total assets. Such agreements involve the sale of securities
held by the Fund subject to its agreement to repurchase the securities at an
agreed-upon date and price reflecting a market rate of interest. Such
- -------------------------------------------------------------------------------
Prospectus Page 14
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
agreements are considered to be borrowings and may be entered into only for
temporary or emergency purposes. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of the
value of its total assets are outstanding.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase debt
obligations on a "when-issued" basis or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but the Fund would not
pay for such securities or start earning interest on them until they are
delivered. However, when the Fund purchases securities on a when-issued or
delayed delivery basis, it immediately assumes the risks of ownership,
including the risk of price fluctuation. Failure by a counter party to deliver
a security purchased on a when-issued or delayed delivery basis may result in a
loss or missed opportunity to make an alternative investment. Depending on
market conditions, the Fund's when-issued and delayed delivery purchase
commitments could cause its net asset value to be more volatile, because such
securities may increase the amount by which the Fund's total assets, including
the value of when-issued and delayed delivery securities held by the Fund,
exceed its net assets.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities, including certain cover for over-the-counter options,
repurchase agreements with maturities in excess of seven days and securities
whose disposition is restricted under the federal securities laws (other than
"Rule 144A securities" Mitchell Hutchins has determined to be liquid under
procedures approved by the Trust's board of trustees). Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
("1933 Act"). Institutional markets for restricted securities have developed as
a result of Rule 144A, providing both readily ascertainable values for
restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held
by the Fund, however, could affect adversely the marketability of such
portfolio securities and the Fund might be unable to dispose of such securities
promptly or at favorable prices.
PORTFOLIO TURNOVER. The Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate (100% or higher) for the
Fund will involve correspondingly greater transaction costs, which will be
borne directly by the Fund, and may increase the potential for short-term
capital gains.
OTHER INFORMATION. The Fund is "non-diversified," as that term is defined in
the Investment Company Act of 1940 ("1940 Act"), but the Fund intends to
continue to qualify as a "regulated investment company" for federal income tax
purposes. See "Dividends and Taxes." This means, in general, that more than 5%
of the total assets of the Fund may be invested in securities of one issuer
(including a foreign government), but only if, at the close of each quarter of
the Fund's taxable year, the aggregate amount of such holdings does not exceed
50% of the value of its total assets and no more than 25% of the value of its
total assets is invested in the securities of a single issuer. To the extent
that the Fund's portfolio at times may include the securities of a smaller
number of issuers than if it were "diversified" (as defined in the 1940 Act),
the Fund will at such times be subject to greater risk with respect to its
portfolio securities than an investment company that invests in a broader range
of securities, in that changes in the financial condition or market assessment
of a single issuer may cause greater fluctuation in the Fund's total return and
the price of Fund shares.
When Mitchell Hutchins believes unusual circumstances warrant a defensive
posture, the Fund temporarily may commit all or any portion of its assets to
cash (U.S. dollars or foreign currencies) or money market instruments of U.S.
or foreign issuers, including repurchase agreements. The Fund also may engage
in short sales of securities "against the box" to defer realization of gains
and losses for tax or other purposes. The Fund may borrow money for temporary
or emergency purposes, but not in excess of 10% of its total assets.
- --------------------------------------------------------------------------------
Prospectus Page 15
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Purchases
- --------------------------------------------------------------------------------
GENERAL. Class A shares of the Fund are sold to investors subject to an initial
sales charge. Class B shares of the Fund are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and
"Conversion of Class B Shares."
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open an
account. The minimum initial investment for the Fund is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan. Purchase orders will be priced at the net asset value per
share next determined (see "Valuation of Shares") after the order is received
by PaineWebber's New York City offices or by the Transfer Agent, plus any
applicable sales charge for Class A shares. The Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.
When placing purchase orders, investors should specify whether the order is for
Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's
New York City offices promptly. Investors may pay for purchases with checks
drawn on U.S. banks or with funds held in brokerage accounts at PaineWebber or
its correspondent firms. Payment is due on the fifth Business Day after the
order is received at PaineWebber's New York City offices. A "Business Day" is
any day, Monday through Friday, on which the New York Stock Exchange, Inc.
("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber
clients may purchase shares of the Fund through the Transfer Agent. Shares of
the Fund may be purchased, and an account with the Fund established, by
completing and signing the purchase application at the end of this Prospectus
and mailing it, together with a check to cover the purchase, to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. Subsequent investments need not be accompanied by an
application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:
INITIAL SALES CHARGE SCHEDULE-- CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF DISCOUNT TO
---------------------------------------- SELECTED
NET AMOUNT DEALERS AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
------------------ -------- ---------- ------------
<S> <C> <C> <C>
Less than $100,000 4.00% 4.17% 3.75%
$100,000 to $249,999 3.00 3.09 2.75
$250,000 to $499,999 2.25 2.30 2.00
$500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the 1933 Act.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales
- --------------------------------------------------------------------------------
Prospectus Page 16
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
charge through exchanges for Class A shares of most other PaineWebber mutual
funds. See "Exchanges." In addition, Class A shares may be purchased without a
sales charge, and exchanges of any Class of shares made without the $5.00
exchange fee, by employees, directors and officers of PaineWebber or its
affiliates, directors or trustees and officers of any PaineWebber fund, their
spouses, parents and children and advisory clients of Mitchell Hutchins.
Class A shares of the Fund also may be purchased without a sales charge if the
purchase is made through a PaineWebber investment executive who formerly was
employed as a broker with another firm registered as a broker-dealer with the
SEC, provided (1) the purchaser was the investment executive's client at the
competing brokerage firm, (2) within 90 days of the purchase of Class A shares
the purchaser redeemed shares of one or more mutual funds for which that
competing firm or its affiliates was principal underwriter, provided the
purchaser either paid a sales charge to invest in those funds, paid a
contingent deferred sales charge upon redemption or held shares of those funds
for the period required not to pay the otherwise applicable contingent deferred
sales charge and (3) the total amount of shares of all PaineWebber funds
purchased under this sales charge waiver does not exceed the amount of the
purchaser's redemption proceeds from the competing firm's funds. To take
advantage of this waiver, an investor must provide satisfactory evidence that
all the above-noted conditions are met. Qualifying investors should contact
their PaineWebber investment executives for more information.
Certificate holders of unit investment trusts ("UITs") sponsored by PaineWebber
may acquire Class A shares of the Fund without regard to minimum investment
requirements and without sales charges by electing to have dividends and other
distributions from their UIT investment automatically invested in Class A
shares.
Class A shares of the Fund may be acquired without a sales charge if issued by
the Fund in connection with a reorganization pursuant to which the Fund
acquires substantially all of the assets and liabilities of another investment
company in exchange solely for Class A shares of the Fund.
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group of
related Fund investors purchases Class A shares of the Fund concurrently with
Class A shares of other PaineWebber mutual funds, the purchases may be combined
to take advantage of the reduced sales charge applicable to larger purchases.
In addition, the right of accumulation permits the Fund investor or eligible
group of related Fund investors to pay the lower sales charge applicable to
larger purchases by basing the sales charge on the dollar amount of Class A
shares currently being purchased, plus the net asset value of the investor's or
group's total existing Class A shareholdings in other PaineWebber mutual funds.
An "eligible group of related Fund investors" includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ("IRA"), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act accounts created by the individual
or eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also includes a group of
related employers and one or more qualified retirement plans of such employers.
For more information, an investor should consult the Statement of Additional
Information or contact a PaineWebber investment executive or correspondent firm
or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares of the Fund is the next determined net asset value, and no
initial sales charge is imposed. A contingent deferred sales charge, however,
is imposed upon certain redemptions of Class B shares.
Class B shares of the Fund that are redeemed will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (1) capital appreciation of Fund assets, (2) reinvestment of
dividends or capital gain distributions or (3) shares redeemed more than six
years after their purchase. Otherwise, redemptions of Class B shares will be
subject to a contingent deferred sales charge. The amount of any applicable
contingent deferred sales charge will be calculated by multiplying the net
asset value of such shares at the time of redemption by the applicable
percentage shown in the table below.
- --------------------------------------------------------------------------------
Prospectus Page 17
<PAGE>
--------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
-------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
ASSET VALUE AT
REDEMPTION DURING REDEMPTION
- ----------------- -------------------
<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>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares of the Fund acquired through an exchange with another PaineWebber mutual
fund will be calculated from the date that the Class B shares were initially
acquired in one of the other PaineWebber funds, and Class B shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
This will result in any contingent deferred sales charge being imposed at the
lowest possible rate. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge will
be waived for exchanges, as described below, and for redemptions in connection
with the Fund's systematic withdrawal plan. In addition, the contingent
deferred sales charge will be waived for a total or partial redemption made
within one year of the death of the shareholder. The contingent deferred sales
charge waiver is available where the decedent is either the sole shareholder or
owns the shares with his or her spouse as a joint tenant with right of
survivorship. This waiver applies only to redemption of shares held at the time
of death. The contingent deferred sales charge will also be waived in
connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called "Keogh Plan") or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement plan; and a
redemption resulting from a tax-free return of an excess contribution to an
IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
PURCHASES OF CLASS D SHARES. The public offering price of the Class D shares of
the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
- --------------------------------------------------------------------------------
Exchanges
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber mutual funds and Mitchell Hutchins/Kidder, Peabody ("MH/KP")
mutual funds, or may be acquired through an exchange of shares of the
corresponding Class of those funds. No initial sales charge is imposed on the
shares being acquired, and no contingent deferred sales charge is imposed on
the shares being disposed of, through an exchange. However, contingent deferred
sales charges may apply to redemptions of Class B shares of PaineWebber mutual
funds acquired through an exchange. Class B shares of MH/KP mutual funds differ
from those of PaineWebber mutual funds. Class B shares of MH/KP mutual funds
are equivalent to Class D shares of PaineWebber mutual funds. Thus, contingent
deferred sales charges are not applicable to redemptions of the Class B shares
of MH/KP mutual funds. A $5.00 exchange fee is charged for each exchange, and
exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
The other PaineWebber and MH/KP funds with which Fund shares may be exchanged
include:
PAINEWEBBER INCOME FUNDS
. High Income Fund
. Investment Grade Income Fund
. MH/KP Adjustable Rate Government Fund
. MH/KP Global Fixed Income Fund
. MH/KP Government Income Fund
. MH/KP Intermediate Fixed Income Fund
. Short-Term U.S. Government Income Fund
Prospectus Page 18
<PAGE>
--------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
-------------
. Short-Term U.S. Government Income Fund for Credit Unions
. Strategic Income Fund
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. MH/KP Municipal Bond Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Atlas Global Growth Fund
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
. Europe Growth Fund
. Growth Fund
. MH/KP Emerging Markets Equity Fund
. MH/KP Global Equity Fund
. MH/KP Small Cap Growth Fund
. Regional Financial Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
. MH/KP Asset Allocation Fund
. MH/KP Equity Income Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificate form. Shareholders who are not PaineWebber clients or
who hold their shares in certificate form must place exchange orders in writing
with the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, Delaware 19899. All exchanges will be effected based on the
relative net asset values per share next determined after the exchange order is
received at PaineWebber's New York City offices or by the Transfer Agent. See
"Valuation of Shares." Shares of the Fund purchased through PaineWebber or its
correspondent firms may be exchanged only after the settlement date has passed
and payment for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber and MH/KP fund shares to be acquired may be legally
made. Before making any exchange, shareholders should contact their PaineWebber
investment executives or correspondent firms or the Transfer Agent to obtain
more information and prospectuses of the PaineWebber and MH/KP funds to be
acquired through the exchange.
- --------------------------------------------------------------------------------
Redemptions
- --------------------------------------------------------------------------------
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
PaineWebber clients may redeem non-certificated shares through PaineWebber or
its correspondent firms; all other shareholders must redeem through the
Transfer Agent. If a redeeming shareholder owns shares of more than one Class,
the shares will be redeemed in the following order unless the shareholder
specifically requests otherwise: Class D shares, then Class A shares, and
finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within seven days, repurchase
proceeds (less any applicable contingent deferred sales charge) will be paid by
check or credited to the shareholder's brokerage account at the election of the
shareholder. PaineWebber investment executives and correspondent firms are
responsible for promptly forwarding redemption requests to PaineWebber's New
York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
Prospectus Page 19
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good
order." "Good order" means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to the Fund account be redeemed), signed by all registered owners of
the shares in the exact names in which they are registered, (2) a guarantee of
the signature of each registered owner by an eligible institution acceptable to
the Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships,
partnerships and corporations and (4) duly endorsed share certificates, if any.
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-certificated
Fund shares may have redemption proceeds of $1 million or more wired to the
shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption
requirements generally, should be referred to the shareholder's PaineWebber
investment executive or correspondent firm, or to the Transfer Agent if the
shares are not held in a PaineWebber brokerage account. If a shareholder
requests redemption of shares which were purchased recently, the Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
shares of the Fund within 365 days after the redemption. To take advantage of
this reinstatement privilege, shareholders must notify their PaineWebber
investment executive or correspondent firm at the time the privilege is
exercised.
- --------------------------------------------------------------------------------
Conversion of Class B Shares
- --------------------------------------------------------------------------------
A shareholder's Class B shares will automatically convert to Class A shares in
the Fund approximately six years after the date of issuance, together with a
pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. If a
shareholder effects one or more exchanges among Class B shares of the
PaineWebber mutual funds during the six-year period, the holding periods for
the shares so exchanged will be counted toward the six-year period. Because the
per share net asset value of the Class A shares may be higher than that of the
Class B shares at the time of conversion, a shareholder may receive fewer Class
A shares than the number of Class B shares converted, although the dollar value
will be the same. See "Valuation of Shares."
- --------------------------------------------------------------------------------
Prospectus Page 20
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Other Services and Information
- --------------------------------------------------------------------------------
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment 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." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class D shares of the Fund with a value of $5,000 or more or non-certificated
Class B shares of the Fund with a value of $20,000 or more may have PaineWebber
redeem a portion of their shares monthly, quarterly or semi-annually under the
systematic withdrawal plan. No contingent deferred sales charge will be imposed
on such withdrawals for Class B shares. The minimum amount for all withdrawals
of Class A or Class D shares is $100, and minimum monthly, quarterly and semi-
annual withdrawal amounts for Class B shares are $200, $400 and $600,
respectively. Quarterly withdrawals are made in March, June, September and
December, and semi-annual withdrawals are made in June and December. A Class B
shareholder of the Fund may not withdraw an amount exceeding 12% annually of
his or her "Initial Account Balance," a term that means the value of the Fund
account at the time the shareholder elects to participate in the systematic
withdrawal plan. A Class B shareholder's participation in the systematic
withdrawal plan will terminate automatically if the Initial Account Balance
(plus the net asset value on the date of purchase of Fund shares acquired after
the election to participate in the systematic withdrawal plan), less aggregate
redemptions made other than pursuant to the systematic withdrawal plan, is less
than $20,000. Shareholders who receive dividends or other distributions in cash
may not participate in the systematic withdrawal plan. Purchases of additional
shares of the Fund concurrent with withdrawals are ordinarily disadvantageous
to shareholders because of tax liabilities and, for Class A shares, sales
charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased through
IRAs available through the Fund. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering es-
tablishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares will be transferred to an account with the Transfer Agent. How-
ever, 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 21
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Dividends and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS. The Fund distributes substantially all of its net investment income
and realized net gains to shareholders each year. Income dividends are declared
quarterly and may be accompanied by distributions of net realized short-term
capital gains and net realized gains from foreign currency transactions.
Substantially all of the Fund's net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and any undistributed net short-
term capital gain and realized gains from foreign currency transactions is
distributed annually. The Fund may make additional distributions if necessary
to avoid a 4% excise tax on certain undistributed income and capital gain. If
the Fund's dividends and other distributions exceed its income in any year,
which may occur due to currency-related losses or short-term capital losses,
all or a portion of its dividends may be treated as a non-taxable return of
capital to shareholders for tax purposes.
Dividends and other distributions paid on each Class of Fund shares are
calculated at the same time and in the same manner. Dividends on Class B and
Class D shares are expected to be lower than those for Class A shares because
of the higher expenses resulting from the distribution fees borne by the Class
B and Class D shares. For the same reason, dividends on Class B shares are
expected to be lower than those for Class D shares. Dividends on each Class
also might be affected differently by the allocation of other Class-specific
expenses. See "Valuation of Shares."
The Fund's dividends and other distributions are paid in additional Fund shares
of the same Class at net asset value unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and/or other distributions
in cash, either mailed to the shareholder by check or credited to the
shareholder's PaineWebber account, should contact their PaineWebber investment
executives or correspondent firms or complete the appropriate section of the
application form.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net gains from certain foreign
currency transactions and net short-term capital gain) and net capital gain
that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional Fund shares) generally are taxable to its shareholders as
ordinary income. Distributions of the Fund's net capital gain (whether paid in
cash or in additional Fund shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Shareholders not subject to tax on their income generally will not be required
to pay tax on amounts distributed to them.
The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year. Under certain circumstances, the notice also will specify the
shareholder's share of any foreign taxes paid by the Fund, in which event the
shareholder would be required to include in his gross income his pro rata share
of those taxes but might be entitled to claim a credit or deduction for those
taxes.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gain distributions is also required for such shareholders who otherwise
are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds payable to the
shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any
- --------------------------------------------------------------------------------
Prospectus Page 22
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
initial sales charge paid on Class A shares). An exchange of Fund shares for
shares of another PaineWebber fund generally will have similar tax
consequences. However, special tax rules apply when a shareholder (1) disposes
of Class A shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires Class A shares of a PaineWebber fund
without paying a sales charge due to the 365-day reinstatement privilege or
exchange privilege. In these cases, any gain on the disposition of the original
Class A shares will be increased, or loss decreased, by the amount of the sales
charge paid when those shares were acquired, and that amount will increase the
basis of the PaineWebber fund shares subsequently acquired. In addition, if
shares of the Fund are purchased within 30 days before or after redeeming 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.
No gain or loss will be recognized to a shareholder as a result of a conversion
of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
- --------------------------------------------------------------------------------
Valuation of Shares
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each Class as of the close of regular trading on the NYSE
(currently 4:00 p.m., eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund plus any cash or other assets minus all liabilities by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the board of trustees determines that this does not represent
fair value. All investments denominated in foreign currencies are valued daily
in U.S. dollars based on the then-prevailing exchange rate. It should be
recognized that judgment plays a greater role in valuing lower rated debt
securities because there is less reliable, objective data available.
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, the investment adviser and administrator
of the Fund, makes and implements all investment decisions and supervises all
aspects of the Fund's operations. Mitchell Hutchins receives a monthly fee for
these services. For the fiscal year ended October 31, 1994, the Fund paid
advisory fees at the effective annual rate of 0.72% of the Fund's average daily
net assets. The Fund's advisory fees are higher than those paid by most
investment companies to their advisers, but Mitchell Hutchins believes the fees
are justified by the global nature of the Fund's investment activities.
Brokerage transactions for the Fund may be conducted through PaineWebber or its
affiliates in accordance with procedures adopted by the Trust's board of
trustees.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by
- --------------------------------------------------------------------------------
Prospectus Page 23
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
the Transfer Agent. The Fund incurs various other expenses and, for the fiscal
year ended October 31, 1994, the Fund's total expenses for its Class A, Class B
and Class D shares, stated as a percentage of net assets, were 1.17%, 1.94% and
1.68%, respectively.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by Paine Webber Group Inc., a publicly owned financial services holding
company. As of January 31, 1995, Mitchell Hutchins was adviser or sub-adviser
of 36 investment companies with 63 separate portfolios and aggregate assets of
approximately $26.2 billion, including approximately $3.0 billion in global
funds.
Stuart Waugh has been primarily responsible for the day-to-day portfolio
management of Global Income Fund since its inception. Mr. Waugh is a vice
president of the Trust and a managing director of global fixed income
investments of Mitchell Hutchins. Mr. Waugh has been employed by Mitchell
Hutchins as a portfolio manager for the last eight years.
Other members of Mitchell Hutchins' international fixed income groups provide
input on market outlook, interest rate forecasts and other considerations
pertaining to global fixed income investments.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares, Class B shares and Class D shares ("Class A Plan," "Class B Plan" and
"Class D Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins monthly
service fees at the annual rate of 0.25% of the average daily net assets of
each Class of shares and a monthly distribution fee at the annual rate of 0.75%
of the average daily net assets of the Class B shares and 0.50% of the average
daily net assets of the Class D shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of
the aggregate investment amounts maintained in the Fund by PaineWebber clients.
PaineWebber passes on a portion of these fees to its investment executives to
compensate them for shareholder servicing that they perform and retains the
remainder to offset its own expenses in servicing and maintaining shareholder
accounts. These expenses may include costs of the PaineWebber branch office in
which the investment executive is based, such as rent, communications
equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset the Fund's marketing costs
attributable to such Classes, such as preparation of sales literature,
advertising and printing and distributing prospectuses and other shareholder
materials to prospective investors. Mitchell Hutchins also may use the
distribution fees to pay additional compensation to PaineWebber and other costs
allocated to Mitchell Hutchins' and PaineWebber's distribution activities,
including employee salaries, bonuses and other overhead expenses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class D shares
until it has been reimbursed and thereafter will pass a portion of the service
and distribution fees on Class D shares on to its investment executives.
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ("Distribution Contracts")
- --------------------------------------------------------------------------------
Prospectus Page 24
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees for the Fund, the Fund will not be
obligated to pay more than those fees and, if Mitchell Hutchins' expenses are
less than such fees, it will retain its full fees and realize a profit. The
Fund will pay the service and distribution fees to Mitchell Hutchins until
either the applicable Plan or Distribution Contract is terminated or not
renewed. In that event, Mitchell Hutchins' expenses in excess of service and
distribution fees received or accrued through the termination date will be
Mitchell Hutchins' sole responsibility and not obligations of the Fund. In
their annual consideration of the continuation of the Fund's Plans, the
trustees will review the Plan and Mitchell Hutchins' corresponding expenses for
each Class separately from the Plans and corresponding expenses for the other
two Classes.
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
The Fund performs 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 the 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 the Class
A shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five-and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for 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 included.
The Fund also may advertise its yield. Yield reflects investment income net of
expenses over a 30-day (or one-month) period on a Fund share, expressed as an
annualized percentage of the maximum offering price per share for Class A
shares and net asset value per share for Class B shares and Class D shares at
the end of the period. Yield computations differ from other accounting methods
and therefore may differ from dividends actually paid or reported net income.
The Fund will include performance data for all three Classes of Fund shares in
any advertisements or promotional materials including Fund performance data.
Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a
shareholder's cost.
- --------------------------------------------------------------------------------
Prospectus Page 25
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
General Information
- --------------------------------------------------------------------------------
ORGANIZATION. PaineWebber Investment Series is registered with the SEC as an
open-end management investment company and was organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts by
Declaration of Trust dated December 22, 1986. The trustees have authority to
issue an unlimited number of shares of beneficial interest of separate series,
par value $.001 per share. In addition to the Fund, shares of three other
series have been authorized.
The shares of beneficial interest of the Fund are divided into four Classes,
designated Class A shares, Class B shares, Class C shares and Class D shares.
Each Class represents interests in the same assets of the Fund. The Classes
differ as follows: (1) each Class has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class A shares are subject to an
initial sales charge; (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance;
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class; and (5) each Class may bear differing amounts of certain Class-specific
expenses. Class C shares, which may be offered only to a limited class of
institutional investors, are subject to neither an initial or contingent
deferred sales charge nor ongoing service or distribution fees. The Trust's
board of trustees does not anticipate that there will be any conflicts among
the interests of the holders of the different Classes of shares of the Fund. On
an ongoing basis, the board of trustees will consider whether any such conflict
exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so
requested in writing by the shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights,
except as noted above. Each share of the Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any
liquidation except that, due to the differing expenses borne by the four
Classes, such dividends and proceeds are likely to be lower for the Class B and
Class D shares than for the Class A shares and are likely to be lower for every
other Class of shares than for Class C shares. The shares of each series of the
Trust will be voted separately except when an aggregate vote of all series is
required by the 1940 Act.
To avoid additional operating costs and for investor convenience, the Fund no
longer issues share certificates. Ownership of shares of the Fund is recorded
on a stock register by the Transfer Agent and shareholders have the same rights
of ownership with respect to such shares as if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian of the Fund's assets and employs
foreign sub-custodians, approved by the Trust's board of trustees in accordance
with applicable requirements under the 1940 Act, to provide custody of the
Fund's foreign assets. PFPC Inc., a subsidiary of PNC Bank, National
Association, whose principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809, is the Fund's transfer and dividend disbursing
agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of shares of the Fund. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
- --------------------------------------------------------------------------------
Prospectus Page 26
<PAGE>
- --------------------------------------------------------------------------------
PAINEWEBBER GLOBAL INCOME FUND
Appendix
- --------------------------------------------------------------------------------
The Fund may use the following hedging instruments:
OPTIONS ON 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 SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional stock option, except that exercise of an index option is effected
with cash payment and does not involve delivery of securities. Thus, upon
exercise of an 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 index.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon
exercise of the option, the delivery of the futures position to the holder of
the option will be accompanied by delivery of the accumulated balance that
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the future. The writer of an option, upon
exercise, will assume a short position in the case of a call and a long
position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
- --------------------------------------------------------------------------------
Prospectus Page 27
<PAGE>
Application Form
THE PAINEWEBBER
MUTUAL FUNDS [_][_]-[_][_][_][_][_]-[_][_]
PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN
ACCOUNT).
ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to: PFPC Inc. P.O.
RETIREMENT PLAN FORMS OR FOR Box 8950 Wilmington,
ASSISTANCE IN COMPLETING THIS FORM Delaware 19899
CONTACT PFPC INC. AT 1-800-647-1568. ATTN: PaineWebber Mutual
Funds
PLEASE PRINT
- --------------------------------------------------------------------------------
[1] INITIAL INVESTMENT ($1,000 MINIMUM)
ENCLOSED IS A CHECK FOR:
$_______ (payable to PaineWebber Global Income Fund) to pur-
chase Class A [_] or Class B [_]or Class D [_] shares.
(Check one Class; if no Class is specified Class A shares will
be purchased)
A separate check is required for your investment in each Fund.
[2] ACCOUNT REGISTRATION
Not valid 1. Individual / /
without ------------- --------------- ------------
signature and First Name Last Name MI Soc. Sec. No.
Soc. Sec. or
Tax ID #
2. Joint Tenancy / /
----------- ------------- ------------
First Name Last Name MI Soc. Sec. No.
- --As joint ("Joint Tenants with Rights of Survivorship" unless
tenants, use otherwise specified)
Lines 1 and 2
- --As custodian 3. Gifts to Minors / /
for a minor, ------------------------ ------------
use Lines 1 Minor's Name Soc. Sec. No.
and 3
Under the Uniform Gifts/Uniform
- --In the name ------------------------ to Minors Act Transfers
of a State of Residence of Minor to Minors
corporation, Act
trust or other
organization or 4. Other Registrations
any fiduciary ------------------------ ------------
capacity, use Name Tax Ident.No.
Line 4
5. If Trust, Date of Trust Instrument:
------------------------
[3] ADDRESS
---------------------------- U.S. Citizen [_] YES [_] NO*
Street
---------------------------- ------------------------
City State Zip Code *Country of Citizenship
[4] DISTRIBUTION OPTIONS See Prospectus
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions in
additional shares
[_] Pay dividends to my address above; reinvest capital gain
distributions
[_] Pay both dividends and capital gain distributions in cash
to my address above
[_] Reinvest dividends and pay capital gain distributions in
cash to my address above
NOTE: If a selection is not made, both dividends and capi-
tal gain distributions will be paid in additional Fund
shares of the same Class.
<PAGE>
[5] SPECIAL OPTIONS (For More Information--Check Appropriate Box)
[_] Automatic Investment Plan
[_] Prototype IRA Application
[_] Systematic Withdrawal Plan
[6] RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)
Indicate here any other account(s) in
the group of funds that would qualify
for the cumulative quantity discount as
outlined in the Prospectus.
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses
and children.
-------------------------------------------------
Nature of Relationship
[8] SIGNATURE (S) AND TAX CERTIFICATION (S)
I warrant that I have full authority and am of legal age
to purchase shares of the Fund and have received and read
a current Prospectus of the Fund and agree to its terms.
The Fund and its Transfer Agent will not be liable for
acting upon instructions or inquiries believed genuine.
Under penalties of perjury, I certify that (1) my taxpayer
identification number provided in this application is
correct and (2) I am not subject to backup withholding
because (i) I have not been notified that I am subject to
backup withholding as a result of failure to report
interest or dividends or (ii) the IRS has notified me that
I am no longer subject to backup withholding (strike out
clause (2) if incorrect).
---------------------- ---------------------- ----------
Individual (or Custodian)
Joint Registrant (if any)Date
---------------------- ---------------------- ----------
Corporate Officer, Partner, Trustee, etc.
Title Date
9
INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By Invest-
ment Executive Only)
---------------------------- ----------------------------
Broker No./Name Branch Wire Code
( )
---------------------------- ----------------------------
Branch Address Telephone
10
CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspon-
dent Firm Only)
---------------------------- ----------------------------
Name Address
---------------------------- ----------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECU-
TIVE OR CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX
8950, WILMINGTON, DELAWARE 19899.
<PAGE>
PaineWebber
Global Income
Fund
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
PROSPECTUS
March 1, 1995
Shares of the Fund can be exchanged for shares of other PaineWebber and
Mitchell Hutchins/ Kidder, Peabody mutual funds, which include:
PAINEWEBBER INCOME FUNDS
. High Income Fund
. Investment Grade Income Fund
. MH/KP Adjustable Rate Government Fund
. MH/KP Global Fixed Income Fund
. MH/KP Government Income Fund
. MH/KP Intermediate Fixed Income Fund
. Short-Term U.S. Government Income Fund
. Short-Term U.S. Government Income Fund for Credit Unions
. Strategic Income Fund
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. MH/KP Municipal Bond Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Atlas Global Growth Fund
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
(continued on the inside of back cover)
---------------
A prospectus containing more complete information for any of the above funds
can be obtained from a PaineWebber investment executive or correspondent firm.
Read the prospectus carefully before investing.
(C) 1995 PaineWebber Incorporated
[Art Recycled Paper]
- --------------------------------------------------------------------------------
<PAGE>
(continued from back cover page)
PAINEWEBBER GROWTH FUNDS
. Europe Growth Fund
. Growth Fund
. MH/KP Emerging Markets Equity Fund
. MH/KP Global Equity Fund
. MH/KP Small Cap Growth Fund
. Regional Financial Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
. MH/KP Asset Allocation Fund
. MH/KP Equity Income Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
Supplement to Prospectus Dated December 29, 1994
The following disclosure amends all references to Strategic Fixed Income, L.P.
in the Fund's prospectus:
Effective July 3, 1995, Strategic Fixed Income, L.P. will cease to serve as
the Fund's sub-investment adviser. Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), the Fund's investment adviser and administrator, will
assume responsibility for making and implementing all investment decisions for
the Fund on that date. Stuart Waugh, a managing director of global fixed
income investments of Mitchell Hutchins, will be primarily responsible for
the day-to-day portfolio management of the Fund, Mr. Waugh is the portfolio
manager of global fixed income funds with aggregate assets of over $2 billion
and has been employed as a portfolio manager by Mitchell Hutchins for the last
eight years.
Supplement Dated: June 30, 1995
This Supplement does not supersede any previous supplements to the Prospectus.
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
(formerly Kidder, Peabody Investment Trust)
and the series thereof
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
MITCHELL HUTCHINS/KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
MITCHELL HUTCHINS/KIDDER, PEABODY ASSET ALLOCATION FUND
MITCHELL HUTCHINS/KIDDER, PEABODY ADJUSTABLE RATE GOVERNMENT FUND
Supplement to Prospectuses dated December 29, 1994
The following information revises and supplcmcnts the information
contained in the Funds' Prospectuses dated December 29, 1994:
1. a. Trust Name. The name of Kidder, Peabody Investment Trust was
changed to "Mitchell Hutchins/Kidder, Peabody Investment Trust" ("Trust").
b. Fund Names. The names of the five series in the trust (each a
"Fund") were changed to: "Mitchell Hutchins/Kidder, Peabody Global
Equity Fund," "Mitchell Hutchins/Kidder, Peabody Global Fixed Income
Fund," "Mitchell Hutchins/Kidder, Peabody Intermediate Fixed Income
Fund," "Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund" and
"Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund."
c. Investment Adviser and Sub-Adviser. At a special meeting of
shareholders that took place on April 13, 1995, shareholders approved a
new investment advisory and administration agreement with Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins") and, for each Fund
not sub-advised by Mitchell Hutchins, a new sub-advisory agreement with
the Fund's existing investment adviser (each now referred to as a
"Sub-Adviser"). Each Fund pays the same fee for investment advisory and
administration services to Mitchell Hutchins as previously paid to
Kidder, Peabody Asset Management, Inc. ("KPAM") and, for each sub-advised
Fund, Mitchell Hutchins (not the Fund) pays the same fee for sub-advisory
services to the Sub-Adviser as previously paid by KPAM, as described in
each Fund's Prospectus. Mitchell Hutchins, or the Sub-Adviser in the
case of each sub-advised Fund, continues to manage each Fund in
accordance with each Fund's investment objective, policies and
restrictions as stated in each Prospectus.
Mitchell Hutchins is a wholly owned subsidiary of Paine Webber
Incorporated ("PaineWebbcr"), which is in turn wholly owned by Paine
Webber Group Inc., a publicly owned financial services holding company.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York,
New York 10019. As of March 31, 1995, Mitchell Hutchins served as adviser
or sub-adviser to 42 investment companies with an aggregate of 77
separate portfolios and aggregate assets of approximately $26 billion.
d. Other Services. Mitchell Hutchins also serves as each Fund's
distributor. All references in each Fund's Prospectus to Kidder, Peabody
& Co. Incorporated as each Fund's distributor are replaced with
references to Mitchell Hutchins.
PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, National Association,
whose principal address is 400 Bellevue Parkway, Wilmington, Delaware
19809 is each Fund's transfer agent. All references in the Prospectus to
IFTC as the Fund's transfer agent are replaced with references to PFPC.
<PAGE>
The address for purchase, exchange and redemption transactions has
been changed to:
PFPC Inc.
P.O. Box 8950
Wilmington, DE 19899
Attn: Mitchell Hutchins/Kidder, Peabody Mutual Funds
800-647-1568
e. Volume Discounts and Rights of Accumulation. The terms of Letters
of Intent executed prior to February 14, 1995 will be observed, but new
Letters of Intent are no longer available.
Reduced sales charges are available through volume discounts and a
right of accumulation. If an investor or eligible group of related Fund
investors, as defined below, purchases Class A shares of a Fund
concurrently with Class A shares of other PaineWebber mutual' funds or
Mitchell Hutchins/Kidder, Peabody mutual funds, the purchases may be
combined to take advantage of the reduced sales charges applicable to
larger purchases. The right of accumulation permits a Fund investor or
eligible group of related Fund investors, as defined below, to pay the
lower sales charge applicable to larger purchases by basing the sales
charge on (1) the dollar amount of Class A shares then being purchased
plus (2) an amount equal to the then-current net asset value of the
investor's or group's combined holdings of Class A Fund shares and Class A
shares of any other PaineWebber mutual fund or Mitchell Hutchins/Kidder,
Peabody mutual fund. The purchaser must provide sufficient juror-marion
to permit confirmation of his or her holdings, and the acceptance of the
purchase order is subject to that confirmation. This right of
accumulation may be amended or terminated at any time.
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; or
(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).
f. Stock Certificates. Stock certificates are no longer issued for
shares of each Fund.
g. Reinstatement Privilege. Shareholders who have redeemed Class A
shares may reinstate their Fund account without a sales charge up to the
dollar amount redeemed by purchasing Class A shares within 365 days after
the redemption. To take advantage of this reinstatement privilege,
shareholders must notifly their investment executive at the time the
privilege is exercised.
h. Redemption by Mail. Redemption requests received by PFPC by mail
will be processed by PFPC. PFPC will mail a check in the appropriate
redemption amount to the shareholder the next business day after receipt
of a redemption request in "good order" as specified in the Prospectuses.
i. Automatic Investment Plan. The Automatic Investment Plan no longer
accepts twice monthly orders, but will accept monthly, quarterly and
semi-annully orders.
2
<PAGE>
j. Instances of a Reduced or Waived Sales Charge. The three
paragraphs of the section titled "PURCHASE OF SHARES--Instances of a
Reduced or Waived Sales Charge" are replaced with the following:
Sales Charge Waivers---Class A Shares. Class A shares may be
purchased without a sales charge by employees, directors and
officers of PaineWebber or its affiliates, directors or trustees
and officers of any PaineWebber mutual funds, their spouses, parents
and children and advisory clients of Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if
the purchase is made through a PaineWebber investment executive who
formerly was employed as a broker with another firm registered as a
broker-dealer with the Securities and Exchange Commission, provided
(1) the purchaser was the investment executive's client at the
competing brokerage firm, (2) within 90 days of the purchase of
Class A shares the purchaser redeemed shares of one or more mutual
funds for which that competing firm or its affiliates was principal
underwriter, provided the purchaser either paid a sales charge to
invest in those funds, paid a contingent deferred sales charge upon
redemption or held shares of those funds for the period required not
to pay the otherwise applicable contingent deferred sales charge and
(3) the total amount of shares of all PaineWebber mutual funds of
Mitchell Hutchins/Kidder, Peabody mutual funds purchased under this
sales charge waiver does not exceed the amount of the purchaser's
redemption proceeds from the competing firm's funds. To take
advantage of this waiver, an investor must provide satisfactory
evidence that all the above-noted conditions are met. Qualifying
investors should contact their PaineWebber investrecur executives
for more information.
k. Other Redemption Policies. With respect to shareholder holdings
that are reduced by redemptions, and not by reason of market
fluctuations, to a value of $500 or less, for which involuntary
redemptions by the Trust may be made, the shareholder notice provision is
modified to increase the time period to 60 days in which shareholders
will be given the opportunity to increase the account balance to more
than $500.
l. Systematic Withdrawal Plan. The paragraph under the section
entitled "Systematic Withdrawal Plan" is replaced with the following:
Shareholders who own shares of the Fund with a value of $5,000
or more may have Mitchell Hutchins redeem a portion of their shares
monthly, quarterly or semi-armually under the systematic withdrawal
plan. The minimum amount for all withdrawals of shares is $100.
Quarterly withdrawals are made in March, June, Septembcr and
December. and semi-annual withdrawals are made in June and December.
Shareholders who receive dividends or other distributions in cash
may not participate in the systematic withdrawal plan. Purchases of
additional shares of the Fund concurrently with withdrawals are
ordinarily disadvantageous to shareholders because of tax
liabilities and any sales charges.
2. Exchange Privileges and Charges. Shares of the Funds may be exchanged
for shares of the corresponding class of PaineWebber Funds offered under the
PaineWcbber Flexible Pricing System. Exchanges are no longer subject to the
payment of an amount equal to the difference between the sales charge
previously paid and the sales charge payable on the shares acquired in the
exchange. In addition, the exchange privilege of each Fund with former Kidder,
Peabody money market funds is eliminated. The first paragraph of the section
titled "Exchange Privilege" is replaced with the following:
Fund shares will continue to be exchangeable with the corresponding
class of Mitchell Hutchins/Kidder, Peabody Funds and additionally can be
exchangcd with the corresponding class of shares of PaineWebber Funds
offered under the PaineWebber Flexible Pricing System (Class A shares
for Class A shares of PaineWebber Funds and Class B shares for Class D
shares of PaineWebber Funds).
3. Purchases and Redemptions Through PaineWebber. The following
information revises and supplements the information appearing under the
captions "Purchase of Shares" and "Redemption of Shares" in each Fund's
prospectus:
3
<PAGE>
Purchase of Shares--Purchase of Shares Through PaineWebber or
Correspondent Firms. The time by which payment for shares purchased is
due at PaineWebber has changed due to the implementation of "T+3"
settlement procedures. Payment is due on the third Business Day after
the order is received in PaineWebber's New York City offices. A "Business
Day" is any day on which the New York Stock Exchange. Inc. ("NYSE") is
open for business.
Redemption of Shares--Redemption of Shares Through PaineWebber or
Correspondent Firms. The time by which redemption proceeds will be paid
to the redeeming shareholder has also changed due to the implementation
of "T+ 3." Repurchase proceeds will be paid within three Business Days
after receipt of the request in PaineWebber's New York City offices.
"Business Day" is defined above.
5. Effective February 13, 1995 and Applicable Only to the Mitchell
Hutchins/Kidder, Peabody Asset Allocation Fund.
a. Portfolio Management. T. Kirkham Barneby is primarily responsible
for day-to-day portfolio management of the Fund. Mr. Barneby is a
Managing Director and Chief Investment Officer--Quantitative Investments
of Mitchell Hutchins. Mr. Barneby rejoined Mitchell Hutchins in 1994,
after being with Vantage Global Managemcnt for one year. During the eight
years that Mr. Barneby was previously with Mitchell Hutchins, he was a
Senior Vice President responsible for quantitative management and asset
allocation models, Before joining Mitchell Hutchins, Mr. Barneby served
as Director of Pension Investment Strategy at the Continental Group in
Stanford, Connecticut and has held positions in the Economics Department
at both Citibank and Merrill Lynch.
b. Sales Charges. The Fund no longer imposes a contingent deferred
sales charge (CDSC) on Class B shares held less than one year.
6. Effective February 13, 1995 and Applicable Only to the Mitchell
Hutchins/Kidder, Peabody Adjustable Rate Government Fund.
a. Portfolio Management. Dennis L. McCauley and Nirmal Singh are
jointly responsible for the day-to-day management of the Fund.
Mr. McCauley is a Managing Director and Chief Investment Officer--Fixed
Income of Mitchell Hutchins responsible for overseeing all active fixed
income investments, including domesfic and global taxable and tax-exempt
mutual funds. Prior to joining Mitchell Hutchins in 1994, Mr. McCauley
worked for IBM Corporation where he was Director of Fixed Income
Investments responsible for developing and managing investment strategy
for all fixed income and cash management investments of IBM's pension
fund and self-insured medical funds. Mr. McCauley has also served as Vice
President of IBM Credit Corporation's mutual funds and as a member of the
Retirement Fund Investment Committee.
Nirmal Singh is a Vice President of Mitchell Hutchins responsible
for overseeing investments in the mortgage-backed securities section.
Prior to joining Mitchell Hutchins in 1993, Mr. Singh worked for Merrill
Lynch Asset Management where he was a member of the portfolio management
team responsible for several diversified funds, including mortgage-backed
securities funds with assets totalling $8 billion. Mr. Singh has also
served as Senior PortfoLio Manager at Nomura Mortgage Funds Management
and prior to Nomura, he worked as a transactions strategist at Shearson
Lehman Brothers and for two years at the Federal National Mortgage
Association.
7. Effective May 23, 1995 and applicable only to the Mitchell Hutchins/
Kidder, Peabody Global Fixed Income Fund:
The board of trustees of Mitchell Hutchins/Kidder, Peabody Investment
Trust ("Trust") has approved a Plan of Reorganization and Termination
("Reorganization") for submission to the shareholders of its series, Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund ("Fund"), at a special
meeting to be held August 25, 1995. If the proposed Reorganization is approved
and implemented, all the Fund's assets will be acquired and its liabilities
assumed by PaineWebber Global Income Fund ("Income Fund") in a tax-free
4
<PAGE>
reorganization. As a result of the Reorganization, the two funds' assets would
be combined and each Fund shareholder would, on the closing date of the
transaction, receive a number of full and fractional shares of the
corresponding Class of shares of Income Fund having an aggregate value equal
to the value of the shareholder's holdings in the Fund. Income Fund is a
series of PaineWebber Investment Series, an open-end management investment
company organized as a Massachusetts business trust. There can be no assurance
that the Fund's shareholders will approve the Reorganization.
The meeting of Fund shareholders to consider the proposed Reorganization
will be held on August 25, 1995. If the Reorganization is approved, sales of
all Classes of Fund shares will cease on September 22, 1995, so that Fund
shares will no longer be available for purchase or exchange starting on
September 25, 1995 through the closing date of the Reorganization. Redemptions
of Fund shares and exchanges of Fund shares for shares of another PaineWebber
or Mitchell Hutchins/Kidder, Peabody mutual fund may be effected through the
closing date of the Reorganization.
8. Effective July 3, 1995 and Applicable Only to the Mitchell Hutchins/
Kidder, Peabody Global Equity Fund and Mitchell Hutckins/Kldder, Peabody Asset
Allocation Fund:
The sales load schedule for Class A shares appearing in the prospectus is
replaced with the schedule shown below, effective on July 3, 1995:
Sales Charge as a
Percentage of Discount to
------------------------ Selected
Net Amount Dealers as a
Invested Percentage
Amount of Purchase Offering (Net Asset of Offering
at offering Price Price Value) Price
------------------ -------- ---------- ------------
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
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own resources.
Dated: June 22, 1995
This Supplement Replaces and Supersedes All Prior Supplements.
5
<PAGE>
PROSPECTUS DECEMBER 29, 1994
- --------------------------------------------------------------------------------
Kidder, Peabody Global Fixed Income Fund
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (212) 656-1737
Kidder, Peabody Global Fixed Income Fund (the 'Fund'), a series of Kidder,
Peabody Investment Trust (the 'Trust'), is designed for investors seeking to
expand their investment horizon beyond the United States. The Fund is a
non-diversified fund that seeks total return consisting of current income and
capital appreciation. The Fund attempts to achieve this objective through an
actively managed portfolio consisting of a wide range of fixed income securities
issued primarily by governmental authorities, foreign government related issuers
and supranational organizations. The Fund's investments consist primarily of
securities rated in the two highest categories of recognized rating agencies.
This Prospectus briefly sets forth certain information about the Fund, including
applicable operating expenses, that prospective investors should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated the same date as this Prospectus, has been filed with the
Securities and Exchange Commission (the 'SEC') and is available to investors
upon request and without charge by calling or writing the Trust at the telephone
number or address listed above. The Statement of Additional Information is
incorporated in its entirety by reference into this Prospectus.
- --------------------------------------------------------------------------------
MANAGER
Kidder Peabody Asset Management, Inc.
INVESTMENT ADVISER
Strategic Fixed Income, L.P.
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
The table below shows the costs and expenses that an investor would incur,
either directly or indirectly, as a shareholder of the Fund, based upon the
Fund's annual operating expenses.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases of Shares (as a percentage of
offering price)....................................................... 2.25% 0% 0%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)....................................................... 0% 0% 0%
Maximum Contingent Deferred Sales Charge (as a percentage of redemption
proceeds)............................................................. 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed).................... 0% 0% 0%
Maximum Exchange Fee.................................................... 0% 0% 0%
Maximum Annual Investment Advisory Fee Payable by Shareholders Holding
Class C Shares through the INSIGHT Investment Advisory Program (as a
percentage of average daily value of shares held)..................... 0% 0% 1.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees......................................................... .70% .70% .70%
Rule 12b-1 Fees......................................................... .25 .75 0
Other Expenses.......................................................... .24 .23 .24
---- ---- ----
Total Fund Operating Expenses.................................. 1.19% 1.68% .94%
---- ---- ----
---- ---- ----
</TABLE>
The nature of the services provided to, and the aggregate management fees
paid by, the Fund are described below under 'Management of the Fund.' The Fund
bears an annual Rule 12b-1 service fee of .25% of the value of the average daily
net assets of Class A shares and an annual Rule 12b -1 fee of .75% of the value
of the average daily net assets of Class B shares, consisting of a .25% service
fee and a .50% distribution fee. Long-term shareholders of Class B Shares may
pay more than the economic equivalent of the maximum front-end sales charge
currently permitted by the rules of the National Association of Securities
Dealers, Inc. governing investment company sales charges. See 'Distributor.'
The percentage of 'Other Expenses' in the table above is based on amounts
incurred during the Fund's most recent fiscal year; these expenses include fees
for shareholder services, custodial fees, legal and accounting fees, printing
costs and registration fees, the costs of regulatory compliance, a portion of
the costs associated with maintaining the Trust's legal existence and the costs
involved in communicating with the Fund's shareholders.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above and (3) complete redemption at the end of
the period.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Class A................................ $34 $59 $86 $164
Class B................................ $17 $53 $91 $199
Class C................................ $25 $76 $130 $278
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. The example should not be considered to be a
representation of past or future expenses. Actual expenses of the Fund may be
greater or less than those shown above. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
2
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
The Trust
The Trust is an open-end management investment company. See 'General Information.'
- ---------------------------------------------------------------------------------------------------------------------------
The Fund
The Fund, one of several series of the Trust, is a non-diversified fund that seeks total
return, consisting of current income and capital appreciation. The Fund seeks to achieve this
objective through an actively managed portfolio consisting of a wide variety of fixed income
securities issued primarily by governmental authorities, foreign government related issuers and
supranational organizations. See 'Investment Objective and Policies' and 'General Information.'
- ---------------------------------------------------------------------------------------------------------------------------
Benefits of
Investing
in the
Fund
Mutual funds, such as the Fund, are flexible investment tools that are increasingly
popular -- one of four American households now owns shares of at least one mutual fund -- for
very sound reasons. The Fund offers investors the following important benefits:
Global Investing
The Fund offers investors the opportunity to participate in a number of markets for a wide
range of fixed income securities issued by governmental authorities, foreign government
related issuers and supranational organizations. In the view of Strategic Fixed Income, L.P.,
the Fund's investment adviser (the 'Adviser'), based on historical data, these markets have in
the recent past significantly outperformed the market for U.S. Government obligations. The
Adviser believes that a prudent weighting of both U.S. and non-U.S. obligations has
historically outperformed U.S. obligations with a degree of return volatility lower than that
of the U.S. market. The risk reduction potential of foreign obligations derives from the lack
of perfect correlation among returns in individual foreign markets and those in the United
States, so that inclusion of foreign obligations with U.S. assets should lower overall
portfolio risk. Thus, the Fund provides investors the ability to expand their investment
portfolios beyond investments solely in U.S. securities and, as a result, to help to reduce
the volatility of those portfolios. The Fund also provides individual investors with a means
of dealing with certain difficulties generally involved in international investing such as
limited access to foreign markets and typically high transaction costs. See 'Design of the
Fund.'
Actively Managed Income Investing
The Fund's investment strategy is designed to afford investors the opportunity to seek total
return while limiting investment risk through investment in a portfolio consisting of fixed
income securities that are rated primarily in the two highest categories by recognized rating
agencies. See 'Investment Objective and Policies.'
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Professional Management
By pooling the monies of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and an array of investments that are typically beyond the
means of most investors. The Adviser reviews the fundamental characteristics of far more
securities than can a typical individual investor and may employ portfolio management tech-
niques that frequently are not used by individual or many institutional investors. See
'Management of the Fund.'
Transaction Savings
By investing in the Fund, an investor is able to acquire ownership in a portfolio of
securities without paying the higher transaction costs generally associated with a series of
small securities purchases.
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens normally
associated with direct ownership of securities.
Liquidity
The Fund's convenient purchase and redemption procedures provide share-holders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase of Shares' and 'Redemption of Shares.'
Choice Pricing System
Under the Choice Pricing System'sm', the Fund presently offers three classes of shares
('Classes') that provide different methods of purchasing shares and allow investment
flexibility and a wider range of investment choices. See 'Purchase of Shares.'
Exchange Privilege
Shareholders of the Fund may exchange all or a portion of their shares for shares of the same
Class or the sole outstanding Class of specified funds in the Kidder Family of Funds. See
'Exchange Privilege.'
Total Portfolio Approach
The funds in the Kidder Family of Funds are designed to be strategically combined as part of
a total portfolio approach. This investment philosophy acknowledges the interplay of a
shareholder's many different investing needs and preferences and recognizes that every
investment move a shareholder makes alters the balance of his or her overall financial
profile. The Fund may be used in conjunction with other funds in the Kidder Family of Funds to
build a portfolio that maximizes the potential of available assets while meeting many
different -- and changing -- financial needs.
- ---------------------------------------------------------------------------------------------------------------------------
Purchase
of Shares
Kidder, Peabody & Co. Incorporated ('Kidder, Peabody'), a major full-line investment services
firm serving the United States and foreign securities markets, acts as the distributor of the
Fund's shares. The Fund presently offers three Classes of shares that differ principally in
terms of the sales charges and rate of expenses to which they are subject and are designed to
provide an
</TABLE>
4
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<TABLE>
<S> <C>
investor with the flexibility of selecting an investment best suited to the investor's needs.
See 'Purchase of Shares' and 'Distributor.'
Class A Shares
The public offering price of Class A shares is the net asset value per share next determined
after a purchase order is received, plus a maximum sales charge of 2.25% (2.33% of the net
amount invested). Investors purchasing $50,000 or more, certain employee benefit plans and
employees of Kidder, Peabody's affiliates are eligible for reduced sales charges. The Fund
pays Kidder, Peabody a service fee with respect to Class A shares at the annual rate of .25%
of the value of the average daily net assets attributable to this Class.
Class B Shares
The public offering price of Class B shares is the net asset value per share next determined
after a purchase order is received without imposition of a sales charge. The Fund pays Kidder,
Peabody a service fee at the annual rate of .25%, and a distribution fee at the annual rate of
.50%, of the average daily net assets attributable to this Class.
Class C Shares
The public offering price of Class C shares, which are available exclusively to employees of
Kidder, Peabody and their associated accounts, directors or trustees of any fund in the Kidder
Family of Funds, employee benefit plans of Kidder, Peabody and participants in the INSIGHT
Investment Advisory ProgramSM ('INSIGHT'), is the net asset value per share next determined
after a purchase order is received without imposition of a sales charge. This Class bears no
service or distribution fees. Participation in INSIGHT is subject to payment of an advisory
fee at the maximum annual rate of 1.50% of assets held through INSIGHT, generally charged
quarterly in advance.
Investment Minimums
The minimum initial investment in the Fund is $1,000 and the minimum subsequent investment is
$50, except that for individual retirement accounts ('IRAs'), other tax qualified retirement
plans and accounts established pursuant to the Uniform Gifts to Minors Act, the minimum
initial investment is $250 and the minimum subsequent investment is $1.00. See 'Purchase of
Shares.'
- ---------------------------------------------------------------------------------------------------------------------------
Redemption
of Shares
Shares of the Fund may be redeemed at the Fund's next determined net asset value per share.
Redemptions are not subject to any contingent deferred sales charges or other charges. See
'Redemption of Shares.'
- ---------------------------------------------------------------------------------------------------------------------------
Management
Kidder Peabody Asset Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody,
serves as the Fund's manager and receives a fee, accrued daily and paid monthly, at the annual
rate of .70% of the Fund's average daily net assets. KPAM in turn employs the Adviser, as the
Fund's investment adviser, in which capacity the Adviser receives from KPAM a fee, accrued
daily and paid monthly, at the annual rate of .35% of the Fund's average daily net assets.
Kidder, Peabody is a major full-line investment services firm serving foreign and domestic
securities markets. General Electric Capital Services, Inc., a wholly-
</TABLE>
5
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<TABLE>
<S> <C>
owned subsidiary of General Electric Company ('GE'), owns all the outstanding stock of Kidder,
Peabody Group Inc. ('Kidder Group'), the parent company of Kidder, Peabody. The Adviser is a
limited partnership organized under the laws of the State of Delaware. The Adviser concentrates
its investment advisory activities in the area of multi-currency fixed income instruments. See
'Management of the Fund' and 'Distributor.'
- ---------------------------------------------------------------------------------------------------------------------------
Risk Factors
and Special
Considera-
tions
No assurance can be given that the Fund will achieve its investment objective. The value of a
fixed income security is dependent on, among other things, the ability of its issuer to pay
interest and repay principal in accordance with the terms of the obligation. Because the Fund
limits its investments to fixed income securities, it may not realize as high a level of total
return as other mutual funds that also invest in equity securities. The Fund invests at least
65% of its net assets in securities rated in the two highest rating categories, may invest up
to 35% of its net assets in securities rated in the third highest rating category and may
invest up to 10% of its net assets in securities rated in fourth highest rating category, of
recognized rating agencies. While securities rated in the fourth highest category are
considered investment grade, these securities may also be considered to possess speculative
characteristics. Investing in an investment company that invests in securities of governments
of foreign countries, foreign government related issuers and supranational organizations
involves risks that go beyond the usual risks inherent in an investment company limiting its
holdings to domestic investments; and foreign securities markets may be less liquid, more
volatile and less subject to governmental supervision than in the United States. A portion of
the Fund's assets may be held in securities denominated in one or more foreign currencies,
which will result in the Fund's bearing the risk that those currencies may lose value in
relation to the U.S. dollar. In addition, as a non-diversified fund, the Fund may concentrate
investments in individual issuers to a greater degree than a diversified fund and an investment
in the Fund may under certain circumstances present greater risk to an investor than an
investment in a diversified fund. The Fund may also be subject to certain risks in entering
into transactions involving foreign currencies, lending portfolio securities, entering into
repurchase agreements and using certain investment techniques and strategies, such as forward
currency contracts, trading futures contracts, options on futures contracts and purchasing
securities on a when-issued or delayed-delivery basis and engaging in short sales of
securities. See 'Investment Objective and Policies -- Risk Factors and Special Considerations'
at page 17 of this Prospectus.
</TABLE>
6
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FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Trust with respect to
the Fund by Deloitte & Touche LLP. Financial statements for the year ended
August 31, 1994 and the report of independent auditors are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------------------------------------------------------------
PERIOD YEAR PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1993`D' 1994 1993`D'`D' 1994 1993`D'`D' 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $12.00 $13.10 $12.77 $13.09 $12.77 $13.10
----------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.45 0.43 0.17 0.49 0.20 0.57
Net realized and unrealized gains (losses)
on investments........................... 1.18 (0.56) 0.32 (0.67) 0.33 (0.66)
----------------------------------------------------------------------
Total increase (decrease) from investment
operations............................... 1.63 (0.13) 0.49 (0.18) 0.53 (0.09)
----------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................... (0.53) (0.63) (0.17) (0.57) (0.20) (0.66)
Net realized capital gains................. -- (0.41) -- (0.41) -- (0.41)
----------------------------------------------------------------------
Total distributions........................ (0.53) (1.04) (0.17) (0.98) (0.20) (1.07)
----------------------------------------------------------------------
Net asset value, end of period............. $13.10 $11.93 $13.09 $11.93 $13.10 $11.94
----------------------------------------------------------------------
----------------------------------------------------------------------
Total return#.............................. 13.79% (1.10)% 3.84% (1.51)% 4.17% (0.71)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)... $180,686 $155,575 $11,555 $26,866 $21,226 $20,474
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution and
service fees, net of reimbursement....... 0.89%* 0.94% 0.89%* 0.94% 0.89%* 0.94%
Expenses, including distribution and
service fees, net of reimbursement....... 1.14%* 1.19% 1.58%* 1.68% 0.89%* 0.94%
Expenses, before reimbursement from
manager.................................. 1.22%* 1.19% 1.66%* 1.68% 0.97%* 0.94%
Net investment income...................... 4.44%* 4.22% 4.00%* 3.73% 4.69%* 4.50%
PORTFOLIO TURNOVER RATE.................... 130.43% 534.84% 130.43% 534.84% 130.43% 534.84%
</TABLE>
`D' December 24, 1992 (Commencement of Operations) to August 31, 1993.
`D'`D' May 10, 1993 (Commencement of Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales charge, and is
calculated by giving effect to the reinvestment of dividends on the dividend
payment date.
* Annualized.
7
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DESIGN OF THE FUND
The Fund is designed for investors seeking the opportunity to expand their
investment horizon beyond the United States through an actively managed
portfolio including fixed income securities of governmental, government related
and supranational issuers located throughout the world. At the same time, the
Fund provides individual investors a means of dealing with the difficulties
often associated with international investing.
INVESTMENT OPPORTUNITIES WITH DEMONSTRATED PERFORMANCE
By having the flexibility of investing in the securities of issuers located
throughout the world, the Fund is designed to benefit from emerging investment
opportunities existing outside of the United States. Historical data
demonstrates that a number of foreign government fixed income markets have
significantly outperformed the U.S. government fixed income markets over the
recent past, and the Adviser believes that foreign markets could continue to
offer attractive investment opportunities in the future. There can be no
assurance that similar returns will be obtained in the future in those markets
generally. Further, because the Fund's portfolio is actively managed and does
not include securities in those markets at all times, there can be no assurance
that there will be any correlation between the performance of those markets and
that of the Fund.
POTENTIALLY REDUCED VOLATILITY
The Adviser believes that a prudent weighting of both U.S. and non-U.S.
obligations has historically outperformed U.S. obligations with a degree of
return volatility lower than that of the U.S. market. The risk reduction
potential of foreign obligations derives from the lack of perfect correlation
among returns in individual foreign markets and those in the United States so
that inclusion of foreign obligations with U.S. assets should lower overall
portfolio risk. Thus, the Fund's investing in multiple securities markets
located throughout the world that often act independently of each other should
help to reduce the volatility of the Fund's portfolio.
BENEFITS OF INVESTING THROUGH THE FUND
Individual investors undertaking foreign investments often encounter
complications and extra costs. They have found it difficult, for example: to
make purchases and sales of securities; to deal with clearance and settlement
procedures that may differ markedly from those applicable in the United States;
to obtain current information about foreign issuers; to hold securities in
safekeeping; and to convert the value of their investments from foreign
currencies into U.S. dollars. The Fund attempts to solve these problems for an
investor by providing the investor with a global investment portfolio that is
managed actively by experienced professionals.
8
<PAGE>
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INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is total return, consisting of current income
and capital appreciation. No assurance can be given that the Fund will be able
to achieve its investment objective, which may be changed only with the approval
of a majority of the Fund's outstanding voting securities, which in turn is
defined in the Investment Company Act of 1940, as amended (the '1940 Act'), as
the lesser of (1) 67% or more of the shares present at a Fund meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy or (2) more than 50% of the outstanding shares of the Fund.
The Fund's annual report for the fiscal year ended August 31, 1994 contains
information regarding relevant market conditions and investment strategies and
techniques pursued by KPAM during such fiscal year and is available to
shareholders without charge upon request made to the Fund at the address listed
on the front cover page of this Prospectus.
GLOBAL INVESTING
The Fund invests in a portfolio of securities issued by governmental
authorities, foreign government related issuers and supranational organizations
located in developed and developing countries throughout the world. Although the
Fund is subject to no prescribed limits on geographic asset distribution, under
normal circumstances, at least 65% of the Fund's assets are invested in no fewer
than three different countries. Although the Adviser may pursue investment
opportunities throughout the world, the Adviser emphasizes investments in
developed countries, with the result that at all times at least 80% of the
Fund's assets will be invested in those countries.
TYPES OF PORTFOLIO INVESTMENTS
The Fund, under normal conditions, invests at least 65% of its total assets in
fixed income obligations (including debentures, bonds, notes and paper) issued
or guaranteed by (1) governments, including the U.S. Government, or by any of
their political subdivisions, authorities, agencies or instrumentalities, (2)
foreign government related issuers and (3) supranational organizations. The Fund
may, under normal market conditions, invest up to 35% of its assets in corporate
debt obligations, such as debentures, bonds and notes, and in the money market
instruments described below. Because the market value of debt securities can be
expected to vary inversely with changes in prevailing interest rates, investing
in debt securities may provide an opportunity for capital appreciation when
interest rates are expected to decline.
The Fund invests at least 65% of its net assets in securities rated in the
two highest rating categories of recognized rating agencies, may invest up to
35% of its net assets in securities rated in the third highest rating category
and may invest up to 10% of its net assets in securities rated in the fourth
highest rating category (in each case including securities determined to be of
comparable quality by the Adviser). Securities rated in the fourth highest
category are considered to possess speculative characteristics. In addition,
adverse changes in economic conditions are more likely to weaken the ability of
issuers of these debt securities to pay
9
<PAGE>
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principal and interest. A description of the rating categories of recognized
rating agencies is set forth in the Appendix to the Statement of Additional
Information.
Up to 15% of the value of the Fund's net assets may be invested in illiquid
securities, which are securities lacking readily available markets. From time to
time, the Fund invests in the following types of illiquid securities: (1)
options purchased by the Fund over-the-counter and the assets used by the Fund
to collateralize options written by the Fund over-the-counter, (2) repurchase
agreements not maturing within seven days and (3) time deposits with maturities
in excess of seven days. Securities that are restricted but nonetheless liquid
may be purchased without limitation.
When the Adviser determines that unstable market, economic, political or
currency conditions abroad warrant adoption of a temporary defensive posture,
the Fund may without limitation hold cash and invest in money market
instruments. To the extent that it holds cash or invests in money market
instruments, the Fund may not achieve its investment objective.
The Fund is subject to no restriction on the maturities of the obligations
it holds; those maturities may range from overnight to 30 years or more. The
Fund generally invests in intermediate fixed income securities with the result
that, under normal market conditions, the weighted average life of the Fund's
portfolio will be between three and ten years. Investors should be aware that,
depending on market conditions, the Fund's ability to achieve its objective of
maximum total return may be limited owing to the types and remaining maturities
of securities in which the Fund invests.
The Fund will typically purchase a debt security if the Adviser believes
that the yield of the security is sufficiently attractive in light of the risks
of ownership of the security and its potential for capital appreciation. In
determining whether the Fund should invest in particular debt securities, the
Adviser considers factors including but not limited to: the price, coupon and
yield to maturity; the Adviser's assessment of the credit quality of the issuer;
the yield in relation to historical norms and yields on other debt instruments;
and the terms of the debt securities, including the subordination, default,
sinking fund and early redemption provisions.
The Fund invests in securities of foreign governments, government related
issuers and supranational organizations that are listed primarily on foreign
securities exchanges or traded in foreign over-the-counter markets.
FOREIGN GOVERNMENT RELATED ISSUERS. The Fund may invest in securities of
foreign government related issuers, which are issuers that, while not formal
foreign governmental authorities, agencies, instrumentalities or political
subdivisions, enjoy a relationship with or support from the related government
that, in the opinion of the Adviser, makes their obligations comparable in
quality to those of the related government. This relationship may arise from
governmental ownership, control or sponsorship of the issuer or the issuer's
central role in the economic life of the country involved. These issuers may
include nominally private entities that operate effectively as a country's
central bank, that provide public utility services, such as telecommunication
services or electrical power generation, that engage in activities involving
natural resources or national defense and entities organized and operated for
the purpose of restructuring the investment characteristics of securities issued
by the foregoing entities. Although the securities of these entities may be
supported by an explicit governmental guarantee of the entity's obligations, in
many cases these securities will be purchased on the basis of the
10
<PAGE>
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Adviser's judgment that a governmental authority would provide support to the
entity in the event of financial difficulty. No assurance can be given that a
governmental authority would support a foreign government related issuer if it
is not legally obligated to do so.
SUPRANATIONAL ORGANIZATIONS. The Fund may invest in fixed income securities
issued by supranational organizations, which are entities designated or
supported by a government or governmental entity to promote economic development
and include, among others, the Asian Development Bank, the European Coal and
Steel Community, the European Economic Community and the World Bank. These
organizations have no taxing authority and are dependent upon their members for
payments of interest and principal. Moreover, the lending activities of
supranational entities are limited to a percentage of their total capital
(including 'callable capital' contributed by members at an entity's call),
reserves and net income.
MONEY MARKET INSTRUMENTS. Pending the investment of funds resulting from
the sale of Fund shares or the liquidation of portfolio holdings in longer term
fixed income securities, or in order to shorten the Fund's average portfolio
maturity during temporary defensive periods or in order to have available highly
liquid assets to meet anticipated redemptions of Fund shares or to pay the
Fund's operating expenses, the Fund may invest in the following types of money
market instruments: securities issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities ('Government Securities'); bank
obligations (including certificates of deposit, time deposits and bankers'
acceptances of foreign or domestic banks and other banking institutions having
total assets in excess of $500 million); commercial paper, including variable
and floating rate notes, rated no lower than A-1 by Standard & Poor's
Corporation or Prime-1 by Moody's Investors Service, Inc., or the equivalent
rating from another major rating service, or, if unrated, of an issuer having an
outstanding unsecured debt issue then rated within the three highest rating
categories; and repurchase agreements meeting the conditions described below
under 'Investment Techniques and Strategies -- Repurchase Agreements.' Except
during temporary defensive periods, the Fund will not invest more than 35% of
its assets in money market instruments. At no time will the Fund's investments
in bank obligations, including time deposits, exceed 25% of the value of its
assets.
The Fund is authorized to invest in obligations of foreign banks or foreign
branches of domestic banks that are traded in the United States or outside the
United States, but that are denominated in U.S. dollars. These obligations
entail risks that are different from those of investments in obligations in
domestic banks, including foreign economic and political developments outside
the United States, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding or other taxes on income. Foreign branches of domestic
banks are not necessarily subject to the same or similar regulatory requirements
that apply to domestic banks, such as mandatory reserve requirements, loan
limitations and accounting, auditing and financial recordkeeping requirements.
In addition, less information may be publicly available about a foreign branch
of a domestic bank than about a domestic bank.
GOVERNMENT SECURITIES. Among the Government Securities that may be held by
the Fund are instruments that are supported by the full faith and credit of the
United States; instruments that are supported by the right of the issuer to
borrow from the U.S. Treasury; and instruments that are supported solely by the
credit of the instrumentality.
11
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INVESTMENT TECHNIQUES AND STRATEGIES
The Fund, in seeking to meet its investment objective, is authorized to engage
in any one or more of the specialized investment techniques and strategies
described below:
OPTIONS. To hedge against adverse market shifts, the Fund may purchase put
and call options on securities held in its portfolio. In addition, the Fund may
seek to hedge a portion of its portfolio investments through writing (that is,
selling) 'covered' call options. A put option provides its purchaser with the
right to compel the writer of the option to purchase from the option holder an
underlying security at a specified price at any time during or at the end of the
option period. In contrast, a call option gives the purchaser the right to buy
the underlying security covered by the option from the writer of the option at
the stated exercise price. A covered call option contemplates that, for so long
as the Fund is obligated as the writer of the option, it will own (1) the
underlying securities subject to the option or (2) securities convertible into,
or exchangeable without the payment of any consideration for, the securities
subject to the option. The value of the underlying securities on which covered
call options are written at any one time by the Fund will not exceed 5% of the
Fund's total assets.
The Fund may purchase options on securities that are listed on national
securities exchanges or that are traded over-the-counter. As the holder of a put
option, the Fund has the right to sell the securities underlying the option and
as the holder of a call option, the Fund has the right to purchase the
securities underlying the option, in each case at the option's exercise price at
any time prior to, or on, the option's expiration date. The Fund may choose to
exercise the options it holds, permit them to expire or terminate them prior to
their expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may trade
securities index, currency and interest rate futures contracts, and options on
those contracts, for a variety of risk reduction purposes such as hedging a
portion of the Fund's portfolio, providing an efficient means of regulating the
Fund's exposure to certain debt markets or hedging against changes in prevailing
levels of currency exchange rates. A securities index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. A currency futures contract is a standardized contract for the future
delivery of a specified amount of currency at a future date at a price set at
the time of the contract and an interest rate futures contract is a similar
contract for the future delivery of a specific debt security. An option on a
futures contract, in contrast to a direct investment in the contract, gives the
purchaser the right, in return for the premium paid, to assume a position in the
underlying futures contract at a specified exercise price at any time on or
before the expiration date of the option.
The Fund may assume both 'long' and 'short' positions with respect to
futures contracts. A long position involves entering into a futures contract to
buy a commodity, whereas a short position involves entering into a futures
contract to sell a commodity. In entering into futures contracts, the Fund is
required to make initial 'margin' payments, which are payments in the nature of
performance bonds or good faith deposits, and to make 'variation' margin
payments from time to time as the values of the futures contracts fluctuate.
12
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The Fund will not (1) trade any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid on
its outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Fund after taking into account unrealized profits and
losses on any futures contracts or options on futures contracts or (2) enter
into any futures contracts or options on futures contracts if the aggregate of
the market value of the Fund's outstanding futures contracts and market value of
the currencies and futures contracts subject to outstanding options written by
the Fund would exceed 50% of the market value of the total assets of the Fund.
The Fund enters into short positions in futures or options contracts for bona
fide hedging purposes only. As a result, the Fund enters into a short position
in a futures or options contract in an effort to hedge against market
fluctuations that would otherwise impact the Fund's portfolio negatively. The
Fund does not use leverage when it enters into long futures or options
contracts; the Fund places in a segregated account with its custodian, or
designated sub-custodian, with respect to each of its long positions, cash,
short-term Government Securities or other U.S. dollar-denominated, high-grade,
short-term money market instruments having a value equal to the underlying
commodity value of the contract.
FORWARD CURRENCY TRANSACTIONS. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Fund's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another at a future date. The date (which may be any agreed-upon fixed
number of days in the future), the amount of currency to be exchanged and the
price at which the exchange takes place will be negotiated and fixed for the
term of the contract at the time that the Fund enters into the contract. Forward
currency contracts (1) are traded in a market conducted directly between
currency traders (typically, commercial banks or other financial institutions)
and their customers, (2) generally have no deposit requirements and (3) are
typically consummated without payment of any commissions. The Fund, however, may
enter into forward currency contracts requiring deposits or involving the
payment of commissions. To assure that the Fund's forward currency contracts are
not used to achieve investment leverage, the Fund will segregate cash or readily
marketable securities with its custodian, or a designated sub-custodian, in an
amount at all times equal to or exceeding the Fund's commitment with respect to
the contracts.
Upon maturity of a forward currency contract, the Fund may (1) pay for and
receive the underlying currency, (2) negotiate with the dealer to rollover the
contract into a new forward currency contract with a new future settlement date
or (3) negotiate with the dealer to terminate the forward contract by entering
into an offset with the currency trader providing for the Fund's paying or
receiving the difference between the exchange rate fixed in the contract and the
then current exchange rate. The Fund may also be able to negotiate such an
offset prior to maturity of the original forward contract. No assurance can be
given that new forward contracts or offsets will always be available to the
Fund.
The Fund's dealings in forward foreign exchange is limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of one forward foreign currency for another
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
13
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and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the purchase or sale of one
forward foreign currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to offset the effect of
an anticipated substantial appreciation or depreciation, respectively, in the
value of the currency relative to the U.S. dollar. In this situation, the Fund
also may, for example, enter into a forward contract to sell or purchase a
different foreign currency for a fixed U.S. dollar amount where it is believed
that the U.S. dollar value of the currency to be sold or bought pursuant to the
forward contract will fall or rise, as the case may be, whenever there is a
decline or increase, respectively, in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated (this practice being
referred to as a 'cross-hedge').
In hedging a specific transaction, the Fund may enter into a forward
contract with respect to either the currency in which the transaction is
denominated or another currency deemed appropriate by the Adviser. The amount
the Fund may invest in forward currency contracts is limited to the amount of
the Fund's aggregate investments in foreign currencies. See the Statement of
Additional Information for a further discussion of forward currency contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in the
U.S. dollar value of foreign currency-denominated securities and against
increases in the U.S. dollar cost of securities to be acquired by the Fund. Like
the writing of other kinds of options, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received; the Fund could also be required, with respect to any option it has
written, to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on a foreign currency
may constitute an effective hedge against fluctuations in exchange rates,
although in the event of rate movements adverse to the Fund's position, the Fund
may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies written or purchased by the Fund are traded on
U.S. exchanges or over-the-counter. The Fund limits the premiums paid on options
on foreign currencies to 5% of the value of its total assets. See the Statement
of Additional Information for a further discussion of the use, risks and costs
of options on foreign currencies.
LENDING PORTFOLIO SECURITIES. In seeking to achieve its investment
objective, the Fund may lend securities to well-known and recognized U.S. and
foreign brokers, dealers and banks. These loans, if and when made, may not
exceed 33- 1/3% of the Fund's assets taken at value. The Fund's loans of
securities will be collateralized by cash, letters of credit or Government
Securities. The cash or instruments collateralizing the Fund's loans of
securities will be maintained at all times in a segregated account with the
Fund's custodian, or with a designated sub-custodian, in an amount at least
equal to the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, may not exceed 15% of the Fund's net assets. The Fund may
engage in repurchase agreement transactions with certain member banks of the
Federal Reserve System and with certain dealers listed on the Federal Reserve
Bank of New York's list of reporting
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dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than seven days) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. Thus, repurchase
agreements are considered to be collateralized loans. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the securities underlying a repurchase
agreement of the Fund will be monitored on an ongoing basis by the Adviser or
KPAM to ensure that the value is at least equal at all times to the total amount
of the repurchase obligation, including interest. The Adviser or KPAM will also
monitor, on an ongoing basis to evaluate potential risks, the creditworthiness
of those banks and dealers with which the Fund enters into repurchase
agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices or yields
deemed advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund enters into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
SHORT SALES. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells securities it does not own (but
has borrowed) in anticipation of a decline in the market price of the
securities. When the Fund makes a short sale, the proceeds it receives from the
sale are retained by a broker until the Fund replaces the borrowed securities.
To deliver the securities to the buyer, the Fund must arrange through a broker
to borrow the securities and, in so doing, the Fund becomes obligated to replace
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or Government Securities. In addition, the Fund places in a
segregated account with its custodian an amount of cash or Government Securities
equal to the difference, if any, between (1) the market value of the securities
sold at the time they were sold short and (2) any cash or Government Securities
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the Fund will maintain the segregated account daily at a level so
that (1) the amount deposited in the account plus the amount deposited with the
broker (not including the proceeds from the short sale) will equal the current
market value of the securities sold short and (2) the amount deposited in the
account
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plus the amount deposited with the broker (not including the proceeds from the
short sale) will not be less than the market value of the securities at the time
they were sold short.
The Fund will not enter into a short sale of securities if, as a result of
the sale, the total market value of all securities sold short by the Fund would
exceed 25% of the value of the Fund's assets. In addition, the Fund may not (1)
sell short the securities of any single issuer listed on a national securities
exchange to the extent of more than 2% of the value of the Fund's net assets or
(2) sell short the securities of any class of an issuer to the extent of more
than 2% of the outstanding securities of the class at the time of the
transaction. The extent to which the Fund may engage in short sales may be
further limited by the Fund's meeting the requirements for qualification as a
regulated investment company imposed under the Internal Revenue Code of 1986, as
amended (the 'Code'), which requirements are described below under 'Dividends,
Distributions and Taxes.' The Fund may make short sales 'against the box'
without complying with the limitations described above.
SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with respect
to the Fund that may not be changed without approval of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). Included among those
fundamental restrictions are the following:
1. The Fund will not borrow money, except that the Fund may enter into
forward roll transactions and borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption requests and
cash payments of dividends and distributions that might otherwise require
the untimely disposition of securities, in an amount not to exceed 20% of
the value of the Fund's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) at the time
the borrowing is made. Whenever borrowings, other than forward roll
transactions, exceed 5% of the value of the total assets of the Fund, the
Fund will not make any additional investments.
2. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 33- 1/3% of the value of the Fund's total assets and entering
into repurchase agreements.
3. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government, and (b) all supranational organizations.
Certain other investment restrictions adopted by the Trust with respect to
the Fund are described in the Statement of Additional Information.
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RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as those
described below:
NON-DIVERSIFICATION. The Fund is classified as a 'non-diversified'
investment company under the 1940 Act, which means the Fund is not limited by
the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a 'regulated investment company' for purposes of
the Code which will relieve the Fund of any liability for federal income tax to
the extent its earnings are distributed to shareholders. See 'Dividends,
Distributions and Taxes -- Taxes.' To so qualify, among other requirements, the
Fund limits its investments so that, at the close of each quarter of the taxable
year, (1) not more than 25% of the market value of the Fund's total assets will
be invested in the securities of a single issuer, and (2) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Fund will not own more than 10% of the outstanding voting securities of a single
issuer. The Fund's investments in Government Securities are not subject to these
limitations. Because the Fund, as a non-diversified investment company, may
concentrate investments in individual issuers to a greater degree than a
diversified investment company, an investment in the Fund may, under certain
circumstances, present greater risk to an investor than an investment in a
diversified company.
INVESTING IN DEVELOPING COUNTRIES. Investing in securities issued by
developing countries involves exposure to economic structures that are generally
less diverse and mature than, and to political systems that can be expected to
have less stability than, those of developed countries. Other characteristics of
developing countries that may affect investment in their markets include certain
national policies that may restrict investment by foreigners and the absence of
developed legal structures governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
issuers located in developing countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. The Fund has no present
intention of investing in securities issued by communist countries or countries
formally comprising the Warsaw Pact.
NON-PUBLICLY TRADED SECURITIES. Non-publicly traded securities may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In addition, companies whose
securities are not publicly traded are not subject to their disclosure and other
investor protection requirements that may be applicable if their securities were
publicly traded.
OPTIONS. The Fund receives a premium when it writes call options, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. By writing a call, the Fund
limits its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. Thus, in some periods the
Fund receives less total return and in other periods greater total return from
its hedged positions than it would have received from its underlying securities
if unhedged.
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In purchasing a put option, the Fund seeks to benefit from a decline in the
market price of the underlying security, whereas in purchasing a call option,
the Fund seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
transactions involving futures contracts and options on those contracts, the
Fund is subject to a number of risks and special considerations. As suggested
above, securities that may be held by the Fund may be denominated in currencies
for which no, or only a highly illiquid, futures or option market exists, which
will in turn restrict the Fund's ability to hedge against the risk of
devaluation of currencies in which the Fund holds a substantial quantity of
securities. The successful use of futures contracts and options on those
contracts draws upon the Adviser's special skills and experience with respect to
those instruments and usually depends on the Adviser's ability to forecast debt
market, currency exchange rate or interest rate movements correctly. Should debt
markets, exchange rates or interest rates move in an unexpected manner, the Fund
may not achieve the anticipated benefits of futures contracts or options on
those contracts or may realize losses and thus be in a less advantageous
position than if those strategies had not been used. Certain futures contracts
and options on futures contracts are subject to no daily price fluctuation
limits so that adverse market movements could continue with respect to those
instruments to an unlimited extent over a period of time. In addition, the
correlation between movements in the prices of those instruments and movements
in the price of the securities and currencies hedged or used for cover will not
be perfect.
The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities and currencies are relatively new and still developing. The Adviser
cannot now predict the amount of trading interest that may exist in the future
in various types of futures contracts and options. Futures and options may be
closed out only on the exchange on which the contract was entered (or a linked
exchange) so that no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes described above. In
addition, although the Trust anticipates that the Fund's options and futures
transactions will not prevent the Fund from qualifying as a regulated investment
company for federal income tax purposes, the Fund's ability to engage in options
and futures transactions may be limited by this tax consideration. See
'Dividends, Distributions and Taxes -- Taxes.' In writing options, the Fund is
subject to the risk of loss resulting from the difference
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between the premium received for the option and the price of the futures
contract underlying the option that the Fund must purchase or deliver upon
exercise of the option.
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by foreign
governments and foreign government related issuers involves considerations and
potential risks not typically associated with investing in obligations issued by
the U.S. Government or other domestic issuers. Less information may be available
about foreign issuers than about domestic issuers and foreign governments
generally are not subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and requirements comparable
to those applicable to domestic issuers. The values of foreign investments are
affected by changes in currency rates or exchange control regulations,
restrictions or prohibitions on the repatriation of foreign currencies,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the United States
or abroad) or changed circumstances in dealings between nations. Costs are also
incurred in connection with conversions between various currencies. In addition,
foreign brokerage commissions are generally higher than those charged in the
United States and foreign securities markets may be less liquid, more volatile
and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in
enforcing contractual obligations and could be subject to extended clearance and
settlement periods.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by: the intervention of the U.S.
government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.
FORWARD CURRENCY CONTRACTS. In entering into foreign currency contracts,
the Fund is subject to a number of risks and special considerations. The market
for forward currency contracts, for example, may be limited with respect to
certain currencies. The existence of a limited market may in turn restrict the
Fund's ability to hedge against the risk of devaluation of currencies in which
the Fund holds a substantial quantity of securities. The successful use of
forward currency contracts as a hedging technique draws upon the Adviser's
special skills and experience with respect to those instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of forward
currency contracts or may realize losses and thus be in a less advantageous
position than if those strategies had not been used. Many forward currency
contracts are subject to no daily price fluctuation limits so that adverse
market movements could continue with respect to those contracts to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of those contracts and movements in the prices of the currencies
hedged or used for cover will not be perfect.
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The Fund's ability to dispose of its positions in forward currency
contracts depends on the availability of active markets in those instruments and
the Adviser cannot now predict the amount of trading interest that may exist in
the future in forward currency contracts. Forward currency contracts may be
closed out only by the parties entering into an offsetting contract. As a
result, no assurance can be given that the Fund will be able to utilize these
contracts effectively for the purposes described above.
LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
The Fund does not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. Purchasing
securities on a when-issued or delayed-delivery basis can involve the additional
risk that the yield available in the market when the delivery takes place may be
higher than that obtained in the transaction itself.
SHORT SALES. Possible losses from short sales differ from losses that could
be incurred from purchases of securities, because losses from short sales may be
unlimited, whereas losses from purchases of securities can equal only the total
amount invested.
PORTFOLIO TURNOVER
The Fund's portfolio is actively managed. For the fiscal year ended August 31,
1994 and for the period from December 24, 1992 (commencement of operations) to
August 31, 1993, the Fund's portfolio turnover rate was 534.84% and 130.45%,
respectively. The high portfolio turnover rate for the fiscal year ended August
31, 1994 was due to the active trading of the forward foreign exchange contracts
and bonds in the Fund's portfolio. An annual turnover rate of 100% would occur
if all of the securities held by the Fund are replaced once during a period of
one year. Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. In addition, higher portfolio turnover rates
can result in corresponding increases in portfolio transaction costs and may
make it more difficult for the Fund to qualify as a regulated investment company
for federal income tax purposes. See 'Dividends, Distributions and Taxes --
Taxes.'
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MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees, and the day-to-day operations of the Fund are
conducted through or under the direction of officers of the Trust. The Statement
of Additional Information contains general background information regarding each
Trustee and officer of the Trust.
MANAGER
KPAM, located at 60 Broad Street, New York, New York 10004-2350, serves as the
Fund's manager. A wholly-owned subsidiary of Kidder, Peabody, and a registered
investment adviser under the Investment Advisers Act of 1940, as amended (the
'Advisers Act'), KPAM currently provides investment management, investment
advisory and administrative services to a wide variety of individual and
institutional clients. The Kidder, Peabody Asset Management Group of Companies
(of which KPAM is the primary entity) provides advisory and consulting services
to more than $18 billion in assets as of September 30, 1994. General Electric
Capital Services, Inc., a wholly-owned subsidiary of GE, owns all of the
outstanding stock of Kidder Group, the parent company of Kidder, Peabody.
Under an agreement dated October 17, 1994, GE and Kidder Group agreed to
sell to PaineWebber Group Inc. certain assets of Kidder Group and its
subsidiaries, including Kidder, Peabody and KPAM. The consummation of this
transaction, which is subject to a number of conditions and cannot be assured,
will result in the deemed assignment and automatic termination of the agreements
pursuant to which Kidder, Peabody serves as the principal underwriter of the
Fund's shares and KPAM serves as the Fund's manager and investment adviser.
Institution of new arrangements with Kidder, Peabody's and KPAM's successors
following the consummation of the transaction, anticipated to occur in the first
quarter of 1995, have been approved by the Trustees and separately by a majority
of the Trustees who are not 'interested persons' of the Fund within the meaning
of the 1940 Act. In addition, the Fund's new management arrangements will
require approval by the holders of a 'majority of the outstanding voting
securities' of the Fund, as defined in the 1940 Act. No assurance can be given
that the required shareholder approvals will be obtained and, if they are not,
the Trustees will take such action as they determine to be appropriate and in
the best interests of the Fund and its shareholders.
As the Fund's manager, KPAM, subject to the supervision and direction of
the Trust's Board of Trustees, is generally responsible for furnishing, or
causing to be furnished to the Fund, investment advisory and management
services. Included among the specific services provided by KPAM as manager are:
the selection and compensation of an investment adviser to the Fund; the review
of all purchases and sales of portfolio instruments made by the Fund to assess
compliance with its stated investment objective and policies; the monitoring of
the selection of brokers and dealers effecting transactions on behalf of the
Fund; the maintenance and furnishing of all required records or reports
pertaining to the Fund to the extent those records or reports are not maintained
or furnished by the Fund's transfer agent, custodian or other agents employed by
the Fund; the providing of general administrative services to the Fund not
otherwise provided by the Fund's transfer agent, custodian or other agents
employed by the Fund; and the payment
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of reasonable salaries and expenses of those of the Fund's officers and
employees, and the fees and expenses of those members of the Trust's Board of
Trustees, who are directors, officers or employees of KPAM.
The Trust pays KPAM a fee for services provided to the Fund that is accrued
daily and paid monthly at the annual rate of .70% of the Fund's average daily
net assets. From time to time, KPAM in its sole discretion may waive all or a
portion of its fee and/or reimburse all or a portion of the Fund's operating
expenses.
For the fiscal year ended August 31, 1994, Class A's, Class B's and Class
C's total expenses represented 1.19%, 1.68% and .94%, respectively, of their
average daily net assets.
INVESTMENT ADVISER
Under the terms of an investment advisory agreement among KPAM, the Trust and
the Adviser, KPAM employs the Adviser as the Fund's investment adviser. The
Adviser, located at 1001 19th Street, North, Suite 1600, Arlington, Virginia
22209, is a registered investment adviser under the Adviser's Act and
concentrates its investment advisory activities in the area of multi-currency
fixed income instruments. The Adviser provides investment advisory services to a
variety of clients having total assets under management as of September 30,
1994, exceeding $2.9 billion. The Adviser is a limited partnership organized
under the laws of the State of Delaware, the general partner of which is Gobi
Investment, Inc., which is wholly-owned by Kenneth A. Windheim. The Adviser has
not previously served as investment adviser to a registered investment company.
As the Fund's investment adviser, the Adviser, subject to the supervision
and direction of the Trust's Board of Trustees, and subject to review by KPAM,
manages the Fund's portfolio in accordance with the investment objective and
stated policies of the Fund, makes investment decisions for the Fund and places
purchase and sale orders for the Fund's portfolio transactions. The Adviser also
pays the salaries of all officers and employees who are employed by both it and
the Trust, provides the Fund with investment officers who are authorized by the
Board of Trustees to execute purchases and sales of securities on behalf of the
Fund and employs a professional staff of portfolio managers who draw upon a
variety of sources for research information for the Fund. KPAM pays the Adviser
a fee for services provided by the Adviser to the Fund that is accrued daily and
paid monthly at the annual rate of .35% of the value of the Fund's average daily
net assets. The Fund pays no direct fee to the Adviser. From time to time, the
Adviser in its sole discretion may waive all or a portion of its fee.
Kenneth A. Windheim serves as Chief Investment Officer of the Fund and in
that capacity is the individual primarily responsible for the management of the
Fund's assets. He is President of the Adviser and President of Gobi Investment,
Inc., the general partner of the Adviser. Prior to May 1991, he was Managing
Director of the International Fixed Income Department of Global Fixed Income
Advisers.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities for
sales are allocated in a manner believed by the Adviser to be equitable to
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each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund.
EXPENSES
Each Class bears its own expenses, which generally include all costs not
specifically borne by KPAM and the Adviser. Included among a Class' expenses are
costs incurred in connection with the Class' and Fund's organization; management
and investment advisory fees; any distribution and/or service fees; fees for
necessary professional and brokerage services; fees for any pricing service used
in connection with the valuation of shares; costs of regulatory compliance; and
a portion of the costs associated with maintaining the Trust's legal existence
and corresponding with shareholders of the Fund. The Trust's agreement with KPAM
provides that KPAM will reduce its fees to the Fund to the extent required by
applicable state laws for certain expenses that are described in the Statement
of Additional Information.
PURCHASE OF SHARES
GENERAL INFORMATION
Shares of the Fund must be purchased and maintained through a Kidder, Peabody
brokerage account (an 'Account'), so that an investor who wishes to purchase
shares but who has no existing Account must establish one. Kidder, Peabody
charges no maintenance fee in connection with an Account through which an
investor purchases or holds shares of the Fund.
Purchases are effected at the public offering price of the Fund's shares
next determined after a purchase order is received. Payment for shares purchased
by an investor is due at Kidder, Peabody on the 'settlement date,' which is
generally the fifth business day after the order for purchase is placed, unless
the investor has 'good funds' available in an existing Account that can be
applied to the purchase. 'Good funds' as used in this Prospectus means cash,
Federal funds, or certified checks drawn on a U.S. bank. The Trust reserves the
right to reject any purchase order for shares of the Fund and to suspend the
offering for any period of time.
The minimum initial investment in the Fund is $1,000 and the minimum
subsequent investment is $50, except that for IRAs, other tax qualified
retirement plans and accounts established pursuant to the Uniform Gifts to
Minors Act, the minimum initial investment is $250 and the minimum subsequent
investment is $1.00. The Trust reserves the right to vary at any time the
minimum initial or subsequent investment amounts.
Purchase orders for shares of the Fund that are received prior to the close
of regular trading on the New York Stock Exchange (the 'NYSE') on a particular
day (currently 4:00 p.m., New York time) are priced according to the net asset
values determined on that day. Purchase orders received after the close of
regular trading on the NYSE are priced as of the time each Class' net asset
value per share is next determined. See 'Determination of Net Asset Value' below
for a description of the times at which each Class' net asset value per share is
determined.
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The Trust offers Fund shareholders an Automatic Investment Plan under which
a shareholder may authorize Kidder, Peabody to place monthly, twice monthly or
quarterly, as selected by the shareholder, a purchase order for Fund shares in
an amount not less than $100. The purchase price is paid automatically from a
designated bank account of the shareholder. The Fund reserves the right to
terminate or change the provisions of the Automatic Investment Plan.
Under the Choice Pricing System, the Fund presently offers three methods of
purchasing shares, enabling investors to choose the Class that best suits their
needs, given the amount of purchase and intended length of investment. Kidder,
Peabody Investment Executives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. When purchasing shares of the Fund, investors must
specify whether the purchase is for Class A shares, Class B shares or Class C
shares, as described below.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per Class A
share next determined after a purchase order is received plus a sales charge, if
applicable. Class A shares are subject to a service fee at the annual rate of
.25% of the value of the Fund's average daily net assets attributable to this
Class. See 'Distributor.' The sales charge payable upon the purchase of Class A
shares will vary with the amount of purchase as set forth below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-----------------------------------------------
AMOUNT OF PURCHASE AS PERCENTAGE AS PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE OF NET AMOUNT INVESTED
---------------------- --------------------- ----------------------
<S> <C> <C>
Less than $50,000........................................ 2.25% 2.33%
$50,000 but less than $100,000........................... 1.75 1.75
$100,000 but less than $250,000.......................... 1.50 1.50
$250,000 but less than $500,000.......................... 1.00 1.00
$500,000 but less than $1,000,000........................ .75 .75
$1,000,000 or more....................................... 0 0
</TABLE>
INSTANCES OF A REDUCED OR WAIVED SALES CHARGE. Class A shares are sold
subject to a reduction of 20% in the sales charges shown in the table above to:
(1) employees of GE and other affiliates of Kidder, Peabody, (2) IRAs for those
employees, (3) other employee benefit plans for those employees and (4) the
spouses and minor children of those employees when orders on their behalf are
placed by the employees.
Class A shares are sold without a sales charge to tax exempt organizations
enumerated in Section 501(c)(3) of the Code and retirement plans qualified under
Section 403(b)(7) of the Code, each having 1,000 or more participants
('Qualified Plans'). Employees eligible to participate in Qualified Plans
sponsored by the same organization or its affiliates may be aggregated in
determining the sales charge applicable to an investment made by a Qualified
Plan.
No sales charge is imposed on Class A shares purchased through reinvestment
of dividends or capital gains distributions. Clients of a newly-employed Kidder,
Peabody Investment
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Executive are eligible to purchase Class A shares subject to no sales charge for
a period of 90 days after the Investment Executive first becomes employed by
Kidder, Peabody, so long as the following conditions are met: (1) the purchase
is made within 30 days of, and with the proceeds from, a redemption of shares of
a mutual fund sponsored by the Investment Executive's previous employer; (2) the
Investment Executive served as the client's broker on the purchase of the shares
of the mutual fund; and (3) the shares of the mutual fund sold were subject to a
sales charge. Clients of a Kidder, Peabody Investment Executive are also
eligible to purchase Class A shares subject to no sales charge so long as the
following conditions are met: (1) the purchase is made within 30 days of, and
with the proceeds from, a redemption of shares of a mutual fund that were
purchased through Kidder, Peabody acting as a selected dealer for the shares
pursuant to an agreement between Kidder, Peabody and the mutual fund's principal
underwriter; (2) the mutual fund invested primarily in foreign debt securities;
(3) the Investment Executive served as the client's broker on the purchase of
the shares of the mutual fund sold; and (4) the shares of the mutual fund sold
were subject to a sales charge. Class A shares may also be offered without a
sales charge to any investment company, other than a company for which Kidder,
Peabody serves as distributor, in connection with the combination of the company
with the Fund by merger, acquisition of assets or otherwise.
VOLUME DISCOUNTS. Any investor meeting certain requirements, including the
signing of a Letter of Intent (a 'Letter'), is eligible to obtain a reduced
sales charge for purchasing Fund shares by combining purchases made over a
13-month period of Class A shares and shares of other mutual funds in the Kidder
Family of Funds with respect to which the investor previously paid, or is
subject to the payment of, a sales charge (collectively referred to as 'Eligible
Shares'). Purchases of Fund shares by eligible investors must aggregate at least
$50,000 and must include a minimum initial investment of at least $1,000 and
minimum subsequent investments of at least $50. For purposes of the procedure
contemplated by a Letter, Eligible Shares owned by an investor will be valued at
their original cost in determining the size of a purchase and the applicable
sales charge.
An investor's purchase of Eligible Shares not originally made pursuant to a
Letter may be included under a Letter subsequently executed within 90 days of
the purchase, so long as the investor informs Kidder, Peabody in writing within
the 90-day period of the investor's desired use of a Letter. The original cost
of an investor's Eligible Shares not purchased pursuant to a Letter may be
included under a Letter subsequently executed within 90 days of the purchase, so
long as the investor informs Kidder, Peabody in writing within the 90-day period
of the investor's desire for that treatment to be applicable. The original cost
of Eligible Shares not purchased pursuant to a Letter may be included as a
credit toward the fulfillment of the terms of the Letter; the reduced sales
charge contemplated by the Letter, however, will apply only to the purchases of
Eligible Shares made after the execution of the Letter, which purchases, as
noted above, must aggregate at least $50,000.
A Letter must provide for 5% of the dollar amount of the intended
investment to be held in escrow by Investors Fiduciary Trust Company ('IFTC') in
the form of Eligible Shares in an account registered in the name of the
shareholder. If the total amount of any Eligible Shares owned at the time a
Letter is signed plus all purchases made under the terms of the Letter less
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redemptions (the 'investment') are at least equal to the intended investment,
the amount in escrow will be released to the shareholder. If the investment is
more than $50,000 but less than the intended investment, a remittance of the
difference in the dollar amount of sales charge paid and the sales charge that
would have been paid if the investment had been made at a single time will be
made upon request. If the remittance is not sent within 20 days after such a
request, IFTC will redeem an appropriate number of Eligible Shares held in
escrow in order to realize the difference. Amounts remaining in the escrow
account will be released to the shareholder's account. If the total investment
is more than the intended investment and the total is sufficient to qualify for
an additional sales charge reduction, a retroactive price adjustment will be
made for all purchases made under a Letter to reflect the sales charge
applicable to the aggregate amount of the purchases during the 13-month period.
A Letter is not a binding obligation to purchase the indicated amount, and
Kidder, Peabody is not obligated to sell the indicated amount. Reinvested
dividends and capital gains are not applied toward the completion of the
purchases contemplated by a Letter.
RIGHT OF ACCUMULATION. Reduced sales charges on Class A shares are
available under a combined right of accumulation permitting an investor to
combine the value of Eligible Shares and the value of Fund shares being
purchased,to qualify for a reduced sales charge. Before a shareholder may take
advantage of the right of accumulation, the shareholder must provide Kidder,
Peabody at the time of purchase with sufficient information to permit Kidder,
Peabody to confirm that the shareholder is qualified for the right; acceptance
of the shareholder's purchase order is subject to that confirmation. The right
of accumulation may be amended or terminated at any time by the Trust.
DEFINITION OF PURCHASE. For purposes of the volume discounts and right of
accumulation described above, a 'purchase' refers to: a single purchase of
Eligible Shares by an individual; concurrent purchases by an individual, his or
her spouse and their children under the age of 21 years purchasing Eligible
Shares for his, her or their own account; and single purchases by a trustee or
other fiduciary purchasing Eligible Shares for a single trust estate or single
fiduciary account, including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of the Code, even
though more than one beneficiary is involved. The term 'purchase' also includes
purchases by any 'company,' as that term is defined in the 1940 Act, but does
not include: purchases by any such company that has not been in existence for at
least six months or that has no purpose other than the purchase of Eligible
Shares or shares of other investment companies registered under the 1940 Act at
a discount; or purchases by any group of individuals whose participants are
related by virtue of being credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer or clients of an
investment adviser. The term 'purchase' also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
by employees or by employers on behalf of employees by means of a payroll
deduction plan, or otherwise, of Eligible Shares. Purchases by such a company or
non-qualified employee benefit plan will qualify for the volume discounts
offered with respect to the Fund's shares only if the Trust and Kidder, Peabody
are able to realize economies of scale in sales efforts and sales-related
expenses by means of the company's, the employer's or the plan's making the
Prospectus available to individual investors or employees and forwarding
investments by those persons to the Trust,
26
<PAGE>
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and by any such employer's or plan's bearing the expense of any payroll
deduction plan. The term 'purchase' also includes any purchase of Eligible
Shares by or on behalf of certain members of the same family, including spouses,
children (adult and minor), parents, grandparents and siblings, provided,
however, that the following conditions are met: (1) following consummation of
the purchase, the family has, in the aggregate, (a) at least $5 million invested
in Eligible Shares of one or more funds within the Kidder Family of Funds or (b)
at least $10 million in cash and/or securities in Kidder, Peabody Accounts; and
(2) the Trust and Kidder, Peabody are able to realize economies of scale in
sales effort and sales-related expenses by means of dealing with a common
decision-maker or otherwise being able to treat the accounts as a single
relationship.
REINSTATEMENT PRIVILEGE. The Fund offers a reinstatement privilege under
which a shareholder that has redeemed Class A shares may reinvest the proceeds
from the redemption without imposition of a sales charge, provided the
reinvestment is made within 60 days of the redemption. The tax status of a gain
realized on a redemption will not be affected by exercise of the reinstatement
privilege but a loss will be nullified if the reinvestment is made within 30
days of the redemption. See the Statement of Additional Information for the tax
consequences when, within 90 days of a purchase of Class A shares, the shares
are redeemed and reinvested in the Fund or another mutual fund.
CLASS B SHARES
The public offering price of Class B shares is the net asset value per share
next determined after a purchase order is received without imposition of any
sales charge. Class B shares are subject to a service fee at the annual rate of
.25%, and a distribution fee at the annual rate of .50%, of the value of the
Fund's average daily net assets attributable to this Class. See 'Distributor.'
Kidder, Peabody has adopted guidelines, in view of the relative sales charges,
service fees and distribution fees, directing Investment Executives that all
purchases of shares should be for Class A shares when the purchase is for
$1,000,000 or more by an investor not eligible to purchase Class C shares.
Kidder, Peabody reserves the right to vary these guidelines at any time.
CLASS C SHARES
The public offering price of Class C shares is the net asset value per share
next determined after a purchase order is received without imposition of any
sales charge. Class C shares, which are not subject to any service fee or
distribution fee, are available exclusively to employees of Kidder, Peabody and
their associated accounts, directors or trustees of any fund in the Kidder
Family of Funds, employee benefit plans of Kidder, Peabody and participants in
Insight when shares are purchased through that program. Investors eligible to
purchase Class C shares may not purchase any other Class of shares.
INSIGHT. An investor purchasing $50,000 or more of shares of funds in the
Kidder Family of Funds may participate in INSIGHT, KPAM's total portfolio asset
allocation program, and receive Class C Shares. INSIGHT offers comprehensive
investment services, including a
27
<PAGE>
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personalized asset allocation investment strategy using an appropriate
combination of funds in the Kidder Family of Funds, professional investment
advice regarding investment among the funds in the Kidder Family of Funds by
KPAM portfolio specialists, monitoring of investment performance and
comprehensive quarterly reports that cover market trends, portfolio summaries
and personalized account information. Participation in INSIGHT is subject to
payment of an advisory fee to KPAM at the maximum annual rate of 1.5% of assets
held through the program (generally charged quarterly in advance), which covers
all INSIGHT investment advisory services and program administration fees.
Employees of Kidder, Peabody are entitled to a 50% reduction in the fee
otherwise payable for participation in INSIGHT. INSIGHT clients may elect to
have their INSIGHT fees charged to their accounts (by the automatic redemption
of money market fund shares) or another of their Kidder, Peabody accounts or,
billed separately.
REDEMPTION OF SHARES
A shareholder may redeem Fund shares on any day that the Fund's net asset value
is determined by following the procedures described below.
REDEMPTION THROUGH KIDDER, PEABODY
Shares may be redeemed through Kidder, Peabody, which provides the terms of any
redemption request properly received prior to 4:00 p.m., New York time, on a
given day, to the Fund's transfer agent. The trade date of a redemption so
received is considered to be that day, and the trade date of any redemption
request received at or after 4:00 p.m., New York time, is considered to be the
next business day. If shares to be redeemed were issued in certificate form, the
certificates for the shares to be redeemed must be submitted to the transfer
agent in accordance with the procedures described in items (1) through (4) under
'Redemption by Mail' below.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request in 'good order' to the
Fund's transfer agent at the following address:
Kidder, Peabody Global Fixed Income Fund
Class A, B or C (please specify)
c/o Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
The transfer agent transmits any redemption request that it receives to
Kidder, Peabody, and the request is then treated as if it had been made through
Kidder, Peabody. A redemption request is considered to have been received in
'good order' if the following conditions are satisfied:
(1) the request is in writing, states the Class and number or dollar
amount of shares to be redeemed and identifies the shareholder's Fund
account number;
(2) the request is signed by each registered owner exactly as the
shares are registered;
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(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed by the shareholder for transfer (or are
themselves accompanied by an endorsed stock power) and accompany the
redemption request, which should be sent by registered mail for the
protection of the shareholder; and
(4) the signatures on either the written redemption request or the
certificates (or the accompanying stock power) have been guaranteed by a
bank, broker-dealer, municipal securities broker and dealer, government
securities dealer and broker, credit union, a member firm of a national
securities exchange, registered securities association or clearing agency,
and savings association (the purpose of a signature guarantee is to protect
shareholders against the possibility of fraud). The transfer agent may
reject redemption instructions if the guarantor is neither a member of nor
a participant in a signature guarantee program (currently known as
'STAMP''sm').
Additional supporting documents may be required for redemptions of Fund
shares by corporations, executors, administrators, trustees and guardians.
OTHER REDEMPTION POLICIES
Signature guarantees are required in connection with (1) any redemption of Fund
shares made by mail and (2) share ownership transfer requests. These
requirements may be waived by the Trust in certain instances.
Any redemption request made by a shareholder of the Fund will be effected
at the net asset value per share next determined after proper redemption
instructions are received. See 'Determination of Net Asset Value' below. The
proceeds of the redemption generally are credited to the shareholder's Account,
or sent to the shareholder, as applicable, on the fifth business day following
the date after the redemption request was received in good order, but in no
event later than seven days following that date. A shareholder who pays for Fund
shares by personal check will be credited with the proceeds of a redemption of
those shares only after the check used for the purchase has cleared, which may
take up to 15 days or more. If shares are purchased with good funds, no delay in
redemption will occur. The amount of redemption proceeds received by a Fund
shareholder will in no way be affected by any delay in the crediting of those
proceeds.
A Fund account with respect to a Class of shares that is reduced by
redemptions, and not by reason of market fluctuations, to a value of $500 or
less may be redeemed by the Trust, but only after the shareholder has been given
at least 30 days in which to increase the balance in the account to more than
$500. Proceeds of such a redemption will be mailed to the shareholder.
DISTRIBUTIONS IN KIND
If the Trust's Board of Trustees determines that it would be detrimental to the
best interests of the Fund's shareholders to make a redemption payment wholly in
cash, the Fund may pay, in accordance with rules adopted by the SEC, any portion
of a redemption in excess of the lesser of $250,000 or 1% of the Fund's net
assets by a distribution in kind of readily marketable portfolio securities in
lieu of cash. Redemptions failing to meet this threshold must be made in cash.
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Shareholders receiving distributions in kind of portfolio securities may incur
brokerage commissions when subsequently disposing of those securities.
SYSTEMATIC WITHDRAWAL PLAN
The Trust offers a systematic withdrawal plan (the 'Withdrawal Plan') under
which a shareholder of the Fund with $20,000 or more invested in a Class may
elect periodic redemption payments to the shareholder or a designated payee on a
monthly basis. Payments pursuant to the Withdrawal Plan normally are made within
the last ten days of the month. The minimum rate of withdrawal is $200 per month
and the maximum annual withdrawal is 12% of current account value in the Class
as of the commencement of participation in the Withdrawal Plan (less the amount
of any subsequent redemption outside the Withdrawal Plan). A shareholder
participating in the Withdrawal Plan must reinvest all income and capital gains
distributions, and may not continue to participate if the shareholder redeems
outside the Withdrawal Plan or exchanges to another fund an amount that would
cause the account value in the Class to fall below $20,000. The Trust may amend
or terminate the Withdrawal Plan, and a shareholder may terminate participation
in the Withdrawal Plan at any time.
DETERMINATION OF NET ASSET VALUE
Each Class' net asset value per share is calculated by IFTC, the Fund's
custodian, on each day, Monday through Friday, except that net asset value is
not computed on a day in which no orders to purchase, sell, exchange or redeem
Fund shares have been received, any day on which there is not sufficient trading
in the Fund's portfolio securities that the Fund's net asset values per share
might be materially affected by changes in the value of such portfolio
securities or on days on which the NYSE is not open for trading. The NYSE is
currently scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday when one of those holidays falls on a Saturday or on
the subsequent Monday when one of those holidays falls on a Sunday.
Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE, and is computed by dividing the value of the Fund's
net assets attributable to that Class by the total number of shares outstanding
of that Class. Generally, the Fund's investments are valued at market value or,
in the absence of a market value, at fair value as determined by or under the
direction of the Trust's Board of Trustees.
Investments in Government Securities and other securities traded
over-the-counter, other than short-term investments that mature in 60 days or
less, are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost (which involves valuing an investment
at its cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the effect of fluctuating interest rates on
the market value of the investment) when the Board of Trustees has determined
that amortized cost represents fair value. Securities that are primarily traded
on foreign exchanges are generally valued for purposes of calculating each
Class' net asset value at the preceding closing values of the securities on
their respective exchanges, except that, when an occurrence subsequent to the
time a value was so established is likely to have changed that value, the fair
market value of those
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securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees. A security that is primarily traded on a
domestic stock exchange is valued at the last sale price on that exchange or, if
no sales occurred during the day, at the current quoted bid price. An option
that is written by the Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last offer price. An option that is
purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract is equal to the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes a limit move with respect to a particular
futures contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, futures contracts will be valued at
their fair market value as determined by or under the direction of the Board of
Trustees.
For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Board of Trustees. In carrying out the Board's valuation policies, IFTC
may consult with an independent pricing service retained by the Trust. Further
information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class (or the sole
Class offered) in certain funds in the Kidder Family of Funds, to the extent
shares are offered for sale in the shareholder's state of residence. For a list
and a description of the funds in the Kidder Family of Funds for which shares
may be exchanged, see 'Exchange Privilege' in the Statement of Additional
Information. Under the Choice Pricing System, an exchange of shares of the Fund
with other funds' shares will be limited to shares of the same class or the sole
class (money market funds only) of shares of a fund from or to which the
exchange is to be effected. For example, if a holder of Class A shares of the
Fund exchanges his shares for shares of Kidder, Peabody Cash Reserve Fund, Inc.
('Cash Reserve Fund') (a money market fund) and thereafter wishes to exchange
those shares for shares of Kidder, Peabody Government Income Fund, Inc. he may
receive only Class A shares in the latter transaction. As another example, if a
holder of shares of Cash Reserve Fund acquired as a result of an initial
investment and not from an exchange with shares of another fund wishes to
exchange his shares for shares of the Fund, he may receive Class A shares, Class
B shares or Class C shares (depending on his eligibility for Class C shares) in
the exchange transaction. Thereafter, any further exchanges would be subject to
the principal described above limiting subsequent exchanges to the same class or
the sole class of shares of other funds. If Class A shares acquired in an
exchange are subject to payment of a sales charge higher than the sales charge
paid on the shares relinquished in the exchange (or any predecessor of those
shares), the exchange will be subject to payment of an amount equal to the
difference, if any, between the sales charge previously paid and the sales
charge payable on the Class A shares acquired in the exchange.
Although the Fund currently imposes no limit on the number of times the
Exchange Privilege may be exercised by any shareholder, the Fund may impose such
limits in the future, in
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accordance with applicable provisions of the 1940 Act and rules thereunder. In
addition, the Exchange Privilege may be terminated or revised at any time upon
60 days' prior written notice to Fund shareholders, and is available only to
residents of states in which exchanges are permitted under state law. The
exchange of shares of one fund for shares of another is treated for federal
income tax purposes as a sale of the shares given in exchange by the
shareholder, so that a shareholder may recognize a taxable gain or loss on an
exchange.
Upon receipt of proper instructions and all necessary supporting documents,
Fund shares submitted for exchange will be redeemed at their net asset value
next determined and simultaneously invested in shares of the fund being
acquired. Settlement of an exchange would occur one business day after the date
on which the request for exchange was received in proper form, unless the dollar
amount of the transaction exceeds 5% of the Fund's total net assets on any given
day, in which case settlement would occur within five business days after the
date on which the request for exchange was received in proper form. The proceeds
of a redemption of Fund shares made to facilitate the exchange of those shares
for shares of another fund must be equal to at least (1) the minimum initial
investment requirement imposed by the fund into which the exchange is being
sought if the shareholder seeking the exchange has not previously invested in
that fund or (2) the minimum subsequent investment requirement imposed by the
fund into which the exchange is being sought if the shareholder has previously
made an investment in that fund.
A shareholder of the Fund wishing to exercise the Exchange Privilege should
obtain from Kidder, Peabody a copy of the current prospectus of the fund into
which an exchange is being sought and review that prospectus carefully before
making the exchange. Kidder, Peabody reserves the right to reject any exchange
request at any time. Prior to or concurrently with the delivery of a
confirmation a shareholder's exchange transaction, Kidder, Peabody will deliver
to that shareholder a copy of the prospectus of the fund into which the exchange
is being made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and
distributed monthly and distributions of net realized capital gains of the Fund,
if any, are distributed annually after the close of the fiscal year in which
they are earned. Unless a shareholder instructs the Fund that dividends and
capital gains distributions on shares of any Class should be paid in cash and
credited to the shareholder's Account, dividends and capital gains distributions
are reinvested automatically at net asset value in additional shares of the same
Class. The Fund is subject to a 4% nondeductible excise tax measured with
respect to certain undistributed amounts of net investment income and capital
gains. If necessary to avoid the imposition of this tax, and if in the best
interests of its shareholders, the Fund will declare and pay dividends of its
net investment income and distributions of its net capital gains more frequently
than stated above. The per share dividends and distributions on Class C shares
will be higher than those on Class A shares, which in turn will be higher than
those on Class B shares, as a result of the different service, distribution and
transfer agency fees applicable to the Classes. See 'Fee Table,' 'Purchase of
Shares,' 'Distributor' and 'General Information.'
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Shares of the Fund begin earning dividends on the day on which the shares
are issued, the date of issuance customarily being the settlement date, which is
the date on which the Fund receives payment for the shares. Shares continue to
earn dividends until the day prior to the settlement date of a redemption.
TAXES
The Fund has qualified for the fiscal period ended August 31, 1994 to be treated
as a regulated investment company within the meaning of the Code and intends to
qualify for this treatment in each year. To qualify as a regulated investment
company for federal income tax purposes, the Fund limits its income and
investments so that (1) less than 30% of its gross income is derived from the
sale or disposition of stocks, other securities and certain financial
instruments (including certain forward contracts) that were held for less than
three months and (2) at the close of each quarter of the taxable year (a) not
more than 25% of the market value of the Fund's total assets is invested in the
securities (other than Government Securities) of a single issuer or of two or
more issuers controlled by the Fund that are engaged in the same or similar
trades or businesses or in related trades or businesses and (b) at least 50% of
the market value of the Fund's total assets is represented by (i) cash and cash
items, (ii) Government Securities and (iii) other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the market value
of the Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer. The requirements for qualification may cause the Fund
to restrict the degree to which it sells or otherwise disposes of stocks, other
securities and certain financial instruments held for less than three months. If
the Fund qualifies as a regulated investment company and meets certain
distribution requirements, the Fund will not be subject to federal income tax on
its net investment income and net realized capital gains that it distributes to
its shareholders.
Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Dividends and distributions paid by the Fund
will generally not qualify for the federal dividends received deduction for
corporate shareholders.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes will
reduce the amount of dividends and distributions paid to the Fund's
shareholders. So long as the Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the value
of the Fund's total assets at the close of any taxable year consists of stocks
or securities of foreign corporations, the Fund may elect, for federal income
tax purposes, to treat certain foreign income taxes it pays as having been paid
by its shareholders. If the Fund makes the election, the amount of foreign
income taxes paid by the Fund would be included in the income of its
shareholders and the shareholders would be entitled to either credit their
portions of these amounts against their federal income tax due, if any, or to
deduct these portions from their federal taxable income, if any. No deduction
for foreign taxes may be claimed by a
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shareholder who does not itemize deductions. In addition, certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
DISTRIBUTOR
Kidder, Peabody, a major full-line investment services firm serving foreign and
domestic securities markets, located at 10 Hanover Square, New York, New York
10005-3592, serves as the distributor of the Fund's shares and is paid monthly
fees by the Fund in connection with (1) the servicing of shareholder accounts in
Class A and Class B shares and (2) providing distribution related services in
respect of Class B shares. A monthly service fee, authorized pursuant to a
Shareholder Servicing and Distribution Plan (the 'Plan') adopted by the Trust
with respect to the Fund pursuant to Rule 12b-1 under the 1940 Act, is
calculated at the annual rate of .25% of the value of the average daily net
assets of the Fund attributable to each of Class A and Class B shares and is
used by Kidder, Peabody to provide compensation for ongoing servicing and/or
maintenance of shareholder accounts and an allocation of overhead and other
Kidder, Peabody branch office expenses related to servicing shareholder
accounts. Compensation is paid by Kidder, Peabody to persons, including Kidder,
Peabody employees, who respond to inquiries of shareholders of the Fund
regarding their ownership of shares or their accounts with the Fund or who
provide other similar services not otherwise required to be provided by the
Fund's manager, investment adviser or transfer agent.
In addition, pursuant to the Plan, the Fund pays to Kidder, Peabody a
monthly distribution fee at the annual rate of .50% of the Fund's average daily
net assets attributable to Class B shares. The distribution fee is used by
Kidder, Peabody to provide initial and ongoing sales compensation to its
Investment Executives in respect of sales of Class B shares; costs of printing
and distributing the Fund's Prospectus, Statement of Additional Information and
sales literature to prospective investors in Class B shares; costs associated
with any advertising relating to Class B shares; an allocation of overhead and
other Kidder, Peabody branch office expenses related to distribution of Class B
shares; and payments to, and expenses of, persons who provide support services
in connection with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service and/or
distribution expenses actually incurred by Kidder, Peabody, and the payments may
exceed expenses actually incurred by Kidder, Peabody. The Trust's Board of
Trustees evaluates the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so considers all relevant factors, including
expenses borne by Kidder, Peabody and amounts it receives under the Plan.
34
<PAGE>
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PERFORMANCE INFORMATION
From time to time, the Trust may advertise the 30-day 'yield' of the Fund for
each Class. The yield refers to the income generated by an investment in a Class
over the 30-day period identified in the advertisement and is computed by
dividing the net investment income per share earned by the Class during the
period by the net asset value per share of the Class on the last day of the
period. This income is 'annualized' by assuming that the amount of income is
generated each month over a one-year period and is compounded semi-annually. The
annualized income is then shown as a percentage of the net asset value.
From time to time, the Trust may advertise the Fund's 'average annual total
return' over various periods of time for each Class. Total return figures, which
are based on historical earnings and are not intended to indicate future
performance, show the average percentage change in value of an investment in the
Class from the beginning date of a measuring period to the end of that period.
These figures reflect changes in the price of shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the same Class. Total return figures will be given
for the most recent one-and five-year periods, or for the life of the Class to
the extent that it has not been in existence for the full length of those
periods, and may be given for other periods as well, such as on a year-by-year
basis. The average annual total return for any one year in a period longer than
one year might be greater or less than the average for the entire period.
The Trust may quote 'aggregate total return' figures with respect to the
Fund for various periods, representing the cumulative change in value of an
investment for the specific period and reflecting changes in share prices and
assuming reinvestment of dividends and distributions. Aggregate total return may
be calculated either with or without the effect of the sales charge to which
Class A shares are subject and may be shown by means of schedules, charts or
graphs, and may indicate subtotals of the various components of total return
(that is, changes in value of initial investment, income dividends and capital
gains distributions). Reflecting compounding over a longer period of time,
aggregate total return data generally will be higher than average annual total
return data.
The Trust may, in addition to quoting the Classes' average annual and
aggregate total returns, advertise actual annual and annualized total return
performance data for various periods of time. Actual annual and annualized total
returns may be calculated either with or without the effect of the sales charge
to which Class A shares are subject and may be shown by means of schedules,
charts or graphs. Actual annual or annualized total return data generally will
be lower than average annual total return data, which reflects compounding of
return.
In reports or other communications to Fund shareholders and in advertising
material, the Trust may compare the Classes' performance with (1) the
performance of other mutual funds (or classes thereof) as listed in rankings
prepared by Lipper Analytical Services Inc., CDA Investment Technologies, Inc.
or similar investment services that monitor the performance of mutual funds or
as set out in the nationally recognized publications listed below, (2) the
Lehman Brothers Government Bond Index, the J.P. Morgan Government Bond Index,
the Salomon Brothers Non-U.S. Bond Index and the Salomon Brothers World
Government Bond Index, the Salomon Brothers World Bond Index, each of which is
an unmanaged index, or (3) other appropriate indexes of investment securities or
with data developed by the Adviser or KPAM
35
<PAGE>
- --------------------------------------------------------------------------------
derived from those indexes. The Trust may also include in communications to Fund
shareholders evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Barron's, Business Week, Forbes, Institutional Investor, Investor's Daily,
Kiplinger's Personal Finance Magazine, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. Any given performance
comparison should not be considered as representative of the Fund's performance
for any future period.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Trust is registered under the 1940 Act as an open-end management investment
company and was formed as a business trust pursuant to a Declaration of Trust,
as amended from time to time (the 'Declaration'), under the laws of The
Commonwealth of Massachusetts on March 28, 1991. The Fund commenced operations
on December 24, 1992. The Declaration authorizes the Trust's Board of Trustees
to create separate series, and within each series separate Classes, of an
unlimited number of shares of beneficial interest, par value $.001 per share. As
of the date of this Prospectus, the Trustees have established several such
series, representing interests in the Fund described in this Prospectus and in
several other series. See 'Exchange Privilege' in the Statement of Additional
Information.
When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The Board of
Trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's Board of Trustees.
Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Trust may elect all of the Trustees. Generally, shares of the
Trust will be voted on a Trust-wide basis on all matters except those affecting
only the interests of one series, such as the Fund's investment advisory
agreement. In turn, shares of the Fund will be voted on a Fund-wide basis on all
matters except those affecting only the interests of one Class, such as the
terms of the Plan as it relates to a Class.
The Trust intends to hold no annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called for the
36
<PAGE>
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purpose of voting on the removal of a Trustee at the written request of holders
of 10% of the Trust's outstanding shares. Shareholders of the Fund who satisfy
certain criteria will be assisted by the Trust in communicating with other
shareholders in seeking the holding of the meeting.
REPORTS TO SHAREHOLDERS
The Trust sends Fund shareholders audited semi-annual and annual 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.
CUSTODIAN AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
IFTC, located at 127 West 10th Street, Kansas City, Missouri 64105, serves as
the Fund's custodian and transfer, dividend and recordkeeping agent.
37
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the
Statement of Additional Information incorporated into this
Prospectus by reference, in connection with the offering made by
this Prospectus and, if given or made, any such information or
representations must not be relied upon as having been authorized by
the Fund or its distributor. This Prospectus does not constitute an
offering by the Fund or by its distributor in any jurisdiction in
which the offering may not lawfully be made.
<TABLE>
<S> <C>
- --------------------------------------------------------
Contents
- --------------------------------------------------------
Fee Table 2
- --------------------------------------------------------
Highlights 3
- --------------------------------------------------------
Financial Highlights 7
- --------------------------------------------------------
Design of the Fund 8
- --------------------------------------------------------
Investment Objective and Policies 9
- --------------------------------------------------------
Management of the Fund 21
- --------------------------------------------------------
Purchase of Shares 23
- --------------------------------------------------------
Redemption of Shares 28
- --------------------------------------------------------
Determination of Net Asset Value 30
- --------------------------------------------------------
Exchange Privilege 31
- --------------------------------------------------------
Dividends, Distributions and Taxes 32
- --------------------------------------------------------
Distributor 34
- --------------------------------------------------------
Performance Information 35
- --------------------------------------------------------
General Information 36
- --------------------------------------------------------
Custodian and Transfer, Dividend and
Recordkeeping Agent 37
- --------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Kidder,
Peabody
Global
Fixed
Income
Fund
Prospectus
December 29, 1994
</TABLE>
[LOGO]
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
(a series of PaineWebber Investment Series)
MITCHELL HUTCHINS/KIDDER, PEABODY
GLOBAL FIXED INCOME FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust)
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby PaineWebber Global Income Fund ("PW Fund")
would acquire the assets of Mitchell Hutchins/Kidder, Peabody Global Fixed
Income Fund ("MH/KP Fund") in exchange solely for shares of beneficial interest
in PW Fund and the assumption by PW Fund of MH/KP Fund's liabilities. This
Statement of Additional Information consists of this cover page and the
following described documents, each of which is incorporated by reference
herein:
(1) The Statement of Additional Information of PW Fund dated March 1,
1995.
(2) The Statement of Additional Information of MH/KP Fund, dated December
29, 1994.
(3) The Annual Report to Shareholders of PW Fund for the fiscal year
ended October 31, 1994.
(4) The Annual Report to Shareholders of MH/KP Fund for the fiscal year
ended August 31, 1994.
(5) The Semi-Annual Report to Shareholders of PW Fund for the six-month
period ended April 30, 1995.
(6) The Semi-Annual Report to Shareholders of MH/KP Fund for the
six-month period ended February 28, 1995.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the prospectus/proxy statement dated August __,
1995 relating to the above-referenced matter. A copy of the prospectus/proxy
statement may be obtained by calling any PaineWebber investment executive or
correspondent firm or by calling toll-free 1-800-852-4750. This Statement of
Additional Information is dated August __, 1995.
Performance
PW Fund's performance data quoted in advertising and other promotional
materials represent past performance and are not intended to indicate future
performance. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
The following table shows performance information for the Class A, Class
B, Class C and Class D shares of PW Fund for the periods indicated. All
returns for periods of more than one year are expressed as an annual average
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.
S-1
<PAGE>
<TABLE><CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Fiscal year ended October 31, 1994:
Standardized Return(1) . . . . . . . . . . . . . . . . (7.00)% (8.89)% (2.86)% (3.56)%
Non-Standardized Return . . . . . . . . . . . . . . . . (3.10)% (3.90)% (2.86)% (3.56)%
Five years ended October 31, 1994:
Standardized Return(1) . . . . . . . . . . . . . . . . NA 7.64% NA NA
Non-Standardized Return . . . . . . . . . . . . . . . . NA 7.94% NA NA
Inception(2) to October 31, 1994:
Standardized Return . . . . . . . . . . . . . . . . . . 5.09% 9.43% 6.55% 3.51%
Non-Standardized Return . . . . . . . . . . . . . . . . 6.38% 9.43% 6.55% 3.51%
<FN>
- ------------------------------------
(1) All Standardized Return figures for Class A shares reflect deduction of
the current maximum sales charge of 4%. All Standardized Return figures
for Class B shares reflect deduction of the applicable contingent deferred
sales charge imposed on a redemption of shares held for the period. Class
D shares do not impose an initial or a contingent deferred sales charge;
therefore, Non-Standardized Return is identical to Standardized Return.
(2) The inception date for each Class of PW Fund is as follows: Class A--July
1, 1991, Class B--March 20, 1987, Class C--August 26, 1991, and Class D--July
2, 1992.
S-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
----------
TABLE OF CONTENTS
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging and Related Income Strategies..................................... 8
Trustees and Officers..................................................... 17
Investment Advisory and Distribution Arrangements......................... 23
Portfolio Transactions.................................................... 28
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 30
Conversion of Class B Shares.............................................. 34
Valuation of Shares....................................................... 35
Performance Information................................................... 36
Taxes..................................................................... 39
Other Information......................................................... 41
Financial Statements...................................................... 42
Appendix.................................................................. 43
</TABLE>
(C)1995 PaineWebber Incorporated
[ART Recycled Paper]
PaineWebber
Global Income Fund
- --------------------------------------------------------------------------------
Statement of Additional Information
March 1, 1995
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[LOGO OF PAINEWEBBER APPEARS HERE]
<PAGE>
[This page intentionally left blank]
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Global Income Fund ("Fund") is a non-diversified series of
PaineWebber Investment Series ("Trust"), a professionally managed mutual fund.
The Fund seeks high current income consistent with prudent investment risk,
with capital appreciation as a secondary objective; it invests principally in
high quality debt securities issued or guaranteed by foreign governments, by
the U.S. government, by their respective agencies or instrumentalities or by
supranational organizations, or issued by foreign or U.S. companies. The Fund's
investment adviser, administrator and distributor is Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"). As distributor for the Fund, Mitchell Hutchins
has appointed PaineWebber to serve as the exclusive dealer for the sale of Fund
shares. This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Fund's current Prospectus, dated March 1,
1995. 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 March 1, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Many of the foreign
securities held by the Fund are not registered with the Securities and Exchange
Commission ("SEC"), nor are the issuers thereof subject to its reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by the Fund than is available
concerning U.S. companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.
In addition to purchasing securities of foreign issuers in foreign markets,
the Fund may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
corporations 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 and EDRs, in bearer
form, may be denominated in other currencies and are designed for use in
European securities markets. ADRs are receipts typically issued by a U.S. bank
or trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have the same classification
as the underlying securities they represent. Thus, an ADR or EDR evidencing
ownership of common stock will be treated as common stock.
<PAGE>
The Fund anticipates that its brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment, may expose a
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although the 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.
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject.
SOVEREIGN DEBT. Investment by the Fund in debt securities issued by foreign
governments and their political subdivisions or agencies ("Sovereign Debt")
involves special risks. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal and/or interest when due in accordance with the terms of such debt,
and the Fund may have limited legal recourse in the event of a default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event
of default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local
government or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Mitchell Hutchins manages the Fund's portfolio in a
manner that is intended to minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause the Fund to suffer a
loss of interest or principal on any of its holdings.
FOREIGN CURRENCY TRANSACTIONS. Although the Fund values its assets daily in
U.S. dollars, it does not intend to convert its holdings of foreign currencies
to U.S. dollars on a daily basis. The Fund's foreign currencies may be held as
"foreign currency call accounts" at foreign branches of
2
<PAGE>
foreign or domestic banks. These accounts bear interest at negotiated rates and
are payable upon relatively short demand periods. If a bank became insolvent,
the Fund could suffer a loss of some or all of the amounts deposited. The Fund
may convert foreign currency to U.S. dollars from time to time. 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. The Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, purchased 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 the Trust's board of trustees. The assets
used as cover for OTC options written by the Fund will be considered illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund
may repurchase any OTC option it writes at a maximum price to be calculated by
a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure will be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. Illiquid restricted securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933
("1933 Act"). Illiquid securities include those that are subject to
restrictions contained in the securities laws of other countries. However,
securities that are freely marketable in the country where they are principally
traded, but would not be freely marketable in the United States, will not be
considered illiquid. Where registration is required, the Fund may be obligated
to pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
3
<PAGE>
institutional buyers interested in purchasing Rule 144A-eligible restricted
securities held by the Fund, however, could affect adversely the marketability
of such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at favorable prices.
The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how bids
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board of trustees.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of fixed income obligations. A description of
ratings assigned to corporate debt obligations and preferred stock by Moody's
and S&P is included in the Appendix to this Statement of Additional
Information. The Fund may use these ratings in determining whether to purchase,
sell or hold a security. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the risks of fluctuations in market value or the
risks of changes in foreign currency exchange rates. Also, NRSROs may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial condition may be better or worse than the rating
indicates. The rating assigned to a security by a NRSRO does not reflect an
assessment of the security's market value or of the liquidity of an investment
in the security. Subsequent to its purchase by the Fund, an issue of debt
obligations may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Mitchell Hutchins will
consider such an event in determining whether the Fund should continue to hold
the obligation but is not required to dispose of it.
In addition to ratings assigned to individual issues, Mitchell Hutchins
analyzes interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which the Fund invests are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial condition of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
is a wide variation in the quality of bonds, both within a particular
classification and between classifications. An issuer's obligations under its
bonds are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of bond holders or other creditors of an
issuer; litigation or other conditions may also adversely affect the power or
ability of issuers to meet their obligations for the payment of interest and
principal on their bonds.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. The Fund maintains
4
<PAGE>
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 which was paid by the Fund upon
acquisition is accrued as interest and included in the Fund's net investment
income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party
to a repurchase agreement becomes insolvent. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimum credit risks in accordance with guidelines
established by the Trust's board of trustees. Mitchell Hutchins will review and
monitor the creditworthiness of those institutions under the board's general
supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 10% of its total assets. Such agreements involve the sale of
securities held by the Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, the Fund's custodian segregates assets to cover the
amount of the Fund's obligations under the reverse repurchase agreement. See
"Investment Policies and Restrictions--Segregated Accounts." The Fund will not
purchase securities while borrowings (including reverse repurchase agreements)
in excess of 5% of the value of its total assets are outstanding.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus, the
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
the Fund's net asset value. When the Fund agrees to purchase securities on a
when-issued basis, its custodian segregates assets to cover the amount of the
commitment. See "Investment Policies and Restrictions--Segregated Accounts."
The Fund purchases when-issued securities only with the intention of taking
delivery, but may sell the right to acquire the security prior to delivery if
Mitchell Hutchins deems it advantageous to do so, which may result in capital
gain or loss to the Fund.
LENDING OF PORTFOLIO SECURITIES. Although it has no intention of doing so
during the coming year, the Fund is authorized to lend up to 10% of the total
value of its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
with the Fund's custodian bank collateral either in cash or money market
instruments, marked to market daily, in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loans at any time. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated
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portion of the interest earned on the cash or money market instruments held as
collateral to the borrower or placing broker. The Fund will receive reasonable
interest on the loan or a flat fee from the borrower and amounts equivalent to
any dividends, interest or other distributions on the securities loaned. The
Fund will regain record ownership of loaned securities to exercise beneficial
rights, such as voting and subscription rights and rights to dividends,
interest or other distributions, when regaining such rights is considered to be
in the Fund's interest.
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. The U.S. government securities in
which the Fund may invest include mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation,
which represent undivided ownership interests in pools of mortgages. The
mortgages backing these securities include both fixed and adjustable rate
mortgages. The U.S. government or the issuing agency guarantees the payment of
the interest on and principal of these securities. The guarantees do not extend
to the securities' market value, however, which is likely to vary inversely
with fluctuations in interest rates, and the guarantees do not extend to the
yield or value of the Fund's shares. These securities are "pass-through"
instruments through which the holders receive a share of the interest and
principal payments from the mortgages underlying the securities, net of certain
fees. The principal amounts of such underlying mortgages generally may be
prepaid in whole or in part by the mortgagees at any time without penalty, and
the prepayment characteristics of the underlying mortgages may vary. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. The Fund will
reinvest prepaid amounts in other income producing securities, the yields of
which will reflect interest rates prevailing at the time. Accelerated
prepayments adversely affect yields for mortgage-backed securities purchased by
the Fund at a premium and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the
obligation is prepaid. The opposite is true for mortgage-backed securities
purchased by the Fund at a discount.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including reverse
repurchase agreements or the purchase of securities on a when-issued or delayed
delivery basis, the Fund will maintain with an approved custodian in a
segregated account cash, U.S. government securities or other liquid high-grade
debt 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 Income Strategies," segregated accounts may also be
required in connection with certain transactions involving options or futures
contracts, interest rate protection transactions or forward currency contracts.
INVESTMENT LIMITATIONS OF THE FUND
The Fund may not (1) issue senior securities or borrow money, except from
banks or through reverse repurchase agreements for emergency or temporary
purposes, and then in an aggregate amount not in excess of 10% of the value of
the Fund's total assets at the time of such borrowing; provided that the Fund
will not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of the value of the Fund's total assets are
outstanding; (2) purchase securities of any one issuer if as a result more than
5% of the Fund's total assets would be invested in such issuer or the Fund
would own or hold more than 10% of the outstanding voting securities of that
issuer, except that up to 50% of the Fund's total assets may be invested
without regard to this limitation and provided that this limitation does not
apply to securities issued or guaranteed by
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the U.S. government, its agencies and instrumentalities; (3) make an investment
in any one industry if the investment would cause the value of such investments
at the time of purchase in such industry to be 25% or more of the total assets
of the Fund taken at market value; (4) purchase securities on margin, except
for short-term credits necessary for clearance of portfolio transactions, and
except that the Fund may make margin deposits in connection with its use of
options, futures contracts and options on futures contracts; (5) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter
under federal securities laws; (6) make short sales of securities or maintain a
short position, except that the Fund may (a) make short sales and maintain
short positions in connection with its use of options, futures contracts and
options on futures contracts and (b) sell short "against the box"; (7) purchase
or sell real estate, provided that the Fund may invest in securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests therein; (8) purchase or sell commodities or commodity
contracts, except that the Fund may purchase or sell interest rate and foreign
currency futures contracts and options thereon, may engage in transactions in
foreign currency and may purchase or sell options on foreign currencies for
hedging purposes; (9) invest in oil, gas or mineral-related programs or leases;
(10) make loans, except through loans of portfolio securities as described in
this Statement of Additional Information and except through repurchase
agreements, provided that for purposes of this restriction the acquisition of
publicly distributed bonds, debentures or other corporate debt securities and
investment in government obligations, short-term commercial paper, certificates
of deposit and bankers' acceptances shall not be deemed to be the making of a
loan; or (11) purchase any securities issued by any other investment company,
except in connection with the merger, consolidation or acquisition of all the
securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed 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 present at a shareholders'
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. If a percentage restriction is adhered to at the
time of an investment or transaction, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations.
The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. The Fund may not (1)
purchase or retain the securities of any issuer if, to the knowledge of its
management, the officers and trustees of the Trust and the officers and
directors of Mitchell Hutchins (each owning beneficially more than 0.5% of the
outstanding securities of the issuer) own in the aggregate more than 5% of the
securities of the issuer; (2) invest more than 10% of its net assets in
illiquid securities, a term that means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the
amount at which it has valued the securities and includes, among other things,
repurchase agreements maturing in more than seven days; (3) make investments in
warrants, if such investments, valued at the lower of cost or market, exceed 5%
of the value of its net assets, which amount may include warrants that are not
listed on the New York or American Stock Exchange, provided that such unlisted
warrants, valued at the lower of cost or market, do not exceed 2% of its net
assets, and further provided that this restriction does not apply to warrants
attached to, or sold as a unit with, other securities; (4) purchase any
security if as a result it would have more than 5% of its total assets invested
in securities of companies which together with any predecessors have been in
continuous operation for less than three years; or (5) invest more than 35% of
its total assets
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in debt securities rated Ba or lower by Moody's or BB or lower by S&P,
comparably rated by another NRSRO or determined by Mitchell Hutchins to be of
comparable quality. This non-fundamental policy (5) can be changed only upon
30 days' advance notice to shareholders.
The Fund will continue to interpret fundamental investment limitation (7) to
prohibit investment in real estate limited partnerships.
HEDGING AND RELATED INCOME STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts and forward currency
contracts and enter into interest rate protection transactions to attempt to
hedge the Fund's portfolio and to enhance income. Although it has no intention
of doing so during the coming year, Mitchell Hutchins also may attempt to
hedge the Fund's portfolio through the use of interest rate futures and
options thereon. The particular Hedging Instruments are described in the
Appendix to the Prospectus.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge a Fund takes
a position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example,
the Fund might purchase a put option on a security to hedge against a
potential decline in the value of that security. If the price of the security
declined below the exercise price of the put, the Fund could exercise the put
and thus limit its loss below the exercise price to the premium paid plus
transaction costs. In the alternative, because the value of the put option can
be expected to increase as the value of the underlying security declines, the
Fund might be able to close out the put option and realize a gain to offset
the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Hedging Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the
exercise price of the call, the Fund could exercise the call and thus limit
its acquisition cost to the exercise price plus the premium paid and
transaction costs. Alternatively, the Fund might be able to offset the price
increase by closing out an appreciated call option and realizing a gain.
The Fund may purchase and write (sell) covered straddles on securities. A
long straddle is a combination of a call and a put option purchased on the
same security or on the same futures contract, where the exercise price of the
put is less than or equal to the exercise price of the call.
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The Fund might enter into a long straddle when Mitchell Hutchins believes it
likely that interest rates 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 option written on the same security where the exercise price of the
put is less than or equal to the exercise price of the call. The Fund might
enter into a short straddle when Mitchell Hutchins believes it unlikely that
interest rates will be as volatile during the term of the option as the option
pricing implies.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which the Fund has invested or expects to invest. Hedging
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with options, futures contracts, forward currency 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,
forward currency contracts or other techniques are developed. Mitchell Hutchins
may utilize these opportunities to the extent that they are consistent with the
Fund's investment objectives and permitted by the Fund's investment limitations
and applicable regulatory authorities. The Fund's Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon Mitchell
Hutchins' ability to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. While Mitchell Hutchins is experienced
in the use of Hedging 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 Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded. The effectiveness of hedges using Hedging Instruments on indices will
depend on the degree of correlation between price movements in the index and
price movements in the securities being hedged.
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(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If the Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to close out a position
in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of a contra party to enter into a transaction closing
out the position. Therefore, there is no assurance that any hedging position
can be closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. Transactions using Hedging Instruments, other
than purchased options, expose the Fund to an obligation to another party. The
Fund will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, currencies or other options,
futures contracts or forward currency contracts or (2) cash and short-term
liquid debt securities, with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. The
Fund will comply with SEC guidelines regarding cover for hedging transactions
and will, if the guidelines so require, set aside cash, U.S. government
securities or other liquid, high-grade debt 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 Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the 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 Fund may purchase put and call options, and write (sell) covered
put and call options, on debt securities in which it is authorized to invest
and foreign currencies. The purchase of call options serves as a long hedge,
and the purchase of put options serves as a short hedge. Writing covered put or
call options can enable the Fund to enhance income by reason of the premiums
paid by the purchasers of such options. However, if the market price of the
security underlying a covered put option declines to less than the exercise
price on the option, minus the premium received, the Fund would expect to
suffer a loss. 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
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exercised and the Fund will be obligated to sell the security at less than its
market value. Writing covered put options serves as a limited long hedge
because increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the options. 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 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. Generally, the OTC debt and foreign currency options used by the Fund
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Conversely, the
Fund may terminate a position in a put or call option it had purchased by
writing an identical put or call option; this is known as a closing sale
transaction. Closing transactions permit the Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
The Fund may purchase or write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.
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If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or
call option written by the Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.
The Fund may purchase and write put and call options on indices of debt
securities 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 debt securities market (or market sectors) rather than
anticipated increases or decreases in the value of a particular security.
GUIDELINES FOR OPTIONS. The Fund's use of options is governed by the
following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
(1) The 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 the Fund, does not exceed 5% of the Fund's total
assets.
(2) The aggregate value of securities underlying put options written by the
Fund, determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies or bond indices and options on futures
contracts) purchased by the Fund that are held at any time will not exceed 20%
of the Fund's net assets.
FUTURES. 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, using a strategy similar to that used for writing
covered call options on securities or indices. Similarly, writing covered put
options on futures contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of the
Fund's portfolio. If Mitchell Hutchins wishes to shorten the average duration
of the Fund's portfolio, the Fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If Mitchell
Hutchins wishes to lengthen the average duration of the Fund's portfolio, the
Fund may buy a futures contract or a call option thereon, or sell a put option
thereon.
The Fund may also write put options on foreign currency futures contracts
while at the same time purchasing call options on the same futures contracts in
order synthetically to create a long futures contract position. Such options
would have the same strike prices and expiration dates. The Fund will engage in
this strategy only when it is more advantageous to the Fund than purchasing the
futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing an option on a
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futures contract, in accordance with applicable exchange rules. Unlike margin
in securities transactions, initial margin on futures contracts does not
represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required by
an exchange to increase the level of its initial margin payment, and initial
margin requirements might be increased generally in the future by regulatory
action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call option thereon, it is subject to
daily variation margin calls that could be substantial in the event of adverse
price movements. If the Fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist for a particular contract at
a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
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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.
GUIDELINES FOR FUTURES AND RELATED OPTIONS. The Fund's use of futures and
related options is governed by the following guidelines, which can be changed
by the Trust's board of trustees without shareholder vote:
(1) To the extent the Fund enters into futures contracts, options on futures
positions and options on foreign currencies traded on a commodities exchange
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 the Fund's net
assets.
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies or bond indices and options on futures
contracts) purchased by the Fund that are held at any time will not exceed 20%
of the Fund's net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5%of the Fund's total
assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Fund may use
options and futures on foreign currencies, as described above, and forward
currency forward contracts, as described below, to hedge against movements in
the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, the Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another foreign
currency or a basket of currencies, the values 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 Hedging 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 Hedging 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 Hedging
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are 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 Hedging Instruments until they
reopen.
14
<PAGE>
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. Such transactions may serve as long
hedges--for example, the Fund may purchase a forward currency contract to lock
in the U.S. dollar price of a security denominated in a foreign currency that
the Fund intends to acquire. Forward currency contract transactions may also
serve as short hedges--for example, the Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
As noted above, the Fund may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign currency or
a basket of currencies, the value of which 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 exposure to
foreign currency fluctuations from one country to another. For example, if the
Fund owns securities denominated in a foreign currency and Mitchell Hutchins
believes that currency will 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 the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract at
a favorable price prior to maturity. In addition, in the event of insolvency
of the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities in a
segregated account.
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
15
<PAGE>
currency, will change after the foreign currency contract has been established.
Thus, the Fund might need to purchase or sell foreign currencies in the spot
(cash) market to the extent such foreign currencies are not covered by forward
contracts. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Fund may enter into
forward currency contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate the Fund to deliver an
amount of foreign currency in excess of the value of the position being hedged
by such contracts or (2) the Fund maintains cash, U.S. government securities or
liquid, high-grade debt securities in a segregated account 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. The Fund may enter into interest rate
protection transactions, including interest rate swaps and interest rate caps,
collars and floors. 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 and 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 the payments are made when a
designated market interest rate either goes above a designated ceiling level or
goes below a designated floor on predetermined dates or during a specified time
period.
The Fund expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. Interest rate
protection transactions are subject to risks comparable to those described
above with respect to other hedging strategies.
The Fund may enter into interest rate swaps, caps, collars and floors 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 and the Fund believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash, U.S. government securities
or other liquid high grade debt obligations having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account
by a custodian that satisfies the requirements of the Investment Company Act of
1940 ("1940 Act"). 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, collars and floors that are written by the Fund.
16
<PAGE>
The Fund will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
Trust's board of trustees. 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.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their age, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of Paine
Jr.**; 68 Chairman of the Webber Group Inc. ("PW Group")
Board of Trustees (holding company of PaineWebber and
Mitchell Hutchins) and a consultant
to PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is also a director of Inter-
state Bakeries Corporation and a
director or trustee of 26 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Meyer Feldberg; 52 Trustee 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 AMSCO Interna-
tional Inc., Federated Department
Stores, Inc., Inco Homes Corpora-
tion and New World Communications
Group Incorporated and a director
or trustee of 18 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10117 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Paul B. Guenther**; 54 Trustee and President Mr. Guenther is a director of
PaineWebber and Mitchell Hutchins
and president and a director of PW
Group. Mr. Guenther is also presi-
dent of 26 and a director or
trustee of 17 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Cap-
901 15th Street, N.W. ital Partners (investment bank) and
Suite 300 a co-chairman and director of CB
Washington, D.C. 20005 Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to
1992, he was vice chairman, and
from 1989 to 1990, he was president
of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA Inc.)
Prior to 1989, he was employed by
the Marriott Corporation (hotels,
restaurants, airline catering and
contract feeding), where he most
recently was an exec-utive vice
president and president of Marriott
Hotels and Resorts. Mr.
Malek is also a director of Ameri-
can Management Systems, Inc., Auto-
matic Data Processing, Inc., Avis,
Inc., FPL Group, Inc., ICF Interna-
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
tional, Manor Care, Inc. and Na-
tional Education Corporation and a
director or trustee of 16 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Frank P.L. Minard**; 49 Trustee Mr. Minard is chairman and a direc-
tor of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins
Institutional Investors Inc. and a
director of PaineWebber. Prior to
1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in
New York and Director of Oppen-
heimer Capital Ltd. in London. Mr.
Minard is also president of 13 and
a director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Judith Davidson Moyers; 59 Trustee Mrs. Moyers is president of Public
Public Affairs Television Affairs Television, Inc., an educa-
356 W. 58th Street tional consultant and a home econo-
New York, New York 10019 mist. Mrs. Moyers is also a direc-
tor of Columbia Real Estate Invest-
ments, Inc. and Ogden Corporation
and a director or trustee of 16
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and fi-
400 Park Avenue nancial consultant. Mr. Murray is
New York, New York 10022 also a director and chairman of
American Continental Properties,
Inc., a trustee of Prudential Re-
alty Trust and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
man- ager of Hyperion Capital Man-
agement, Inc., an investment advi-
sory firm. Prior to April 1993, Ms.
Boyle
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
was a vice president and manager--
legal administration of Mitchell
Hutchins. Ms. Boyle is also a vice
president of 26 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins. Prior
to
December 1993, she was an associate
at the law firm of Seward & Kissel.
Ms. Cohen is also a vice president
and assistant secretary of 26 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic equity
strategist and a managing director
of Mitchell Hutchins. Ms. Harris is
also a vice president of 19 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank Jennings; 47 Vice President Mr. Jennings is a managing director
and director of international equi-
ties of Mitchell Hutchins. Prior to
1992, he was managing director of
global investments of AIG Global In-
vestors. Mr. Jennings is also a vice
president of 3 other investment com-
panies for which Mitchell Hutchins
serves as investment adviser.
Clifford E. Kirsch; 35 Vice President and Mr. Kirsch is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to March
1994, he was an assistant director
in the Division of Investment Man-
agement at the SEC. Mr. Kirsch is
also a vice president and assistant
secretary of 26 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president
and secretary of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 43 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in
the law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld is
also a vice president of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992
to August 1994, he was a vice
president at BlackRock Financial
Management, L.P. Prior to August
1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a fund-
raising director for a U.S. Senate
campaign. Prior to September 1991,
she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a
vice president
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
and assistant treasurer of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Stuart Waugh; 39 Vice President Mr. Waugh is a managing director and
a portfolio manager of Mitchell
Hutchins responsible for global
fixed income investments and cur-
rency trading. Mr. Waugh is also a
vice president of 5 other invest-
ment companies for which Mitchell
Hutchins serves as investment ad-
viser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust $3,000
annually and $250 per meeting of the board or any committee thereof. Trustees
are reimbursed for any expenses incurred in attending meetings. Trustees and
officers of the Trust own in the aggregate less than 1% of the shares of the
Fund. Because Mitchell Hutchins and PaineWebber perform substantially all of
the services necessary for the operation of the Trust, the Trust requires no
employees. No officer, director or employee of Mitchell Hutchins or PaineWebber
presently receives any compensation from the Trust for acting as a trustee or
officer.
22
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees..... -- -- -- --
Meyer Feldberg,
Trustee................... $5,000 -- -- $86,050
George W. Gowen,
Trustee................... 4,500 -- -- 71,425
Paul B. Guenther,
Trustee and president..... -- -- -- --
Frederic V. Malek,
Trustee................... 5,000 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 4,250 -- -- 71,125
Thomas F. Murray,
Trustee................... 5,000 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended October
31, 1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract with the Trust
dated April 21, 1988 ("Advisory Contract"). Under the Advisory Contract the
Fund pays Mitchell Hutchins an annual fee, computed daily and paid monthly,
according to the following schedule:
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
------------------------ ------
<S> <C>
Up to $500 million................ 0.750%
In excess of $500 million
up to $1.0 billion............... 0.725
In excess of $1.0 billion
up to $1.5 billion............... 0.700
In excess of $1.5 billion
up to $2.0 billion............... 0.675
Over $2.0 billion................. 0.650
</TABLE>
23
<PAGE>
For the fiscal years ended October 31, 1994, October 31, 1993 and October 31,
1992, the Fund paid (or accrued) to Mitchell Hutchins advisory and
administrative fees of $12,723,592, $11,643,584 and $12,138,016, respectively.
Under a service agreement pursuant to which PaineWebber provides certain
services to the Fund not otherwise provided by the Fund's transfer agent, which
agreement is reviewed by the Trust's board of trustees annually, during the
fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992,
PaineWebber earned service fees of $487,859, $467,885 and $425,367,
respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not readily identifiable as belonging
to the Fund are allocated among the Fund or the Trust's other series by or
under the direction of the board of trustees in such manner as the board deems
to be fair and equitable. Expenses borne by the Fund include the following (or
the Fund's share of 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 and the Trust under federal and state securities laws and
maintenance of such registrations and qualifications, (5) fees and salaries
payable to trustees who are not interested persons (as defined in the 1940 Act)
of the Trust or Mitchell Hutchins, (6) all expenses incurred in connection with
the trustees' services, including travel expenses, (7) taxes (including any
income or franchise taxes) and governmental fees, (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds, (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Trust or the Fund for violation of any law,
(10) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent trustees, (11) charges of custodians, transfer
agents and other agents, (12) costs of preparing share certificates, (13)
expenses of setting in type and printing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials for existing shareholders, and costs of mailing such materials to
existing shareholders, (14) any extraordinary expenses (including fees and
disbursements of counsel) incurred by the Trust or the Fund, (15) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations, (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the board and any committees
thereof, (17) the cost of investment company literature and other publications
provided to trustees and officers and (18) costs of mailing, stationery and
communications equipment.
As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund exceed
applicable limits in any fiscal year. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1994, October 31, 1993 and October 31, 1992, no
reimbursements were made pursuant to such limitation.
24
<PAGE>
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon its assignment and is terminable at any time
without penalty by the Trust's board of trustees or by vote of the holders of a
majority of the Fund's outstanding voting securities, on 60 days' written
notice to Mitchell Hutchins or by Mitchell Hutchins on 60 days' written notice
to the Fund.
The following table shows the approximate net assets as of January 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).............................. $ 5,512.8
Global......................................................... 3,003.4
Equity/Balanced................................................ 2,382.1
Fixed Income (excluding Money Market).......................... 6,134.1
Taxable Fixed Income......................................... 4,393.1
Tax-Free Fixed Income........................................ 1,741.0
Money Market Funds............................................. 17,685.9
</TABLE>
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class D shares of the Fund under separate distribution
contracts with the Trust dated July 7, 1993 (collectively, "Distribution
Contracts") that require Mitchell Hutchins to use its best efforts, consistent
with its other businesses, to sell shares of the Fund. Shares of the Fund are
offered continuously. Under separate exclusive dealer agreements between
Mitchell Hutchins and PaineWebber dated July 7, 1993 relating to the Class A,
Class B and Class D shares of the Fund (collectively, "Exclusive Dealer
Agreements"), Paine Webber and its correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class D shares of the Fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class D
Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of each Class of shares. Under the Class B Plan, the Fund also
pays Mitchell Hutchins a distribution fee, accrued daily and payable monthly,
at the annual rate of 0.75% of the average daily net assets of the Class B
shares. Under the Class D Plan, The Fund pays Mitchell Hutchins a distribution
fee, accrued daily and payable monthly, at the annual rate of 0.50% of the
average daily net assets of the Class D shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the Trust's board of trustees at least quarterly, and the trustees will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect
only so long as it is approved at least annually, and any material amendment
thereto is approved, by the Trust's board of trustees, including those trustees
who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the
25
<PAGE>
operation of the Plan or any agreement related to the Plan, acting in person at
a meeting called for that purpose, (3) payments by the Fund under the Plan
shall not be materially increased without the affirmative vote of the holders
of a majority of the outstanding shares of the relevant Class of the Fund and
(4) while the Plan remains in effect, the selection and nomination of trustees
who are not "interested persons" of the Trust shall be committed to the
discretion of the trustees who are not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins will allocate expenses attributable to the sale of each Class of Fund
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 Fund shares
will not be used to subsidize the sale of any other Class of Fund shares.
For the fiscal year ended October 31, 1994, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class D
Plans:
<TABLE>
<S> <C>
Class A.............................................................. $1,664,223
Class B.............................................................. 9,741,334
Class D.............................................................. 905,849
</TABLE>
Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Fund during the fiscal year ended October 31,
1994:
CLASS A
<TABLE>
<S> <C>
Marketing and advertising............................................ $ 185,379
Printing of prospectuses and statements of additional information.... 2,070
Branch network costs allocated and interest expense.................. 2,848,615
Service fees paid to PaineWebber investment executives............... 748,899
</TABLE>
CLASS B
<TABLE>
<S> <C>
Marketing and advertising............................................ $ 546,334
Amortization of commissions.......................................... 4,087,428
Printing of prospectuses and statements of additional information.... 3,029
Branch network costs allocated and interest expense.................. 8,247,207
Service fees paid to PaineWebber investment executives............... 1,095,899
</TABLE>
CLASS D
<TABLE>
<S> <C>
Marketing and advertising............................................ $ 327,380
Amortization of commissions.......................................... 238,527
Printing of prospectuses and statements of additional information.... 376
Branch network costs allocated and interest expense.................. 4,375,412
Service fees paid to PaineWebber investment executives............... 101,907
</TABLE>
26
<PAGE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network costs
allocated and interest expense" consist of an allocated portion of the expenses
of various PaineWebber departments involved in the distribution of the Fund's
shares, including the PaineWebber retail branch system.
In approving the Fund's overall Flexible PricingSM system of distribution,
the Trust's board of trustees considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby
encouraging current shareholders to make additional investments in the Fund and
attracting new investors and assets to the Fund to the benefit of the Fund and
its shareholders; (2) facilitate distribution of the Fund's shares; and (3)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution arrangements.
In approving the Class A Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related
expenses and costs.
In approving the Class B Plan for the Fund, the trustees 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 trustees also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives, without the concomitant
receipt by Mitchell Hutchins of initial sales charges, was conditioned upon its
expectation of being compensated under the Class B Plan.
In approving the Class D Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors
in having no initial sales charges deducted from the Fund's purchase payments
and instead having the entire amount of their purchase payments immediately
invested in Fund shares, (2) the advantage to investors in being
27
<PAGE>
free from contingent deferred sales charges upon redemption 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 D shares on an ongoing basis, along
with continuing service fees, while their customers invest their entire
purchase payments immediately in Class D shares and do not face contingent
deferred sales charges, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service- and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its investment executives, without the concomitant receipt by Mitchell Hutchins
of initial sales charges or contingent deferred sales charges upon redemption,
was conditioned upon its expectation of being compensated under the Class D
Plan.
With respect to each Plan, the trustees 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 trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees that
are calculated based upon a percentage of the average net assets of the Fund,
which fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.
Under the Distribution Contract between the Trust and Mitchell Hutchins for
the Class A shares and similar prior distribution contracts, for the periods
set forth below, Mitchell Hutchins earned the following approximate amounts of
sales charges and retained the following approximate amounts, net of
concessions to PaineWebber as exclusive dealer:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Earned............................................ $193,492 $560,223 $966,683
Retained.......................................... 15,764 11,464 69,813
</TABLE>
For the fiscal year ended October 31, 1994, Mitchell Hutchins earned and
retained $3,156,771 in contingent deferred sales charges paid upon certain
redemptions of Class B shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins is responsible for the execution of the Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, Mitchell Hutchins seeks to obtain the best net results for the
Fund, taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. Prices paid to dealers in
principal transactions, through which most debt securities are traded,
generally include a "spread," which is the difference between the prices at
which the dealer is
28
<PAGE>
willing to purchase and sell a specific security at the time. The Fund may
invest in securities traded in the OTC market and will engage primarily in
transactions with the dealers who make markets in such securities, unless a
better price or execution could be obtained by using a broker. While Mitchell
Hutchins generally seeks reasonably competitive commission rates and dealer
spreads, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best net results. For the fiscal years ended
October 31, 1994, October 31, 1993 and October 31, 1992, the Fund did not pay
any brokerage commissions.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected
and related compensation paid only in accordance with applicable SEC
regulations. During the last three fiscal years, the Fund paid no brokerage
commissions to Mitchell Hutchins or any of its affiliates.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's 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 Fund and subject to the review of the
Trust's board of trustees, Mitchell Hutchins may cause the Fund to purchase and
sell portfolio securities through brokers who provide the Fund with research,
analysis, advice and similar services. In return for such services, the Fund
may pay to those brokers a higher commission than may be charged by other
brokers, provided that Mitchell Hutchins determines in good faith that such
commission is reasonable in terms either of that particular transaction or of
the overall responsibility of Mitchell Hutchins to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. For purchases or sales
with broker-dealer firms which act as principal, Mitchell Hutchins seeks best
execution. Although Mitchell Hutchins may receive certain research or execution
services in connection with these transactions, Mitchell Hutchins will not
purchase securities at a higher price or sell securities at a lower price than
would otherwise be paid if no weight 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 which could be
purchased for hard dollars. Mitchell Hutchins may engage in agency transactions
in OTC equity and debt securities in return for research and execution
services. These transactions are entered into only in compliance with
procedures ensuring that the transaction (including commissions) is at least as
favorable as it would have been if effected directly with a market-maker that
did not provide research or execution services. These procedures include
Mitchell Hutchins receiving multiple quotes from dealers before executing the
transaction on an agency basis.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by Mitchell Hutchins in advising other
funds or accounts, and, conversely, research
29
<PAGE>
services furnished to Mitchell Hutchins by brokers in connection with other
funds or accounts Mitchell Hutchins advises may be used by Mitchell Hutchins in
advising the Fund. Information and research received from brokers will be in
addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contract. For the fiscal year ended
October 31, 1994, Mitchell Hutchins directed no portfolio transactions to
brokers chosen for research services. The Fund may purchase and sell portfolio
securities to and from dealers who provide the Fund with research services.
Portfolio transactions will not be directed by the Fund to dealers solely on
the basis of research services provided. The Fund will not purchase portfolio
securities at a higher price or sell such securities at a lower price in
connection with transactions effected with a dealer, acting as principal, who
furnishes research services to Mitchell Hutchins than would be the case if no
weight were given by Mitchell Hutchins to the dealer's furnishing of such
services. Research services furnished by the dealers through which or with
which the Fund effects securities transactions may be used by Mitchell Hutchins
in advising other funds or accounts and, conversely, research services
furnished to Mitchell Hutchins in connection with other funds or accounts that
Mitchell Hutchins advises may be used in advising the Fund.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned or upon
its ability to complete its entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
The Fund will purchase securities that are offered in underwritings in which
Mitchell Hutchins or any of its affiliates is a member of the underwriting or
selling group, except pursuant to procedures adopted by the Trust's board of
trustees pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that 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 Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.
PORTFOLIO TURNOVER. The annual portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended October
31, 1994 and October 31, 1993, the portfolio turnover rates for the Fund were:
108.48% and 89.65%, respectively.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups of
related Fund investors may combine purchases of Class A shares of the Fund with
concurrent purchases of Class A shares of any other PaineWebber mutual fund and
thus take advantage of the reduced sales charges for Class A shares indicated
in the tables of sales charges in the Prospectus. The sales charge payable on
the purchase of Class A shares of the Fund and Class A shares of such other
funds will be at the rates applicable to the total amount of the combined
concurrent purchases.
30
<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 the individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse; or
(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).
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber mutual fund.
The purchaser must provide sufficient information to permit confirmation of his
or her holdings, and the acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.
WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only
to redemption of shares held at the time of death.
Certain PaineWebber mutual funds, including the Fund, offered shares subject
to contingent deferred sales charges before the implementation of the Flexible
Pricing system on July 1, 1991 ("CDSC Funds"). The contingent deferred sales
charge is waived with respect to redemptions of Class B shares of a CDSC Fund
purchased prior to July 1, 1991 by officers, directors (trustees) or employees
of the CDSC Fund, Mitchell Hutchins or their affiliates (or their spouses and
children under age 21). In addition, the contingent deferred sales charge will
be reduced by 50% with respect to redemptions of Class B shares of CDSC Funds
purchased prior to July 1, 1991 with a net asset value at the time of purchase
of at least $1 million. If Class B shares of a CDSC Fund purchased prior to
July 1, 1991 are exchanged for Class B shares of the Fund, any waiver or
reduction of the contingent deferred sales charge that applied to the Class B
shares of the CDSC Fund will apply to the Class B shares of the Fund acquired
through the exchange.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding class of most other
31
<PAGE>
PaineWebber and Mitchell Hutchins/Kidder, Peabody 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 the Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objectives, policies and
restrictions.
If conditions exist that make cash payments undesirable, the Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. If payment is
made in securities, a shareholder may incur brokerage expenses in converting
these securities into cash. The Trust has elected, however, to be governed by
Rule 18f-1 under the 1940 Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal. The Fund may suspend
redemption privileges or postpone the date of payment during any period (1)
when the New York Stock Exchange, Inc. ("NYSE") is closed or trading on the
NYSE is restricted as determined by the SEC, (2) when an emergency exists, as
defined by the SEC, that makes it not reasonably practicable for the Fund to
dispose of securities owned by it or fairly to determine the value of its
assets or (3) as the SEC may otherwise permit. The redemption price may be more
or less than the shareholder's cost, depending on the market value of the
Fund's portfolio at the time.
SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by the Fund of sufficient
shares to provide the withdrawal payment specified by participants in the
Fund's systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the 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 business days after written instructions with
signatures guaranteed are received by the Transfer Agent. Shareholders may
request the forms needed to establish a systematic withdrawal plan from their
PaineWebber investment executives, correspondent firms or the Transfer Agent at
1-800-647-1568.
REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Fund without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption.
The reinstatement will be made at the net asset value per share next computed
after the notice of reinstatement and check are received. The amount of a
purchase under this reinstatement privilege cannot exceed the amount of the
redemption proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to
the shareholder's tax
32
<PAGE>
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 and Taxes" in the Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN SM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT (R)(RMA (R))
Shares of the PaineWebber mutual funds (each a "PW Fund" and, collectively,
the "PW Funds") are available for purchase through the RMA Resource
Accumulation Plan ("Plan") by customers of PaineWebber and its correspondent
firms who maintain Resource Management Accounts ("RMA accountholders"). The
Plan allows an RMA accountholder to continually invest in one or more of the PW
Funds at regular intervals, with payment for shares purchased automatically
deducted from the client's RMA account. The client may elect to invest at
monthly or quarterly intervals and may elect either to invest a fixed dollar
amount (minimum $100 per period) or to purchase a fixed number of shares. A
client can elect to have Plan purchases executed on the first or fifteenth day
of the month. Settlement occurs five business days after the trade date, and
the purchase price of the shares is withdrawn from the investor's RMA account
on the settlement date from the following sources and in the following order:
uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to enrolling
in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may take
up to two weeks to become effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether though the
Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
33
<PAGE>
. 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 five RMA money market funds--RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California
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 $25 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of each of the two Classes, as
of the close of business on the first Business Day (as defined below) of the
month in which the sixth anniversary of the initial issuance of such Class B
shares of the Fund 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. If the shareholder acquired
Class B shares of the Fund through an exchange of Class B shares of a CDSC Fund
that were acquired prior to July 1, 1991, the shareholder's holding period for
purposes of conversion will be determined based on the date the CDSC Fund
shares were initially issued. For purposes of conversion to Class A, 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
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Class A, a pro rata portion of the Class B shares in the sub-account will also
convert to Class A. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A 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 (1) the continuing
applicability of a ruling of the Internal Revenue Service 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 (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Fund 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 these conditions for the availability of the conversion feature
will not continue to be met.
VALUATION OF SHARES
The Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern
time) on the New York Stock Exchange, Inc. ("NYSE") on 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, 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 being 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 Nasdaq are valued at the last available
sale price on Nasdaq at 4:00 p.m., eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Trust's
board of trustees. It should be recognized that judgment often plays a greater
role in valuing non-investment grade debt securities 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 are
valued daily in U.S. dollars on the basis of the foreign currency exchange rate
prevailing at the time such valuation is determined by the Fund's custodian.
The amortized cost method of valuation generally is used to value debt
obligations with 60 days or less remaining until maturity, unless the board of
trustees determines that this does not represent fair value.
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 will not be
reflected in a computation of the Fund's 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 the Trust's
board of trustees. The foreign currency exchange transactions of the Fund
conducted on a spot (that is, cash) basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market. 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.
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PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated according
to the following formula:
P(1 + T)/n/ = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
maximum 4% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
The following table shows performance information for the Class A, Class B
and Class D shares of the Fund for the periods indicated. All returns for
periods of more than one year are expressed as an annual average return.
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<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended October 31, 1994:
Standardized Return*................................ (7.00)% (8.89)% (3.56)%
Non-Standardized Return............................. (3.10)% (3.90)% (3.56)%
Five years ended
October 31, 1994:
Standardized
Return*............................................ NA 7.64 % NA
Non-Standardized Return............................. NA 7.94 % NA
Inception** to October 31, 1994:
Standardized Return................................. 5.09 % 9.43 % 3.51 %
Non-Standardized Return............................. 6.38 % 9.43 % 3.51 %
</TABLE>
- --------
*All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. Class D shares
do not impose an initial or a contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.
**The inception date for each Class of the Fund is as follows: Class A--July
1, 1991, Class B--March 20, 1987 and Class D--July 2, 1992.
YIELD. Yields used in the Fund's Performance Advertisements are calculated by
dividing the Fund's interest income attributable to a Class of shares for a 30-
day period ("Period"), net of expenses attributable to such Class, by the
average number of shares of such Class entitled to receive dividends during the
Period and expressing the result as an annualized percentage (assuming semi-
annual compounding) of the maximum offering price per share (in the case of
Class A shares) or the net asset value per share (in the case of Class B and
Class D shares) at the end of the Period. Yield quotations are calculated
according to the following formula:
a - b
YIELD = 2[ (-------- + 1)/6/-1 ]
cd
where: a = interest earned during the Period attributable to a Class of
shares
b = expenses accrued for the Period attributable to a Class of
shares (net of reimbursements)
c = the average daily number of shares of a Class outstanding
during the Period that were entitled to receive dividends
d = the maximum offering price per share (in the case of Class A
shares) or the net asset value per share (in the case of Class
B and Class D shares) on the last day of the Period.
Except as noted below, in determining interest income earned during the
Period (variable "a" in the above formula), the Fund calculates interest earned
on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Once interest earned
is
37
<PAGE>
calculated in this fashion for each debt obligation held by the Fund, interest
earned during the Period is then determined by totalling the interest earned on
all debt obligations. For purposes of these calculations, the maturity of an
obligation with one or more call provisions is assumed to be the next date on
which the obligation reasonably can be expected to be called or, if none, the
maturity date. With respect to Class A shares, in calculating the maximum
offering price per share at the end of the Period (variable "d" in the above
formula) the Fund's current maximum 4% initial sales charge on Class A shares
is included. For the 30-day period ended October 31, 1994, the yields for its
Class A shares, Class B shares and Class D shares were 6.38%, 5.87% and 6.14%,
respectively.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper") for world income funds, CDA
Investment Technologies, Inc. ("CDA"), Wiesenberger Investment Companies
Service ("Wiesenberger"), Investment Company Data, Inc. ("ICD"), or Morningstar
Mutual Funds ("Morningstar") or with the performance of recognized stock and
other indices, including the Standard & Poor's 500 Composite Stock Price Index,
the Dow Jones Industrial Average, the Wilshire 5000 Index, the Morgan Stanley
Capital International Perspective Indices, the Salomon Brothers World
Government Index, the Morgan Stanley Capital International Energy Sources
Index, the Standard & Poor's Oil Composite Index, the Salomon Brothers Non-U.S.
Dollar Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury Bonds
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. Each Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of a Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested
in additional Fund shares, any future income or capital appreciation of the
Fund would increase the value, not only of the original Fund investment, but
also of the additional Fund shares received through reinvestment. As a result,
the value of the Fund investment would increase more quickly than if dividends
or other distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote (R) Money
Markets. In comparing the Fund's performance to CD performance, investors
should keep in mind that bank CDs are insured in whole or in part by an agency
of the U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares of the Fund
are not insured or guaranteed by the U.S. government and returns thereon and
net asset value will fluctuate. The securities held by the Fund generally have
longer maturities than most CDs and may reflect interest rate fluctuations for
longer term securities. An investment in the Fund involves greater risks than
an investment in either a money market fund or a CD.
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<PAGE>
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or 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) the Fund must derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities, or any of the following, that
were held for less than three months--options, futures or forward contracts
(other than those on foreign currencies), or foreign currencies (or options,
futures or forward contracts thereon) that are not directly related to the
Fund's principal business of investing in securities (or options and futures
with respect to securities) ("Short-Short Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
Dividends and other distributions declared by the Fund in 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.
If shares of the Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
Interest received by the Fund may be subject to income, withholding or other
taxes imposed by foreign countries and U.S. possessions that would reduce the
yield on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate these 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 the Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible to, and may, file an election with the
Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income 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
39
<PAGE>
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. The Fund will report to its shareholders shortly after each taxable
year their respective shares of the Fund's income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this
election.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
The Fund may invest in "passive foreign investment companies" ("PFICs"). A
PFIC is a foreign corporation 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, if the Fund holds stock of a PFIC will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain on disposition of the 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 the Fund invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund," 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 qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss)--which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain are not distributed to the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Income from the disposition of foreign
currencies, and income from transactions in options, futures and forward
currency contracts derived by the Fund with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition of
options and futures (other than those on foreign currencies) will be subject to
the Short-Short Limitation if they are held for less than three months. Income
from the disposition of foreign currencies, and options, futures and forward
contracts on foreign currencies, that are not directly related to the Fund's
40
<PAGE>
principal business of investing in securities (or options and futures with
respect to securities) also will be subject to the Short-Short Limitation if
they are held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options,
futures and forward currency contracts beyond the time when it otherwise would
be advantageous to do so, in order for the Fund to continue to qualify as a
RIC.
The Fund may acquire zero coupon Treasury securities issued with original
issue discount. As the holder of such securities, the Fund must include in its
gross income the original issue discount that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued original issue discount, to satisfy the Distribution Requirement and
avoid imposition of the Excise Tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of
cash it actually receives. Those distributions will be made from the Fund's
cash assets or from the proceeds of sales of portfolio securities, if
necessary. The Fund may realize capital gains or losses from those sales, which
would increase or decrease its investment company taxable income and/or net
capital gain. In addition, any such gains may be realized on the disposition of
securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce the Fund's ability to sell other
securities, or certain options, futures or forward currency contracts, held for
less than three months that it might wish to sell in the ordinary course of its
portfolio management.
OTHER INFORMATION
PAINEWEBBER INVESTMENT SERIES. Prior to July 1, 1991, the name of the Fund
was "PaineWebber Master Global Income Fund."
PaineWebber Investment Series is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of the
Fund could, under certain circumstances, be held personally liable for the
obligations of the Trust or the 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, the Fund, the
trustees or any of them in connection with the Trust. The Declaration of Trust
provides for indemnification from the Fund's property for all losses and
expenses of any Fund 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 which 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 the
Fund, the shareholder
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<PAGE>
paying such liability will be entitled to reimbursement from the general assets
of the Fund. The trustees intend to conduct the operations of the Fund in such
a way as to avoid, as far as possible, ultimate liability of the shareholders
for liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. The Fund might 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, Class B
shares bear higher transfer agency fees per shareholder account than those
borne by Class A or Class D 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, 1800 M Street, N.W.,
Washington, D.C. 20036-5891, counsel to the Fund, has passed upon the legality
of the shares offered by the Prospectus. Kirkpatrick & Lockhart also acts as
counsel to Mitchell Hutchins and PaineWebber in connection with other matters.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Trust's independent accountants.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended October
31, 1994 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.
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APPENDIX
DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS
Aaa. Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; Aa. Bonds which are
rated "Aa" are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the long-
term risks appear somewhat greater than the "Aaa" securities; A. Bonds which
are rated "A" possess many favorable investment attributes and are 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 some time 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "B" in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt
rated "AA" has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree; A. Debt rated "A"
has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories; BBB. Debt rated
"BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories; BB, B. Debt rated "BB" and "B" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will likely have
some quality and
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<PAGE>
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions; BB. Debt rated "BB" has less near-
term vulnerability to default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB-"
rating; B. Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
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
categories.
NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as matter of policy.
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
PRIME-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured sources of
alternate liquidity. PRIME-2. Issuers (or supporting institutions) rated Prime-
2 (P-2) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety. A-1 . This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2. Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1". A-3. Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the
higher designations. B. Issues rated "B" are regarded as having only an
adequate capacity for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
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Statement of Additional Information December 29, 1994
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Kidder, Peabody Global Fixed Income Fund
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (212) 656-1737
This Statement of Additional Information supplements the information contained
in the Prospectus dated December 29, 1994, of Kidder, Peabody Global Fixed
Income Fund (the 'Fund'), a series of Kidder, Peabody Investment Trust (the
'Trust'), and should be read together with the Prospectus. The Prospectus may be
obtained without charge by writing or calling the Trust at the address or the
telephone number listed above. This Statement of Additional Information,
although not a prospectus, is incorporated in its entirety by reference into the
Prospectus.
For ease of reference, the section headings used in this Statement of Additional
Information are identical to those used in the Prospectus except as noted in
parentheses in the Table of Contents.
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MANAGER
Kidder Peabody Asset Management, Inc.
INVESTMENT ADVISER
Strategic Fixed Income, L.P.
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
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INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the investment objective of the Fund and the policies
to be employed to achieve that objective. Supplemental information is set out
below concerning certain of the securities and other instruments in which the
Fund may invest, the investment techniques and strategies that the Fund may
utilize and certain risks involved with those investments, techniques and
strategies.
RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the Securities
Act of 1933, as amended (the '1933 Act'), but that can be sold to 'qualified
institutional buyers' in accordance with Rule 144A under the 1933 Act ('Rule
144A Securities'). Particular Rule 144A Securities will be considered illiquid
and therefore subject to the Fund's limitation on the purchase of illiquid
securities, unless the Trust's Board of Trustees determines on an ongoing basis
that an adequate trading market exists for the Rule 144A Securities. The Fund's
purchasing Rule 144A Securities could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The Board of
Trustees may adopt guidelines and delegate to Kidder Peabody Asset Management,
Inc., the Fund's manager ('KPAM'), or to Strategic Fixed Income, L.P., the
Fund's investment adviser (the 'Adviser'), the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although the Board of Trustees
will retain ultimate responsibility for any determination regarding liquidity.
The ability to sell to qualified institutional buyers under Rule 144A is a
recent development and neither KPAM nor the Adviser can predict how this market
will develop. The Board of Trustees will carefully monitor any investments by
the Fund in Rule 144A Securities.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ('Government Securities') in which the Fund may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association and Resolution Trust Corporation. Direct obligations of the U.S.
Treasury include a variety of securities that differ in their interest rates,
maturities and dates of issuance. Because the United States Government is not
obligated by law to provide support to an instrumentality that it sponsors, the
Fund invests in obligations issued by an instrumentality of the U.S. Government
only if KPAM or the Adviser determines that the instrumentality's credit risk
does not make its securities unsuitable for investment by the Fund.
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EXCHANGE RATE-RELATED GOVERNMENT SECURITIES
The Fund may invest up to 5% of its net assets in Government Securities for
which the principal repayment at maturity, while paid in U.S. dollars, is
determined by reference to the exchange rate between the U.S. dollar and the
currency of one or more foreign countries ('Exchange Rate-Related Securities').
The interest payable on these securities is denominated in U.S. dollars and is
not subject to foreign currency risk and, in most cases, is paid at rates higher
than most other Government Securities in recognition of the foreign currency
risk component of Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a variety of forms,
depending on the structure of the principal repayment formula. The principal
repayment formula may be structured so that the securityholder will benefit if a
particular foreign currency to which the security is linked is stable or
appreciates against the U.S. dollar. In the alternative, the principal repayment
formula may be structured so that the securityholder benefits if the U.S. dollar
is stable or appreciates against the linked foreign currency. Finally, the
principal repayment formula can be a function of more than one currency and,
therefore, be designed as a combination of those forms.
INVESTMENT TECHNIQUES AND STRATEGIES
FORWARD CURRENCY TRANSACTIONS. At or before the maturity of a forward
currency contract, the Fund may either sell a portfolio security and make
delivery of the currency, or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second contract pursuant to
which the Fund will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. If the Fund retains the portfolio
security and engages in an offsetting transaction, the Fund, at the time of
execution of the offsetting transaction, will incur a gain or a loss to the
extent that movement has occurred in forward currency contract prices. Should
forward prices decline during the period between the Fund's entering into a
forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. The use of forward currency contracts does
not eliminate fluctuations in the underlying prices of the securities, but it
does establish a rate of exchange that can be achieved in the future. In
addition, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time, they limit any
potential gain that might result should the value of the currency increase.
If a devaluation is generally anticipated, the Fund may not be able to
contract to sell currency at a price above the devaluation level it anticipates.
The Fund will not enter into a currency transaction if, as a result, it will
fail to qualify as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the 'Code'), for a given year. See 'Taxes -- Tax
Status of the Fund and its Shareholders.'
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OPTIONS ON FOREIGN CURRENCIES. To protect against diminutions in the value
of securities held by the Fund in a particular foreign currency, the Fund may
purchase put options on the foreign currency. In such a case, if the value of
the currency declined, the Fund would have the right to sell the currency for a
fixed amount in U.S. dollars, which would offset, in whole or in part, the
adverse effect on the Fund's portfolio that otherwise would have resulted. When
an increase in the U.S. dollar value of a currency in which securities to be
acquired by the Fund are denominated is projected, thereby increasing the cost
of the securities, the Fund conversely may purchase call options on the
currency. The purchase of the options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction, or to the extent, anticipated, the Fund could sustain losses
on transactions in foreign currency options that would require it to forego a
portion, or all, of the benefits of advantageous changes in the rates. The
premiums paid by the Fund in purchasing options on foreign currencies, options
on securities and options on stock indexes are limited to not more than 20% of
the Fund's net assets.
When the Adviser anticipates a decline in the U.S. dollar value of foreign
currency-denominated securities due to adverse fluctuations in exchange rates,
the Fund could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option would most likely
not be exercised, and the diminution in value of portfolio securities would be
offset by the amount of the premium received. Instead of purchasing a call
option to hedge against an anticipated increase in the U.S. dollar cost of
securities to be acquired, the Fund could write a put option on the relevant
currency that, if rates moved in the manner projected, would expire unexercised
and allow the Fund to hedge the increased cost up to the amount of the premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss that may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund may
also be required to forego all, or a portion, of the benefits that might
otherwise have been obtained from favorable movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written by the Fund on a foreign currency is 'covered' if the Fund owns
the foreign currency underlying the call or has an absolute and immediate right
to acquire the foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by the Fund's
custodian or by a designated sub-custodian) upon conversion or exchange of other
foreign currency held by the Fund. A call option also is deemed to be covered if
the Fund has a call on the same foreign currency and in the same principal
amount as the call written when the exercise price of the call held (1) is equal
to or less than the exercise price of the call written or (2) is greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, Government Securities and other high-grade liquid debt securities
in a segregated account with the Fund's custodian or with a designated
sub-custodian.
The Fund may write uncovered call options on foreign currencies to provide
a hedge against a decline, due to an adverse change in exchange rates, in the
U.S. dollar value of a
4
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security that the Fund owns or has a right to acquire. A call option written for
these purposes, typically referred to as 'cross-hedging,' would be written on a
foreign currency that the Adviser determines is closely correlated with the
foreign currency in which the hedged security is denominated. In such
circumstances, the Fund would collateralize the option by maintaining in a
segregated account with its custodian, or with a designated sub-custodian, cash
or Government Securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars. To the extent that cash or cash equivalents,
including Government Securities, are maintained by the Fund in a segregated
account with the Fund's custodian or with a designated sub-custodian to
collateralize the Fund's writing of options on foreign currencies, options on
securities and options on stock indexes, the Fund will limit the
collateralization to not more than 50% of its net assets.
OPTIONS. To the extent required by the laws of certain states, the Fund may
not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options on securities. Should these state laws change or
should the Fund obtain a waiver of their application, the Fund may commit more
than 5% of its assets to premiums when purchasing call and put options on
securities. In addition, should the Trust determine that a commitment is no
longer in the best interests of the Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of the Fund's shares in the state
involved.
FUTURES CONTRACTS. The Fund may trade securities index, currency and
interest rate futures contracts to the extent permitted under rules and
interpretations adopted by the Commodity Futures Trading Commission (the
'CFTC'). U.S. futures contracts have been designed by exchanges that have been
designated as 'contract markets' by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, that is a member of the relevant
contract market. Futures contracts trade on a number of contract markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in the value of investment securities without its necessarily
buying or selling the securities. Because the value of the Fund's investment
securities will exceed the value of the futures contracts sold by the Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets. No consideration
is paid or received by the Fund upon trading a futures contract. Upon trading a
futures contract, the Fund will be required to deposit in a segregated account
with its custodian or a designated sub-custodian an amount of cash, short-term
Government Securities or other U.S. dollar-denominated, high-grade, short-term
money market instruments equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange on which the contract is
traded and brokers may charge a higher amount). This amount is known as 'initial
margin' and is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Fund upon termination of the futures contract,
assuming that all contractual obligations have been satisfied; the broker will
have access to amounts in the margin account if the Fund fails to meet its
contractual obligations. Subsequent payments, known as 'variation margin,' to
and from the broker, will be made daily as the price of the currency or
securities underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
'marking-to-market.' At any time prior to the expiration of a
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futures contract, the Fund may elect to close a position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
Positions in futures contracts may be closed out only on the exchange on
which they were undertaken (or through a linked exchange). No secondary market
for futures contracts currently exists, and although the Fund intends to trade
futures contracts only if an active market for them exists, no assurance can be
given that an active market will exist for the contracts at any particular time.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made on that day at a price
beyond that limit. Prices for futures contracts may move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting the Fund to substantial
losses. In that case, and in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the Fund's securities
being hedged, if any, may partially or completely offset losses on the futures
contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write put and call
options on a securities index, currency and interest rate future contracts that
are traded on a U.S. exchange or board of trade or a foreign exchange, to the
extent permitted under rules and interpretations of the CFTC, as a hedge against
changes in market conditions and interest rates, and may enter into closing
transactions with respect to those options to terminate existing positions. No
assurance can be given that the closing transactions can be effected.
LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 33 1/3% of the value of the Fund's total
assets. The Fund will not lend securities to Kidder, Peabody & Co. Incorporated
('Kidder, Peabody'), the Fund's distributor, unless the Fund has applied for and
received specific authority to do so from the Securities and Exchange Commission
(the 'SEC'). The Fund's loans of securities are collateralized by cash, letters
of credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities are maintained at all times in a segregated account
with the Fund's custodian, or with a designated sub-custodian, in an amount at
least equal to the current market value of the loaned securities. From time to
time, the Fund may pay a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and is acting as a 'finder.' The Fund will
comply with the following conditions whenever it loans securities: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities.
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WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 8 below have been adopted by the
Trust as fundamental policies with respect to the Fund. Under the Investment
Company Act of 1940, as amended (the '1940 Act'), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. Investment restrictions numbered 9
through 14 may be changed by a vote of a majority of the Trust's Board of
Trustees at any time.
Under the investment restrictions adopted by the Trust with respect to the
Fund:
1. The Fund will not borrow money, except that the Fund may enter into
forward roll transactions and borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption requests and
cash payments of dividends and distributions that might otherwise require
the untimely disposition of securities, in an amount not to exceed 20% of
the value of the Fund's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) at the time
the borrowing is made. Whenever borrowings, other than forward roll
transactions, exceed 5% of the value of the total assets of the Fund, the
Fund will not make any additional investments.
2. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 33 1/3% of the value of the Fund's total assets and entering into
repurchase agreements.
3. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government and (b) all supranational organizations.
4. The Fund will not purchase securities on margin, except that the
Fund may engage in short sales of securities and obtain any short-term
credits necessary for the clearance of purchases and sales of securities.
For purposes of this restriction, the deposit or payment of initial or
variation margin in connection with futures contracts or options on futures
contracts will not be deemed to be a purchase of securities on margin.
5. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.
6. The Fund will not purchase or sell commodities or commodity
contracts (except currencies, securities index, currency and interest rate
futures contracts and related options, forward foreign currency contracts
and other similar contracts).
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7. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
8. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the 1933 Act.
9. The Fund will not purchase any security, other than a security
acquired pursuant to a plan of reorganization or an offer of exchange, if
as a result of the purchase (a) the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or (b) more than 5% of the value
of the Fund's total assets would be invested in securities of any one or
more closed-end investment companies.
10. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.
11. The Fund will not make investments for the purpose of exercising
control of management.
12. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of the value of its total
assets invested in securities of companies (including predecessors) that
have been in continuous operation for fewer than three years.
13. The Fund will not purchase or retain securities of any company if,
to the knowledge of the Fund, any of the Trust's Trustees or officers or
any officer or director of the Adviser or KPAM individually owns more than
.5% of the outstanding securities of the company and together they own
beneficially more than 5% of the securities.
14. The Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets of which not
more than 2% of the Fund's net assets may be invested in warrants not
listed on a recognized foreign or domestic stock exchange.
The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchases of securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investments in Exchange Rate-Related Securities entail special risks. The
possibility exists of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. If currency exchange rates do not move in the direction or to the extent
anticipated by the Adviser at the time of purchase of the security, the amount
of principal repaid at maturity might be significantly below the par value of
the
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security, which might not be offset by the interest earned by the Fund over the
term of the security. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The imposition or modification of foreign
exchange controls by the U.S. or foreign governments or intervention by central
banks could also affect exchange rates. Finally, there is no assurance that
sufficient trading interest to create a liquid secondary market will exist for a
particular Exchange Rate-Related Security due to conditions in the debt and
foreign currency markets. Illiquidity in the forward foreign exchange market and
the high volatility of the foreign exchange market may from time to time combine
to make it difficult to sell an Exchange Rate-Related Security prior to maturity
without incurring a significant price loss.
Certain transactions involving futures contracts, options on foreign
currencies and forward currency contracts are not traded on contract markets
regulated by the CFTC; forward currency contracts also are not regulated by the
SEC. Instead, forward currency contracts are traded through financial
institutions acting as market-makers. Foreign currency options are traded on
certain national securities exchanges, such as the Philadelphia Stock Exchange
and the Chicago Board Options Exchange, subject to SEC regulation. In the
forward currency market, no daily price fluctuation limits are applicable, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward currency contracts could lose
amounts substantially in excess of its initial investments, due to the
collateral requirements associated with those positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to those transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation (the
'OCC'), thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities exchange may exist,
potentially permitting the Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing members, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
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Futures contracts, options on futures contracts, forward currency contracts
and options on foreign currencies may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions also could be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
the Fund's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for the Fund are made by the Adviser,
subject to review by KPAM and the Trust's Board of Trustees. Transactions on
domestic stock exchanges and some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. On most
foreign exchanges, commissions are generally fixed.
No stated commission is generally applicable to securities traded in U.S.
over-the-counter markets, but the prices of those securities include undisclosed
commissions or mark-ups. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down. Government Securities generally are purchased from underwriters or
dealers, although certain newly issued Government Securities may be purchased
directly from the United States Treasury or from the issuing agency or
instrumentality.
In selecting brokers or dealers to execute securities transactions on
behalf of the Fund, the Adviser seeks the best overall terms available. In
assessing the best overall terms available for any transaction, the Adviser
considers factors that it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. In addition, the
investment advisory agreement among the Trust, KPAM and the Adviser relating to
the Fund authorizes the Adviser, on behalf of the Fund, in selecting brokers or
dealers to execute a particular transaction, and in evaluating the best overall
terms available, to consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
the Fund and/or other accounts over which the Adviser or its affiliates exercise
investment discretion. The fees under the investment advisory agreement are not
reduced by reason of the Fund's receiving brokerage and research services. The
Trustees periodically review the commissions paid by the Fund to determine if
the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Fund. Over-the-counter purchases and
sales by the Fund are transacted directly with principal market-makers except in
those cases in which better prices and executions may be obtained elsewhere. The
Fund does not purchase any security, including Government Securities, during the
existence of any underwriting or selling group relating to the security of which
Kidder, Peabody is a member, except to the extent permitted under rules,
interpretations or exemptions of the SEC. For the fiscal year ended August 31,
1994 and for the
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period December 24, 1992 (commencement of operations) through August 31, 1993,
the Fund did not pay any brokerage commissions.
The Fund does not consider portfolio turnover rate a limiting factor in
making investment decisions. The Fund's turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of portfolio securities. Securities with remaining
maturities of one year or less on the date of acquisition are excluded from the
calculation.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The names of Trustees and officers of the Trust, together with information as to
their principal business occupations during the last five years, are shown
below. An asterisk appears before the name of each Trustee who is an 'interested
person' of the Trust, as defined in the 1940 Act.
*George V. Grune, Jr., Trustee, Chairman of the Board and President.
Executive Managing Director of the Asset Management Division of Kidder, Peabody
and President and a Director of KPAM.
David J. Beaubien, Trustee. Chairman of Yankee Environmental Systems, Inc.,
manufacturer of meteorological measuring instruments. Director of IEC, Inc.,
manufacturer of electronic assemblies, Belfort Instruments, Inc., manufacturer
of environmental instruments, and Oriel Corp., manufacturer of optical
instruments. Prior to January 1991, Senior Vice President of EG&G, Inc., a
company that makes and provides a variety of scientific and techically oriented
products and services.
William W. Hewitt, Jr., Trustee. Trustee of The Guardian Asset Allocation
Fund, The Guardian Baillie Gifford International Fund, The Guardian Bond Fund,
Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The Guardian
Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian U.S.
Government Trust.
*Russell H. Johnson, Trustee and Vice Chairman. Managing Director of
Kidder, Peabody and a Managing Director and a director of KPAM. Prior to April
1993 and December 1991, Senior Vice President of KPAM and Kidder, Peabody,
respectively.
Thomas R. Jordan, Trustee. Principal of The Dilenschneider Group, Inc., a
corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm.
Carl W. Schafer, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd. and Hidden Lake Gold
Mines Ltd., gold mining companies, Electronic Clearing House, Inc., a financial
transactions processing company, Wainoco Oil Corporation and Bio Techniques
Laboratories Inc., an agricultural biotechnology company. Prior to January 1993,
chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and
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director of Ecova Corporation, a toxic waste treatment firm. Prior to May 1990,
principal of Rockefeller and Company, Inc., manager of investments.
Kenneth A. Windheim, Executive Vice President and Chief Investment Officer.
President of the Adviser and President of Gobi Investment, Inc., the general
partner of the Adviser. Prior to May 1991, Managing Director, International
Fixed Income Department, of Global Fixed Income Advisers.
Mary Claire Choksi, Senior Vice President. Limited partner of the Adviser,
Strategic Investment Management, Strategic Investment Management International
and Emerging Markets Management and a Director of Emerging Markets Investors
Corporation and Strategic Investment Partners, Inc., each a registered
investment adviser.
Diane Bilverstone, Vice President and Investment Officer. Director of the
Adviser. Prior to September 1991, Assistant Director of Hambros Bank Ltd.
Robert B. Jones, Senior Vice President. Senior Vice President of Kidder,
Peabody and Senior Vice President and director of KPAM. Prior to December 1990,
Vice President of Kidder, Peabody.
Lawrence H. Kaplan, Senior Vice President, General Counsel and Secretary.
Senior Vice President and Associate General Counsel of Kidder, Peabody,
director, Senior Vice President, General Counsel and Assistant Secretary of KPAM
and a director and/or officer of various Kidder, Peabody subsidiaries. Prior to
November 1990, attorney in private practice with the law firm of Brown & Wood.
John J. Boretti, Vice President and Chief Financial Officer. Vice President
of Kidder, Peabody and Vice President and Chief Financial Officer of KPAM. Prior
to October 1992, self employed as a consultant. Prior to August 1992, director,
Executive Vice President, Chief Financial Officer and Treasurer of USF&G Review
Management Corp., Vice President and director of USF&G Investment Management
Corp., Treasurer of USF&G Mutual Funds, Executive Vice President, Treasurer and
Chief Financial Officer of USF&G Investment Services, Inc. and director of Axe
Houghton Management. Prior to December 1990, Vice President of USF&G Financial
Services.
Ronald A. Huether, Treasurer and Assistant Secretary. Vice President of
Kidder, Peabody and a Vice President and Treasurer of KPAM.
Lisa S. Kellman, Assistant Secretary. Assistant Vice President of Kidder,
Peabody and KPAM. Prior to January 1993, Administrative Officer of Kidder,
Peabody.
Leonard I. Chubinsky, Assistant Vice President and Assistant Secretary.
Assistant Vice President and Assistant General Counsel of Kidder, Peabody and
Assistant Vice President of KPAM. Prior to July 1992, attorney with
Curtiss-Wright Corporation, a diversified manufacturing company.
Helen V. Del Bove, Assistant Treasurer. Assistant Vice President of Kidder,
Peabody and Vice President of KPAM.
Certain of the Trustees and officers of the Trust are directors and/or
trustees and officers of other mutual funds managed by KPAM. The addresses of
the non-interested Trustees are as follows: Mr. Beaubien, Montague Industrial
Park, 101 Industrial Road, Box 746, Turner Falls, Massachusetts 01376; Mr.
Hewitt, P.O. Box 2359, Princeton, New Jersey 08543-2359; Mr. Jordan, 200 Park
Avenue, New York, New York 10166; and Mr. Schafer, P.O. Box 1164, Princeton, New
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Jersey 08542. The address of Messrs. Boretti, Chubinsky, Grune, Johnson, Jones,
Huether and Kaplan and Mmes. Kellman and Del Bove is 60 Broad Street, New York,
New York 10004-2350. The address of Mr. Windheim and Ms. Bilverstone and Ms.
Choksi is 1001 19th Street, North, Suite 1600, Arlington Virginia 22209.
By virtue of the responsibilities assumed by KPAM under its management
agreement with the Trust, and by the Adviser under its investment advisory
agreement with KPAM and the Trust, the Fund requires no executive employees
other than officers of the Trust, none of whom devotes full time to the affairs
of the Fund. Trustees and officers of the Trust, as a group, owned 1.68% of the
outstanding Class C shares as of December 1, 1994 and owned less than 1% of the
outstanding Class A shares and Class B shares as of December 1, 1994. The Trust
pays each Trustee who is not an officer, director or employee of KPAM, the
Adviser, or any of their affiliates, an annual retainer of $1,000, and $375 for
each Board of Trustees meeting attended, and reimburses the Trustee for
out-of-pocket expenses associated with attendance at Board meetings. The
Chairman of the Board's audit committee receives an annual fee of $250. No
officer, director or employee of KPAM, the Adviser, or any of their affiliates,
receives any compensation from the Trust for serving as an officer or Trustee of
the Trust. For the fiscal period ended August 31, 1994, the Trust paid $57,907
in Trustees' fees and out-of-pocket expenses, of which $11,875 was allocated to
the Fund.
MANAGER
KPAM, located at 60 Broad Street, New York, New York 10004-2350, and a
wholly-owned subsidiary of Kidder, Peabody, bears all expenses in connection
with the performance of its services as the Fund's manager.
The management agreement with the Trust relating to the Fund (the
'Management Agreement'), pursuant to the terms of which KPAM acts as the Fund's
manager, remains in effect for an initial term of two years and thereafter
continues in effect from year to year, provided its continuance is approved at
least annually by (1) the Trustees or (2) by a vote of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act, provided that in
either event the continuance is also approved by a majority of the Trustees who
are not 'interested persons,' as defined in the 1940 Act, of any party to the
Management Agreement, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Management Agreement was most recently continued
by the Trustees, including a majority of the Trustees who are not 'interested'
persons at a meeting held on March 2, 1994. The Management Agreement is
terminable without penalty, by the Trust on not more than 60 nor less than 30
days' notice to KPAM, by vote of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act, or by KPAM on not
more than 60 nor less than 30 days' notice to the Trust. The Management
Agreement will terminate automatically in the event of its assignment, as
defined in the 1940 Act.
As compensation for KPAM's services rendered to the Fund, the Trust pays a
fee, computed daily and paid monthly, at the annual rate of .70% of the Fund's
average daily net assets. For the fiscal year ended August 31, 1994, the Trust
paid $1,590,691 to KPAM with respect to the Fund. For the period December 24,
1992 (commencement of operations) through August 31, 1993, the
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Trust accrued fees of $373,871 to KPAM with respect to the Fund, but KPAM
voluntarily reimbursed the Trust for a portion of the Fund's expenses in the
amount of $157,423.
KPAM will not be liable for any error of judgment or mistake of law or for
any loss suffered by the Trust with respect to the Fund in connection with the
matters to which the Management Agreement relates, except for 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 the Management Agreement.
Under the Management Agreement, KPAM has agreed that, if in any fiscal year
of the Fund, the aggregate expenses of the Fund (including management fees, but
excluding interest, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Trust, KPAM will
reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of KPAM's fees under the Management
Agreement. Any expense reimbursement will be estimated, reconciled and paid on a
monthly basis. As of the date of this Statement of Additional Information, the
most restrictive state expense limitation applicable to the Fund requires
reimbursement of expenses in any year that the Fund's expenses subject to the
limitation exceed 2 1/2% of the first $30 million of the average daily value of
the Fund's net assets, 2% of the next $70 million of the average daily value of
the Fund's net assets and 1 1/2% of the remaining average daily value of the
Fund's net assets. For the fiscal year ended August 31, 1994, the Fund's
expenses did not exceed such limitations.
INVESTMENT ADVISER
The Adviser, located at 1001 19th Street, North, Suite 1600, Arlington, Virginia
22209, bears all expenses in connection with the performance of its services as
the Fund's investment adviser. The investment advisory agreement with the Trust
and KPAM relating to the Fund (the 'Advisory Agreement'), pursuant to the terms
of which the Adviser acts ad the Fund's investment adviser, remains in effect
for an initial term of two years and thereafter continues in effect from year to
year, provided its continuance is approved at least annually by (1) the Trustees
or (2) by a vote of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act, provided that in either event the continuance is also
approved by a majority of the Trustees who are not 'interested persons,' as
defined in the 1940 Act, of any party to the Advisory Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement was most recently continued by the Trustees, including a
majority of the Trustees who are not 'interested persons,' at a meeting held on
March 2, 1994. The Advisory Agreement is terminable without penalty, by the
Trust on not more than 60 nor less than 30 days' notice to the Adviser, by vote
of the holders of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act, or by the Adviser on not more than 60 nor less than 30
days' notice to the Trust. The Advisory Agreement will terminate automatically
in the event of its assignment, as defined in the 1940 Act and the rules
thereunder.
As compensation for the Adviser's services rendered to the Fund, KPAM pays
a fee, computed daily and paid monthly, at the annual rate of .35% of the Fund's
average daily net assets. For the fiscal year ended August 31, 1994 and for the
period December 24, 1992
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(commencement of operations) through August 31, 1993, KPAM paid fees of $795,346
and $373,871, respectively, to the Adviser with respect to the Fund.
The Adviser will not be liable for any error of judgment or mistake of law
or for any loss suffered by the Trust with respect to the Fund in connection
with the matters to which the Advisory Agreement relates, except for 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 the Advisory Agreement.
Under the Advisory Agreement, the Adviser has agreed that, if in any fiscal
year of the Fund, the aggregate expenses of the Fund (including management fees,
but excluding interest, taxes, brokerage and, with the prior written consent of
the necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Trust, the Adviser
will reimburse KPAM for 50% of the amount KPAM is required to reimburse the
Trust under the Management Agreement. The expense reimbursement obligation of
the Adviser is limited to the amount of the Adviser's fees under the Advisory
Agreement.
DISTRIBUTOR
Kidder, Peabody, located at 10 Hanover Square, New York, New York 10005-3592,
serves as the distributor of the Fund's shares on a best efforts basis. Under a
Shareholder Servicing and Distribution Plan (the 'Plan') adopted by the Trust
with respect to the Fund pursuant to Rule 12b-1 under the 1940 Act, the Trust
pays Kidder, Peabody monthly fees calculated at the aggregate annual rates of
.25% and .75% of the value of the Fund's average daily net assets attributed to
Class A shares and Class B shares, respectively. Under its terms, the Plan
continues from year to year, so long as its continuance is approved annually by
vote of the Trust's Board of Trustees, including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan (the 'Independent Trustees').
The Plan may not be amended to increase materially the amount to be spent for
the services provided by Kidder, Peabody without Fund shareholder approval, and
all material amendments of the Plan also must be approved by the Trustees in the
manner described above. The Plan may be terminated with respect to a Class at
any time, without penalty, by a vote of a majority of the Independent Trustees
or by a vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) represented by the Class on not more than 30 days' written notice
to Kidder, Peabody.
Pursuant to the Plan, Kidder, Peabody provides the Trust's Board of
Trustees with periodic reports of amounts expended under the Plan and the
purpose for which the expenditures were made. The Trustees believe that the
Fund's expenditures under the Plan benefit the Fund and its shareholders by
providing better shareholder services and by facilitating the distribution of
shares. With respect to Class A shares, for the fiscal year ended August 31,
1994, Kidder, Peabody received $448,200 from the Fund, of which it is estimated
that $210,010 was spent on commission credits to branch offices for payments of
shareholder servicing compensation to Investment Executives and $238,190 was
spent on overhead and other branch office shareholder servicing-related
expenses. With respect to Class B shares, for the fiscal year ended August 31,
1994, Kidder, Peabody received $130,463 from the Fund, of which it is estimated
that $821 was spent
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on advertising, $2,555 was spent on printing and mailing of prospectuses to
other than current shareholders, $61,328 was spent on commission credits to
branch offices for payments of commissions and shareholder servicing
compensation to Investment Executives and $65,759 was spent on overhead and
other branch office distribution or shareholder servicing-related expenses. The
term 'overhead and other branch office distribution or shareholder
servicing-related expenses' represents (1) the expenses of operating Kidder,
Peabody's branch offices in connection with the sale of Fund shares or servicing
of shareholder accounts, including lease costs, the salaries and employee
benefits of operations and sales and servicing support personnel, utility costs,
communications costs and the costs of stationery and supplies, (2) the costs of
client sales seminars, (3) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (4) other incidental expenses relating to
branch promotion or servicing of Fund sales.
CUSTODIAN AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
Investors Fiduciary Trust Company ('IFTC'), located at 127 West 10th Street,
Kansas City, Missouri 64105, serves as the Fund's custodian and transfer,
dividend and recordkeeping agent. As transfer agent, IFTC maintains the Trust's
official record of Fund shareholders and, as dividend agent, IFTC is responsible
for crediting dividends to the accounts of Fund shareholders. As custodian and
recordkeeping agent, IFTC maintains custody of the Fund's portfolio securities,
calculates the Fund's net asset value per share and maintains certain accounting
and financial records of the Fund. Under its custodial agreement with the Trust,
IFTC is authorized to appoint one or more banking institutions as sub-custodians
of assets owned by the Fund.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, located at Two World Financial Center, New York, New
York, 10281 serves as independent auditors for the Trust. In that capacity,
Deloitte & Touche LLP audits the Trust's financial statements.
COUNSEL
Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, serves as counsel to the Trust.
PRINCIPAL SHAREHOLDERS
With respect to the Fund, to the knowledge of the Trust, David L. Brook and
Shirley Brook, Trustees, UAD 12/15/92, the David L. Brook Irrevocable Charitable
Trust, RFD 3, Box 740, Oakland, Maine 04963-9407, owned of record 11.44% of
Class C's shares of beneficial interest on December 1, 1994.
The Fund is not aware as to whether or to what extent shares owned of
record also are owned beneficially.
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REDEMPTION OF SHARES
Detailed information on how to redeem shares of the Fund is included in the
Prospectus. The right of redemption of shares of the Fund may be suspended or
the date of payment postponed (1) for any periods during which the New York
Stock Exchange (the 'NYSE') is closed (other than for customary weekend and
holiday closings), (2) when trading in the markets the Fund normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the SEC,
exists, making disposal of the Fund's investments or determination of its net
asset value not reasonably practicable or (3) for such other periods as the SEC
by order may permit for the protection of the Fund's shareholders.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the 'Withdrawal Plan') is available to each Fund
shareholder with $20,000 or more invested in a Class who wishes to receive
redemption payments monthly. Withdrawals of at least $200 monthly may be made
under the Withdrawal Plan by redeeming as many shares of the Class as may be
necessary to cover the stipulated withdrawal payment. To the extent that
withdrawals exceed dividends, distributions and appreciation of a shareholder's
investment in the Class, the value of the shareholder's investment will be
reduced; continued withdrawal payments may further reduce the shareholder's
investment and ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in the Fund. A shareholder's purchasing of
additional shares of the Fund while participating in the Withdrawal Plan would
generally not be advantageous, and for that reason, purchases of shares in
amounts less than at least one year's scheduled withdrawals or $2,400, whichever
is greater, by participants in the Withdrawal Plan will not ordinarily be
permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificated form must deposit their share certificates with
IFTC, as agent for Withdrawal Plan members. All dividends and distributions on
shares in the Withdrawal Plan are reinvested in shares of the same Class
automatically at net asset value.
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, net asset value will not be calculated on certain
holidays. On those days, securities held by the Fund may nevertheless be
actively traded, and the value of the Fund's shares could be significantly
affected.
The Fund may invest in foreign securities and, as a result, the calculation
of each Class' net asset value may not take place contemporaneously with the
determination of the prices of certain of the portfolio securities used in the
calculation. A security that is listed or traded on more than one exchange is
valued for purposes of calculating each Class' net asset value at the quotation
on the exchange determined to be the primary market for the security. All assets
and liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values at the mean between the bid and offered quotations of
the currencies against U.S. dollars as last quoted by any recognized dealer. If
the bid and offered quotations are not available, the rate of exchange will be
determined in good faith by the Trust's Board of Trustees. In carrying out the
Board's valuation policies, IFTC may consult with an independent pricing service
retained by the Trust.
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EXCHANGE PRIVILEGE
The exchange privilege described in the Prospectus may be suspended or postponed
if (1) redemption of Fund shares is suspended under Section 22(e) of the 1940
Act or (2) the Trust temporarily delays or ceases the sale of the Fund's shares
because the Fund is unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
Shares of each Class may be exchanged for shares of the same Class (or the
sole Class offered) in the following funds in the Kidder Family of Funds, to the
extent shares are offered for sale in the shareholder's state of residence:
Kidder, Peabody Adjustable Rate Government Fund, a series of the
Trust, seeks high current income while limiting the degree of
fluctuation of its net asset value resulting from movements in
interest rates by investing in adjustable rate securities and
Government Securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Kidder, Peabody Asset Allocation Fund, a series of the Trust, seeks
total return by following a systematic investment strategy that
actively allocates the fund's assets among common stocks, U.S.
Treasury notes and U.S. Treasury bills.
Kidder, Peabody California Tax Exempt Money Fund, a money market fund
designed for California investors, seeks maximum current income exempt
from federal and California income taxation to the extent consistent
with the preservation of capital and the maintenance of liquidity.
Kidder, Peabody Cash Reserve Fund, Inc., a general purpose money
market fund, seeks maximum current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
Kidder, Peabody Emerging Markets Equity Fund, a series of Kidder,
Peabody Investment Trust II ('Trust II'), seeks long term capital
appreciation through an actively managed portfolio consisting of
equity securities of issuers in emerging markets in Asia, Latin
America, the Middle East, Southern Europe, Eastern Europe and Africa.
Kidder, Peabody Equity Income Fund, Inc. seeks reasonably high current
dividend and interest income and long term capital appreciation, while
limiting risk to principal, through investments primarily in equity
securities.
Kidder, Peabody Global Equity Fund, a series of the Trust, seeks long
term growth of capital through investments primarily in foreign equity
securities.
Kidder, Peabody Government Income Fund, Inc. seeks high current income
through investments in Government Securities.
Kidder, Peabody Government Money Fund, Inc., a money market fund,
seeks maximum current income to the extent consistent with the
preservation of capital and the maintenance of liquidity through
investment in Government Securities.
Kidder, Peabody Intermediate Fixed Income Fund, a series of the Trust,
seeks maximum total return through an actively managed portfolio
consisting primarily of intermediate term, fixed income securities
rated in the three highest grades by recognized rating agencies.
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Kidder, Peabody Municipal Bond Fund, a series of Trust II, seeks as
high a level of current interest income that is exempt from Federal
income taxation as is consistent with prudent investments management
and the preservation of capital through investments primarily in high
quality municipal obligations.
Kidder, Peabody Municipal Money Market Series -- Connecticut Series, a
money market fund designed for Connecticut investors, seeks maximum
current income exempt from federal and Connecticut income taxation to
the extent consistent with the preservation of capital and the
maintenance of liquidity.
Kidder, Peabody Municipal Money Market Series -- New Jersey Series, a
money market fund designed for New Jersey investors, seeks maximum
current income exempt from federal and New Jersey income taxation to
the extent consistent with the preservation of capital and the
maintenance of liquidity.
Kidder, Peabody Municipal Money Market Series -- New York Series, a
money market fund designed for New York investors, seeks maximum
current income exempt from federal, New York State and New York City
income taxation to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Kidder, Peabody Premium Account Fund, a general purpose money market
fund for persons subscribing to the Kidder, Peabody Premium Account
asset management system, seeks maximum current income to the extent
consistent with the preservation of capital and the maintenance of
liquidity.
Kidder, Peabody Small Cap Equity Fund, a series of Kidder, Peabody
Investment Trust III, seeks long term capital appreciation through
investments primarily in equity securities of small capitalization
companies.
Kidder, Peabody Tax Exempt Money Fund, Inc., a money market fund,
seeks maximum current income exempt from federal income taxation to
the extent consistent with the preservation of capital and the
maintenance of liquidity.
TAXES
Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.
TAX STATUS OF THE FUND AND ITS SHAREHOLDERS
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund's net investment income, capital gains and distributions are determined
separately from any other series that the Trust may designate.
The Fund has qualified for the fiscal period ended August 31, 1994 to be
treated as a 'regulated investment company' under the Code and intends to
qualify for this treatment in each year. If the Fund (1) is a regulated
investment company and (2) distributes to its shareholders at least 90% of its
net investment income (including for this purpose its net realized
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short-term capital gains), the Fund will not be liable for federal income taxes
to the extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
The Fund's transactions in foreign currencies, forward currency contracts,
options and futures contracts (including options and futures on foreign
currencies) are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules (1) could
affect the character, amount and timing of distributions to shareholders of the
Fund, (2) will require the Fund to 'mark to market' certain types of the
positions in its portfolio (that is, treat them as if they were closed out), and
(3) may cause the Fund to recognize income without receiving cash with which to
make distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes described above and in the Prospectus. The
Fund will seek to monitor its transactions, will seek to make the appropriate
tax elections and will seek to make the appropriate entries in its books and
records when it acquires any foreign currency, forward currency contract,
option, futures contract or hedged investment, to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.
As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long-term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short-term capital gain or
loss if the shareholder has held the shares for one year or less.
The Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, will be taxable to shareholders as long-term capital gains, regardless of
how long a shareholder has held Fund shares, and will be designated as capital
gain dividends in a written notice mailed by the Trust to the shareholders of
the Fund after the close of the Fund's prior taxable year. If a shareholder
receives a capital gain dividend with respect to any Fund share, and if the
share is sold before it has been held by the shareholder for more than six
months, then any loss on the sale or exchange of the share, to the extent of the
capital gain dividend, will be treated as a long-term capital loss.
Investors considering buying Fund shares on or just prior to the record
date for a taxable dividend or capital gain distribution should be aware that
the amount of the forthcoming dividend or distribution payment will be a taxable
dividend or distribution payment.
Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of a fund in the Kidder Family
of Funds on which a sales charge normally is imposed without paying a sales
charge in accordance with the exchange privilege described in the Prospectus. In
these cases, any gain on the disposition of the Fund shares will be increased,
or loss decreased, by the amount of the sales charge paid when the shares were
acquired, and that amount will increase the adjusted basis of the Fund shares
subsequently acquired. In addition, if shares of the Fund are purchased within
30 days of redeeming shares at a loss, the loss will not be deductible and
instead will increase the basis of the newly purchased shares.
If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct
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taxpayer identification number and that he or she is not subject to 'backup
withholding,' then the shareholder may be subject to a 31% 'backup withholding'
tax with respect to (1) taxable dividends and distributions from the Fund and
(2) the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his or her social security number. The backup
withholding tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign entities classified under the
Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.
The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund. If the Fund is not able
to make the foregoing election, it may be able to avoid the interest charge (but
not the ordinary income treatment) on disposition of the stock by electing,
under proposed regulations, each year to mark-to-market the stock (that is,
treat it as if it were sold for fair market value). Such an election could also
result in acceleration of income to the Fund.
On March 31, 1992, the Internal Revenue Service released proposed
regulations providing a mark-to-market election for regulated investment
companies that would have effects similar to the proposed legislation. These
regulations would be effective for taxable years ending after promulgation of
the regulations as final regulations.
21
<PAGE>
- --------------------------------------------------------------------------------
DETERMINATION OF PERFORMANCE
As noted in the Prospectus, the Trust, from time to time, may quote the Fund's
performance, in terms of the Classes' total returns, in reports or other
communications to shareholders or in advertising material. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of any Class, it will also disclose this information for the other
Classes.
The 30-day yield figure described in the Prospectus is calculated for a
Class according to a formula presecribed by the SEC, expressed as follows:
YIELD = 2[( a-b +1)'pp'6-1]
----
cd
<TABLE>
<S> <C> <C> <C>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day of the period.
</TABLE>
For the purposes of determining the interest earned (variable 'a' in the
formula) on debt obligations that were purchased by the Portfolio at a discount
or premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates, the
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates will tend to be somewhat lower. In addition,
when interest rates are falling, the inflow of net new money to the Fund from
the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of its portfolio of securities, thereby
reducing the current yield of the Fund. In periods of rising interest rates the
opposite can be expected to occur.
The average annual total return figures described in the Prospectus are
computed for a Class according to a formula prescribed by the SEC. The formula
can be expressed as follows:
P(1 + T)'pp'n = ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-
or 10-year period at the end of the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
22
<PAGE>
- --------------------------------------------------------------------------------
A Class' aggregate total return figures described in the Prospectus
represent the cumulative change in the value of an investment in shares of the
Class for the specified period and are computed by the following formula:
<TABLE>
<S> <C>
ERV-P
-----
AGGREGATE TOTAL RETURN = P
</TABLE>
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000; and
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-
or 10-year period at the end of the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
Each Class' performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Class' performance for any specified period in the future.
In addition, because a Class' performance will fluctuate, it may not provide a
basis for comparing an investment in a Class with certain bank deposits or other
investments that pay a fixed yield for a stated period of time.
Set forth below is performance information for the periods indicated
expressed as a percentage:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES* CLASS C SHARES*
---------------------- --------------- ---------------
30-DAY YIELD
------------------------------------------------------------
<S> <C> <C> <C>
30 days ended August 31, 1994.............. 4.70% 4.30% 5.06%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------------------------
MAXIMUM SALES CHARGE
----------------------
INCLUDED EXCLUDED
-------- --------
<S> <C> <C> <C> <C>
One year ended August 31, 1994............. (3.31)% (1.10)% (1.51)% (.77)%
Inception (December 24, 1992) to August 31,
1993..................................... 5.81 7.26
May 10, 1993 to August 31, 1993............ 1.73 2.56
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
------------------------------------------------------------
MAXIMUM SALES CHARGE
----------------------
YEAR ENDED AUGUST 31 INCLUDED EXCLUDED
- ------------------------------------------- -------- --------
<S> <C> <C> <C> <C>
Inception (December 24, 1992) to 1993...... 11.19% 13.79%
May 10, 1993 to 1993....................... 3.84% 4.92%
1994....................................... (3.31) (1.10) (1.51) (.77)
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
------------------------------------------------------------
MAXIMUM SALES CHARGE
----------------------
INCLUDED EXCLUDED
-------- --------
<S> <C> <C> <C> <C>
Inception (December 24, 1992) to August 31,
1994..................................... 9.98% 12.54%
May 10, 1993 to August 31, 1994............ 2.27% 3.37%
</TABLE>
- ------------
* Prior to May 10, 1993 no Class B or C shares were publicly issued.
23
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
The Trust was organized as an unincorporated business trust under the laws of
The Commonwealth of Massachusetts pursuant to a Declaration of Trust dated March
28, 1991, as amended from time to time (the 'Declaration'). In the interest of
economy and convenience, certificates representing shares in the Trust are not
physically issued except upon specific request made by a shareholder to IFTC.
IFTC maintains a record of each shareholder's ownership of Fund shares.
Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust. Thus, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
24
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
FOREIGN SECURITIES AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia (Dollar)
Government of Australia Bonds, 7.000%, due
08/15/1998.................................... 2,100,000 $ 1,476,728 $ 1,479,748 0.7%
Australian Government Bonds, 9.500%, due
08/15/2003.................................... 800,000 596,690 601,523 0.3
Queensland Treasury Corp., 6.500%, due
06/14/2005.................................... 720,000 441,243 423,083 0.2
------------ ------------ ---------
Total Investments in Australia.......... 2,514,661 2,504,354 1.2
- -------------------------------------------------------------------------------------------------------------------
Canada (Dollar)
Canadian Treasury Bills, due 09/22/1994......... 8,000,000 5,725,236 5,827,168 2.9
Canadian Government Bonds, 5.750%, due
03/01/1999.................................... 850,000 633,026 563,332 0.3
Canadian Government Bonds, 9.750%, due
12/01/2001.................................... 300,000 260,669 232,863 0.1
Canadian Government Bonds, 7.500%, due
12/01/2003.................................... 775,000 550,072 522,352 0.3
Canadian Government Bonds, 6.500%, due
06/01/2004.................................... 1,560,000 946,922 973,774 0.5
Canadian Government Bonds, 9.250%, due
06/01/2022.................................... 420,000 398,911 315,691 0.2
Canadian Government Bonds, 8.000%, due
06/01/2023.................................... 1,590,000 1,264,298 1,051,437 0.5
------------ ------------ ---------
Total Investments in Canada............. 9,779,134 9,486,617 4.8
- -------------------------------------------------------------------------------------------------------------------
Denmark (Krone)
Denmark Treasury Bill, due 10/03/1994........... 35,000,000 5,539,981 5,584,015 2.7
Denmark Treasury Bill, due 01/02/1995........... 7,000,000 1,096,946 1,098,819 0.5
Denmark Bullet, 9.000%, due 11/15/2000.......... 5,400,000 899,251 880,083 0.4
Danish Government Bond, 8.000%, due
05/15/2003.................................... 6,150,000 990,727 940,874 0.5
Denmark Bullet, 7.000%, due 12/15/2004.......... 500,000 75,296 70,641 0.0
------------ ------------ ---------
Total Investments in Denmark............ 8,602,201 8,574,432 4.1
- -------------------------------------------------------------------------------------------------------------------
France (Franc)
French Treasury Bill, due 09/01/1994............ 23,000,000 4,042,272 4,255,021 2.1
French Treasury Bill, due 01/19/1995............ 32,000,000 5,793,438 5,795,116 2.9
French Government Bond Oat, 8.500%,
due 03/28/2000................................ 25,230,000 4,964,295 4,879,947 2.4
French Government Bond, 8.500%, due
04/15/2023.................................... 10,350,000 2,011,815 1,945,396 1.0
French Government Bond, 5.500%, due
04/25/2004.................................... 19,300,000 3,039,507 3,022,443 1.5
------------ ------------ ---------
Total Investments in France............. 19,851,327 19,897,923 9.9
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
FOREIGN SECURITIES AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Germany (Deutsche Mark)
Bundes Schatz Bonds, 8.375%, due 05/21/2001..... 7,700,000 $ 5,153,619 $ 5,180,756 2.6%
Bundes Republic, 8.250%, due 09/20/2001......... 4,250,000 2,847,425 2,840,619 1.4
Treuhandanstal, 7.750%, due 10/01/2002.......... 1,470,000 969,455 955,174 0.5
Bundespost, 7.500%, due 08/02/2004.............. 360,000 227,841 227,978 0.1
Deutschland Republic, 6.250%, due 01/04/2024.... 15,430,000 8,158,025 8,175,451 4.0
------------ ------------ ---------
Total Investments in Germany............ 17,356,365 17,379,978 8.6
- -------------------------------------------------------------------------------------------------------------------
Italy (Lira, except as noted)
Italy Time Deposits, 7.500%, due 09/01/1994..... 1,755,746,897 1,108,300 1,106,735 0.5
BTPS Italian Government, 11.000%, due
06/01/1996.................................... 9,000,000,000 5,741,337 5,525,649 2.7
BTPS Italian Government, 8.500%, due
04/01/1999.................................... 2,885,000,000 1,609,518 1,625,429 0.8
Republic of Italy, 5.125%, due 07/29/2003
(JPY)(b)...................................... 195,000,000 1,949,971 1,951,704 1.0
------------ ------------ ---------
Total Investments in Italy.............. 10,409,126 10,209,517 5.0
- -------------------------------------------------------------------------------------------------------------------
Japan (Yen)
Japanese Time Deposits, 2.063%, due
09/08/1994.................................... 1,000,000,000 10,055,304 9,990,009 4.9
Japanese Development Bank, 5.000%, due
10/01/1999.................................... 80,000,000 858,826 818,141 0.4
Japanese Government Bond #129, 6.400%,
due 03/20/2000................................ 697,000,000 7,535,500 7,614,777 3.8
Japanese Government Bond #144, 6.000%,
due 12/20/2001................................ 380,000,000 4,230,577 4,091,168 2.0
Japanese Government Bond #145, 5.500%,
due 03/20/2002................................ 127,000,000 1,365,595 1,329,249 0.7
Japanese Government Bond #170B, 4.100%,
due 06/21/2004................................ 234,000,000 2,268,863 2,219,283 1.1
Japanese Government Bond #26, 4.500%,
due 09/22/2014................................ 490,000,000 4,659,065 4,531,888 2.2
------------ ------------ ---------
Total Investments in Japan.............. 30,973,730 30,594,515 15.1
- -------------------------------------------------------------------------------------------------------------------
The Netherlands (Guilder)
Netherlands Government Bond, 6.500%,
due 01/15/1999................................ 6,930,000 3,750,369 3,861,725 1.9
Netherlands Government Bond, 5.750%,
due 01/15/2004................................ 7,275,000 3,694,147 3,690,431 1.8
------------ ------------ ---------
Total Investments in the Netherlands.... 7,444,516 7,552,156 3.7
- -------------------------------------------------------------------------------------------------------------------
New Zealand (Dollar)
New Zealand Treasury Bill, due 11/09/1994....... 500,000 287,467 297,216 0.1
New Zealand Government Bond, 10.000%, due
03/15/2002.................................... 2,700,000 1,773,663 1,777,772 0.9
------------ ------------ ---------
Total Investments in New Zealand........ 2,061,130 2,074,988 1.0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
FOREIGN SECURITIES AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spain (Peseta)
Spanish Government Bonds, 10.300%, due
06/15/2002.................................... 90,000,000 $ 682,639 $ 657,334 0.3%
Spanish Government Bonds, 8.000%, due
05/30/2004.................................... 240,000,000 1,607,078 1,524,013 0.8
------------ ------------ ---------
Total Investments in Spain.............. 2,289,717 2,181,347 1.1
- -------------------------------------------------------------------------------------------------------------------
Supranational
World Bank Japan Global Bond, 4.500%,
due 06/20/2000................................ 500,000,000 4,665,696 4,995,006 2.5
World Bank Japan Global Bond, 5.250%,
due 03/20/2002................................ 275,000,000 2,820,308 2,821,086 1.4
------------ ------------ ---------
Total Investments in Supranational
Organizations......................... 7,486,004 7,816,092 3.9
- -------------------------------------------------------------------------------------------------------------------
Sweden (Krona)
Sweden Government Bond, 10.750%, due
01/23/1997.................................... 2,000,000 294,810 260,301 0.1
Sweden Government Bond, 11.000%, due
01/21/1999.................................... 5,600,000 797,614 728,046 0.4
------------ ------------ ---------
Total Investments in Sweden............. 1,092,424 988,347 0.5
- -------------------------------------------------------------------------------------------------------------------
United Kingdom (Pound)
United Kingdom Treasury Bonds, 9.750%,
due 08/27/2002................................ 760,000 1,247,971 1,237,074 0.6
United Kingdom Treasury Bonds, 8.000%,
due 06/10/2003................................ 5,425,000 8,041,860 8,033,350 3.9
United Kingdom Treasury Bonds, 6.750%,
due 11/26/2004................................ 1,910,000 2,568,771 2,588,969 1.3
United Kingdom Treasury Bonds, 8.750%,
due 08/25/2017................................ 565,000 888,925 900,405 0.4
------------ ------------ ---------
Total Investments in the United
Kingdom............................... 12,747,527 12,759,798 6.2
------------ ------------ ---------
Total Foreign Securities................ 132,607,862 132,020,064 65.1
------------ ------------ ---------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S Treasury Obligations (Dollar)
U.S. Treasury Notes, 4.625%, due 02/29/1996..... $ 6,075,000 $ 6,047,685 $ 5,972,484 2.9%
U.S. Treasury Notes, 5.125%, due 11/30/1998..... 8,300,000 7,836,497 7,825,340 3.9
U.S. Treasury Notes, 6.500%, due 04/30/1999..... 4,280,000 4,253,573 4,237,200 2.1
U.S. Treasury Notes, 6.375%, due 08/15/2002..... 4,005,000 4,184,892 3,836,041 1.9
U.S. Treasury Notes, 5.750%, due 08/15/2003..... 10,490,000 9,550,334 9,526,231 4.7
U.S. Treasury Notes, 5.875%, due 02/15/2004..... 350,000 320,802 319,156 0.2
U.S. Treasury Bonds, 10.750%, due 08/15/2005.... 700,000 934,093 881,343 0.4
U.S. Treasury Bonds, 10.375%, due 11/15/2012.... 2,200,000 3,052,098 2,723,875 1.3
U.S. Treasury Bonds, 7.125%, due 02/15/2023..... 12,860,000 12,183,178 12,222,394 6.0
U.S. Treasury Bonds, 6.250%, due 08/15/2023..... 995,000 846,539 844,506 0.4
------------ ------------ ---------
Total U.S. Treasury Obligations................. 49,209,691 48,388,570 23.8
------------ ------------ ---------
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement
Morgan Stanley & Co. Inc., 4.780%, acquired
08/31/1994, due 09/01/1994, to be repurchased
at $1,700,226, collateralized by U.S. Treasury
Notes, 7.125%,
due 10/15/1998(c)............................. 1,700,000 1,700,000 1,700,000 0.8
- -------------------------------------------------------------------------------------------------------------------
FACE PREMIUMS
AMOUNT PAID
- -------------------------------------------------------------------------------------------------------------------
Currency Call Options Purchased
Currency Call Options Purchased
U.S. dollar, expiring 10/28/1994
at CAD 1.365(d)........................... 6,200,000 52,080 48,980 0.0
German Deutschemark, expiring 06/23/1995
at FRF 3.450(e)........................... 7,094,017 83,000 78,034 0.1
------------ ------------ ---------
Total Options Purchased......................... 135,080 127,014 0.1
------------ ------------ ---------
- -------------------------------------------------------------------------------------------------------------------
Total Investments............................... $183,652,633 182,235,648 89.8
Other Assets Less Liabilities................... 20,681,809 10.2
------------ ---------
Net Assets...................................... $202,917,457 100.0%
------------ ---------
------------ ---------
</TABLE>
(a) Face amount stated in local currency.
(b) Face amount stated in Japanese Yen.
(c) Value of collateral is $1,944,171.
(d) Contract face amount against Canadian Dollar (8,463,000).
(e) Contract face amount denominated in U.S. dollars representing DEM
11,385,897.43 against French Francs.
See Notes to Financial Statements.
28
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS AS OF AUGUST 31, 1994
At August 31, 1994, the Fund had outstanding forward currency contracts, both
to buy and to sell foreign currencies as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY BUY CONTRACTS (RECEIVABLE) VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar, expiring 09/22/1994 - 12/22/1994...... $ 17,700,593 $ 17,982,828 $ 282,235
Belgian Francs, expiring 10/24/1994...................... 5,449,487 5,493,163 43,676
Canadian Dollars, expiring 09/22/1994 - 12/22/1994....... 15,947,648 16,101,525 153,877
Swiss Francs, expiring 09/22/1994 - 12/22/1994........... 110,406,372 112,216,360 1,809,988
German Deutsche Marks, expiring
09/22/1994 - 12/22/1994................................ 170,937,693 172,940,034 2,002,341
Danish Krone, expiring 09/22/1994 - 12/22/1994........... 11,423,646 11,564,333 140,687
European Currency Unit, expiring 09/22/1994.............. 2,963,874 3,108,952 145,078
Spanish Pesetas, expiring 09/22/1994 - 12/22/1994........ 27,136,747 27,632,110 495,363
French Francs, expiring 09/22/1994 - 12/22/1994.......... 43,732,598 43,832,641 100,043
British Pounds, expiring 09/22/1994 - 12/22/1994......... 80,659,282 80,604,808 (54,474)
Italian Lira, expiring 09/22/1994 - 12/22/1994........... 21,210,535 21,311,953 101,418
Japanese Yen, expiring 09/22/1994 - 12/22/1994........... 155,993,897 156,330,757 336,860
Dutch Guilder, expiring 09/22/1994 - 10/24/1994.......... 8,570,445 8,776,314 205,869
New Zealand Dollar, expiring 09/22/1994 - 12/22/1994..... 16,887,157 17,006,151 118,994
Swedish Krona, expiring 10/24/1994 - 12/22/1994.......... 22,321,368 22,761,410 440,042
------------ ------------ -----------
$711,341,342 $717,663,339 $ 6,321,997
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY SELL CONTRACTS (PAYABLE) VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar, expiring 09/22/1994 - 12/22/1994...... $ 23,465,378 $ 23,926,404 $ (461,026)
Belgian Francs, expiring 09/22/1994 - 12/22/1994......... 13,055,757 13,541,244 (485,487)
Canadian Dollars, expiring 10/24/1994 - 12/22/1994....... 24,200,228 24,486,992 (286,764)
Swiss Francs, expiring 09/22/1994 - 12/22/1994........... 114,276,504 114,081,958 194,546
German Deutsche Marks, expiring
09/22/1994 - 12/22/1994................................ 124,973,796 126,966,058 (1,992,262)
Danish Krone, expiring 09/22/1994 - 12/22/1994........... 21,706,094 21,931,423 (225,329)
European Currency Unit, expiring
09/22/1994 - 10/24/1994................................ 3,069,716 3,132,245 (62,529)
Spanish Pesetas, expiring 09/22/1994 - 12/22/1994........ 27,676,415 28,204,742 (528,327)
French Francs, expiring 09/22/1994 - 12/22/1994.......... 61,132,086 62,038,199 (906,113)
British Pounds, expiring 09/22/1994 - 12/22/1994......... 82,289,680 82,478,932 (189,252)
Italian Lira, expiring 09/7/1994 - 12/22/1994............ 26,420,517 26,689,572 (269,055)
Japanese Yen, expiring 09/22/1994 - 12/22/1994........... 156,545,613 156,159,198 386,415
Dutch Guilder, expiring 10/24/1994 - 12/22/1994.......... 3,759,059 3,765,043 (5,984)
New Zealand Dollar, expiring 09/22/1994 - 12/22/1994..... 21,230,277 21,472,275 (241,998)
Swedish Krona, expiring 09/22/1994 - 12/22/1994.......... 25,497,224 25,857,849 (360,625)
------------ ------------ -----------
$729,298,344 $734,732,134 $(5,433,790)
------------ ------------ -----------
------------ ------------ -----------
See Notes to Financial Statements.
29
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Assets
Investments, at value (identified cost-$183,517,553) (Note 1a)......... $182,108,634
Foreign cash, at value (identified cost-$37,288,796) (Note 1b)......... 37,138,234
Cash................................................................... 155,252
Options, at value (identified cost -- $135,080) (Note 1d).............. 127,014
Receivables:
Securities sold.................................................... $ 9,824,407
Interest........................................................... 3,164,668
Forward currency contracts......................................... 705,945
Shares sold........................................................ 322,944 14,017,964
-----------
Net unrealized gain on forward contracts (Note 1c)..................... 888,207
Prepaid expenses (Note 1g)............................................. 182,264
------------
Total assets...................................... 234,617,569
Liabilities
Payables:
Securities purchased............................................... 30,108,380
Shares redeemed.................................................... 1,267,628
Investment advisory fees (Note 2).................................. 123,078
Dividends.......................................................... 46,833
Service fees (Note 2).............................................. 39,699
Distribution fees (Note 2)......................................... 11,643 31,597,261
-----------
Accrued expenses....................................................... 102,851
------------
Total liabilities................................. 31,700,112
------------
Net Assets
At value............................................................... $202,917,457
------------
------------
Net assets were comprised of:
Aggregate paid-in capital.......................................... $211,076,151
Overdistribution of net investment income.......................... (2,909,441)
Accumulated net realized capital losses from investments and
foreign currency transactions.................................... (4,662,092)
Net unrealized depreciation on investments, options and translation
of foreign denominated assets and liabilities (Note 3)........... (587,161)
------------
Net assets............................................................. $202,917,457
------------
------------
CLASS A CLASS B CLASS C
------------ ----------- -----------
Net assets................................................ $155,576,226 $26,866,675 $20,474,556
Outstanding shares of beneficial interest, ($.001 par
value).................................................. 13,038,503 2,252,287 1,715,396
Net asset values per share................................ $11.93 $11.93 $11.94
Maximum offering price per share for Class A
($11.93[div].9775)...................................... $12.20 N\A N\A
See Notes to Financial Statements.
30
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Investment Income
Interest and discounts earned (net of $1,385,372,
amortization of premiums and $74,802 foreign tax
withheld at source)..................................... $ 12,304,695
Expenses
Investment advisory (Note 2).............................. $ 1,591,399
Servicing (Note 2):
Class A............................................... $ 455,543
Class B............................................... 59,501 515,044
---------
Distribution -- Class B (Note 2).......................... 119,001
Custodian................................................. 196,450
Shareholder servicing..................................... 96,220
Professional.............................................. 51,099
Amortization of organization expenses (Note 1g)........... 47,244
Federal and state registration............................ 43,745
Prospectus and shareholders' reports...................... 39,950
Pricing................................................... 33,000
Miscellaneous............................................. 24,428
Trustees' fees and expenses (Note 2)...................... 10,844
--------------
Total expenses....................... 2,768,424
------------
Net Investment Income..................................... 9,536,271
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions (Note 3)
Realized loss from security transactions (excluding
short-term U.S. securities):
Proceeds from sales................................... 1,085,049,821
Cost of securities sold............................... (1,091,763,483)
--------------
Net realized loss on investment transactions.............. (6,713,662)
Net realized gain on options (Note 1d).................... 111,375
Net realized currency gain on investment transactions
(Note 1b)............................................... 1,612,276
Change in unrealized depreciation on securities, forward
foreign exchange contracts, options and foreign cash.... (7,508,458)
Change in unrealized appreciation due to translation of
foreign dominated assets and liabilities................ 86,040
--------------
Net change in unrealized depreciation..................... (7,422,418)
------------
Net Decrease in Net Assets
Resulting from operations................................. $ (2,876,158)
------------
------------
See Notes to Financial Statements.
31
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1993* 1994
--------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income.................................................. $ 5,108,458 $ 9,536,271
Net realized gain (loss) on investment transactions and options........ 7,198,920 (6,602,287)
Net realized currency gain on investment transactions.................. 564,121 1,612,276
Net change in unrealized appreciation (depreciation)................... 6,835,257 (7,422,418)
--------------------------
Net increase (decrease) in net assets resulting from
operations................................................... 19,706,756 (2,876,158)
Distributions to Shareholders from Net Investment Income (Note 1h)
Class A................................................................ (5,852,732) (7,680,804)
Class B**.............................................................. (70,657) (892,910)
Class C**.............................................................. (199,637) (962,557)
--------------------------
Total distribution from net investment income.................. (6,123,026) (9,536,271)
Distributions in Excess of Net Investment Income
Class A................................................................ -- (1,560,400)
Class B................................................................ -- (176,688)
Class C................................................................ -- (157,785)
--------------------------
Total distribution in excess of net investment income.......... -- (1,894,873)
Distributions to Shareholders from Net Realized Short-Term Capital
Gains (Note 1h)
Class A................................................................ -- (6,122,714)
Class B................................................................ -- (693,291)
Class C................................................................ -- (619,117)
--------------------------
Total distribution from net realized short-term capital
gains........................................................ -- (7,435,122)
Capital Share Transactions (Note 4)
Net proceeds from sale of shares....................................... 222,169,124 72,966,458
Net asset value of shares issued to shareholders in connection with the
reinvestment of dividends............................................ 5,203,412 17,364,168
Cost of shares redeemed................................................ (27,493,414) (79,138,601)
--------------------------
Net increase in net assets derived from capital share
transactions................................................. 199,879,122 11,192,025
--------------------------
Total increase (decrease) in net assets........................ 213,462,852 (10,550,399)
Net Assets
Beginning of period.................................................... 5,004 213,467,856
--------------------------
End of period.......................................................... $213,467,856 $202,917,457
--------------------------
--------------------------
</TABLE>
* From December 24, 1992 (Commencement of Operations) to August 31, 1993.
** From May 10, 1993 (Commencement of Class Operations) to August 31, 1993.
See Notes to Financial Statements.
32
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------------------------------------------
PERIOD PERIOD YEAR
PERIOD YEAR ENDED YEAR ENDED ENDED
ENDED ENDED AUGUST ENDED AUGUST AUGUST
AUGUST 31, AUGUST 31, 31, AUGUST 31 31, 31,
1993`D' 1994 1993`D'`D' 1994 1993`D'`D' 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $12.00 $13.10 $12.77 $13.09 $12.77 $13.10
---------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income......... 0.45 0.43 0.17 0.49 0.20 0.57
Net realized and unrealized
gains (losses) on
investments................. 1.18 (0.56) 0.32 (0.67) 0.33 (0.66)
---------------------------------------------------------------
Total increase (decrease) from
investment operations....... 1.63 (0.13) 0.49 (0.18) 0.53 (0.09)
---------------------------------------------------------------
Distributions to Shareholders
from (Note 1h):
Net investment income......... (0.53) (0.63) (0.17) (0.57) (0.20) (0.66)
Net realized capital gains.... -- (0.41) -- (0.41) -- (0.41)
---------------------------------------------------------------
Total distributions........... (0.53) (1.04) (0.17) (0.98) (0.20) (1.07)
---------------------------------------------------------------
Net asset value, end of
period...................... $13.10 $11.93 $13.09 $11.93 $13.10 $11.94
---------------------------------------------------------------
---------------------------------------------------------------
Total return#................. 13.79% (1.10)% 3.84% (1.51)% 4.17% (0.71)%
Ratios/Supplemental Data:
Net assets, end of period (in
thousands).................. $180,686 $155,575 $11,555 $26,866 $21,226 $20,474
Ratios to Average Net Assets:
Expenses, excluding
distribution and service
fees, net of
reimbursement............... 0.89%* 0.94% 0.89%* 0.94% 0.89%* 0.94%
Expenses, including
distribution and service
fees, net of
reimbursement............... 1.14%* 1.19% 1.58%* 1.68% 0.89%* 0.94%
Expenses, before reimbursement
from manager................ 1.22%* 1.19% 1.66%* 1.68% 0.97%* 0.94%
Net investment income......... 4.44%* 4.22% 4.00%* 3.73% 4.69%* 4.50%
Portfolio turnover rate....... 130.43% 534.84% 130.43% 534.84% 130.43% 534.84%
</TABLE>
`D' December 24, 1992 (Commencement of Operations) to August 31, 1993.
`D'`D' May 10, 1993 (Commencement of Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales charge, and is
calculated by giving effect to the reinvestment of dividends on the
dividend payment date.
* Annualized.
See Notes to Financial Statements.
33
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. The Fund is a series of the Kidder, Peabody Investment Trust, which is
registered under the Investment Company Act of 1940, as a non-diversified,
open-end investment management company. The Fund commenced operations on
December 24, 1992. The following is a summary of significant accounting policies
consistently followed by the Fund.
On May 10, 1993 the Fund adopted the Choice Pricing Systemsm. The System
offers three classes of shares having identical voting, dividend, liquidation
and other rights. Class A Shares are sold subject to a front-end sales load and
a service fee of .25% per annum of average class net assets. Class B shares are
sold at net asset value without a sales load and bear a distribution fee of .50%
per annum and a service fee of .25% per annum of average class net assets. Class
C shares, which are available exclusively to employees of Kidder, Peabody,
employee benefit plans of Kidder, Peabody and participants of the Insight
Investment Advisory Program, are sold at net asset value without a sales load
and bear no such distribution or service fees. Classes A and B have exclusive
voting rights as to matters relating to the 12b-1 Distribution Plan.
On May 10, 1993 all pre-existing shares of the Fund converted to Class A
shares at net asset value, with the exception of shares eligible for Class C.
(a) The Fund's investments are valued at market value or, in the absence of a
market value, at fair value as determined by or under the direction of the
Trustees. Investments in Government Securities and other securities traded
over-the-counter, other than short-term investments that mature in 60 days or
less, are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost which the Trustees have determined to
represent fair value.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges. When an occurrence, subsequent to the time value was so established,
is likely to have changed that value, the fair market value of those securities
will be determined by consideration of other factors by or under the direction
of the Trustees.
A security that is primarily traded on a domestic or foreign stock exchange
is valued at the last sale price on that exchange or, if no sales occurred
during the day, at current quoted bid price.
An option that is written by the Fund is valued at the last sale price or, in
the absence of the last sales price, the last bid price. In carrying out the
Trustees' valuation policies, the Fund may consult with an independent pricing
service.
The value of a futures contract is equal to the unrealized gain or loss on
the contract that is determined by marking the contract to the current
settlement price for a like contract on the valuation date of the futures
contract. A settlement price may not be used if the market makes a limit move
with respect to a particular futures contract or if the securities underlying
the futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used
futures contracts will be valued at their fair market value as determined by or
under the direction of the Trustees.
(b) The Fund's financial statements are maintained in U.S. dollars. The face
value of foreign bonds held in the portfolio reflects maturity value of the bond
and is stated in the respective foreign currency. For purposes of calculating
the Fund's daily net asset value per share, assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values.
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) Market value of investment securities, other assets and liabilities -- at
the closing rate of exchange.
(ii) Purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held at fiscal year end.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends,
34
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Realized currency gain (loss) on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency denominated assets and liabilities at
year end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with those of domestic origin as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
(c) The Fund is authorized to enter into forward currency contracts as a
hedge to fluctuations in foreign currency exchange rates on unsettled portfolio
transactions.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. The Fund will enter
into such forward contracts on the transaction's trade date with a contracted
date coinciding with the settlement date of the underlying security. Should the
underlying security fail to settle within the contracted period the forward
currency contract is renegotiated at a new exchange rate. The gain or loss
resulting from the difference between the original and renegotiated settlement
values is recognized and included in realized transaction loss.
Premiums and/or discounts incurred in connection with the establishment of
such contracts are amortized over the lives of the contracts.
(d) When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's statements of assets and liabilities as an
asset and an equivalent liability. The amount of the liability is subsequently
'marked to market' to reflect the current market value of the option written. If
an option which the Fund has written expires on its stipulated date, the Fund
realizes a gain in the amount of the premium originally received, and the
liability related to such option is extinguished. If the Fund enters into a
closing purchase transaction, it realizes a gain or loss determined by the
difference between the premium received and the cost of the closing transaction.
If a call option which the Fund has written is exercised, the Fund realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option which the
Fund has written is exercised, the amount of the premium originally received
reduces the cost of the security which the Fund purchases upon exercise of the
option. As the writer of an option, the Fund may have no control over whether
the underlying securities are sold (called) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option. Written and purchased options are non-income
producing investments.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's statement of assets and liabilities as an investment and
subsequently 'marked to market' to reflect the current market value of the
option purchased. If a call or put option which the Fund has purchased expires
on the stipulated expiration date, the Fund realizes a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, it
realizes a gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option. If the Fund exercises a put option,
it realizes a gain or loss from such sale of the underlying security and the
proceeds from the sale are decreased by the premium originally paid. If the Fund
exercises a call option, the cost of the security which the Fund purchases upon
exercise is increased by the premium originally paid.
(e) It is the Fund's policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all its taxable income to shareholders. The method of
such distribution for purposes of maintaining
35
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
regulated investment company status is made on a Fund level rather than class
level basis. Therefore, no Federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed by
foreign governments on interest, dividends and capital gains at various rates.
Such withholding taxes are netted against income and recorded as a receivable
when reclaim is deemed probable.
(f) Security transactions are recorded on a trade date basis. Distributions
to shareholders are recorded on the ex-dividend dates. Interest income is earned
from settlement date and is recognized daily on an accrual basis. Realized gains
and losses on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees are charged to income as the related shares are
issued. Organization costs are being amortized evenly over a sixty month period.
(h) Income and Fund level expenses are allocated to each class on a pro-rata
basis based upon each class' daily settled net assets. Class specific expenses
are charged directly to each class. Dividends from net investment income are
calculated daily based upon the respective classes net investment income.
Distributions of net realized gains are allocated based upon the outstanding
shares of each class.
The Fund distributes monthly substantially all its net investment income. Net
realized capital gains, if any, will be distributed once a year. For book
purposes, as of August 31, 1994, the Fund had net accumulated capital losses
from investment and foreign currency transactions of $4,662,092.
2. The Fund has entered into a management agreement with Kidder Peabody Asset
Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co.
Incorporated ('KP'). General Electric Capital Services, Inc., a wholly-owned
subsidiary of General Electrical Company, has a 100% interest in Kidder, Peabody
Group Inc., the parent company of KP. KPAM serves as the Fund's manager and
receives a fee, paid monthly, calculated and accrued daily at the annual rate of
.70% of the Fund's net assets as of the close of business each day. KPAM in turn
employs Strategic Fixed Income, L.P. ('SFI') as the Fund's investment adviser,
in which capacity SFI receives from KPAM a fee, accrued daily and paid monthly,
at the annual rate of .35% of the Fund's daily net assets. As the Fund's
manager, KPAM is generally responsible for furnishing, or causing to be
furnished to the Fund, investment management and administrative services. As the
Fund's investment adviser, SFI manages the Fund's portfolio, makes decisions for
the Fund, and places purchase and sale orders for the Fund's portfolio
transactions. SFI also pays the salaries of all officers and employees who are
employed by both SFI and the Fund, and provides the Fund with investment
officers.
Total annual expenses of the Fund, exclusive of taxes, interest, all brokers'
commissions and other normal charges incidental to the purchase and sale of
portfolio securities, but including fees paid to KPAM and SFI, are not expected
to exceed the limits prescribed by any state in which the Fund's shares are
offered for sale. KPAM will reimburse the Fund for any expenses in excess of
such limits. No expense reimbursement was required for the year ended August 31,
1994.
KP is the exclusive distributor of the Fund's shares. Its services include
payment of sales commissions to registered representatives and various other
promotional and sales-related expenses. KP receives monthly, from the Fund, the
distribution and service fees which are calculated and accrued daily. KP also
receives the proceeds of any front-end sales loads with respect to the purchase
of shares of Class A.
Certain officers and/or Trustees of the Fund are officers and/or directors of
KPAM and/or SFI. Each Trustee who is not an 'affiliated person' of either KPAM
or SFI receives an annual fee of $1,000 and an attendance fee of $375 per
meeting.
3. Purchases and sales of securities, excluding short-term securities and
maturities, for the year ended August 31, 1994 were $1,058,000,195 and
$1,085,049,821, respectively.
36
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Transactions in call options purchased for the year ended August 31, 1994 were
as follows:
<TABLE>
<CAPTION>
PAR VALUE
COVERED PREMIUMS
BY OPTIONS PAID
<S> <C> <C>
- --------------------------------------------------------
Outstanding call options,
at beginning of year........ -- --
Options purchased............. $(23,194,017) $(167,255)
Options closed................ 9,900,000 32,175
------------------------
Outstanding call options,
at end of year.............. $(13,294,017) $(135,080)
------------------------
------------------------
</TABLE>
As of August 31, 1994, net unrealized depreciation on investments and foreign
cash, based on cost for Federal income tax purposes, aggregated $1,567,548 of
which $1,076,188 related to appreciated securities and $2,643,736 related to
depreciated securities. Net unrealized appreciation on other assets less
liabilities due to foreign currency fluctuation was $58,382. The aggregate cost
of investments and foreign cash at August 31, 1994 for book and Federal income
tax purposes was $220,941,429.
4. The Declaration of Trust of the Fund permits the Trustees to issue an
unlimited number of shares of beneficial interest, par $.001 per share.
Transactions totaling $72,966,458 from net proceeds from sale of shares,
$79,138,601 representing cost of shares redeemed and $17,364,168 representing
reinvestment of dividends were as follows for each class:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
<S> <C> <C>
- -------------------------------------------------------
Year ended August 31, 1994:
Shares sold................... 3,108,216 $ 39,707,546
Shares issued to shareholders
in connection with the
reinvestment of dividends
and distributions........... 1,124,982 14,067,862
Shares redeemed............... (4,991,354) (61,405,906)
------------------------
NET DECREASE............. (758,156) $ (7,630,498)
------------------------
------------------------
December 24, 1992 to August
31, 1993:
Shares sold................... 15,465,791 $189,460,484
Shares issued to shareholders
in connection with the
reinvestment of dividends... 415,206 4,830,324
Shares redeemed............... (2,084,199) (26,373,763)
------------------------
NET INCREASE............. 13,796,798 $167,917,045
------------------------
------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
<S> <C> <C>
- -------------------------------------------------------
Year ended August 31, 1994:
Shares sold.................... 1,832,752 $23,303,224
Shares issued to shareholders
in connection with the
reinvestment of dividends
and distributions............ 135,828 1,695,816
Shares redeemed................ (598,936) (7,372,563)
-----------------------
NET INCREASE.............. 1,369,644 $17,626,477
-----------------------
-----------------------
May 10, 1993 to
August 31, 1993:
Shares sold.................... 911,559 $11,485,309
Shares issued to shareholders
in connection with the
reinvestment of dividends.... 5,103 185,012
Shares redeemed................ (34,019) (437,856)
-----------------------
NET INCREASE.............. 882,643 $11,232,465
-----------------------
-----------------------
</TABLE>
37
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
<S> <C> <C>
- -------------------------------------------------------
Year ended August 31, 1994:
Shares sold.................... 793,248 $ 9,955,688
Shares issued to shareholders
in connection with the
reinvestment of dividends and
distributions................ 127,228 1,600,490
Shares redeemed................ (825,212) (10,360,132)
-----------------------
NET INCREASE.............. 95,264 $ 1,196,046
-----------------------
-----------------------
May 10, 1993 to
August 31, 1993:
Shares sold.................... 1,658,546 $21,228,335
Shares issued to shareholders
in connection with the
reinvestment of dividends.... 14,656 188,076
Shares redeemed................ (53,071) (681,796)
-----------------------
NET INCREASE.............. 1,620,131 $20,734,615
-----------------------
-----------------------
</TABLE>
5. The Fund takes possession of securities under repurchase agreements before
releasing any money to the counterparty under such agreement. Eligible
collateral for repurchase agreement transactions are the instruments that the
Fund is allowed to invest in, as stated in the Prospectus. The Fund attempts to
attain a short maturity (2 years or less), although that is not always
available. The value of the collateral must be a minimum of 102% of the market
value of the securities being loaned, allowing for minor variations arising from
marking to market of such collateral. If the issuer defaults or if bankruptcy or
regulatory proceedings are commenced with respect to the issuer, the realization
of the proceeds may be delayed or limited.
REPORT OF INDEPENDENT AUDITORS
The Trustees and Shareholders,
Kidder, Peabody Global Fixed Income Fund
(one of the portfolios constituting the Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kidder, Peabody Global Fixed Income Fund as of
August 31, 1994, the related statements of operations for the year then ended
and of changes in net assets and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1994 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Kidder, Peabody
Global Fixed Income Fund as of August 31, 1994, the results of its operations,
the changes in its net assets and the financial highlights for each of the
respectively stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
October 14, 1994
38
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
DESCRIPTION OF RATINGS OF STANDARD & POOR'S CORPORATION
AND MOODY'S INVESTORS SERVICE, INC.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned to a debt
obligation. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
Aaa -- Bonds rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
'gilt-edge.' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of these
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.
39
<PAGE>
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc. applies the numerical modifiers 1, 2
and 3 to each generic rating classification from Aa through B. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
Commercial paper rated A-l by Standard & Poor's Corporation indicates
that the degree of safety regarding timely payment is either overwhelming
or very strong. Those issues determined to possess overwhelming safety
characteristics are denoted A-1+. Capacity for timely payment on commercial
paper rated A-2 is strong, but the relative degree of safety is not as high
as for issues designated A-1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service Inc. Issuers rated Prime-1 (or related supporting
institutions) are considered to have a superior capacity for repayment of
short term promissory obligations. Issuers rated Prime-2 (or related
supporting institutions) are considered to have a strong capacity for
repayment of short term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
40
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------
Contents
- -----------------------------------------------------------
Investment Objective and Policies 2
- -----------------------------------------------------------
Management of the Fund 11
- -----------------------------------------------------------
Principal Shareholders 16
- -----------------------------------------------------------
Redemption of Shares 17
- -----------------------------------------------------------
Determination of Net Asset Value 17
- -----------------------------------------------------------
Exchange Privilege 18
- -----------------------------------------------------------
Taxes
(See in the Prospectus 'Dividends,
Distributions and Taxes') 19
- -----------------------------------------------------------
Determination of Performance (See in the
Prospectus 'Performance Information') 22
- -----------------------------------------------------------
General Information 24
- -----------------------------------------------------------
Financial Statements 25
- -----------------------------------------------------------
Appendix 39
- -----------------------------------------------------------
</TABLE>
Kidder,
Peabody
Global
Fixed
Income
Fund
Statement of
Additional
Information
December 29, 1994
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $8.99 $9.97 $9.75 -4.24% - 9.83%
- ------------------------------------------------------------------------
Class B Shares 8.81 9.81 9.62 -5.03 -10.19
- ------------------------------------------------------------------------
Class D Shares 8.86 9.87 9.67 -5.00 -10.23
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/07/90 - 12/31/90 $9.55 $8.48 $0.0500 $0.1200 -9.39%
- -----------------------------------------------------------------------------
1991 8.48 8.22 -- 0.2432 -0.18
- -----------------------------------------------------------------------------
1992 8.22 7.44 -- -- -9.49
- -----------------------------------------------------------------------------
1993 7.44 9.49 0.3454 0.0194 32.48
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 9.49 8.99 -- -- -5.27
- -----------------------------------------------------------------------------
Total: $0.3954 $0.3826
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 2.74%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $8.52 $8.21 -- $0.2231 - 1.00%
- -----------------------------------------------------------------------------
1992 8.21 7.38 -- -- -10.11
- -----------------------------------------------------------------------------
1993 7.38 9.36 $0.3454 -- 31.53
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 9.36 8.81 -- -- - 5.88
- -----------------------------------------------------------------------------
Total: $0.3454 $0.2231
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 10.17%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/06/92 - 12/31/92 $8.33 $7.42 -- -- -10.92%
- -----------------------------------------------------------------------------
1993 7.42 9.41 $0.3454 -- 31.49
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 9.41 8.86 -- -- - 5.84
- -----------------------------------------------------------------------------
Total: $0.3454 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 10.28%
- -----------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.39 $11.43 $14.21 -5.79% -0.35%
- ------------------------------------------------------------------------
Class B Shares 11.38 11.46 14.19 -6.56 -0.70
- ------------------------------------------------------------------------
Class D Shares 11.28 11.37 14.09 -6.59 -0.79
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $11.20 $12.14 -- $0.0907 9.22%
- -----------------------------------------------------------------------------
1992 12.14 11.50 -- 0.2170 -3.77
- -----------------------------------------------------------------------------
1993 11.50 11.24 $1.8406 0.2079 15.78
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.24 11.39 -- -- 1.33
- -----------------------------------------------------------------------------
Total: $1.8406 $0.5156
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 23.67%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
09/18/87 - 12/31/87 $10.00 $ 9.25 -- $0.0820 -6.66%
- -----------------------------------------------------------------------------
1988 9.25 10.41 $0.0570 0.2805 16.24
- -----------------------------------------------------------------------------
1989 10.41 12.59 0.7290 0.2111 30.30
- -----------------------------------------------------------------------------
1990 12.59 11.25 0.6925 0.1100 -4.21
- -----------------------------------------------------------------------------
1991 11.25 12.16 -- 0.1277 9.28
- -----------------------------------------------------------------------------
1992 12.16 11.54 -- 0.1118 -4.42
- -----------------------------------------------------------------------------
1993 11.54 11.31 1.8406 0.0562 14.66
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.31 11.38 -- -- 0.62
- -----------------------------------------------------------------------------
Total: $3.3191 $0.9793
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 65.20%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/08/92 - 12/31/92 $11.95 $11.48 -- $0.1367 -2.93%
- ----------------------------------------------------------------------------
1993 11.48 11.22 $1.8406 0.1037 14.89
- ----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.22 11.28 -- -- 0.53
- ----------------------------------------------------------------------------
Total: $1.8406 $0.2404
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 12.29%
- ----------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.20 $10.61 $11.31 1.35% 5.56%
- ------------------------------------------------------------------------
Class B Shares 11.03 10.49 11.20 0.60 5.15
- ------------------------------------------------------------------------
Class D Shares 11.05 10.51 11.22 0.68 5.14
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
06/09/89 - 12/31/89 $ 9.55 $10.23 $0.0600 $0.3135 11.03%
- ----------------------------------------------------------------------------
1990 10.23 8.99 0.4510 0.9190 1.34
- ----------------------------------------------------------------------------
1991 8.99 9.46 -- 0.4408 10.03
- ----------------------------------------------------------------------------
1992 9.46 8.90 -- 0.2520 -3.30
- ----------------------------------------------------------------------------
1993 8.90 11.74 -- -- 35.01
- ----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.74 11.20 -- 0.2710 -4.60
- ----------------------------------------------------------------------------
Total: $0.5110 $2.1963
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 54.84%
- ----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $ 8.58 $ 9.44 -- $0.1358 -11.62%
- -----------------------------------------------------------------------------
1992 9.44 8.87 -- 0.1937 - 4.04
- -----------------------------------------------------------------------------
1993 8.87 11.64 -- -- 34.06
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.64 11.03 -- 0.2464 - 5.24
- -----------------------------------------------------------------------------
Total: -- $0.5759
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 36.07%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/06/92 - 12/31/92 $ 9.32 $ 8.89 -- $0.0263 -4.33%
- ----------------------------------------------------------------------------
1993 8.89 11.65 -- -- 33.90
- ----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.65 11.05 -- 0.2561 -5.15
- ----------------------------------------------------------------------------
Total: -- $0.2824
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 21.56%
- ----------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
3
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $9.99 $10.29 $10.97 -3.10% 0.40%
- ------------------------------------------------------------------------
Class B Shares 9.96 10.27 10.95 -3.90 -0.09
- ------------------------------------------------------------------------
Class D Shares 9.98 10.28 10.96 -3.56 0.14
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
07/01/91 -
12/31/91 $10.40 $11.05 $0.0100 $0.4800 -- 11.11%
- ------------------------------------------------------------------------
1992 11.05 10.42 0.1644 0.6029 -- 1.22
- ------------------------------------------------------------------------
1993 10.42 10.97 0.1445 0.6092 -- 14.16
- ------------------------------------------------------------------------
01/01/94 -
10/31/94 10.97 9.99 -- 0.3263 $0.3178 -4.27
- ------------------------------------------------------------------------
Total: $0.3189 $2.0184 $0.3178
- ------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 22.92%
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/20/87 -
12/31/87 $10.00 $10.86 $0.1800 $0.6647 -- 17.58%
- -------------------------------------------------------------------------
1988 10.86 10.64 0.1489 1.3436 -- 12.15
- -------------------------------------------------------------------------
1989 10.64 10.25 -- 0.9200 -- 5.44
- -------------------------------------------------------------------------
1990 10.25 10.87 -- 1.1300 -- 17.72
- -------------------------------------------------------------------------
1991 10.87 11.05 0.0100 0.9100 -- 10.75
- -------------------------------------------------------------------------
1992 11.05 10.41 0.1644 0.5214 -- 0.38
- -------------------------------------------------------------------------
1993 10.41 10.96 0.1445 0.5545 -- 13.36
- -------------------------------------------------------------------------
01/01/94 -
10/31/94 10.96 9.96 -- 0.2884 $0.2810 -5.02
- -------------------------------------------------------------------------
Total: $0.6478 $6.3326 $0.2810
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 98.68%
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
07/02/92 -
12/31/92 $10.94 $10.42 -- $0.5388 -- 0.10%
- ------------------------------------------------------------------------
1993 10.42 10.97 $0.1445 0.5736 -- 13.64
- ------------------------------------------------------------------------
01/01/94 -
10/31/94 10.97 9.98 -- 0.3016 $0.2938 -4.73
- ------------------------------------------------------------------------
Total: $0.1445 $1.4140 $0.2938
- ------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
10/31/94: 8.38%
- ------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Note: The Fund offers Class C shares to the trustee of the PaineWebber
Savings Investment Plan. For the one year ended October 31, 1994, and since
inception, August 26, 1991 through October 31, 1994, Class C shares have had a
total return of -2.86% and 22.38%, respectively. Class C shares do not have
initial or contingent sales charges or ongoing distribution and service fees.
4
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - 78.49%
AUSTRIA - 0.94%
Technology - 0.94%
16,400 Austrian Mikro Systeme International................... $ 1,215,829
------------
BELGIUM - 2.21%
Chemicals - 2.21%
5,800 Solvay et Cie.......................................... 2,878,712
------------
DENMARK - 0.90%
Retail - 0.90%
16,000 Danske Traelast........................................ 1,168,855
------------
FINLAND - 1.14%
Capital Goods - 0.32%
128,000 Tampella AB OY*........................................ 416,358
------------
Printing & Publishing - 0.82%
47,000 Aamulehti Yhtymae Bearer Series 2...................... 1,060,455
------------
Total Finland Common Stocks....................................... 1,476,813
------------
FRANCE - 8.12%
Capital Goods - 3.79%
39,950 Legris Industries...................................... 2,839,992
40,000 Technip SA Compagnie Francaise......................... 2,074,391
------------
4,914,383
------------
Health & Personal Care - 0.68%
10,375 Boiron................................................. 886,465
------------
Industrial Holdings - 1.38%
56,400 Dynaction*............................................. 1,796,562
------------
Leisure - 2.27%
34,450 Club Mediterranee...................................... 2,947,504
------------
Total France Common Stocks........................................ 10,544,914
------------
GERMANY - 13.20%
Automotive - 7.83%
6,000 Bayerische Motoren Werke AG............................ 3,091,653
24,100 Volkswagen AG.......................................... 7,074,333
------------
10,165,986
------------
</TABLE>
5
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
GERMANY - (CONTINUED)
Technology - 2.48%
5,000 SAP AG................................................. $ 3,221,302
------------
Textiles - 2.89%
6,446 Jil Sander AG.......................................... 3,750,042
------------
Total Germany Common Stocks....................................... 17,137,330
------------
ITALY - 1.49%
Machinery & Equipment - 1.49%
150,000 Danieli and Company.................................... 934,610
195,000 Sasib.................................................. 1,005,839
------------
Total Italy Common Stocks......................................... 1,940,449
------------
LUXEMBOURG - 1.54%
Mining - 1.54%
75,000 Minorco ADR............................................ 1,996,875
------------
NETHERLANDS - 1.54%
Infrastructure - 1.54%
79,000 IHC Caland N.V......................................... 2,005,432
------------
NORWAY - 7.59%
Machinery & Engineering - 4.23%
132,500 Kvaerner "B' Free...................................... 5,492,035
------------
Multi-Industry - 3.36%
370,500 Aker A/S "B' Free...................................... 4,363,420
------------
Total Norway Common Stocks........................................ 9,855,455
------------
SOUTH AFRICA - 1.49%
Mining - 1.49%
62,500 Kloof Gold Mining Ltd. ADR............................. 1,027,344
90,000 Vaal Reefs Exploration & Mining ADR.................... 911,250
------------
Total South Africa Common Stocks.................................. 1,938,594
------------
SWEDEN - 7.94%
Appliances - 2.92%
73,000 Electrolux Ab "B' Free................................. 3,793,274
------------
Automotive - 2.17%
142,500 Volvo Aktiebolaget "B' Free............................ 2,815,165
------------
Mining - 2.85%
240,000 Trelleborg Ab "B' Free................................. 3,706,252
------------
Total Sweden Common Stocks........................................ 10,314,691
------------
</TABLE>
6
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
SWITZERLAND - 11.98%
Biotechnology - 1.25%
3,000 Ares-Serono SA "B'..................................... $ 1,624,592
------------
Cement - 4.40%
7,400 Holderbank............................................. 5,710,440
------------
Electrical & Electronics - 3.97%
6,000 Brown Boveri........................................... 5,150,912
------------
Pharmaceutical - 2.36%
5,200 Ciba Geigy............................................. 3,068,567
------------
Total Switzerland Common Stocks.................................. 15,554,511
------------
UNITED KINGDOM - 18.41%
Capital Goods - 1.91%
550,000 Weir Group............................................. 2,486,425
------------
Drugs - 2.81%
1,275,000 Medeva................................................. 3,650,698
------------
Holding Company - 4.70%
2,850,000 Lonrho................................................. 6,104,270
------------
Mining - 0.94%
220,000 Antofagasta Holdings................................... 1,222,980
------------
Non-Ferrous Metals - 3.80%
351,000 RTZ Corporation Reg'd.................................. 4,935,409
------------
Oil - 4.25%
775,000 British Petroleum...................................... 5,511,992
------------
Total United Kingdom Common Stocks............................... 23,911,774
------------
Total Common Stocks (cost - $92,465,196)......................... 101,940,234
------------
PREFERRED STOCK - 3.79%
GERMANY - 3.79%
Automotive - 3.79%
7,220 Porsche AG Non-Voting.................................. 3,081,839
4,512 Porsche AG (New)....................................... 1,838,939
------------
Total Germany Preferred Stocks (Cost - $5,154,471)............... 4,920,778
------------
</TABLE>
7
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS VALUE
- --------- ------------
<C> <S> <C>
WARRANTS - 0.05%
SWITZERLAND - 0.05%
Cement - 0.05%
50,000 Holderbank Fin Glarus expiring 12/20/94 (cost - $42,235).. $ 69,682
------------
Total Investments (cost - $97,661,902)--82.33%.......................... 106,930,694
Other assets in excess of liabilities--17.67%........................... 22,943,531
------------
Net Assets--100.00%..................................................... $129,874,225
============
</TABLE>
- -------
ADR - American Depository Receipt
*Non-income producing
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS - 88.14%
UNITED STATES - 88.14%
Exploration & Production - 27.91%
75,000 Cross Timbers Oil Co.................................... $ 1,200,000
100,000 Louis Dreyfus Natural Gas Corp.*........................ 1,462,500
75,000 Newfield Exploration Co.*............................... 1,809,375
80,000 Pogo Producing Co....................................... 1,790,000
25,000 Plains Petroleum........................................ 675,000
75,000 Vintage Petroleum Inc................................... 1,453,125
-----------
8,390,000
-----------
International Energy - 39.89%
20,000 British Petroleum PLC ADR............................... 1,700,000
55,555 Norsk Hydro AS ADR...................................... 2,236,089
50,000 Occidental Petroleum Corp............................... 1,093,750
50,000 Repsol ADR.............................................. 1,625,000
10,000 Royal Dutch Petroleum Co. NY Reg'd...................... 1,165,000
15,000 Shell Trans & Trading New ADR........................... 1,070,625
50,000 Total ADR............................................... 1,650,000
60,000 YPF ADR Repr Cl D....................................... 1,447,500
-----------
11,987,964
-----------
Natural Gas Transmission - 4.92%
60,000 K N Energy Inc.......................................... 1,477,500
-----------
Oil Services - 5.12%
50,000 Camco International Inc................................. 1,031,250
50,000 Numar Corp.*............................................ 506,250
-----------
1,537,500
-----------
Refining & Marketing - 10.30%
100,000 Horsham Corp............................................ 1,550,000
60,000 Ultramar Corp........................................... 1,545,000
-----------
3,095,000
-----------
Total Common Stocks (cost - $24,660,264).......................... 26,487,964
-----------
</TABLE>
9
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
000 MATURITY DATE RATES VALUE
--------- ------------- -------- -----------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 2.14%
UNITED STATES - 2.14%
Exploration & Production - 2.14%
$750 Cross Timbers Oil Co. Conv
Reg'd (cost - $750,000)...... 11/01/03 5.250% $ 645,000
-----------
SHORT-TERM GOVERNMENT SECURITIES - 1.66%
UNITED STATES - 1.66%
500 U.S. Treasury Bill (cost -
$498,785)................... 11/17/94 4.370@ 498,785
-----------
REPURCHASE AGREEMENT - 1.90%
570 Repurchase Agreement dated
10/31/94 with Brown Brothers
Harriman & Co.,
collateralized by $583,484
U.S. Treasury Notes, 4.250%
due 07/31/95; proceeds:
$570,068
(cost - $570,000)............ 11/01/94 4.313 570,000
-----------
Total Investments (cost - $26,479,049) -
93.84%................................. 28,201,749
Other assets in excess of liabilities -
6.16%.................................. 1,849,937
-----------
Net Assets - 100.00%..................... $30,051,686
===========
</TABLE>
- -------
* Non-income producing security.
ADR - American Depository Receipt
@ Yield to maturity.
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------------
<C> <S> <C>
COMMON STOCKS - 58.29%
ARGENTINA - 1.52%
Infrastructure - 1.52%
486,000 Comercial Del Plata................................... $ 1,638,230
------------
BRAZIL - 7.33%
Electric Utility - 3.11%
6,280,000 Electrobras........................................... 2,448,009
1,740,000 Iven*................................................. 751,169
1,680,000 Paulista Forca Luz*................................... 149,289
------------
3,348,467
------------
Food - 1.46%
97,900,000 Ceval Alimentos....................................... 1,565,936
------------
Paper - 2.01%
170,000 Aracruz Celulose ADR.................................. 2,167,500
------------
Telephone - 0.49%
12,942,018 Telebras.............................................. 525,961
18,846 Telebras Pro Rata..................................... 766
------------
526,727
------------
Tobacco - 0.26%
30,000 Souza Cruz Registered................................. 284,360
------------
Total Brazil Common Stocks........................................ 7,892,990
------------
CANADA - 3.32%
Mining - 3.03%
130,000 Echo Bay Mines........................................ 1,592,500
80,000 Horsham Corp. ........................................ 1,240,000
20,000 Placer Dome Inc. ..................................... 432,500
------------
3,265,000
------------
Technology - 0.29%
115,000 Battery Technologies*................................. 316,250
------------
Total Canada Common Stocks........................................ 3,581,250
------------
FINLAND - 0.37%
Capital Goods - 0.37%
122,000 Tampella AB OY*....................................... 396,841
------------
</TABLE>
11
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FRANCE - 2.27%
Construction - 0.99%
15,000 Legris Industries*..................................... $ 1,066,330
------------
Industrial Holdings - 0.30%
10,000 Dynaction*............................................. 318,539
------------
Infrastructure - 0.58%
12,000 Technip SA/Compagnie Francaise......................... 622,317
------------
Leisure - 0.40%
5,000 Club Mediterranee...................................... 427,795
------------
Total France Common Stocks....................................... 2,434,981
------------
GERMANY - 1.91%
Auto - 1.91%
7,000 Volkswagenwerk AG...................................... 2,054,785
------------
HONG KONG - 6.33%
Aerospace - 1.59%
8,310,000 China Aerospace*....................................... 1,709,855
------------
Infrastructure - 3.58%
3,780,000 Hopewell Holdings...................................... 3,864,380
------------
Retailing - 1.16%
1,600,000 Dickson Concept International, Ltd..................... 1,252,669
------------
Total Hong Kong Common Stocks.................................... 6,826,904
------------
JAPAN - 0.30%
Electronics - 0.30%
60,000 Chinon Industries Inc.................................. 328,309
------------
KOREA - 0.92%
Electric Utility - 0.92%
51,000 Korea Electric Power ADR............................... 994,500
------------
LUXEMBOURG - 1.36%
Mining - 1.36%
55,000 Minorco ADR............................................ 1,464,375
------------
</TABLE>
12
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
MALAYSIA - 2.03%
Mining - 2.03%
1,047,000 Malaysia Mining Berhad................................. $ 2,192,348
------------
NORWAY - 1.63%
Machinery & Engineering - 0.87%
22,500 Kvaerner "B' Free...................................... 932,610
------------
Oil Service - 0.76%
70,000 Aker A/S "B' Free...................................... 824,398
------------
Total Norway Common Stocks....................................... 1,757,008
------------
SOUTH AFRICA - 4.98%
Investment Companies - 1.11%
25,000 ASA Limited............................................ 1,200,000
------------
Mining - 3.21%
30,000 Driefontein Consolidated Ltd. ......................... 478,207
30,000 Free State Consolidated Gold Mines..................... 508,095
75,000 Gencor Ltd. ........................................... 275,529
30,000 Kloof Gold Mining Ltd, ADR............................. 511,831
50,000 Randfontein Estates Goldmine........................... 523,039
1,000,000 South African Iron & Steel/Iscor....................... 1,165,628
------------
3,462,329
------------
Petroleum - 0.66%
80,000 Sasol Ltd.............................................. 707,347
------------
Total South Africa Common Stocks................................. 5,369,676
------------
SWEDEN - 1.15%
Appliances - 0.72%
15,000 Electrolux Ab "B' Free................................. 779,440
------------
Mining - 0.43%
30,000 Trelleborg Ab "B' Free*................................ 463,281
------------
Total Sweden Common Stocks....................................... 1,242,721
------------
SWITZERLAND - 0.85%
Technology - 0.85%
7,000 SMH AG Neuenberg (Reg'd)............................... 919,806
------------
</TABLE>
13
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
TURKEY - 0.36%
Banking - 0.16%
2,580,600 Yapi Kredi Bank(1)....................................... $ 172,399
----------
Newspaper - 0.20%
4,390,400 Medya Holdings AS........................................ 219,978
----------
Total Turkey Common Stocks......................................... 392,377
----------
UNITED KINGDOM - 4.15%
Capital Goods - 0.84%
200,000 Weir Group............................................... 904,155
----------
Drugs - 0.78%
295,000 Medeva................................................... 844,671
----------
Holding Company - 2.14%
1,075,000 Lonrho Ord............................................... 2,302,488
----------
Mining - 0.39%
75,000 Antofagasta Holdings..................................... 416,925
----------
Total United Kingdom Common Stocks................................. 4,468,239
----------
UNITED STATES - 17.51%
Biotechnology - 0.76%
25,000 Genzyme Corp............................................. 818,750
----------
Datacommunications - 4.23%
40,000 Digital Equipment Corp.*................................. 1,225,000
99,900 General Datacom Industries Inc.*......................... 3,334,163
----------
4,559,163
----------
Electronics & Instrumentation - 7.27%
72,000 Analog Devices, Inc. *................................... 2,574,000
129,600 National Semiconductor Corp.*............................ 2,284,200
70,000 Westinghouse Electric.................................... 988,750
142,000 Zenith Electronics Corp.*................................ 1,988,000
----------
7,834,950
----------
Foods - 0.50%
35,000 Wholesome & Hearty Foods, Inc.*.......................... 542,500
----------
Machinery - 1.02%
40,000 Cincinnati Milacron...................................... 1,095,000
----------
</TABLE>
14
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
UNITED STATES - (CONTINUED)
Mining - 0.72%
70,000 Battle Mountain Gold Co.............................. $ 778,750
------------
Oil & Gas Drilling - 3.01%
40,000 Baker Hughes......................................... 820,000
200,000 Global Marine Inc.*.................................. 950,000
60,000 Hecla Mining Co.*.................................... 675,000
130,000 Parker Drilling*..................................... 796,250
------------
3,241,250
------------
Total United States Common Stocks................................ 18,870,363
------------
Total Common Stocks (cost - $57,066,977)......................... 62,825,703
------------
PREFERRED STOCK - 13.74%
BRAZIL - 11.05%
Bank - 3.84%
223,641,013 Banco Bradesco ...................................... 2,093,321
9,970,000 Banco de Brasil Reg'd NV............................. 200,818
2,000,000 Investimentos Itau................................... 1,374,408
1,440,000 Itaubanco Reg'd...................................... 462,370
------------
4,130,917
------------
Beverage - 0.45%
1,375,000 Brahma............................................... 483,857
------------
Machinery - 1.38%
3,595,000 Brasmotor Reg'd...................................... 1,490,817
------------
Mining - 2.52%
12,500,000 Vale Do Rio Doce Reg'd .............................. 2,710,308
------------
Oil - 1.38%
9,666,666 Petrobras Reg'd...................................... 1,488,941
------------
Retailing - 0.25%
8,880,000 Lojas Americanas Reg'd............................... 273,555
------------
Steel - 1.04%
6,000,000 Acesita Cia Acos Espec Itab.......................... 568,720
9,600,000 Metalurg Gerdau ..................................... 557,460
------------
1,126,180
------------
</TABLE>
15
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- ------------
<C> <S> <C>
PREFERRED STOCK - (CONCLUDED)
BRAZIL - (CONTINUED)
Telephone - 0.00%
5,570 Telebras Reg'd...................................... $ 269
------------
Tools - 0.19%
220,000,000 Forjas Taurus....................................... 208,531
------------
Total Brazil Preferred Stock.................................... 11,913,375
------------
GERMANY - 2.69%
Auto - 1.35%
3,400 Porsche AG Non-Voting .............................. 1,451,282
------------
Computer Systems - 1.34%
2,500 Sap AG ............................................. 1,444,433
------------
Total Germany Preferred Stock................................... 2,895,715
------------
Total Preferred Stocks (cost - $12,413,189)..................... 14,809,090
------------
<CAPTION>
NUMBER OF
CONTRACTS
-----------
<C> <S> <C>
WARRANTS - 0.08%
HONG KONG - 0.08%
Aerospace - 0.08%
China Aerospace Int'l Holding, expiring 12/31/95
1,698,000 (cost - $257,427).................................. 83,499
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)** DATES RATES
--------- -------------------- -----------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 19.18%
DENMARK - 4.60%
29,000 Government of Denmark... 11/15/00 9.000% 4,958,886
------------
FINLAND - 2.32%
12,000 Republic of Finland..... 03/15/04 9.500 2,504,653
------------
INDONESIA - 0.92%
Eka Guntama Mandiri
1,000 Convertible............ 10/04/97 4.000 990,000
------------
SOUTH AFRICA - 3.71%
Electrical Supply
Commission of South
23,000 Africa................. 06/01/08 11.000 3,998,506
------------
SPAIN - 4.59%
610,000 Government of Spain..... 03/25/00 to 01/15/02 11.300 to 12.250 4,948,758
------------
UNITED KINGDOM - 2.33%
1,300 United Kingdom Gilt..... 07/14/00 13.000 2,508,089
------------
VENEZUELA - 0.71%
Bariven Petroleos de
US$900 Venezuela.............. 03/17/02 10.625 766,125
------------
Total Long-Term Debt Securities
(cost - $22,018,278)............. 20,675,017
------------
</TABLE>
16
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) ** DATES RATES VALUE
--------- -------------------- ---------------- ------------
<C> <S> <C> <C> <C>
SHORT-TERM DEBT SECURITIES - 7.42%
UNITED STATES - 7.42%
U.S. Treasury Bills
8,000 (cost - $7,991,440).... 11/10/94 4.280%@ $ 7,991,440
------------
Total Investments (cost -
$99,747,311) - 98.71%........... 106,384,749
Other assets in excess of
liabilities - 1.29%.............. 1,388,090
------------
Net Assets - 100.00%.............. $107,772,839
============
</TABLE>
- -------
*Non-income producing security.
**In local currency unless otherwise indicated.
ADR - American Depository Receipts
@ - Yield to maturity
(1) - Non-trading Promissory Notes received as dividend which will be exchanged
into ordinary shares approximately 90 days after ex-date, 9/7/94.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE APPRECIATION
DELIVER FOR MATURITY DATES (DEPRECIATION)
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
British Pounds........ 3,500,000 US $ 5,430,075 11/29/94 $(292,423)
French Francs......... 28,500,000 US $ 5,388,237 11/29/94 (147,356)
German Deutschemarks.. 16,500,000 US $10,712,755 11/29/94 (257,625)
U.S. Dollars.......... 16,500,000 DEM 10,703,860 11/29/94 266,520
U.S. Dollars.......... 28,500,000 FRF 5,399,670 11/29/94 135,923
U.S. Dollars.......... 3,500,000 GBP 5,535,355 11/29/94 187,143
---------
$(107,818)
=========
</TABLE>
- -------
CURRENCY TYPE ABBREVIATIONS:
DEM-German Deutschemark
FRF-French Franc
GBP-British Pound
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
----------- -------------------- ---------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 74.34%
Australia - 6.93%
New South Wales Treasury
66,591 Corp................... 07/01/99 to 12/01/01 11.500 to 12.000% $ 52,784,657
Queensland Treasury
60,670 Corp. Global Issue..... 08/15/01 to 05/15/03 10.500 to 12.000 47,228,559
--------------
100,013,216
--------------
Canada - 6.52%
10,000 Bell Canada............. 05/21/96 9.875 7,593,065
36,320 Government of Canada.... 06/01/08 to 06/01/21 9.750 to 10.000 28,224,344
10,000 Hydro Quebec............ 05/15/03 10.250 7,500,647
Ontario Hydro Global
72,013 Bonds.................. 04/11/07 to 04/11/11 10.502 to 10.551@ 13,764,689
Ontario Hydro Global
34,445 Bonds.................. 02/06/02 8.625 24,644,136
Province of British
Columbia Residual
31,914 Bonds.................. 01/09/12 9.061 to 9.115@ 4,518,525
10,100 Province of Ontario..... 05/01/96 10.750 7,782,500
--------------
94,027,906
--------------
Colombia - 0.43%
US$ 6,500 Republic of Colombia.... 05/11/98 7.125 6,158,750
--------------
Denmark - 6.70%
564,690 Government of Denmark... 11/15/96 to 11/15/00 9.000 96,725,781
--------------
Finland - 1.39%
Republic of Finland
89,000 Housing Bond........... 03/15/02 10.750 20,071,921
--------------
France - 4.20%
311,500 Government of France.... 04/25/03 to 10/25/19 8.500 60,579,208
--------------
Germany - 7.79%
Federal Republic of
156,180 Germany................ 01/22/96 to 01/04/24 6.250 to 8.875 102,267,704
Republic of Germany
15,000 Unity Bond............. 01/21/02 8.000 10,182,507
--------------
112,450,211
--------------
Greece - 1.02%
GBP 10,000 Bank of Greece.......... 06/30/03 9.750 14,684,339
--------------
Hungary - 2.08%
National Bank of
US$ 38,000 Hungary................ 11/01/03 to 11/01/13 7.950 to 8.875 29,994,000
--------------
Ireland - 2.75%
23,960 Republic of Ireland..... 11/15/97 to 07/15/01 9.000 to 11.500 39,746,058
--------------
</TABLE>
18
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
----------- -------------------- ---------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES -
(CONCLUDED)
New Zealand - 2.38%
Government of New
39,230 Zealand................ 07/15/97 10.000% $ 24,779,905
14,230 International Bank for
Reconstruction and
Development(1)......... 07/25/97 12.500 9,481,149
--------------
34,261,054
--------------
Philippines - 0.70%
US$ 10,000 Republic of Philippines. 02/23/96 7.875 10,075,000
--------------
Spain - 10.87%
19,186,330 Government of Spain..... 04/15/96 to 08/30/03 10.900 to 13.450 156,769,995
--------------
Sweden - 2.99%
279,900 Government of Sweden.... 06/15/01 13.000 43,107,167
--------------
Turkey - 1.11%
US$ 17,000 Republic of Turkey...... 08/06/97 8.125 16,022,500
--------------
United Kingdom - 6.75%
Government of United
27,500 Kingdom Exchequer...... 05/15/96 13.250 48,685,941
25,268 United Kingdom Gilt..... 07/14/00 13.000 48,749,536
--------------
97,435,477
--------------
United States - 9.73%
18,000 Chase Manhattan Corp.... 12/01/97 7.500 17,946,054
16,000 Clorox Corporation...... 07/15/01 8.800 16,580,192
15,000 Ford Motor Credit Corp.. 07/01/01 9.500 15,920,430
General Motors
50,000 Acceptance Corp. MTN... 07/15/96 to 04/30/97 7.950 to 8.625 50,860,655
San Diego Gas & Electric
5,000 Co..................... 04/15/20 9.625 5,230,885
34,000 U.S. Treasury Notes..... 01/31/96 to 11/30/96 6.500 to 7.500 33,905,156
--------------
140,443,372
--------------
Total Long-Term Debt Securities
(cost - $1,107,939,474)............. 1,072,565,955
--------------
SHORT-TERM DEBT SECURITIES - 5.71%
Australia - 0.69%
New South Wales Treasury
13,200 Corp................... 04/01/95 12.100 9,988,466
--------------
Finland - 1.39%
90,000 Republic of Finland..... 06/15/95 11.000 20,020,310
--------------
United States - 3.46%
50,000 U.S. Treasury Bills..... 11/10/94 4.500@ 49,939,500
--------------
Uruguay - 0.17%
US$ 2,500 Republic of Uruguay..... 06/08/95 8.250 2,506,250
--------------
Total Short-Term Debt Securities
(cost - $81,607,933)................ 82,454,526
--------------
INDEXED SECURITY - 1.30%
Japan - 1.30%
US$ 19,000 Rabobank Nederland
Japanese Yen Linked CD
(cost - $19,000,000)... 02/02/95 15.400(2) 18,709,300
--------------
REPURCHASE AGREEMENTS - 11.01%
40,000 Repurchase Agreement
dated 10/31/94, with
Citicorp Securities
Inc. collateralized by
$41,590,000 U.S.
Treasury Notes, 6.375%
due 01/15/99; proceeds:
$40,005,300............ 11/01/94 4.770 40,000,000
</TABLE>
19
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
--------- -------- -------- --------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS - (CONTINUED)
28,829 Repurchase Agreement dated
10/31/94, with Daiwa Securities
(America) Inc., collateralized
by $31,965,000 U.S. Treasury
Bonds, 7.250% due 08/15/22;
proceeds: $28,832,804........... 11/01/94 4.750% $ 28,829,000
45,000 Repurchase Agreement dated
10/31/94, with First Chicago
Capital Markets, Inc.,
collateralized by $46,580,000
U.S. Treasury Notes, 5.125% due
03/31/96; proceeds:
$45,005,963..................... 11/01/94 4.770 45,000,000
45,000 Repurchase Agreement dated
10/31/94, with Yamaichi
International (America) Inc.,
collateralized by $47,135,000
U.S. Treasury Bonds 7.500% due
11/15/16; proceeds:
$45,005,963..................... 11/01/94 4.770 45,000,000
--------------
Total Repurchase Agreements (cost -
$158,829,000)............................. 158,829,000
--------------
Total Investments (cost - $1,367,376,407) -
92.36%.................................... 1,332,558,781
Other assets in excess of liabilities -
7.64%..................................... 110,304,975
--------------
Net Assets - 100.00%....................... $1,442,863,756
==============
</TABLE>
- -------
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated.
@ Yield to maturity for zero coupon bonds.
MTN-Medium term note.
(1) "Supranational" security denominated in New Zealand Dollars.
(2) The yield is not guaranteed. Only if certain economic conditions exist on
the maturity date will the Fund receive the yield as stated.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE MATURITY APPRECIATION
DELIVER FOR DATES (DEPRECIATION)
-------------- ---------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...... 34,452,542 US$ 25,405,305 02/03/95 $ (134,128)
Belgian Francs.......... 985,000,000 US$ 30,251,843 11/08/94 (1,597,321)
Belgian Francs.......... 1,431,000,000 US$ 43,614,752 11/18/94 (2,617,716)
Belgian Francs.......... 738,000,000 US$ 24,065,157 01/27/95 184,916
British Pounds.......... 31,400,000 US$ 51,367,260 01/31/95 62,130
British Pounds.......... 23,550,000 US$ 38,556,060 01/30/95 81,960
Danish Kronas........... 145,214,515 US$ 24,646,048 01/23/95 32,177
Finnish Markkas......... 95,660,918 US$ 18,922,787 11/07/94 (1,820,389)
Finnish Markkas......... 102,214,120 US$ 18,326,153 03/27/95 (3,809,723)
Greek Drachmas.......... 24,521,063,024 US$ 101,311,093 01/26/95 to 02/24/95 (731,138)
Irish Punts............. 9,626,904 US$ 14,921,701 11/17/94 (546,044)
Spanish Pesetas......... 18,288,009,992 US$ 144,772,409 11/17/94 to 01/27/95 (964,889)
Spanish Pesetas......... 4,202,238,000 US$ 32,162,979 11/17/94 (1,355,075)
Spanish Pesetas......... 2,438,591,147 US$ 19,389,291 01/26/95 17,403
U.S. Dollars............ 30,220,861 Bfr 985,000,000 11/08/94 1,628,304
U.S. Dollars............ 2,214,379 FIM 10,875,038 11/07/94 143,906
------------
$(11,425,627)
============
</TABLE>
- -------
CURRENCY TYPE ABBREVIATIONS:
Bfr - Belgian Franc
FIM - Finnish Markka
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS
INVESTMENTS BY TYPE OF ISSUER ------------------------
LONG-TERM SHORT-TERM
--------- ------------
<S> <C> <C>
Government and other public issuers....... 62.67% 5.71%
Repurchase agreements..................... -- 11.01
Financial institutions.................... 4.63 --
Banks..................................... 5.00 1.30
Other..................................... 2.04 --
------------ ------------
74.34% 18.02%
============ ============
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1994
<TABLE>
<CAPTION>
GLOBAL
EUROPE GLOBAL GROWTH GLOBAL
GROWTH ENERGY AND INCOME INCOME
FUND FUND FUND FUND
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
Assets
Investments, at value
(cost - $97,661,902,
$26,479,049,
$99,747,311 and
$1,208,547,407,
respectively).......... $106,930,694 $28,201,749 $106,384,749 $1,173,729,781
Repurchase agreements
(cost - $158,829,000).. -- -- -- 158,829,000
Cash.................... 1,831,897 1,392,792 1,521,026 896
Cash denominated in
foreign currencies, at
value (cost--
$12,852,470, $0,
$1,142,649, and
$90,322,587,
respectively).......... 12,894,174 -- 1,138,885 90,033,789
Receivable for
investments sold....... 34,518,820 591,320 4,574,855 88,268,806
Receivable for shares of
beneficial interest
sold................... 77,089 159,981 198,972 269,947
Unrealized appreciation
on forward foreign
currency contracts..... -- -- 589,586 2,150,796
Dividends and interest
receivable............. 336,710 146,682 1,500,878 48,180,367
Other assets............ 65,335 17,327 41,947 96,471
------------ ----------- ------------ --------------
Total assets......... 156,654,719 30,509,851 115,950,898 1,561,559,853
------------ ----------- ------------ --------------
Liabilities
Payable for investments
purchased.............. 25,022,290 -- 6,445,819 86,443,980
Payable for shares of
beneficial interest
repurchased............ 1,348,013 226,584 698,533 15,663,052
Unrealized depreciation
on forward foreign
currency contracts..... -- -- 697,404 13,576,423
Payable to affiliates... 162,264 42,521 138,272 1,765,238
Accrued expenses and
other liabilities...... 247,927 189,060 198,031 1,247,404
------------ ----------- ------------ --------------
Total liabilities.... 26,780,494 458,165 8,178,059 118,696,097
------------ ----------- ------------ --------------
Net Assets
Beneficial interest
shares of $0.001 par
value outstanding
(unlimited amount
authorized)............ 123,361,598 30,183,886 98,033,331 1,512,481,390
Undistributed
(distribution in excess
of) net investment
income................. 16,800 18,000 106,332 (10,012,056)
Accumulated net realized
gains (losses) from
investments............ (2,879,157) (1,873,851) 3,072,828 (15,074,431)
Net unrealized
appreciation
(depreciation) of
investments, other
assets, liabilities and
forward contracts
denominated in foreign
currencies............. 9,374,984 1,723,651 6,560,348 (44,531,147)
------------ ----------- ------------ --------------
Net assets.............. $129,874,225 $30,051,686 $107,772,839 $1,442,863,756
============ =========== ============ ==============
Class A:
Net assets.............. $ 78,285,489 $11,229,639 $ 61,813,332 $ 611,855,127
------------ ----------- ------------ --------------
Shares outstanding...... 8,711,723 985,894 5,520,841 61,273,875
------------ ----------- ------------ --------------
Net asset value and
redemption value per
share.................. $8.99 $11.39 $11.20 $9.99
===== ====== ====== =====
Maximum offering price
per share (net asset
value plus sales charge
of 4.50%, 4.50%, 4.50%
and 4.00%,
respectively, of
offering price)........ $9.41 $11.93 $11.73 $10.41
===== ====== ====== ======
Class B:
Net assets.............. $ 37,524,789 $17,340,989 $ 34,467,507 $ 725,553,075
------------ ----------- ------------ --------------
Shares outstanding...... 4,261,129 1,523,497 3,125,000 72,827,577
------------ ----------- ------------ --------------
Net asset value and
offering price per
share.................. $8.81 $11.38 $11.03 $9.96
===== ====== ====== =====
Class C:
Net assets.............. $ 12,975,182
--------------
Shares outstanding...... 1,298,635
--------------
Net asset value,
offering price and
redemption value per
share.................. $9.99
=====
Class D:
Net assets.............. $ 14,063,947 $ 1,481,058 $ 11,492,000 $ 92,480,372
------------ ----------- ------------ --------------
Shares outstanding...... 1,588,239 131,354 1,040,466 9,267,815
------------ ----------- ------------ --------------
Net asset value,
offering price and
redemption value per
share.................. $8.86 $11.28 $11.05 $9.98
===== ====== ====== =====
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
GLOBAL
GROWTH
EUROPE GLOBAL AND GLOBAL
GROWTH ENERGY INCOME INCOME
FUND FUND FUND FUND
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investment income:
Dividends (net of foreign
withholding taxes)....... $ 1,664,734 $ 560,812 $ 1,017,935 $ --
Interest (net of foreign
withholding taxes)....... 332,124 179,424 2,136,456 142,626,149
----------- ----------- ----------- ------------
1,996,858 740,236 3,154,391 142,626,149
----------- ----------- ----------- ------------
Expenses:
Investment advisory and
administration fees...... 1,281,874 284,559 986,716 12,723,592
Distribution fees--Class
A........................ 231,887 30,522 168,336 1,664,223
Distribution fees--Class
B........................ 403,753 200,830 308,330 9,741,334
Distribution fees--Class
D........................ 180,503 11,861 114,683 905,849
Custody and accounting
fees..................... 381,410 82,604 327,620 1,487,197
Transfer agency and serv-
ice fees................. 212,022 56,925 136,577 1,328,234
Legal and audit fees...... 66,760 54,038 76,099 167,681
Reports and notices to
shareholders............. 57,595 50,875 35,992 365,614
Federal and state regis-
tration fees............. 53,809 58,802 43,842 186,047
Amortization of organiza-
tional expenses.......... 51,268 -- 55,732 --
Trustees' fees and ex-
penses................... 4,750 4,750 4,750 4,750
Other expenses............ 2,540 3,881 1,114 264,984
----------- ----------- ----------- ------------
2,928,171 839,647 2,259,791 28,839,505
----------- ----------- ----------- ------------
Net investment income
(loss)................... (931,313) (99,411) 894,600 113,786,644
----------- ----------- ----------- ------------
Realized and unrealized
gains (losses) from in-
vestment activities:
Net realized gains (loss-
es) from:
Investment transactions.. 24,878,615 (1,873,851) 8,863,363 (17,079,241)
Foreign currency transac-
tions................... (22,560,640) (12,394) (3,547,489) (59,719,415)
Net change in unrealized
appreciation (deprecia-
tion) of:
Investments.............. (14,026,063) (404,872) (6,077,963) (90,644,293)
Other assets, liabilities
and forward contracts
denominated in foreign
currencies.............. 4,467,567 11,461 (639,496) (15,050,480)
----------- ----------- ----------- ------------
Net realized and
unrealized losses from
investment activities.... (7,240,521) (2,279,656) (1,401,585) (182,493,429)
----------- ----------- ----------- ------------
Net decrease in net assets
resulting from opera-
tions.................... $(8,171,834) $(2,379,067) $ (506,985) $(68,706,785)
=========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
EUROPE GROWTH FUND GLOBAL ENERGY FUND
-------------------------- ------------------------
1994 1993 1994 1993
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income
(loss)................... $ (931,313) $ 11,208 $ (99,411) $ 300,317
Net realized gains
(losses) from investment
transactions............. 24,878,615 351,257 (1,873,851) 6,502,826
Net realized gains
(losses) from foreign
currency transactions.... (22,560,640) 8,946,418 (12,394) (2,499)
Net change in unrealized
appreciation/depreciation
of investments........... (14,026,063) 28,751,242 (404,872) 1,091,794
Net changes in unrealized
appreciation/depreciation
of other assets,
liabilities and forward
contracts denominated in
foreign currencies....... 4,467,567 (7,881,051) 11,461 (8,965)
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets resulting from
operations............... (8,171,834) 30,179,074 (2,379,067) 7,883,473
------------ ------------ ----------- -----------
Dividends and distribu-
tions to shareholders
from:
Net investment income--
Class A.................. (189,958) -- (92,910) (117,731)
Net investment income--
Class B.................. -- -- -- (404,245)
Net investment income--
Class D.................. -- -- (294) (7,492)
Net realized gains from
foreign currency
transactions--Class A.... (3,382,032) -- -- --
Net realized gains from
foreign currency
transactions--Class B.... (1,272,185) -- -- --
Net realized gains from
foreign currency
transactions--Class D.... (559,399) -- -- --
Net realized gains from
investments
transactions--Class A.... -- -- (1,668,385) --
Net realized gains from
investments
transactions--Class B.... -- -- (2,966,006) --
Net realized gains from
investments
transactions--Class D.... -- -- (138,983) --
------------ ------------ ----------- -----------
(5,403,574) -- (4,866,578) (529,468)
------------ ------------ ----------- -----------
From beneficial interest
transactions:
Net proceeds from the sale
of shares................ 68,815,455 73,343,985 22,625,132 15,845,293
Cost of shares
repurchased.............. (78,076,131) (40,636,256) (28,108,399) (24,123,229)
Proceeds from dividends
reinvested............... 5,029,677 -- 4,162,810 450,634
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets derived from
beneficial interest
transactions............. (4,230,999) 32,707,729 (1,320,457) (7,827,302)
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets............... (17,806,407) 62,886,803 (8,566,102) (473,297)
Net assets:
Beginning of period....... 147,680,632 84,793,829 38,617,788 39,091,085
------------ ------------ ----------- -----------
End of period (including
undistributed net
investment income of
$16,800, $849,063,
$18,000 and $327,326,
respectively)............ $129,874,225 $147,680,632 $30,051,686 $38,617,788
============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
GLOBAL GROWTH
AND INCOME FUND GLOBAL INCOME FUND
-------------------------- ------------------------------
1994 1993 1994 1993
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
From operations:
Net investment income................. $ 894,600 $ 1,630,297 $ 113,786,644 $ 99,253,135
Net realized gains (losses) from
investment transactions.............. 8,863,363 3,636,939 (17,079,241) 20,177,944
Net realized gains (losses) from
foreign currency transactions........ (3,547,489) 1,390,840 (59,719,415) (25,636,675)
Net change in unrealized appreciation
(depreciation) of investments........ (6,077,963) 12,466,741 (90,644,293) 60,132,243
Net changes in unrealized appreciation
(depreciation) of other assets,
liabilities and forward contracts
denominated in foreign currencies.... (639,496) (234,432) (15,050,480) 22,822,390
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
resulting from operations............ (506,985) 18,890,385 (68,706,785) 176,749,037
------------ ------------ -------------- --------------
Dividends and distributions to share-
holders from:
Net investment income--Class A........ (956,383) (245,715) (20,955,179) (28,774,275)
Net investment income--Class B........ (264,496) (2,585) (25,638,320) (75,315,158)
Net investment income--Class C........ -- -- (429,608) (699,918)
Net investment income--Class D........ (109,921) (2,196) (3,358,807) (3,595,577)
Net realized gains from foreign
currency
transactions--Class A................ (663,491) -- -- --
Net realized gains from foreign
currency
transactions--Class B................ (216,832) -- -- --
Net realized gains from foreign
currency
transactions--Class D................ (84,089) -- -- --
Net realized gains from investment
transactions--Class A................ -- -- -- (6,794,486)
Net realized gains from investment
transactions--Class B................ -- -- -- (13,478,264)
Net realized gains from investment
transactions--Class C................ -- -- -- (158,613)
Net realized gains from investment
transactions--Class D................ -- -- -- (1,032,866)
Paid in capital--Class A.............. -- -- (20,613,399) --
Paid in capital--Class B.............. -- -- (25,220,157) --
Paid in capital--Class C.............. -- -- (422,602) --
Paid in capital--Class D.............. -- -- (3,304,025) --
------------ ------------ -------------- --------------
(2,295,212) (250,496) (99,942,097) (129,849,157)
------------ ------------ -------------- --------------
From beneficial interest transactions:
Net proceeds from the sale of shares.. 46,748,339 29,689,978 113,562,148 240,906,695
Net proceeds from the acquisition of
the PaineWebber Short-Term Global
Income Fund.......................... -- -- -- 358,091,633
Cost of shares repurchased............ (31,170,520) (21,336,446) (567,552,519) (422,240,131)
Proceeds from dividends reinvested.... 2,010,599 215,688 79,870,752 68,836,928
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
derived from beneficial interest
transactions......................... 17,588,418 8,569,220 (374,119,619) 245,595,125
------------ ------------ -------------- --------------
Net increase (decrease) in net assets. 14,786,221 27,209,109 (542,768,501) 292,495,005
Net assets:
Beginning of period................... 92,986,618 65,777,509 1,985,632,257 1,693,137,252
------------ ------------ -------------- --------------
End of period (including undistributed
(distributions in excess of) net
investment income (loss) of $106,332,
$3,743,326, $(10,012,056) and
$34,632,359, respectively)........... $107,772,839 $ 92,986,618 $1,442,863,756 $1,985,632,257
============ ============ ============== ==============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Investment Series ("Trust") was organized under Massachusetts law
by a Declaration of Trust dated December 22, 1986 and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Trustees have
authority to issue an unlimited number of shares of beneficial interest, par
value $0.001.
Organizational Matters - Prior to commencing investment operations, on February
7, 1990, September 18, 1987, June 9, 1989 and March 20, 1987, respectively,
PaineWebber Europe Growth Fund ("Europe Growth Fund"), PaineWebber Global
Energy Fund ("Global Energy Fund"), PaineWebber Global Growth and Income Fund
("Global Growth and Income Fund") and PaineWebber Global Income Fund ("Global
Income Fund") (collectively the "Funds") had no activities other than
organizational matters and activities related to the initial public offering
and the issuance, at net asset value, of one or more shares of each Fund to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Funds. Costs of $277,515, $215,000,
$382,000 and $310,306, respectively, incurred by each Fund in connection with
the organization and registration of shares, have been deferred and are being
amortized, using the straight-line method over the period of benefit, not to
exceed five years, beginning with the commencement of operations of each Fund.
Mitchell Hutchins has agreed that, in the event any Fund's initial shares are
redeemed or the Fund discontinues operations, that the Fund will be reimbursed
for its pro-rata share of unamortized organizational costs.
Prior to July 1, 1991, Europe Growth Fund and Global Growth and Income Fund
issued only Class A shares and Global Energy Fund and Global Income Fund issued
only Class B shares. Subsequent to that date, all Funds have been authorized to
issue Class A, Class B, and Class C shares. On July 2, 1992, each Fund
commenced issuing Class D shares (except Global Energy Fund and Europe Growth
Fund, which commenced issuing Class D shares on July 8, 1992 and July 6, 1992,
respectively). Each Class represents an interest in the same assets of the
applicable Fund and the Classes are identical except for differences in their
sales charge structure, ongoing distribution charges and transfer agency
expenses. In addition, Class B shares automatically convert to Class A shares
approximately six years after initial issuance. All classes of shares have
equal rights as to earnings, assets and voting privileges, except that each
class bears different distribution charges and transfer agency expenses and has
exclusive voting rights with respect to its distribution plan.
Valuation of Investments - Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sale price on the day the securities are
being
25
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
valued on the exchange designated by Mitchell Hutchins as the primary market.
Securities traded in the over-the-counter ("OTC") market and listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") are valued at the last trade price on NASDAQ prior to the time of
valuation; other OTC securities are valued at the last bid price available in
the OTC market prior to the time of valuation. The amortized cost method of
valuation is used to value short-term debt instruments with sixty days or less
remaining to maturity. Securities and assets for which market quotations are
not readily available (including restricted securities subject to limitations
as to their sale) are valued at fair value as determined in good faith by or
under the direction of the Trust's board of trustees. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is
determined by each Fund's custodian.
The ability of the issuers of the debt securities held by the Funds to meet
their obligations may be affected by economic and political developments,
including those particular to a specific industry, country or region.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange, Inc. ("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 the NYSE, which will not be
reflected in a computation of the Fund's net asset value. If events materially
affecting the value of such securities or currency exchange rates occurred
during such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Trust's board of
trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments
and foreign exchange transactions are calculated using the identified cost
method. Interest income is recorded on an accrual basis and dividend income is
recorded on the ex-dividend date (except in the case of certain foreign
dividends which are recorded as soon after the ex-dividend date as the
respective Fund becomes aware of such dividend). Discounts are accreted as
adjustments to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses), and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
26
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Foreign Currency Translation - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) market value of investment securities, other assets and liabilities--at
the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market values of the Funds are presented at the
foreign exchange rates at the close of the period, the Funds do not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Funds do isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Pursuant to federal income tax
regulations, certain foreign exchange gains/losses included in realized and
unrealized gain/loss are included in or are a reduction of ordinary income for
federal income tax purposes. Foreign security and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and U.S. government securities. These risks include
revaluation of currencies and future adverse political and economic
developments, which could cause securities and their markets to be less liquid
and prices more volatile than those of comparable U.S. companies and U.S.
government securities.
Forward Foreign Currency Contracts - Each Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency.
The Funds have no specific limitation on the percentage of assets which may be
committed to such contracts. Each Fund may enter into forward contracts or
maintain a net exposure to forward 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 maintains cash, U.S. government securities or liquid, high-
grade debt securities in a segregated account in an amount not less than the
value of its total assets committed to the consummation of the forward
contracts and not covered as provided in (1) above, as marked-to-market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Funds. Realized gains and losses include
net gains and losses recognized by the Funds on contracts which have matured.
27
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Repurchase Agreements - The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligations. Under
certain circumstances, in the event of default or insolvency by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. Each of the Funds occasionally participates in joint
repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
Reverse Repurchase Agreements - Each Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 5% of its total assets (10% in the case of Global Income Fund). As of
October 31, 1994, the Funds had no reverse repurchase agreements outstanding.
Federal Tax Status - Each Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date. During the year ended
October 31, 1994, the Fund adopted Statement of Position 93-2, "Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies". Accordingly, the
amount of dividends and distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
Each of the Funds has entered into an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins. In accordance with the
28
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Advisory Contract, each Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and paid monthly, in accordance with
the following schedule:
EUROPE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $50 million....................................................... 0.900%
In excess of $50 million up to $100 million............................. 0.850
In excess of $100 million up to $150 million............................ 0.800
In excess of $150 million up to $200 million............................ 0.750
Over $200 million....................................................... 0.700
</TABLE>
GLOBAL ENERGY FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $250 million...................................................... 0.850%
In excess of $250 million up to $500 million............................ 0.800
Over $500 million....................................................... 0.750
</TABLE>
GLOBAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million...................................................... 0.900%
In excess of $500 million up to $1.0 billion............................ 0.875
In excess of $1.0 billion up to $1.5 billion............................ 0.850
In excess of $1.5 billion up to $2.0 billion............................ 0.825
Over $2.0 billion....................................................... 0.800
</TABLE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million...................................................... 0.750%
In excess of $500 million up to $1.0 billion............................ 0.725
In excess of $1.0 billion up to $1.5 billion............................ 0.700
In excess of $1.5 billion up to $2.0 billion............................ 0.675
Over $2.0 billion....................................................... 0.650
</TABLE>
29
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At October 31, 1994, Europe Growth Fund, Global Energy Fund, Global Growth and
Income Fund and Global Income Fund owed Mitchell Hutchins $94,885, $22,319,
$82,268 and $907,474, respectively, for investment advisory and administration
fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse each Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the year ended
October 31, 1994, no reimbursements were required pursuant to the above
limitations for any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B and Class D
shares ("Class A Plan," "Class B Plan" and "Class D 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 Class A, Class B and Class D
shares and monthly distribution fees at the annual rate of 0.75% of the average
daily net assets on Class B and Class D shares (0.50% for Global Income Fund--
Class D Shares). At October 31, 1994, Europe Growth Fund, Global Energy Fund,
Global Growth and Income Fund and Global Income Fund owed Mitchell Hutchins
$60,857, $18,826, $51,903 and $821,313, respectively, for service and
distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charge
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
each Fund that for the year ended October 31, 1994, it earned the following
amounts in sales charges:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GLOBAL GROWTH GLOBAL
GROWTH ENERGY AND INCOME INCOME
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Initial sales charges - Class A.......... $206,967 $ 5,410 $139,061 $ 193,492
Contingent deferred sales charges -
Class B................................. $194,268 $57,557 $ 92,409 $3,156,771
</TABLE>
30
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Funds' transfer
agent. For these services for the year ended October 31, 1994, PaineWebber
earned $80,674, $17,999, $49,245 and $487,859 for Europe Growth Fund, Global
Energy Fund, Global Growth and Income Fund and Global Income Fund,
respectively. At October 31, 1994, Europe Growth Fund, Global Energy Fund,
Global Growth and Income Fund and Global Income Fund owed PaineWebber $6,522,
$1,376, $4,101 and $36,451, respectively, for service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at October 31,
1994 was substantially the same as the cost of securities for financial
statement purposes.
At October 31, 1994, the components of the net unrealized appreciation
(depreciation) of investments were as follows:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH
GROWTH GLOBAL ENERGY AND INCOME GLOBAL INCOME
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gross appreciation
(investments having an
excess of value over
cost).................. $10,784,430 $2,248,726 $11,775,078 $ 15,186,588
Gross depreciation
(investments having an
excess of cost over
value)................. (1,395,441) (526,026) (5,137,640) (50,004,214)
----------- ---------- ----------- ------------
Net unrealized
appreciation
(depreciation) of
investments............ $ 9,388,989 $1,722,700 $ 6,637,438 $(34,817,626)
=========== ========== =========== ============
</TABLE>
For the year ended October 31, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH
GROWTH GLOBAL ENERGY AND INCOME GLOBAL INCOME
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Purchases................ $236,021,391 $45,963,346 $166,073,583 $1,384,489,794
Sales.................... $272,366,164 $46,827,700 $160,297,478 $1,420,656,655
</TABLE>
31
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAX STATUS
At October 31, 1994, the following Funds had net capital loss carryforwards
available as reductions, to the extent provided in the regulations, of any
future net gains realized before the end of the fiscal years indicated below.
<TABLE>
<CAPTION>
GLOBAL
EUROPE GLOBAL GROWTH AND GLOBAL
GROWTH ENERGY INCOME INCOME
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
2000............................... $2,744,747 -- -- --
2002............................... -- $1,873,851 -- $16,081,468
---------- ---------- ------ -----------
$2,744,747 $1,873,851 -- $16,081,468
========== ========== ====== ===========
</TABLE>
In addition, Global Income Fund has a net capital loss carryforward of
$1,285,400 available at October 31, 1994 pursuant to its reorganization with
PaineWebber Short-Term Global Income Fund. If unused, this carryover expires in
2001.
To the extent that such losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed.
During the year ended October 31, 1994, Europe Growth Fund and Global Growth
and Income Fund utilized net capital loss carryforwards of $23,951,313 and
$2,539,889, respectively.
At October 31, 1993, the cumulative effect of permanent book/tax
reclassifications resulted in increases (decreases) to the components of net
assets as follows:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED
INVESTMENT GAINS
INCOME (LOSSES) PAID-IN-CAPITAL
------------- ------------- ---------------
<S> <C> <C> <C>
Europe Growth Fund.................. $ 5,858,236 $ 66,516 $ (5,924,752)
Global Energy Fund.................. $ (327,327) $ 327,327 $ --
Global Growth and Income Fund....... $ (2,040,024) $ 2,179,781 $ (139,757)
Global Income Fund.................. $(50,002,950) $50,634,890 $ (631,940)
For the year ended October 31, 1994, the reclassification arising from
permanent book/tax differences resulted in increases (decreases) to the
components of net assets as follows:
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED
INVESTMENT GAINS
INCOME (LOSSES) PAID-IN-CAPITAL
------------- ------------- ---------------
<S> <C> <C> <C>
Europe Growth Fund.................. $ (5,569,228) $27,774,257 $(22,205,029)
Global Energy Fund.................. $ 210,616 $ 16,501 $ (227,117)
Global Growth and Income Fund....... $ (1,159,639) $ 1,432,219 $ (272,580)
Global Income Fund.................. $(58,046,195) $60,712,453 $ (2,666,258)
</TABLE>
Permanent "book/tax" differences are primarily attributable to foreign currency
losses and net operating losses.
32
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------------------- ------------------------ ----------------- ----------------------
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EUROPE GROWTH FUND
Shares sold............. 1,638,650 2,267,461 2,684,476 3,693,312 -- -- 2,860,941 2,393,190
Shares repurchased...... (3,395,338) (3,328,925) (2,033,871) (736,410) -- -- (2,931,267) (882,812)
Shares converted from
Class B to Class A..... 85,947 142,628 (87,351) (144,101) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 358,842 -- 122,238 -- -- -- 53,293 --
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. (1,311,899) (918,836) 685,492 2,812,801 -- -- (17,033) 1,510,378
=========== ========== =========== =========== ======== ======= ========== ==========
GLOBAL ENERGY FUND
Shares sold............. 110,905 131,211 398,620 291,994 -- -- 1,447,759 744,561
Shares repurchased...... (398,295) (260,908) (559,337) (968,091) -- -- (1,454,001) (623,759)
Shares converted from
Class B to Class A..... 247,545 793,924 (246,989) (793,950) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 132,100 8,050 230,629 28,833 -- -- 11,539 435
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. 92,255 672,277 (177,077) (1,441,214) -- -- 5,297 121,237
=========== ========== =========== =========== ======== ======= ========== ==========
GLOBAL GROWTH AND INCOME
FUND
Shares sold............. 961,568 830,293 2,240,479 1,458,236 -- -- 912,439 664,585
Shares repurchased...... (1,607,199) (1,868,111) (722,448) (289,120) -- -- (516,302) (113,880)
Shares converted from
Class B to Class A..... 92,659 30,016 (93,641) (30,196) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 122,953 23,826 36,647 226 -- -- 15,050 211
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. (430,019) (983,976) 1,461,037 1,139,146 -- -- 411,187 550,916
=========== ========== =========== =========== ======== ======= ========== ==========
GLOBAL INCOME FUND
Shares sold............. 1,514,200 3,686,499 5,198,224 11,478,906 281,719 389,617 3,572,779 6,604,972
Shares issued in
connection with the
acquisition of
PaineWebber Short-Term
Global Income Fund..... -- 12,155,951 -- 15,301,066 -- -- -- 5,223,843
Shares repurchased...... (20,711,269) (7,804,347) (26,589,848) (28,295,950) (178,060) (37,884) (7,261,892) (3,113,193)
Shares converted from
Class B to Class A..... 18,303,275 39,390,405 (18,356,029) (39,467,277) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 3,010,952 1,665,683 3,993,779 4,407,497 97,310 64,558 567,607 232,500
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. 2,117,158 49,094,191 (35,753,874) (36,575,758) 200,969 416,291 (3,121,506) 8,948,122
=========== ========== =========== =========== ======== ======= ========== ==========
</TABLE>
33
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, FEBRUARY 7, 1990+
------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990
------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 9.75 $ 7.19 $ 8.48 $ 8.94 $ 9.55
------- ------- ------- -------- --------
Income (loss) from
investment
operations:
Net investment
income (loss) .... (0.03) 0.02 0.08 0.06 0.12
Net realized and
unrealized gains
(losses) from
investment
and foreign
currency
transactions...... (0.36) 2.54 (1.13) (0.35) (0.73)
------- ------- ------- -------- --------
Total income (loss)
from investment
operations......... (0.39) 2.56 (1.05) (0.29) (0.61)
------- ------- ------- -------- --------
Less dividends and
distributions from:
Net investment
income............ (0.02) -- (0.06) (0.12) --
Net realized gains
on investments and
foreign currency
transactions...... (0.35) -- (0.18) (0.05) --
------- ------- ------- -------- --------
Total dividends and
distributions..... (0.37) -- (0.24) (0.17) --
------- ------- ------- -------- --------
Net asset value, end
of period.......... $ 8.99 $ 9.75 $ 7.19 $ 8.48 $ 8.94
======= ======= ======= ======== ========
Total Return (1).... (4.24)% 35.61% (12.69)% (3.21)% (6.39)%
======= ======= ======= ======== ========
Ratios/Supplemental
data:
Net assets, end of
period (000's).... $78,285 $97,773 $78,667 $128,888 $158,736
Ratio of expenses
to average net
assets............ 1.65 % 1.84% 2.05 % 1.78 % 1.85 %*
Ratio of net
investment income
(loss) to average
net assets........ (0.35)% 0.19% 0.82 % 0.64 % 1.92 %*
Portfolio turnover
rate.............. 173.58 % 252.23% 59.64 % 86.80 % 48.59 %
</TABLE>
- -------------
* Annualized
+ Commencement of operations
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
34
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
- -------------------------------------------- ----------------------------------
FOR THE YEARS
FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+ OCTOBER 31, JULY 6, 1992+
- --------------------------- TO OCTOBER 31, ----------------- TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
- ------- ------- ------- -------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.62 $ 7.14 $ 8.45 $ 8.52 $ 9.67 $ 7.17 $ 8.33
- ------- ------- ------- ------ ------- ------- ------
(0.09) (0.03) 0.06 (0.02) (0.11) (0.02) (0.01)
(0.37) 2.51 (1.15) (0.05) (0.35) 2.52 (1.15)
- ------- ------- ------- ------ ------- ------- ------
(0.46) 2.48 (1.09) (0.07) (0.46) 2.50 (1.16)
- ------- ------- ------- ------ ------- ------- ------
-- -- (0.04) -- -- -- --
(0.35) -- (0.18) -- (0.35) -- --
- ------- ------- ------- ------ ------- ------- ------
(0.35) -- (0.22) -- (0.35) -- --
- ------- ------- ------- ------ ------- ------- ------
$ 8.81 $ 9.62 $ 7.14 $ 8.45 $ 8.86 $ 9.67 $ 7.17
======= ======= ======= ====== ======= ======= ======
(5.03)% 34.73 % (13.19)% (0.82)% (5.00)% 34.87 % (13.93)%
======= ======= ======= ====== ======= ======= ======
$37,525 $34,386 $ 5,446 $1,641 $14,064 $15,522 $ 681
2.40 % 2.46 % 2.79 % 2.60 %* 2.39 % 2.39 % 3.26 %*
(1.05)% (0.77)% 0.39 % (1.36)%* (1.00)% (0.74)% (0.94)%*
173.58 % 252.23 % 59.64 % 86.80 % 173.58 % 252.23 % 59.64 %
</TABLE>
35
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31, FOR THE PERIOD
-------------------------- JULY 1, 1991+ TO
1994 1993 1992 OCTOBER 31, 1991
------- ------- ------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 14.21 $ 11.63 $12.18 $11.20
------- ------- ------ ------
Income (loss) from investment
operations:
Net investment income (loss).... 0.03 0.16 0.25 0.01
Net realized and unrealized
gains (losses) from investment
and foreign currency
transactions................... (0.91) 2.69 (0.66) 0.97
------- ------- ------ ------
Total income (loss) from
investment operations........... (0.88) 2.85 (0.41) 0.98
------- ------- ------ ------
Less dividends and distributions
from:
Net investment income........... (0.10) (0.27) (0.14) --
Net realized gains on
investments and foreign
currency transactions.......... (1.84) -- -- --
------- ------- ------ ------
Total dividends and
distributions.................. (1.94) (0.27) (0.14) --
------- ------- ------ ------
Net asset value, end of period... $ 11.39 $ 14.21 $11.63 $12.18
======= ======= ====== ======
Total Return (1)................. (5.79)% 24.90 % (3.44)% 8.84%
======= ======= ====== ======
Ratios/Supplemental Data:
Net assets, end of period
(000's)........................ $11,230 $12,702 $2,575 $ 80
Ratio of expenses to average net
assets......................... 1.99 % 2.05 % 2.05 % 1.83%*
Ratio of net investment income
(loss) to average net assets... 0.20 % 1.21 % 2.89 % 0.26%*
Portfolio turnover rate......... 156.96 % 148.01 % 89.00 % 50.98%
</TABLE>
- -------------
* Annualized
+ Commencement of offering of shares
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
36
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
- ----------------------------------------------- ----------------------------------
FOR THE
YEARS ENDED
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31 FOR THE PERIOD
- ----------------------------------------------- --------------- JULY 8, 1992+ TO
1994 1993 1992 1991 1990 1994 1993 OCTOBER 31, 1992
- ------- ------- ------- ------- ------- ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14.19 $ 11.60 $ 12.16 $ 12.45 $ 12.05 $14.09 $11.60 $11.95
- ------- ------- ------- ------- ------- ------ ------ ------
(0.05) 0.19 0.13 0.17 0.08 (0.04) 0.26 0.02
(0.92) 2.56 (0.64) 0.36 1.16 (0.93) 2.47 (0.37)
- ------- ------- ------- ------- ------- ------ ------ ------
(0.97) 2.75 (0.51) 0.53 1.24 (0.97) 2.73 (0.35)
- ------- ------- ------- ------- ------- ------ ------ ------
-- (0.16) (0.05) (0.13) (0.11) -- (0.24) --
(1.84) -- -- (0.69) (0.73) (1.84) -- --
- ------- ------- ------- ------- ------- ------ ------ ------
(1.84) (0.16) (0.05) (0.82) (0.84) (1.84) (0.24) --
- ------- ------- ------- ------- ------- ------ ------ ------
$ 11.38 $ 14.19 $ 11.60 $ 12.16 $ 12.45 $11.28 $14.09 $11.60
======= ======= ======= ======= ======= ====== ====== ======
(6.56)% 23.80 % (4.09)% 4.89 % 10.37 % (6.59)% 23.84 % (2.93)%
======= ======= ======= ======= ======= ====== ====== ======
$17,341 $24,140 $36,460 $53,506 $58,748 $1,481 $1,777 $ 56
2.82 % 2.82 % 3.04 % 2.50 % 2.48 % 2.74 % 2.76 % 2.13 %*
(0.59)% 0.72 % 0.76 % 1.39 % 1.01 % (0.49)% 0.24 % 1.39 %*
156.96 % 148.01 % 89.00 % 50.98 % 76.57 % 156.96 % 148.01 % 89.00 %
</TABLE>
37
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 11.31 $ 8.73 $ 9.26 $ 10.09 $ 10.02
------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income............ 0.17 0.30 0.50 0.49 0.58
Net realized and unrealized gains
(losses) from investment and
foreign currency transactions... (0.01) 2.32 (0.66) 0.02 0.18
------- ------- ------- ------- -------
Total income (loss) from
investment operations............ 0.16 2.62 (0.16) 0.51 0.76
------- ------- ------- ------- -------
Less dividends and distributions
from:
Net investment income............ (0.16) (0.04) (0.37) (0.54) (0.55)
Net realized gains on investments
and foreign currency
transactions.................... (0.11) -- -- (0.80) (0.14)
------- ------- ------- ------- -------
Total dividends and
distributions................... (0.27) (0.04) (0.37) (1.34) (0.69)
------- ------- ------- ------- -------
Net asset value, end of period.... $ 11.20 $ 11.31 $ 8.73 $ 9.26 $ 10.09
======= ======= ======= ======= =======
Total Return (1).................. 1.35% 30.10% (1.90)% 5.90% 7.73%
======= ======= ======= ======= =======
Ratio/Supplemental data:
Net assets, end of period
(000's)......................... $61,813 $67,284 $60,540 $83,431 $98,354
Ratio of expenses to average net
assets.......................... 1.76% 2.02% 1.72% 1.95% 2.04%
Ratio of net investment income to
average net assets.............. 1.10% 2.54% 4.76% 5.04% 5.50%
Portfolio turnover rate.......... 172.13% 205.86% 59.27% 65.26% 141.75%
</TABLE>
- -------------
* Annualized
+ Commencement of operations
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charge; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
38
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
- ----------------------------------------- -------------------------------
FOR THE YEARS
FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+ OCTOBER 31, JULY 2, 1992+
- ------------------------ TO OCTOBER 31, --------------- TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
- ------- ------- ------ -------------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.20 $ 8.68 $ 9.23 $ 8.58 $ 11.22 $ 8.71 $9.32
- ------- ------- ------ ------ ------- ------ -----
0.04 0.03 0.35 0.05 0.05 0.03 0.06
0.04 2.50 (0.58) 0.60 0.04 2.51 (0.67)
- ------- ------- ------ ------ ------- ------ -----
0.08 2.53 (0.23) 0.65 0.09 2.54 (0.61)
- ------- ------- ------ ------ ------- ------ -----
(0.14) (0.01) (0.32) -- (0.15) (0.03) --
(0.11) -- -- -- (0.11) -- --
- ------- ------- ------ ------ ------- ------ -----
(0.25) (0.01) (0.32) -- (0.26) (0.03) --
- ------- ------- ------ ------ ------- ------ -----
$ 11.03 $ 11.20 $ 8.68 $ 9.23 $ 11.05 $11.22 $8.71
======= ======= ====== ====== ======= ====== =====
0.60% 29.11% (2.61)% 7.58% 0.68% 29.20% (6.55)%
======= ======= ====== ====== ======= ====== =====
$34,468 $18,639 $4,554 $1,947 $11,492 $7,063 $ 683
2.54% 2.74% 2.50% 2.52%* 2.55% 2.72% 2.82%*
0.38% 1.52% 4.07% 3.32%* 0.34% 1.40% 3.92%*
172.13% 205.86% 59.27% 65.26% 172.13% 205.86% 59.27%
</TABLE>
39
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+
------------------------------- TO OCTOBER 31,
1994 1993 1992 1991
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.97 $ 10.64 $ 10.75 $ 10.40
-------- -------- -------- -------
Income (loss) from
investment operations:
Net investment income... 0.72 0.59 0.83 0.20
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions.. (1.05) 0.68 (0.12) 0.40
-------- -------- -------- -------
Total income (loss) from
investment operations... (0.33) 1.27 0.71 0.60
-------- -------- -------- -------
Less dividends and
distributions from:
Net investment income... (0.33) (0.80) (0.64) (0.23)
Net realized gains on
investments and foreign
currency
transactions........... -- (0.14) (0.18) (0.02)
Paid in capital......... (0.32) -- -- --
-------- -------- -------- -------
Total dividends and
distributions........... (0.65) (0.94) (0.82) (0.25)
-------- -------- -------- -------
Net asset value, end of
period.................. $ 9.99 $ 10.97 $ 10.64 $ 10.75
======== ======== ======== =======
Total return (1)......... (3.10)% 12.41% 6.70% 5.79%
======== ======== ======== =======
Ratio/Supplemental Data:
Net assets, end of
period (000's)......... $611,855 $648,853 $107,033 $16,501
Ratio of expenses to
average net assets..... 1.17 % 1.32%** 1.21% 1.35%*
Ratio of net investment
income to average net
assets................. 6.94 % 6.82%** 7.84% 8.59%*
Portfolio turnover rate. 108.48 % 89.65% 91.72% 53.32%
<CAPTION>
CLASS B
------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.95 $ 10.62 $ 10.74 $ 11.07 $ 10.08
---------- ------------- ----------- ----------- -----------
Income (loss) from
investment operations:
Net investment income... 0.86 0.78 0.94 0.85 1.01
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions.. (1.28) 0.40 (0.32) (0.09) 0.96
---------- ------------- ----------- ----------- -----------
Total income (loss) from
investment operations... (0.42) 1.18 0.62 0.76 1.97
---------- ------------- ----------- ----------- -----------
Less dividends and
distributions from:
Net investment income... (0.29) (0.71) (0.56) (0.97) (0.98)
Net realized gains on
investments and foreign
currency
transactions........... -- (0.14) (0.18) (0.12) --
Paid in capital......... (0.28) -- -- -- --
---------- ------------- ----------- ----------- -----------
Total dividends and
distributions........... (0.57) (0.85) (0.74) (1.09) (0.98)
---------- ------------- ----------- ----------- -----------
Net asset value, end of
period.................. $ 9.96 $ 10.95 $ 10.62 $ 10.74 $ 11.07
========== ============= =========== =========== ===========
Total return (1)......... (3.90)% 11.45% 5.93% 7.39% 20.32%
========== ============= =========== =========== ===========
Ratio/Supplemental Data:
Net assets, end of
period (000's)......... $725,553 $1,188,890 $1,542,255 $1,593,814 $1,323,495
Ratio of expenses to
average net assets..... 1.94 % 2.11%** 1.98% 1.94% 1.90%
Ratio of net investment
income to average net
assets................. 6.05 % 5.97%** 7.11% 8.09% 9.88%
Portfolio turnover rate. 108.48 % 89.65% 91.72% 33.32% 126.31%
</TABLE>
- -------------
* Annualized
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of operations.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charge; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
40
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
<TABLE>
<CAPTION>
CLASS C CLASS D
----------------------------------------------- ------------------------------------
FOR THE YEARS
FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE PERIOD
OCTOBER 31, AUGUST 26, 1991+ OCTOBER 31, JULY 2, 1992+
----------------------------- TO OCTOBER 31, ------------------ TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
------- ------- ------ ---------------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.97 $ 10.64 $10.76 $10.53 $ 10.96 $ 10.64 $ 10.94
------- ------- ------ ------ ------- -------- -------
0.75 0.71 0.81 0.17 0.70 0.68 0.20
(1.06) 0.58 (0.08) 0.32 (1.09) 0.52 (0.13)
------- ------- ------ ------ ------- -------- -------
(0.31) 1.29 0.73 0.49 (0.39) 1.20 0.07
------- ------- ------ ------ ------- -------- -------
(0.34) (0.82) (0.67) (0.24) (0.30) (0.74) (0.21)
-- (0.14) (0.18) (0.02) -- (0.14) (0.16)
(0.33) -- -- -- (0.29) -- --
------- ------- ------ ------ ------- -------- -------
(0.67) (0.96) (0.85) (0.26) (0.59) (0.88) (0.37)
------- ------- ------ ------ ------- -------- -------
$9.99 $10.97 $10.64 $10.76 $ 9.98 $10.96 $10.64
======= ======= ====== ====== ======= ======== =======
(2.86)% 12.60% 6.98% 4.63% (3.56)% 11.64% 0.61%
======= ======= ====== ====== ======= ======== =======
$12,975 $12,043 $7,252 $2,565 $92,480 $135,847 $36,598
0.88 % 1.06%** 0.94% 1.09%* 1.68 % 1.83%** 1.75%*
7.23 % 7.00%** 8.15% 8.79%* 6.34 % 6.17%** 7.02%*
108.48 % 89.65% 91.72% 53.32% 108.48 % 89.65% 91.72%
</TABLE>
41
<PAGE>
PAINEWEBBER REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of PaineWebber Investment Series
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of PaineWebber Europe
Growth Fund, PaineWebber Global Energy Fund, PaineWebber Global Growth and
Income Fund and PaineWebber Global Income Fund (each a separate series of
PaineWebber Investment Series and hereafter referred to collectively as the
"Funds") at October 31, 1994, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at October 31, 1994 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 13, 1994
42
<PAGE>
PAINEWEBBER TAX INFORMATION--(UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (October
31, 1994) as to the federal tax status of distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that the
following distributions paid during the fiscal year by the Funds were derived
from the following sources:
<TABLE>
<CAPTION>
EUROPE GLOBAL GLOBAL GROWTH GLOBAL
GROWTH ENERGY AND INCOME INCOME
PER SHARE DATA: FUND FUND FUND FUND
- -------------------------------------- ------- ------- ------------- -------
<S> <C> <C> <C> <C>
Net investment income
Class A............................. $0.0194 $0.1025 $0.1600 $0.3263
Class B............................. -- -- 0.1354 0.2884
Class C............................. N/A N/A N/A 0.3394
Class D............................. -- 0.0039 0.1451 0.3016
Foreign currency gains*............... 0.3454+ -- 0.1077+ --
Short-term capital gains*............. -- 1.6720+ -- 0.0009+
Long-term capital gains............... -- 0.1686+ 0.0033+ --
Nontaxable distribution
Class A............................. -- -- -- 0.3178
Class B............................. -- -- -- 0.2810
Class C............................. -- -- -- 0.3306
Class D............................. -- -- -- 0.2938
Percentage of ordinary income divi-
dends qualifying for the dividends
received deduction available to
corporate shareholders............... -- 97.82% 3.77% --
</TABLE>
- -------
* Taxable as ordinary income.
+ For all applicable classes.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1994. Such notification, which will
reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1995. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each of
the Funds.
43
<PAGE>
Dear Shareholder
- --------------------------------------------------------------------------------
We are pleased to provide you with this annual report on the Kidder, Peabody
Global Fixed Income Fund. This report covers the 12 months ended August 31,
1994. Performance and market highlights are summarized for your convenience
below:
Total Returns as of 8/31/94 'pp'1
<TABLE>
<CAPTION>
Class A Class B Class C
-------- ------- -------
<S> <C> <C> <C>
Past Six Months (0.59)% (0.84)% (0.46)%
Past Twelve Months (1.10)% (1.51)% (0.77)%
</TABLE>
KP Global Fixed Income Fund (Class A shares) reported a total return of (0.59)%
over the six months ended August 31, 1994. In comparison, the Salomon World
Government Index posted a 0.97% return during the same time period. Twelve month
results were (1.10)% and 2.28%, respectively. As discussed in the Market Report
that follows, exposure to European bond markets, particularly in February, has
been a deciding factor in the Fund's underperformance over the past year. Please
review the following pages for more complete performance information, including
SEC-required data, which reflects the deduction of the initial sales charge on
Class A shares.
The Fund declared and paid total per share and capital gains distributions of
$1.04 for Class A, $0.98 for Class B, and $1.07 for Class C during the year
ending on August 31, 1994. 30-day SEC yields as of August 31, 1994 were 4.70%
for Class A, 4.30% for Class B, and 5.06% for Class C.2
Market Report
When the Federal Reserve raised interest rates in early February, it marked a
turning point for U.S. monetary policy and triggered a sharp rise in European
bond yields that continued through the third quarter of 1994. In relative terms,
the economic fundamentals of European markets appeared far more attractive than
either North America or the Pacific Basin. However, despite aggressive monetary
easing by the German Bundesbank throughout the spring and early summer, bond
yields in Europe closely tracked the upward movement of U.S. interest rates.
In the third quarter, the composition of the portfolio's European exposure again
weakened relative performance. Although our aggregate position in Europe was
index-weighted, holdings were heavily concentrated in the core markets of
Germany, the U.K., France and the Netherlands. The high yielding markets of
Italy, Sweden, Spain and Denmark outperformed core Europe during this period.
In general, it has been a dismal year for world fixed income markets. The period
of global monetary easing and bond market rallies that had been sustained over
the past three to four years came to an end in late 1993 as the U.S. economy
clearly outgrew its need for stimulative interest rates. The surprising economic
upturns of Germany and Japan led to rising global rates that kept pace with the
U.S. and triggered one of the worst-performing periods of the past decade for
both dollar and non-dollar bonds. However, the collapse of the U.S. dollar in
1994 did substantially offset the negative local currency returns in non-dollar
markets.
(Continued)
'pp'1 Data is based on historic investment results and is not indicative of
future performance. Total return includes the reinvestment of all
dividends and capital gains. The Fund's total return is net of any fees
and expenses incurred during the period and does not reflect the 2.25%
initial sales charge on Class A shares.
'pp'2 The 30-day SEC yield on Class A shares is based on the maximum offering
price, which includes a 2.25% sales charge.
<PAGE>
Looking Ahead
With a fourth quarter surge in U.S. inflation widely anticipated, the bear
market for global bonds may have another leg to travel yet. However, much of the
sharp rise in long-term bond yields that occurred in 1994 were in response to
rising inflation expectations so any further upward movement is unlikely to be
as severe. Most markets are now showing real interest rates and a half standard
deviation above their long-term growth trends so a slowdown in growth and
diminishing inflation expectations should eventually return to the global
economic outlook.
Thank you for your participation in the Kidder, Peabody Global Fixed Income
Fund. Please contact your Kidder, Peabody Investment Executive if you have any
questions or if you require assistance with any other financial needs.
Sincerely,
<TABLE>
<S> <C>
GEORGE V. GRUNE, JR. KENNETH A. WINDHEIM
George V. Grune, Jr. Kenneth A. Windheim
Chairman Chief Investment Officer
New York, New York
October 14, 1994
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (UNAUDITED)
- --------------------------------------------------------------------------------
In accordance with Securities and Exchange Commission (SEC) regulations, the
following represent average annual returns with all distributions reinvested as
of June 30, 1994, the most recent calendar quarter. The returns on Class A
shares were computed assuming payment of a maximum 2.25% sales charge. Past
performance should not be taken as an indication of future results. The
investment return and principal value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
Inception One Life of
Date Year Fund
--------- ----- --------
<S> <C> <C> <C>
Class A 12/24/92 1.23% 6.75%
Class B 5/10/93 3.03% 2.41%
Class C 5/10/93 3.72% 3.18%
</TABLE>
<PAGE>
Kidder, Peabody Global Fixed Income Fund -- Results of a $10,000 Investment
(unaudited)
- --------------------------------------------------------------------------------
The following graphs present an example of how $10,000 grew between the Fund's
inception and August 31, 1994. The results on Class A shares reflect a payment
of a 2.25% maximum sales charge. Thus, the net amount invested was $9,772. There
is no sales charge on Class B or Class C shares, nor on dividends or capital
gains reinvested in additional shares. Results shown do not take into account
income or capital gains taxes but do reflect deduction of applicable operating
expenses.
VALUE OF $10,000 INVESTED SINCE INCEPTION AS OF AUGUST 31, 1994
[GRAPH]
- --------------------------------------------------------------------------------
Class A KP GLOBAL FIXED INCOME FUND SALOMON WORLD GOV'T BOND INDEX
- --------------------------------------------------------------------------------
12/24/92 9,772 10,000
- --------------------------------------------------------------------------------
12/92 9,769 10,000
- --------------------------------------------------------------------------------
3/93 10,395 10,532
- --------------------------------------------------------------------------------
6/93 10,660 10,839
- --------------------------------------------------------------------------------
9/93 11,233 11,329
- --------------------------------------------------------------------------------
12/93 11,183 11,325
- --------------------------------------------------------------------------------
3/94 10,969 11,325
- --------------------------------------------------------------------------------
6/94 11,040 11,401
- --------------------------------------------------------------------------------
8/94 10,997 11,452
- --------------------------------------------------------------------------------
[GRAPH]
- --------------------------------------------------------------------------------
Class B KP GLOBAL FIXED INCOME FUND SALOMON WORLD GOV'T BOND INDEX
- --------------------------------------------------------------------------------
5/10/93 10,000 10,000
- --------------------------------------------------------------------------------
6/93 9,973 10,079
- --------------------------------------------------------------------------------
9/93 10,496 10,534
- --------------------------------------------------------------------------------
12/93 10,436 10,530
- --------------------------------------------------------------------------------
3/94 10,224 10,531
- --------------------------------------------------------------------------------
6/94 10,278 10,601
- --------------------------------------------------------------------------------
8/94 10,230 10,648
- --------------------------------------------------------------------------------
[GRAPH]
- --------------------------------------------------------------------------------
Class C KP GLOBAL FIXED INCOME FUND SALOMON WORLD GOV'T BOND INDEX
- --------------------------------------------------------------------------------
5/10/93 10,000 10,000
- --------------------------------------------------------------------------------
6/93 9,991 10,079
- --------------------------------------------------------------------------------
9/93 10,533 10,534
- --------------------------------------------------------------------------------
12/93 10,495 10,530
- --------------------------------------------------------------------------------
3/94 10,292 10,531
- --------------------------------------------------------------------------------
6/94 10,366 10,601
- --------------------------------------------------------------------------------
8/94 10,340 10,648
- --------------------------------------------------------------------------------
ABOUT THE INDEX
- --------------------------------------------------------------------------------
The Salomon World Government Bond Index covers the available market for domestic
government bonds in ten countries: the U.S., Japan, the U.K., Germany, France,
Canada, the Netherlands, Australia, Denmark and Switzerland. The index includes
all fixed-rate bonds with a remaining maturity of one year or longer and with
amounts outstanding of no less than U.S. $25 million or the equivalent; excluded
from the index are floating or variable rate bonds, securities aimed principally
at non-institutional investors and private placement-type securities. The index
is calculated on a market-weighted basis and returns are presented in U.S.
dollar. The index is unmanaged and does not reflect the deduction of management
fees and fund costs.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE VALUE % OF NET
FOREIGN SECURITIES AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia (Dollar)
Government of Australia Bonds, 7.000%, due
08/15/1998.................................... 2,100,000 $ 1,476,728 $ 1,479,748 0.7%
Australian Government Bonds, 9.500%, due
08/15/2003.................................... 800,000 596,690 601,523 0.3
Queensland Treasury Corp., 6.500%, due
06/14/2005.................................... 720,000 441,243 423,083 0.2
------------ ------------ ---------
Total Investments in Australia.......... 2,514,661 2,504,354 1.2
- -------------------------------------------------------------------------------------------------------------------
Canada (Dollar)
Canadian Treasury Bills, due 09/22/1994......... 8,000,000 5,725,236 5,827,168 2.9
Canadian Government Bonds, 5.750%, due
03/01/1999.................................... 850,000 633,026 563,332 0.3
Canadian Government Bonds, 9.750%, due
12/01/2001.................................... 300,000 260,669 232,863 0.1
Canadian Government Bonds, 7.500%, due
12/01/2003.................................... 775,000 550,072 522,352 0.3
Canadian Government Bonds, 6.500%, due
06/01/2004.................................... 1,560,000 946,922 973,774 0.5
Canadian Government Bonds, 9.250%, due
06/01/2022.................................... 420,000 398,911 315,691 0.2
Canadian Government Bonds, 8.000%, due
06/01/2023.................................... 1,590,000 1,264,298 1,051,437 0.5
------------ ------------ ---------
Total Investments in Canada............. 9,779,134 9,486,617 4.8
- -------------------------------------------------------------------------------------------------------------------
Denmark (Krone)
Denmark Treasury Bill, due 10/03/1994........... 35,000,000 5,539,981 5,584,015 2.7
Denmark Treasury Bill, due 01/02/1995........... 7,000,000 1,096,946 1,098,819 0.5
Denmark Bullet, 9.000%, due 11/15/2000.......... 5,400,000 899,251 880,083 0.4
Danish Government Bond, 8.000%, due
05/15/2003.................................... 6,150,000 990,727 940,874 0.5
Denmark Bullet, 7.000%, due 12/15/2004.......... 500,000 75,296 70,641 0.0
------------ ------------ ---------
Total Investments in Denmark............ 8,602,201 8,574,432 4.1
- -------------------------------------------------------------------------------------------------------------------
France (Franc)
French Treasury Bill, due 09/01/1994............ 23,000,000 4,042,272 4,255,021 2.1
French Treasury Bill, due 01/19/1995............ 32,000,000 5,793,438 5,795,116 2.9
French Government Bond Oat, 8.500%,
due 03/28/2000................................ 25,230,000 4,964,295 4,879,947 2.4
French Government Bond, 8.500%, due
04/15/2023.................................... 10,350,000 2,011,815 1,945,396 1.0
French Government Bond, 5.500%, due
04/25/2004.................................... 19,300,000 3,039,507 3,022,443 1.5
------------ ------------ ---------
Total Investments in France............. 19,851,327 19,897,923 9.9
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE % OF NET
FOREIGN SECURITIES AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Germany (Deutsche Mark)
Bundes Schatz Bonds, 8.375%, due 05/21/2001..... 7,700,000 $ 5,153,619 $ 5,180,756 2.6%
Bundes Republic, 8.250%, due 09/20/2001......... 4,250,000 2,847,425 2,840,619 1.4
Treuhandanstal, 7.750%, due 10/01/2002.......... 1,470,000 969,455 955,174 0.5
Bundespost, 7.500%, due 08/02/2004.............. 360,000 227,841 227,978 0.1
Deutschland Republic, 6.250%, due 01/04/2024.... 15,430,000 8,158,025 8,175,451 4.0
------------ ------------ ---------
Total Investments in Germany............ 17,356,365 17,379,978 8.6
- -------------------------------------------------------------------------------------------------------------------
Italy (Lira, except as noted)
Italy Time Deposits, 7.500%, due 09/01/1994..... 1,755,746,897 1,108,300 1,106,735 0.5
BTPS Italian Government, 11.000%, due
06/01/1996.................................... 9,000,000,000 5,741,337 5,525,649 2.7
BTPS Italian Government, 8.500%, due
04/01/1999.................................... 2,885,000,000 1,609,518 1,625,429 0.8
Republic of Italy, 5.125%, due 07/29/2003
(JPY)(b)...................................... 195,000,000 1,949,971 1,951,704 1.0
------------ ------------ ---------
Total Investments in Italy.............. 10,409,126 10,209,517 5.0
- -------------------------------------------------------------------------------------------------------------------
Japan (Yen)
Japanese Time Deposits, 2.063%, due
09/08/1994.................................... 1,000,000,000 10,055,304 9,990,009 4.9
Japanese Development Bank, 5.000%, due
10/01/1999.................................... 80,000,000 858,826 818,141 0.4
Japanese Government Bond #129, 6.400%,
due 03/20/2000................................ 697,000,000 7,535,500 7,614,777 3.8
Japanese Government Bond #144, 6.000%,
due 12/20/2001................................ 380,000,000 4,230,577 4,091,168 2.0
Japanese Government Bond #145, 5.500%,
due 03/20/2002................................ 127,000,000 1,365,595 1,329,249 0.7
Japanese Government Bond #170B, 4.100%,
due 06/21/2004................................ 234,000,000 2,268,863 2,219,283 1.1
Japanese Government Bond #26, 4.500%,
due 09/22/2014................................ 490,000,000 4,659,065 4,531,888 2.2
------------ ------------ ---------
Total Investments in Japan.............. 30,973,730 30,594,515 15.1
- -------------------------------------------------------------------------------------------------------------------
The Netherlands (Guilder)
Netherlands Government Bond, 6.500%,
due 01/15/1999................................ 6,930,000 3,750,369 3,861,725 1.9
Netherlands Government Bond, 5.750%,
due 01/15/2004................................ 7,275,000 3,694,147 3,690,431 1.8
------------ ------------ ---------
Total Investments in the Netherlands.... 7,444,516 7,552,156 3.7
- -------------------------------------------------------------------------------------------------------------------
New Zealand (Dollar)
New Zealand Treasury Bill, due 11/09/1994....... 500,000 287,467 297,216 0.1
New Zealand Government Bond, 10.000%, due
03/15/2002.................................... 2,700,000 1,773,663 1,777,772 0.9
------------ ------------ ---------
Total Investments in New Zealand........ 2,061,130 2,074,988 1.0
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE % OF NET
FOREIGN SECURITIES AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spain (Peseta)
Spanish Government Bonds, 10.300%, due
06/15/2002.................................... 90,000,000 $ 682,639 $ 657,334 0.3%
Spanish Government Bonds, 8.000%, due
05/30/2004.................................... 240,000,000 1,607,078 1,524,013 0.8
------------ ------------ ---------
Total Investments in Spain.............. 2,289,717 2,181,347 1.1
- -------------------------------------------------------------------------------------------------------------------
Supranational
World Bank Japan Global Bond, 4.500%,
due 06/20/2000................................ 500,000,000 4,665,696 4,995,006 2.5
World Bank Japan Global Bond, 5.250%,
due 03/20/2002................................ 275,000,000 2,820,308 2,821,086 1.4
------------ ------------ ---------
Total Investments in Supranational
Organizations......................... 7,486,004 7,816,092 3.9
- -------------------------------------------------------------------------------------------------------------------
Sweden (Krona)
Sweden Government Bond, 10.750%, due
01/23/1997.................................... 2,000,000 294,810 260,301 0.1
Sweden Government Bond, 11.000%, due
01/21/1999.................................... 5,600,000 797,614 728,046 0.4
------------ ------------ ---------
Total Investments in Sweden............. 1,092,424 988,347 0.5
- -------------------------------------------------------------------------------------------------------------------
United Kingdom (Pound)
United Kingdom Treasury Bonds, 9.750%,
due 08/27/2002................................ 760,000 1,247,971 1,237,074 0.6
United Kingdom Treasury Bonds, 8.000%,
due 06/10/2003................................ 5,425,000 8,041,860 8,033,350 3.9
United Kingdom Treasury Bonds, 6.750%,
due 11/26/2004................................ 1,910,000 2,568,771 2,588,969 1.3
United Kingdom Treasury Bonds, 8.750%,
due 08/25/2017................................ 565,000 888,925 900,405 0.4
------------ ------------ ---------
Total Investments in the United
Kingdom............................... 12,747,527 12,759,798 6.2
------------ ------------ ---------
Total Foreign Securities................ 132,607,862 132,020,064 65.1
------------ ------------ ---------
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE % OF NET
AMOUNT(a) COST (NOTE 1a) ASSETS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S Treasury Obligations (Dollar)
U.S. Treasury Notes, 4.625%, due 02/29/1996..... $ 6,075,000 $ 6,047,685 $ 5,972,484 2.9%
U.S. Treasury Notes, 5.125%, due 11/30/1998..... 8,300,000 7,836,497 7,825,340 3.9
U.S. Treasury Notes, 6.500%, due 04/30/1999..... 4,280,000 4,253,573 4,237,200 2.1
U.S. Treasury Notes, 6.375%, due 08/15/2002..... 4,005,000 4,184,892 3,836,041 1.9
U.S. Treasury Notes, 5.750%, due 08/15/2003..... 10,490,000 9,550,334 9,526,231 4.7
U.S. Treasury Notes, 5.875%, due 02/15/2004..... 350,000 320,802 319,156 0.2
U.S. Treasury Bonds, 10.750%, due 08/15/2005.... 700,000 934,093 881,343 0.4
U.S. Treasury Bonds, 10.375%, due 11/15/2012.... 2,200,000 3,052,098 2,723,875 1.3
U.S. Treasury Bonds, 7.125%, due 02/15/2023..... 12,860,000 12,183,178 12,222,394 6.0
U.S. Treasury Bonds, 6.250%, due 08/15/2023..... 995,000 846,539 844,506 0.4
------------ ------------ ---------
Total U.S. Treasury Obligations................. 49,209,691 48,388,570 23.8
------------ ------------ ---------
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement
Morgan Stanley & Co. Inc., 4.780%, acquired
08/31/1994, due 09/01/1994, to be repurchased
at $1,700,226, collateralized by U.S. Treasury
Notes, 7.125%,
due 10/15/1998(c)............................. 1,700,000 1,700,000 1,700,000 0.8
- -------------------------------------------------------------------------------------------------------------------
FACE PREMIUMS
AMOUNT PAID
- -------------------------------------------------------------------------------------------------------------------
Currency Call Options Purchased
Currency Call Options Purchased
U.S. dollar, expiring 10/28/1994
at CAD 1.365(d)........................... 6,200,000 52,080 48,980 0.0
German Deutschemark, expiring 06/23/1995
at FRF 3.450(e)........................... 7,094,017 83,000 78,034 0.1
------------ ------------ ---------
Total Options Purchased......................... 135,080 127,014 0.1
------------ ------------ ---------
- -------------------------------------------------------------------------------------------------------------------
Total Investments............................... $183,652,633 182,235,648 89.8
Other Assets Less Liabilities................... 20,681,809 10.2
------------ ---------
Net Assets...................................... $202,917,457 100.0%
------------ ---------
------------ ---------
</TABLE>
(a) Face amount stated in local currency.
(b) Face amount stated in Japanese Yen.
(c) Value of collateral is $1,944,171.
(d) Contract face amount against Canadian Dollar (8,463,000).
(e) Contract face amount denominated in U.S. dollars representing DEM
11,385,897.43 against French Francs.
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS AS OF AUGUST 31, 1994
At August 31, 1994, the Fund had outstanding forward currency contracts, both
to buy and to sell foreign currencies as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY BUY CONTRACTS (RECEIVABLE) VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar, expiring 09/22/1994 - 12/22/1994...... $ 17,700,593 $ 17,982,828 $ 282,235
Belgian Francs, expiring 10/24/1994...................... 5,449,487 5,493,163 43,676
Canadian Dollars, expiring 09/22/1994 - 12/22/1994....... 15,947,648 16,101,525 153,877
Swiss Francs, expiring 09/22/1994 - 12/22/1994........... 110,406,372 112,216,360 1,809,988
German Deutsche Marks, expiring
09/22/1994 - 12/22/1994................................ 170,937,693 172,940,034 2,002,341
Danish Krone, expiring 09/22/1994 - 12/22/1994........... 11,423,646 11,564,333 140,687
European Currency Unit, expiring 09/22/1994.............. 2,963,874 3,108,952 145,078
Spanish Pesetas, expiring 09/22/1994 - 12/22/1994........ 27,136,747 27,632,110 495,363
French Francs, expiring 09/22/1994 - 12/22/1994.......... 43,732,598 43,832,641 100,043
British Pounds, expiring 09/22/1994 - 12/22/1994......... 80,659,282 80,604,808 (54,474)
Italian Lira, expiring 09/22/1994 - 12/22/1994........... 21,210,535 21,311,953 101,418
Japanese Yen, expiring 09/22/1994 - 12/22/1994........... 155,993,897 156,330,757 336,860
Dutch Guilder, expiring 09/22/1994 - 10/24/1994.......... 8,570,445 8,776,314 205,869
New Zealand Dollar, expiring 09/22/1994 - 12/22/1994..... 16,887,157 17,006,151 118,994
Swedish Krona, expiring 10/24/1994 - 12/22/1994.......... 22,321,368 22,761,410 440,042
------------ ------------ -----------
$711,341,342 $717,663,339 $ 6,321,997
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY SELL CONTRACTS (PAYABLE) VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar, expiring 09/22/1994 - 12/22/1994...... $ 23,465,378 $ 23,926,404 $ (461,026)
Belgian Francs, expiring 09/22/1994 - 12/22/1994......... 13,055,757 13,541,244 (485,487)
Canadian Dollars, expiring 10/24/1994 - 12/22/1994....... 24,200,228 24,486,992 (286,764)
Swiss Francs, expiring 09/22/1994 - 12/22/1994........... 114,276,504 114,081,958 194,546
German Deutsche Marks, expiring
09/22/1994 - 12/22/1994................................ 124,973,796 126,966,058 (1,992,262)
Danish Krone, expiring 09/22/1994 - 12/22/1994........... 21,706,094 21,931,423 (225,329)
European Currency Unit, expiring
09/22/1994 - 10/24/1994................................ 3,069,716 3,132,245 (62,529)
Spanish Pesetas, expiring 09/22/1994 - 12/22/1994........ 27,676,415 28,204,742 (528,327)
French Francs, expiring 09/22/1994 - 12/22/1994.......... 61,132,086 62,038,199 (906,113)
British Pounds, expiring 09/22/1994 - 12/22/1994......... 82,289,680 82,478,932 (189,252)
Italian Lira, expiring 09/7/1994 - 12/22/1994............ 26,420,517 26,689,572 (269,055)
Japanese Yen, expiring 09/22/1994 - 12/22/1994........... 156,545,613 156,159,198 386,415
Dutch Guilder, expiring 10/24/1994 - 12/22/1994.......... 3,759,059 3,765,043 (5,984)
New Zealand Dollar, expiring 09/22/1994 - 12/22/1994..... 21,230,277 21,472,275 (241,998)
Swedish Krona, expiring 09/22/1994 - 12/22/1994.......... 25,497,224 25,857,849 (360,625)
------------ ------------ -----------
$729,298,344 $734,732,134 $(5,433,790)
------------ ------------ -----------
------------ ------------ -----------
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Assets
Investments, at value (identified cost-$183,517,553) (Note 1a)......... $182,108,634
Foreign cash, at value (identified cost-$37,288,796) (Note 1b)......... 37,138,234
Cash................................................................... 155,252
Options, at value (identified cost -- $135,080) (Note 1d).............. 127,014
Receivables:
Securities sold.................................................... $ 9,824,407
Interest........................................................... 3,164,668
Forward currency contracts......................................... 705,945
Shares sold........................................................ 322,944 14,017,964
-----------
Net unrealized gain on forward contracts (Note 1c)..................... 888,207
Prepaid expenses (Note 1g)............................................. 182,264
------------
Total assets...................................... 234,617,569
Liabilities
Payables:
Securities purchased............................................... 30,108,380
Shares redeemed.................................................... 1,267,628
Investment advisory fees (Note 2).................................. 123,078
Dividends.......................................................... 46,833
Service fees (Note 2).............................................. 39,699
Distribution fees (Note 2)......................................... 11,643 31,597,261
-----------
Accrued expenses....................................................... 102,851
------------
Total liabilities................................. 31,700,112
------------
Net Assets
At value............................................................... $202,917,457
------------
------------
Net assets were comprised of:
Aggregate paid-in capital.......................................... $211,076,151
Overdistribution of net investment income.......................... (2,909,441)
Accumulated net realized capital losses from investments and
foreign currency transactions.................................... (4,662,092)
Net unrealized depreciation on investments, options and translation
of foreign denominated assets and liabilities (Note 3)........... (587,161)
------------
Net assets............................................................. $202,917,457
------------
------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ----------- -----------
<S> <C> <C> <C>
Net assets................................................ $155,576,226 $26,866,675 $20,474,556
Outstanding shares of beneficial interest, ($.001 par
value).................................................. 13,038,503 2,252,287 1,715,396
Net asset values per share................................ $11.93 $11.93 $11.94
Maximum offering price per share for Class A
($11.93[div].9775)...................................... $12.20 N\A N\A
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Investment Income
Interest and discounts earned (net of $1,385,372,
amortization of premiums and $74,802 foreign tax
withheld at source)..................................... $ 12,304,695
Expenses
Investment advisory (Note 2).............................. $ 1,591,399
Servicing (Note 2):
Class A............................................... $ 455,543
Class B............................................... 59,501 515,044
---------
Distribution -- Class B (Note 2).......................... 119,001
Custodian................................................. 196,450
Shareholder servicing..................................... 96,220
Professional.............................................. 51,099
Amortization of organization expenses (Note 1g)........... 47,244
Federal and state registration............................ 43,745
Prospectus and shareholders' reports...................... 39,950
Pricing................................................... 33,000
Miscellaneous............................................. 24,428
Trustees' fees and expenses (Note 2)...................... 10,844
--------------
Total expenses....................... 2,768,424
------------
Net Investment Income..................................... 9,536,271
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions (Note 3)
Realized loss from security transactions (excluding
short-term U.S. securities):
Proceeds from sales................................... 1,085,049,821
Cost of securities sold............................... (1,091,763,483)
--------------
Net realized loss on investment transactions.............. (6,713,662)
Net realized gain on options (Note 1d).................... 111,375
Net realized currency gain on investment transactions
(Note 1b)............................................... 1,612,276
Change in unrealized depreciation on securities, forward
foreign exchange contracts, options and foreign cash.... (7,508,458)
Change in unrealized appreciation due to translation of
foreign dominated assets and liabilities................ 86,040
--------------
Net change in unrealized depreciation..................... (7,422,418)
------------
Net Decrease in Net Assets
Resulting from operations................................. $ (2,876,158)
------------
------------
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1993* 1994
--------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income.................................................. $ 5,108,458 $ 9,536,271
Net realized gain (loss) on investment transactions and options........ 7,198,920 (6,602,287)
Net realized currency gain on investment transactions.................. 564,121 1,612,276
Net change in unrealized appreciation (depreciation)................... 6,835,257 (7,422,418)
--------------------------
Net increase (decrease) in net assets resulting from
operations................................................... 19,706,756 (2,876,158)
Distributions to Shareholders from Net Investment Income (Note 1h)
Class A................................................................ (5,852,732) (7,680,804)
Class B**.............................................................. (70,657) (892,910)
Class C**.............................................................. (199,637) (962,557)
--------------------------
Total distribution from net investment income.................. (6,123,026) (9,536,271)
Distributions in Excess of Net Investment Income
Class A................................................................ -- (1,560,400)
Class B................................................................ -- (176,688)
Class C................................................................ -- (157,785)
--------------------------
Total distribution in excess of net investment income.......... -- (1,894,873)
Distributions to Shareholders from Net Realized Short-Term Capital
Gains (Note 1h)
Class A................................................................ -- (6,122,714)
Class B................................................................ -- (693,291)
Class C................................................................ -- (619,117)
--------------------------
Total distribution from net realized short-term capital
gains........................................................ -- (7,435,122)
Capital Share Transactions (Note 4)
Net proceeds from sale of shares....................................... 222,169,124 72,966,458
Net asset value of shares issued to shareholders in connection with the
reinvestment of dividends............................................ 5,203,412 17,364,168
Cost of shares redeemed................................................ (27,493,414) (79,138,601)
--------------------------
Net increase in net assets derived from capital share
transactions................................................. 199,879,122 11,192,025
--------------------------
Total increase (decrease) in net assets........................ 213,462,852 (10,550,399)
Net Assets
Beginning of period.................................................... 5,004 213,467,856
--------------------------
End of period.......................................................... $213,467,856 $202,917,457
--------------------------
--------------------------
</TABLE>
* From December 24, 1992 (Commencement of Operations) to August 31, 1993.
** From May 10, 1993 (Commencement of Class Operations) to August 31, 1993.
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-----------------------------------------------------------------------------
PERIOD PERIOD YEAR
PERIOD YEAR ENDED YEAR ENDED ENDED
ENDED ENDED AUGUST ENDED AUGUST AUGUST
AUGUST 31, AUGUST 31, 31, AUGUST 31 31, 31,
1993`D' 1994 1993`D'`D' 1994 1993`D'`D' 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $12.00 $13.10 $12.77 $13.09 $12.77 $13.10
----------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income......... 0.45 0.43 0.17 0.49 0.20 0.57
Net realized and unrealized
gains (losses) on
investments................. 1.18 (0.56) 0.32 (0.67) 0.33 (0.66)
----------------------------------------------------------------
Total increase (decrease) from
investment operations....... 1.63 (0.13) 0.49 (0.18) 0.53 (0.09)
----------------------------------------------------------------
Distributions to Shareholders
from (Note 1h):
Net investment income......... (0.53) (0.63) (0.17) (0.57) (0.20) (0.66)
Net realized capital gains.... -- (0.41) -- (0.41) -- (0.41)
----------------------------------------------------------------
Total distributions........... (0.53) (1.04) (0.17) (0.98) (0.20) (1.07)
----------------------------------------------------------------
Net asset value, end of
period...................... $13.10 $11.93 $13.09 $11.93 $13.10 $11.94
----------------------------------------------------------------
----------------------------------------------------------------
Total return#................. 13.79% (1.10)% 3.84% (1.51)% 4.17% (0.71)%
Ratios/Supplemental Data:
Net assets, end of period (in
thousands).................. $180,686 $155,575 $11,555 $26,866 $21,226 $20,474
Ratios to Average Net Assets:
Expenses, excluding
distribution and service
fees, net of
reimbursement............... 0.89%* 0.94% 0.89%* 0.94% 0.89%* 0.94%
Expenses, including
distribution and service
fees, net of
reimbursement............... 1.14%* 1.19% 1.58%* 1.68% 0.89%* 0.94%
Expenses, before reimbursement
from manager................ 1.22%* 1.19% 1.66%* 1.68% 0.97%* 0.94%
Net investment income......... 4.44%* 4.22% 4.00%* 3.73% 4.69%* 4.50%
Portfolio turnover rate....... 130.43% 534.84% 130.43% 534.84% 130.43% 534.84%
</TABLE>
`D' December 24, 1992 (Commencement of Operations) to August 31, 1993.
`D'`D' May 10, 1993 (Commencement of Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales charge, and is
calculated by giving effect to the reinvestment of dividends on the
dividend payment date.
* Annualized.
See Notes to Financial Statements.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. The Fund is a series of the Kidder, Peabody Investment Trust, which is
registered under the Investment Company Act of 1940, as a non-diversified,
open-end investment management company. The Fund commenced operations on
December 24, 1992. The following is a summary of significant accounting policies
consistently followed by the Fund.
On May 10, 1993 the Fund adopted the Choice Pricing Systemsm. The System
offers three classes of shares having identical voting, dividend, liquidation
and other rights. Class A Shares are sold subject to a front-end sales load and
a service fee of .25% per annum of average class net assets. Class B shares are
sold at net asset value without a sales load and bear a distribution fee of .50%
per annum and a service fee of .25% per annum of average class net assets. Class
C shares, which are available exclusively to employees of Kidder, Peabody,
employee benefit plans of Kidder, Peabody and participants of the Insight
Investment Advisory Program, are sold at net asset value without a sales load
and bear no such distribution or service fees. Classes A and B have exclusive
voting rights as to matters relating to the 12b-1 Distribution Plan.
On May 10, 1993 all pre-existing shares of the Fund converted to Class A
shares at net asset value, with the exception of shares eligible for Class C.
(a) The Fund's investments are valued at market value or, in the absence of a
market value, at fair value as determined by or under the direction of the
Trustees. Investments in Government Securities and other securities traded
over-the-counter, other than short-term investments that mature in 60 days or
less, are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost which the Trustees have determined to
represent fair value.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges. When an occurrence, subsequent to the time value was so established,
is likely to have changed that value, the fair market value of those securities
will be determined by consideration of other factors by or under the direction
of the Trustees.
A security that is primarily traded on a domestic or foreign stock exchange
is valued at the last sale price on that exchange or, if no sales occurred
during the day, at current quoted bid price.
An option that is written by the Fund is valued at the last sale price or, in
the absence of the last sales price, the last bid price. In carrying out the
Trustees' valuation policies, the Fund may consult with an independent pricing
service.
The value of a futures contract is equal to the unrealized gain or loss on
the contract that is determined by marking the contract to the current
settlement price for a like contract on the valuation date of the futures
contract. A settlement price may not be used if the market makes a limit move
with respect to a particular futures contract or if the securities underlying
the futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used
futures contracts will be valued at their fair market value as determined by or
under the direction of the Trustees.
(b) The Fund's financial statements are maintained in U.S. dollars. The face
value of foreign bonds held in the portfolio reflects maturity value of the bond
and is stated in the respective foreign currency. For purposes of calculating
the Fund's daily net asset value per share, assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values.
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) Market value of investment securities, other assets and liabilities -- at
the closing rate of exchange.
(ii) Purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held at fiscal year end.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends,
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Realized currency gain (loss) on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency denominated assets and liabilities at
year end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with those of domestic origin as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
(c) The Fund is authorized to enter into forward currency contracts as a
hedge to fluctuations in foreign currency exchange rates on unsettled portfolio
transactions.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. The Fund will enter
into such forward contracts on the transaction's trade date with a contracted
date coinciding with the settlement date of the underlying security. Should the
underlying security fail to settle within the contracted period the forward
currency contract is renegotiated at a new exchange rate. The gain or loss
resulting from the difference between the original and renegotiated settlement
values is recognized and included in realized transaction loss.
Premiums and/or discounts incurred in connection with the establishment of
such contracts are amortized over the lives of the contracts.
(d) When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's statements of assets and liabilities as an
asset and an equivalent liability. The amount of the liability is subsequently
'marked to market' to reflect the current market value of the option written. If
an option which the Fund has written expires on its stipulated date, the Fund
realizes a gain in the amount of the premium originally received, and the
liability related to such option is extinguished. If the Fund enters into a
closing purchase transaction, it realizes a gain or loss determined by the
difference between the premium received and the cost of the closing transaction.
If a call option which the Fund has written is exercised, the Fund realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option which the
Fund has written is exercised, the amount of the premium originally received
reduces the cost of the security which the Fund purchases upon exercise of the
option. As the writer of an option, the Fund may have no control over whether
the underlying securities are sold (called) or purchased (put) and as a result
bears the market risk of an unfavorable change in the price of the security
underlying the written option. Written and purchased options are non-income
producing investments.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's statement of assets and liabilities as an investment and
subsequently 'marked to market' to reflect the current market value of the
option purchased. If a call or put option which the Fund has purchased expires
on the stipulated expiration date, the Fund realizes a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, it
realizes a gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option. If the Fund exercises a put option,
it realizes a gain or loss from such sale of the underlying security and the
proceeds from the sale are decreased by the premium originally paid. If the Fund
exercises a call option, the cost of the security which the Fund purchases upon
exercise is increased by the premium originally paid.
(e) It is the Fund's policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all its taxable income to shareholders. The method of
such distribution for purposes of maintaining
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
regulated investment company status is made on a Fund level rather than class
level basis. Therefore, no Federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed by
foreign governments on interest, dividends and capital gains at various rates.
Such withholding taxes are netted against income and recorded as a receivable
when reclaim is deemed probable.
(f) Security transactions are recorded on a trade date basis. Distributions
to shareholders are recorded on the ex-dividend dates. Interest income is earned
from settlement date and is recognized daily on an accrual basis. Realized gains
and losses on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees are charged to income as the related shares are
issued. Organization costs are being amortized evenly over a sixty month period.
(h) Income and Fund level expenses are allocated to each class on a pro-rata
basis based upon each class' daily settled net assets. Class specific expenses
are charged directly to each class. Dividends from net investment income are
calculated daily based upon the respective classes net investment income.
Distributions of net realized gains are allocated based upon the outstanding
shares of each class.
The Fund distributes monthly substantially all its net investment income. Net
realized capital gains, if any, will be distributed once a year. For book
purposes, as of August 31, 1994, the Fund had net accumulated capital losses
from investment and foreign currency transactions of $4,662,092.
2. The Fund has entered into a management agreement with Kidder Peabody Asset
Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co.
Incorporated ('KP'). General Electric Capital Services, Inc., a wholly-owned
subsidiary of General Electrical Company, has a 100% interest in Kidder, Peabody
Group Inc., the parent company of KP. KPAM serves as the Fund's manager and
receives a fee, paid monthly, calculated and accrued daily at the annual rate of
.70% of the Fund's net assets as of the close of business each day. KPAM in turn
employs Strategic Fixed Income, L.P. ('SFI') as the Fund's investment adviser,
in which capacity SFI receives from KPAM a fee, accrued daily and paid monthly,
at the annual rate of .35% of the Fund's daily net assets. As the Fund's
manager, KPAM is generally responsible for furnishing, or causing to be
furnished to the Fund, investment management and administrative services. As the
Fund's investment adviser, SFI manages the Fund's portfolio, makes decisions for
the Fund, and places purchase and sale orders for the Fund's portfolio
transactions. SFI also pays the salaries of all officers and employees who are
employed by both SFI and the Fund, and provides the Fund with investment
officers.
Total annual expenses of the Fund, exclusive of taxes, interest, all brokers'
commissions and other normal charges incidental to the purchase and sale of
portfolio securities, but including fees paid to KPAM and SFI, are not expected
to exceed the limits prescribed by any state in which the Fund's shares are
offered for sale. KPAM will reimburse the Fund for any expenses in excess of
such limits. No expense reimbursement was required for the year ended August 31,
1994.
KP is the exclusive distributor of the Fund's shares. Its services include
payment of sales commissions to registered representatives and various other
promotional and sales-related expenses. KP receives monthly, from the Fund, the
distribution and service fees which are calculated and accrued daily. KP also
receives the proceeds of any front-end sales loads with respect to the purchase
of shares of Class A.
Certain officers and/or Trustees of the Fund are officers and/or directors of
KPAM and/or SFI. Each Trustee who is not an 'affiliated person' of either KPAM
or SFI receives an annual fee of $1,000 and an attendance fee of $375 per
meeting.
3. Purchases and sales of securities, excluding short-term securities and
maturities, for the year ended August 31, 1994 were $1,058,000,195 and
$1,085,049,821, respectively.
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Transactions in call options purchased for the year ended August 31, 1994 were
as follows:
<TABLE>
<CAPTION>
PAR VALUE
COVERED PREMIUMS
BY OPTIONS PAID
<S> <C> <C>
- --------------------------------------------------------
Outstanding call options,
at beginning of year........ -- --
Options purchased............. $(23,194,017) $(167,255)
Options closed................ 9,900,000 32,175
------------------------
Outstanding call options,
at end of year.............. $(13,294,017) $(135,080)
------------------------
------------------------
</TABLE>
As of August 31, 1994, net unrealized depreciation on investments and foreign
cash, based on cost for Federal income tax purposes, aggregated $1,567,548 of
which $1,076,188 related to appreciated securities and $2,643,736 related to
depreciated securities. Net unrealized appreciation on other assets less
liabilities due to foreign currency fluctuation was $58,382. The aggregate cost
of investments and foreign cash at August 31, 1994 for book and Federal income
tax purposes was $220,941,429.
4. The Declaration of Trust of the Fund permits the Trustees to issue an
unlimited number of shares of beneficial interest, par $.001 per share.
Transactions totaling $72,966,458 from net proceeds from sale of shares,
$79,138,601 representing cost of shares redeemed and $17,364,168 representing
reinvestment of dividends were as follows for each class:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
<S> <C> <C>
- -------------------------------------------------------
Year ended August 31, 1994:
Shares sold................... 3,108,216 $ 39,707,546
Shares issued to shareholders
in connection with the
reinvestment of dividends
and distributions........... 1,124,982 14,067,862
Shares redeemed............... (4,991,354) (61,405,906)
------------------------
NET DECREASE............. (758,156) $ (7,630,498)
------------------------
------------------------
December 24, 1992 to August
31, 1993:
Shares sold................... 15,465,791 $189,460,484
Shares issued to shareholders
in connection with the
reinvestment of dividends... 415,206 4,830,324
Shares redeemed............... (2,084,199) (26,373,763)
------------------------
NET INCREASE............. 13,796,798 $167,917,045
------------------------
------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
<S> <C> <C>
- -------------------------------------------------------
Year ended August 31, 1994:
Shares sold.................... 1,832,752 $23,303,224
Shares issued to shareholders
in connection with the
reinvestment of dividends
and distributions............ 135,828 1,695,816
Shares redeemed................ (598,936) (7,372,563)
-----------------------
NET INCREASE.............. 1,369,644 $17,626,477
-----------------------
-----------------------
May 10, 1993 to
August 31, 1993:
Shares sold.................... 911,559 $11,485,309
Shares issued to shareholders
in connection with the
reinvestment of dividends.... 5,103 185,012
Shares redeemed................ (34,019) (437,856)
-----------------------
NET INCREASE.............. 882,643 $11,232,465
-----------------------
-----------------------
</TABLE>
<PAGE>
Kidder, Peabody Global Fixed Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
<S> <C> <C>
- -------------------------------------------------------
Year ended August 31, 1994:
Shares sold.................... 793,248 $ 9,955,688
Shares issued to shareholders
in connection with the
reinvestment of dividends and
distributions................ 127,228 1,600,490
Shares redeemed................ (825,212) (10,360,132)
-----------------------
NET INCREASE.............. 95,264 $ 1,196,046
-----------------------
-----------------------
May 10, 1993 to
August 31, 1993:
Shares sold.................... 1,658,546 $21,228,335
Shares issued to shareholders
in connection with the
reinvestment of dividends.... 14,656 188,076
Shares redeemed................ (53,071) (681,796)
-----------------------
NET INCREASE.............. 1,620,131 $20,734,615
-----------------------
-----------------------
</TABLE>
5. The Fund takes possession of securities under repurchase agreements before
releasing any money to the counterparty under such agreement. Eligible
collateral for repurchase agreement transactions are the instruments that the
Fund is allowed to invest in, as stated in the Prospectus. The Fund attempts to
attain a short maturity (2 years or less), although that is not always
available. The value of the collateral must be a minimum of 102% of the market
value of the securities being loaned, allowing for minor variations arising from
marking to market of such collateral. If the issuer defaults or if bankruptcy or
regulatory proceedings are commenced with respect to the issuer, the realization
of the proceeds may be delayed or limited.
REPORT OF INDEPENDENT AUDITORS
The Trustees and Shareholders,
Kidder, Peabody Global Fixed Income Fund
(one of the portfolios constituting the Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kidder, Peabody Global Fixed Income Fund as of
August 31, 1994, the related statements of operations for the year then ended
and of changes in net assets and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1994 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Kidder, Peabody
Global Fixed Income Fund as of August 31, 1994, the results of its operations,
the changes in its net assets and the financial highlights for each of the
respectively stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
October 14, 1994
<PAGE>
Kidder Family of Funds
- --------------------------------------------------------------------------------
The Kidder Family of Funds provides a comprehensive selection of mutual funds.
Because successful investing may depend on the ability to diversify across asset
classes and geographic regions, the Kidder Family of Funds has been carefully
constructed to ensure that most major asset classes and geographic regions are
represented.
STOCK FUNDS
- ----------------------------------------------------------
KIDDER, PEABODY EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation by investing in the equity issues of
developing markets in Asia, Latin America, the Middle East, Southern and
Eastern Europe and Africa.
KIDDER, PEABODY EQUITY INCOME FUND, INC.
Seeks a combination of long-term capital appreciation and high current dividend
and interest income by investing in the common stocks of U.S. companies.
KIDDER, PEABODY GLOBAL EQUITY FUND
Seeks long-term capital growth by investing primarily in non-U.S. securities.
KIDDER, PEABODY SMALL CAP EQUITY FUND
Seeks long-term capital appreciation by investing primarily in the stocks of
small-capitalization companies.
BOND FUNDS
- ----------------------------------------------------------
KIDDER, PEABODY ADJUSTABLE RATE GOVERNMENT FUND
Seeks high current income with low net asset value volatility by investing
primarily in adjustable-rate mortgage-backed securities that are issued or
guaranteed by the U.S. government and its agencies (including FNMA and GNMA).
KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
Seeks maximum total return consisting primarily of current income and,
secondarily, capital appreciation, by investing in intermediate-term U.S. debt
securities rated in the three highest categories by recognized rating agencies.
KIDDER, PEABODY GOVERNMENT INCOME FUND, INC.
Seeks high current income by investing primarily in fixed-income securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
KIDDER, PEABODY GLOBAL FIXED INCOME FUND
Seeks current income and capital appreciation by investing in fixed-income
securities primarily issued by U.S. and non-U.S. governments and authorities
and supranational organizations.
KIDDER, PEABODY MUNICIPAL BOND FUND
Seeks current income exempt from federal taxation consistent with the
preservation of capital by investing primarily in high-quality, tax-exempt
municipal securities.
FLEXIBLE FUNDS
- ----------------------------------------------------------
KIDDER, PEABODY ASSET ALLOCATION FUND
Seeks total return by investing in a strategically allocated portfolio of
common stocks included in the S&P 500 and/or U.S. treasury notes or U.S.
treasury bills.
MONEY MARKET FUNDS
- ----------------------------------------------------------
The following money markets funds all seek to maximize current income to the
extent possible consistent with preservation of capital and maintenance of
liquidity.
KIDDER, PEABODY PREMIUM ACCOUNT FUND
KIDDER, PEABODY CASH RESERVE FUND, INC.
KIDDER, PEABODY GOVERNMENT MONEY FUND, INC.
KIDDER, PEABODY TAX EXEMPT MONEY FUND, INC.
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
KIDDER, PEABODY MUNICIPAL MONEY MARKET SERIES:
CONNECTICUT, NEW YORK, NEW JERSEY
(Each state fund is available only to residents of the related state.)
PLEASE NOTE . . .
With respect to the Kidder, Peabody Adjustable Rate Government Fund, the Kidder,
Peabody Government Income Fund and the Kidder, Peabody money market funds, the
U.S. government guarantee applies to the timely payment of principal and
interest for the underlying securities, which are issued or guaranteed by the
U.S. government and not the fund itself. AN INVESTMENT IN ANY OF THE MONEY
MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. EACH
MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE,
BUT THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO AT ALL TIMES.
The return and principal value of an investment in any of the Kidder funds is
not guaranteed and will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- -------------------------------------------------
Kidder, Peabody Global Fixed Income Fund
60 Broad Street
New York, New York 10004
Trustees
-------------------------------------------------------------
<TABLE>
<S> <C>
George V. Grune, Jr. William W. Hewitt, Jr.
Chairman of the Trustees Trustee
and President
Russell H. Johnson Thomas R. Jordan
Trustee and Vice Chairman Trustee
David J. Beaubien Carl W. Schafer
Trustee Trustee
</TABLE>
Manager
-------------------------------------------------------------
Kidder Peabody Asset Management, Inc.
60 Broad Street, New York, New York 10004
Investment Adviser
-------------------------------------------------------------
Strategic Fixed Income, L.P.
1001 19th Street North, Arlington, Virginia 22209
Distributor
-------------------------------------------------------------
Kidder, Peabody & Co. Incorporated
10 Hanover Square, New York, New York 10005
Custodian, Transfer, Dividend & Recordkeeping Agent
-------------------------------------------------------------
Investors Fiduciary Trust Company
127 West 10th Street, Kansas City, Missouri 64105
Independent Auditors
-------------------------------------------------------------
Deloitte & Touche LLP
1633 Broadway, New York, New York 10019
Legal Counsel
-------------------------------------------------------------
Willkie Farr & Gallagher
One Citicorp Center, 153 East 53rd Street
New York, New York 10022
This report is for the information of the shareholders of the Kidder,
Peabody Global Fixed Income Fund, but it may also be used as sales
literature when preceded or accompanied by the current prospectus which
gives details about charges, expenses, and investment objectives of the
Fund.
KPGFI-2
Kidder,
Peabody
Global
Fixed
Income
Fund
Annual Report
August 31, 1994
[LOGO]
STATEMENT OF DIFFERENCES
<TABLE>
<CAPTION>
<S> <C>
The service mark symbol shall be expressed as ................ 'sm'
The dagger footnote symbol shall be expressed as ............. 'D'
The double dagger footnote symbol shall be expressed as....... 'D''D'
The superscipt numbers shall be expressed as ................. 'pp'
</TABLE>
<PAGE>
RECENT PERFORMANCE RESULTS (unaudited)
Net Asset Value Total Return1
-------------------------- -----------------------------
6 Months 12 Months
04/30/95 10/31/94 04/30/94 Ended 04/30/95 Ended 04/30/95
- -----------------------------------------------------------------------
Class A Shares $9.24 $8.99 $9.97 2.78% -7.32%
- -----------------------------------------------------------------------
Class B Shares 9.01 8.81 9.81 2.27 -8.15
- -----------------------------------------------------------------------
Class D Shares 9.07 8.86 9.87 2.37 -8.11
- -----------------------------------------------------------------------
Performance Summary Class A Shares
Net Asset Value Capital Gains Dividends Paid Total
----------------- Distributed Return1
Period Covered Beginning Ending
- -----------------------------------------------------------------------------
02/07/90 - 12/31/90 $9.55 $8.48 $0.0500 $0.1200 -9.39%
- -----------------------------------------------------------------------------
1991 8.48 8.22 - 0.2432 -0.18
- -----------------------------------------------------------------------------
1992 8.22 7.44 - - -9.49
- -----------------------------------------------------------------------------
1993 7.44 9.49 0.3454 0.0194 32.48
- -----------------------------------------------------------------------------
1994 9.49 8.71 - - -8.22
- -----------------------------------------------------------------------------
01/01/95 - 04/30/95 8.71 9.24 - - 6.08
- -----------------------------------------------------------------------------
Totals: $0.3954 $0.3826
- -----------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 5.60%
- -----------------------------------------------------------------------------
Performance Summary Class B Shares
Net Asset Value Capital Gains Dividends Paid Total
----------------- Distributed Return1
Period Covered Beginning Ending
- -----------------------------------------------------------------------------
07/01/91 - 12/31/91 $8.52 $8.21 - $0.2231 - 1.00%
- -----------------------------------------------------------------------------
1992 8.21 7.38 - - -10.11
- -----------------------------------------------------------------------------
1993 7.38 9.36 $0.3454 - 31.53
- -----------------------------------------------------------------------------
1994 9.36 8.53 - - -8.87
- -----------------------------------------------------------------------------
01/01/95 - 04/30/95 8.53 9.01 - - 5.63
- -----------------------------------------------------------------------------
Totals: $0.3454 $0.2231
- -----------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 12.67%
- -----------------------------------------------------------------------------
Performance Summary Class D Shares
Net Asset Value Capital Gains Dividends Paid Total
----------------- Distributed Return1
Period Covered Beginning Ending
- -----------------------------------------------------------------------------
07/06/92 - 12/31/92 $8.33 $7.42 - - -10.92%
- -----------------------------------------------------------------------------
1993 7.42 9.41 $0.3454 - 31.49
- -----------------------------------------------------------------------------
1994 9.41 8.58 - - -8.82
- -----------------------------------------------------------------------------
01/01/95 - 04/30/95 8.58 9.07 - - 5.71
- -----------------------------------------------------------------------------
Totals: $0.3454 -
- -----------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 12.90%
- -----------------------------------------------------------------------------
EUROPE GROWTH FUND
Paine Webber
1
<PAGE>
<TABLE>
Average Annual Return
<CAPTION>
% Return After Deducting
% Return Without Sales Charge Maximum Sales Charge
----------------------------- ------------------------
Class Class
----------------------------- ------------------------
A* B** D*** A* B** D***
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 03/31/95 -7.10% -7.94% -7.90% -11.27% -12.94% -7.90%
- -----------------------------------------------------------------------------------
Five Years Ended 03/31/95 0.19% N/A N/A -0.72% N/A N/A
- -----------------------------------------------------------------------------------
Commencement of Operations
Through 03/31/95~ 0.33% 2.24% 3.13% -0.56% 1.74% 3.13%
- -----------------------------------------------------------------------------------
<FN>
1 Figures assume reinvestment of all dividends and capital gains
distributions, if any, at net asset value on the payable dates, and do not
include sales charges; results for Class A and Class B shares would be lower
if sales charges were included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without an initial or a contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
~ Commencement of operations dates are February 7, 1990, July 1, 1991 and
July 6, 1992 for Class A, Class B and Class D, respectively.
</TABLE>
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
EUROPE GROWTH FUND
Paine Webber
2
<PAGE>
RECENT PERFORMANCE RESULTS (unaudited)
Net Asset Value Total Return1
-------------------------- -----------------------------
6 Months 12 Months
04/30/95 10/31/94 04/30/94 Ended 04/30/95 Ended 04/30/95
- -----------------------------------------------------------------------
Class A Shares $11.18 $11.39 $11.43 -1.84% -2.19%
- -----------------------------------------------------------------------
Class B Shares 11.17 11.38 11.46 -1.85 -2.53
- -----------------------------------------------------------------------
Class D Shares 11.03 11.28 11.37 -2.22 -2.99
- -----------------------------------------------------------------------
Performance Summary Class A Shares
Net Asset Value Capital Gains Dividends Paid Total
----------------- Distributed Return1
Period Covered Beginning Ending
- -----------------------------------------------------------------------------
07/01/91 - 12/31/91 $11.20 $12.14 - $0.0907 9.22%
- -----------------------------------------------------------------------------
1992 12.14 11.50 - 0.2170 -3.77
- -----------------------------------------------------------------------------
1993 11.50 11.24 $1.8406 0.2079 15.78
- -----------------------------------------------------------------------------
1994 11.24 10.20 - - -9.25
- -----------------------------------------------------------------------------
01/01/95 - 04/30/95 10.20 11.18 - - 9.61
- -----------------------------------------------------------------------------
Totals: $1.8406 $0.5156
- -----------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 21.39%
- -----------------------------------------------------------------------------
Performance Summary Class B Shares
Net Asset Value Capital Gains Dividends Paid Total
----------------- Distributed Return1
Period Covered Beginning Ending
- -----------------------------------------------------------------------------
09/18/87 - 12/31/87 $10.00 $9.25 - $0.0820 -6.66%
- -----------------------------------------------------------------------------
1988 9.25 10.41 $0.0570 0.2805 16.24
- -----------------------------------------------------------------------------
1989 10.41 12.59 0.7290 0.2111 30.30
- -----------------------------------------------------------------------------
1990 12.59 11.25 0.6925 0.1100 -4.21
- -----------------------------------------------------------------------------
1991 11.25 12.16 - 0.1277 9.28
- -----------------------------------------------------------------------------
1992 12.16 11.54 - 0.1118 -4.42
- -----------------------------------------------------------------------------
1993 11.54 11.31 1.8406 0.0562 14.66
- -----------------------------------------------------------------------------
1994 11.31 10.19 - - -9.90
- -----------------------------------------------------------------------------
01/01/95 - 04/30/95 10.19 11.17 - - 9.62
- -----------------------------------------------------------------------------
Totals: $3.3191 $0.9793
- -----------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 62.15%
- -----------------------------------------------------------------------------
Performance Summary Class D Shares
Net Asset Value Capital Gains Dividends Paid Total
------------------ Distributed Return1
Period Covered Beginning Ending
- ------------------------------------------------------------------------------
07/08/92 - 12/31/92 $11.95 $11.48 - $0.1367 -2.93%
- ------------------------------------------------------------------------------
1993 11.48 11.22 $1.8406 0.1037 14.89
- ------------------------------------------------------------------------------
1994 11.22 10.09 - - -10.07
- ------------------------------------------------------------------------------
01/01/95 - 04/30/95 10.09 11.03 - - 9.32
- ------------------------------------------------------------------------------
Totals: $1.8406 $0.2404
- ------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 9.80%
- ------------------------------------------------------------------------------
GLOBAL ENERGY FUND
Paine Webber
3
<PAGE>
<TABLE>
Average Annual Return
<CAPTION>
% Return After Deducting
% Return Without Sales Charge Maximum Sales Charge
----------------------------- -----------------------
Class Class
----------------------------- -----------------------
A* B** D*** A* B** D***
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Twelve Months Ended 03/31/95 -4.09% -4.53% -4.93% -8.42% -9.53% -4.93%
- ----------------------------------------------------------------------------------
Five Years Ended 03/31/95 N/A 1.70% N/A N/A 1.33% N/A
- ----------------------------------------------------------------------------------
Commencement of Operations
Through 03/31/95~ 3.69% 5.81% 1.31% 2.42% 5.81% 1.31%
- ----------------------------------------------------------------------------------
<FN>
1 Figures assume reinvestment of all dividends and capital gains
distributions, if any, at net asset value on the payable dates, and do not
include sales charges; results for Class A and Class B shares would be lower
if sales charges were included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without an initial or a contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
~ Commencement of operations dates are July 1, 1991, September 18, 1987 and
July 8, 1992 for Class A, Class B and Class D, respectively.
</TABLE>
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
GLOBAL ENERGY FUND
Paine Webber
4
<PAGE>
RECENT PERFORMANCE RESULTS (unaudited)
Net Asset Value Total Return1
-------------------------- -----------------------------
6 Months 12 Months
04/30/95 10/31/94 04/30/94 Ended 04/30/95 Ended 04/30/95
- -----------------------------------------------------------------------
Class A Shares $9.83 $11.20 $10.61 -9.11% -4.05%
- -----------------------------------------------------------------------
Class B Shares 9.64 11.03 10.49 -9.44 -4.77
- -----------------------------------------------------------------------
Class D Shares 9.65 11.05 10.51 -9.51 -4.86
- -----------------------------------------------------------------------
Performance Summary Class A Shares
Net Asset Value Capital Gains Dividends Paid Total
------------------ Distributed Return1
Period Covered Beginning Ending
- -------------------------------------------------------------------------------
06/09/89 - 12/31/89 $ 9.55 $10.23 $0.0600 $0.3135 11.03%
- -------------------------------------------------------------------------------
1990 10.23 8.99 0.4510 0.9190 1.34
- -------------------------------------------------------------------------------
1991 8.99 9.46 - 0.4408 10.03
- -------------------------------------------------------------------------------
1992 9.46 8.90 - 0.2520 -3.30
- -------------------------------------------------------------------------------
1993 8.90 11.74 - - 35.01
- -------------------------------------------------------------------------------
1994 11.74 10.15 - 0.2710 -10.46
- -------------------------------------------------------------------------------
01/01/95 - 04/30/95 10.15 9.83 0.3561 - -3.15
- -------------------------------------------------------------------------------
Totals: $0.8671 $2.1963
- -------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 40.74%
- -------------------------------------------------------------------------------
Performance Summary Class B Shares
Net Asset Value Capital Gains Dividends Paid Total
---------------- Distributed Return1
Period Covered Beginning Ending
- -------------------------------------------------------------------------------
07/01/91 - 12/31/91 $ 8.58 $ 9.44 - $0.1358 -11.62%
- -------------------------------------------------------------------------------
1992 9.44 8.87 - 0.1937 - 4.04
- -------------------------------------------------------------------------------
1993 8.87 11.64 - - 34.06
- -------------------------------------------------------------------------------
1994 11.64 9.98 - 0.2464 -11.16
- -------------------------------------------------------------------------------
01/01/95 - 04/30/95 9.98 9.64 $0.3561 - -3.41
- -------------------------------------------------------------------------------
Totals: $0.3561 $0.5759
- -------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 23.23%
- -------------------------------------------------------------------------------
Performance Summary Class D Shares
Net Asset Value Capital Gains Dividends Paid Total
------------------ Distributed Return1
Period Covered Beginning Ending
- -------------------------------------------------------------------------------
07/02/92 - 12/31/92 $ 9.32 $ 8.89 - $0.0263 -4.33%
- -------------------------------------------------------------------------------
1993 8.89 11.65 - - 33.90
- -------------------------------------------------------------------------------
1994 11.65 9.99 - 0.2561 -11.15
- -------------------------------------------------------------------------------
01/01/95 - 04/30/95 9.99 9.65 $0.3561 - -3.40
- -------------------------------------------------------------------------------
Totals: $0.3561 $0.2824
- -------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 10.00%
- -------------------------------------------------------------------------------
GLOBAL GROWTH AND INCOME FUND
Paine Webber
5
<PAGE>
<TABLE>
Average Annual Return
<CAPTION>
% Return After Deducting
% Return Without Sales Charge Maximum Sales Charge
----------------------------- ------------------------
Class Class
----------------------------- ------------------------
A* B** D*** A* B** D***
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 03/31/95 -6.41% -7.05% -7.13% -10.63% -12.05% -7.13%
- -----------------------------------------------------------------------------------
Five Years Ended 03/31/95 5.50% N/A N/A 4.54% N/A N/A
- -----------------------------------------------------------------------------------
Commencement of Operations
Through 03/31/95~ 5.90% 5.55% 3.29% 5.07% 5.09% 3.29%
- -----------------------------------------------------------------------------------
<FN>
1 Figures assume reinvestment of all dividends and capital gains
distributions, if any, at net asset value on the payable dates, and do not
include sales charges; results for Class A and Class B shares would be lower
if sales charges were included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without an initial or a contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
~ Commencement of operations dates are June 9, 1989, July 1, 1991 and July 2,
1992 for Class A, Class B and Class D, respectively.
</TABLE>
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
GLOBAL GROWTH AND INCOME FUND
Paine Webber
6
<PAGE>
RECENT PERFORMANCE RESULTS (unaudited)
Net Asset Value Total Return1
-------------------------- -----------------------------
6 Months 12 Months
04/30/95 10/31/94 04/30/94 Ended 04/30/95 Ended 04/30/95
- -----------------------------------------------------------------------
Class A Shares $10.23 $9.99 $10.29 5.71% 6.13%
- -----------------------------------------------------------------------
Class B Shares 10.20 9.96 10.27 5.39 5.30
- -----------------------------------------------------------------------
Class D Shares 10.22 9.98 10.28 5.49 5.64
- -----------------------------------------------------------------------
<TABLE><CAPTION>
Performance Summary Class A Shares
Net Asset Value Capital Gains Dividends Paid from Total
---------------- Distributed Paid Capital Return1
Period Covered Beginning Ending
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $10.40 $11.05 $0.0100 $0.4800 - 11.11%
- ------------------------------------------------------------------------------------
1992 11.05 10.42 0.1644 0.6029 - 1.22
- ------------------------------------------------------------------------------------
1993 10.42 10.97 0.1445 0.6092 - 14.16
- ------------------------------------------------------------------------------------
1994 10.97 9.90 - 0.4556 $0.3178 -3.89
- ------------------------------------------------------------------------------------
01/01/95 - 04/30/95 9.90 10.23 - 0.1942 - 5.29
- ------------------------------------------------------------------------------------
Totals: $0.3189 $2.3419 $0.3178
- ------------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 29.94%
- ------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class B Shares
Net Asset Value Capital Gains Dividends Paid from Total
---------------- Distributed Paid Capital Return1
Period Covered Beginning Ending
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/20/87 - 12/31/87 $10.00 $10.86 $0.1800 $0.6647 - 17.58%
- ------------------------------------------------------------------------------------
1988 10.86 10.64 0.1489 1.3436 - 12.15
- ------------------------------------------------------------------------------------
1989 10.64 10.25 - 0.9200 - 5.44
- ------------------------------------------------------------------------------------
1990 10.25 10.87 - 1.1300 - 17.72
- ------------------------------------------------------------------------------------
1991 10.87 11.05 0.0100 0.9100 - 10.75
- ------------------------------------------------------------------------------------
1992 11.05 10.41 0.1644 0.5214 - 0.38
- ------------------------------------------------------------------------------------
1993 10.41 10.96 0.1445 0.5545 - 13.36
- ------------------------------------------------------------------------------------
1994 10.96 9.87 - 0.4049 $0.2810 -4.77
- ------------------------------------------------------------------------------------
01/01/95 - 04/30/95 9.87 10.20 - 0.1743 - 5.11
- ------------------------------------------------------------------------------------
Totals: $0.6478 $6.6234 $0.2810
- ------------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 110.03%
- ------------------------------------------------------------------------------------
<CAPTION>
Performance Summary Class D Shares
Net Asset Value Capital Gains Dividends Paid from Total
---------------- Distributed Paid Capital Return1
Period Covered Beginning Ending
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $10.94 $10.42 - $0.5388 - 0.10%
- ------------------------------------------------------------------------------------
1993 10.42 10.97 $0.1445 0.5736 - 13.64
- ------------------------------------------------------------------------------------
1994 10.97 9.89 - 0.4225 $0.2938 -4.43
- ------------------------------------------------------------------------------------
01/01/95 - 04/30/95 9.89 10.22 - 0.1810 - 5.17
- ------------------------------------------------------------------------------------
Totals: $0.1445 $1.7159 $0.2938
- ------------------------------------------------------------------------------------
Cumulative Total Return as of 04/30/95: 14.33%
- ------------------------------------------------------------------------------------
</TABLE>
GLOBAL INCOME FUND
Paine Webber
7
<PAGE>
<TABLE>
Average Annual Return
<CAPTION>
% Return After Deducting
% Return Without Sales Charge Maximum Sales Charge
----------------------------- -----------------------
Class Class
----------------------------- -----------------------
A* B** D*** A* B** D***
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 03/31/95 3.97% 3.24% 3.49% -0.18% -1.76% 3.49%
- ----------------------------------------------------------------------------------
Five Years Ended 03/31/95 N/A 7.84% N/A N/A 7.54% N/A
- ----------------------------------------------------------------------------------
Commencement of Operations
Through 03/31/95~ 6.94% 9.54% 4.62% 5.80% 9.54% 4.62%
- ----------------------------------------------------------------------------------
<FN>
1 Figures assume reinvestment of all dividends and capital gains
distributions, if any, at net asset value on the payable dates, and do not
include sales charges; results for Class A and Class B shares would be lower
if sales charges were included.
* Maximum sales charge for Class A shares is 4.0% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without an initial or a contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
~ Commencement of operations dates are July 1, 1991, March 20, 1987 and July
2, 1992 for Class A, Class B and Class D, respectively.
</TABLE>
Note: The Fund offers Class C shares to the trustee of the PaineWebber Savings
Investment Plan. For the six months ended April 30, 1995, and since
inception, August 26, 1991, through April 30, 1995, Class C shares have
had a total return of 5.84% and 29.53%, respectively. For the twelve
months ended March 31, 1995, and since inception, Class C shares have had
average annual returns of 4.34% and 7.19%, respectively. Class C shares
do not have an initial or contingent deferred sales charge or ongoing
distribution and service fees.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
GLOBAL INCOME FUND
Paine Webber
8
<PAGE>
PORTFOLIO OF INVESTMENTS
April 30, 1995 (unaudited)
Common Stocks - 68.07%
Number of
Shares Value
- --------- ------------
Austria - 3.99%
Technology - 1.62%
16,400 Austrian Mikro Systeme International.. $ 1,627,839
------------
Oil & Gas - 2.37%
23,000 OMV AG................................ 2,377,281
------------
Total Austria Common Stocks..................... 4,005,120
------------
Belgium - 3.14%
Chemicals - 3.14%
5,800 Solvay et Cie......................... 3,151,019
------------
Denmark - 1.21%
Retail - 1.21%
16,000 Danske Traelast....................... 1,211,093
------------
Finland - 2.25%
Capital Goods - 1.26%
500,000 Tampella AB OY*....................... 1,265,745
------------
Printing & Publishing - 0.99%
49,000 Aamulehti Yhtymae Bearer Series 2..... 987,750
------------
Total Finland Common Stocks..................... 2,253,495
------------
France - 11.82%
Capital Goods - 4.40%
14,400 Lyonnaise des Eaux.................... 1,429,617
50,000 Technip SA/Compagnie Francaise........ 2,985,681
------------
4,415,298
------------
Construction - 3.01%
39,950 Legris Industries*.................... 3,018,462
------------
Health & Personal Care - 0.96%
10,375 Boiron................................ 960,480
------------
Industrial Holdings - 1.36%
45,116 Dynaction*............................ 1,369,012
------------
Utilities - 2.09%
19,930 Generale des Eaux..................... 2,096,829
------------
Total France Common Stocks...................... 11,860,081
------------
Paine Webber
EUROPE GROWTH FUND
9
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (continued)
Number of
Shares Value
- --------- -----------
Germany - 8.25%
Automotive - 0.97%
3,500 Volkswagen AG...................... $ 975,975
-----------
Capital Goods - 1.89%
7,000 Mannesmann AG...................... 1,898,921
-----------
Technology - 2.06%
2,000 SAP AG............................. 2,063,418
-----------
Textiles - 3.33%
5,146 Jil Sander AG...................... 3,341,438
-----------
Total Germany Common Stocks.................. 8,279,752
-----------
Italy - 1.51%
Machinery & Equipment - 1.51%
223,000 Danieli & Company.................. 1,512,375
-----------
Netherlands - 4.55%
Appliances & Household Durables - 3.61%
95,000 Philips Electronics................ 3,622,995
-----------
Data Processing & Reproduction - 0.94%
23,000 Getronics.......................... 940,858
-----------
Total Netherland Common Stocks............... 4,563,853
-----------
Norway - 5.69%
Machinery & Engineering - 3.00%
69,500 Kvaerner 'B' Free.................. 3,010,891
-----------
Oil Services - 2.69%
215,337 Aker A/S 'B' Free.................. 2,695,006
-----------
Total Norway Common Stocks................... 5,705,897
-----------
South Africa - 0.18%
Mining - 0.18%
30,000 Vaal Reefs Exploring & Mining ADR.. 183,750
-----------
Spain - 1.12%
Beverages & Tobacco - 1.12%
33,000 Tabacalera SA...................... 1,118,942
-----------
Paine Webber
EUROPE GROWTH FUND
10
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (continued)
Number of
Shares Value
- --------- ------------
Sweden - 3.98%
Automotive - 2.67%
142,500 Volvo Aktiebolaget 'B' Free.. $ 2,674,337
------------
Mining - 1.31%
100,000 Trelleborg Ab 'B' Free....... 1,319,897
------------
Total Sweden Common Stocks............. 3,994,234
------------
Switzerland - 2.84%
Biotechnology - 1.66%
3,000 Ares-Serono SA 'B'........... 1,661,941
------------
Health & Personal Care - 1.18%
1,800 Sandoz AG.................... 1,185,605
------------
Total Switzerland Common Stocks........ 2,847,546
------------
Turkey - 1.69%
Banking - 0.48%
1,788 Akbank....................... 483,368
------------
Machinery - 1.21%
1,500 Koc Holdings................. 1,216,216
------------
Total Turkey Common Stocks............. 1,699,584
------------
United Kingdom - 15.85%
Banking - 1.17%
100,000 HSBC Holdings................ 1,178,409
------------
Business & Public Services - 1.14%
275,000 Rentokil Group............... 1,141,407
------------
Capital Goods - 2.05%
550,000 Weir Group................... 2,061,612
------------
Drugs - 4.93%
1,275,000 Medeva plc. ................. 4,943,284
------------
Holding Company - 1.50%
568,032 Lonrho....................... 1,507,805
------------
Leisure - 0.87%
300,000 Ladbroke Group............... 868,724
------------
Mining - 1.01%
220,000 Antofagasta Holdings......... 1,008,686
------------
Paine Webber
EUROPE GROWTH FUND
11
<PAGE>
PORTFOLIO OF INVESTMENTS (concluded)
April 30, 1995 (unaudited)
Common Stocks - (concluded)
Number of
Shares Value
- ------------------- ------------
United Kingdom - (concluded)
Non-Ferrous Metals - 3.18%
251,000 RTZ Corporation................. $ 3,194,026
------------
Total United Kingdom Common Stocks.................. 15,903,953
------------
Total Common Stocks (cost - $60,475,873)............ 68,290,694
------------
Preferred Stocks - 3.24%
Germany - 3.24%
Automotive - 3.24%
7,220 Porsche AG Non-Voting........... 1,667,257
4,512 Porsche AG (New)................ 1,580,445
------------
Total Germany Preferred Stocks (cost - $4,041,137).. 3,247,702
------------
<TABLE><CAPTION>
Principal
Amount
(000) Maturity Dates Interest Rates
- ----------- -------------- --------------
<S> <C> <C> <C>
Short-Term U.S. Government Securities - 17.90%
$10,000 U.S. Treasury Bills................................... 05/04/95 5.560% 9,993,800
8,000 U.S. Treasury Bills................................... 06/01/95 5.585 7,960,160
------------
Total Short-Term U.S. Government Securities (cost - $17,953,939).. 17,953,960
------------
Repurchase Agreements - 9.57%
Repurchase Agreement dated 04/28/95 with Morgan
Stanley, collateralized by $4,815,000 U.S. Treasury
4,900 Bills, 7.500% due 11/15/16; proceeds: $4,902,389...... 05/01/95 5.850 4,900,000
Repurchase Agreement dated 04/28/95 with Salomon
Brothers, collateralized by $4,751,000 U.S. Treasury
4,699 Bills, 7.250% due 05/15/16; proceeds: $4,701,299...... 05/01/95 5.870 4,699,000
------------
Total Repurchase Agreements (cost - $9,599,000)................... 9,599,000
------------
Total Investments (cost - $92,069,949) - 98.78%................... 99,091,356
Other assets in excess of liabilities - 1.22%..................... 1,224,840
------------
Net Assets - 100.00%.............................................. $100,316,196
============
- -------------------------------------------------------------------------------------------------------------
<FN>
ADR American Depositary Receipt
* Non-income producing security
</TABLE>
See accompanying notes to financial statements
Paine Webber
EUROPE GROWTH FUND
12
<PAGE>
PORTFOLIO OF INVESTMENTS
April 30, 1995 (unaudited)
Common Stocks - 87.32%
Number of
Shares Value
- --------- -----------
Hong Kong - 0.72%
Refining & Marketing - 0.72%
700,000 Zhenhai Refining & Chemical Corp. .. $ 167,291
-----------
Italy - 2.05%
Natural Gas Transmission - 2.05%
180,000 Italgas............................. 473,309
-----------
United States - 84.55%
Electronics & Instrumentation - 3.04%
30,000 Thermo Instrument Systems Inc.*..... 701,250
-----------
Exploration & Production - 20.94%
75,000 Cross Timbers Oil Co................ 1,228,125
90,000 Louis Dreyfus Natural Gas Corp.*.... 1,383,750
50,000 Newfield Exploration Co.*........... 1,150,000
52,500 Vintage Petroleum, Inc.............. 1,076,250
-----------
4,838,125
-----------
Household & Consumer Products - 1.52%
8,000 Duracell International Inc.......... 352,000
-----------
International Energy - 39.96%
13,000 British Petroleum plc, ADR.......... 1,119,625
28,000 Norsk Hydro AS, ADR................. 1,123,500
50,000 Occidental Petroleum Corp. ......... 1,150,000
38,000 Repsol, S.A., ADR................... 1,216,000
10,000 Royal Dutch Petroleum Co............ 1,240,000
15,000 Shell Trans & Trading, New ADR...... 1,068,750
35,000 Total, ADR.......................... 1,098,125
60,000 YPF S.A., Spon ADR, Rep Cl. D....... 1,215,000
-----------
9,231,000
-----------
Natural Gas Transmission - 4.39%
40,000 K N Energy Inc. .................... 1,015,000
-----------
Oil Services - 6.95%
50,000 Camco International Inc. ........... 1,181,250
12,500 Enron Corp.......................... 425,000
-----------
1,606,250
-----------
Transportation - 7.75%
15,000 Conrail Inc. ....................... 819,375
35,000 Railtex Inc.*....................... 971,250
-----------
1,790,625
-----------
Total United States Common Stocks............. 19,534,250
-----------
Total Common Stocks (cost - $19,027,245)...... 20,174,850
-----------
Paine Webber
GLOBAL ENERGY FUND
13
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (concluded)
April 30, 1995 (unaudited)
<CAPTION>
Principal
Amount
(000) Maturity Dates Interest Rates Value
- --------- -------------- -------------- -----------
<S> <C> <C> <C>
Short-Term U.S. Government Securities - 2.16%
$500 U.S. Treasury Bill (cost - $498,073)............... 05/25/95 5.550%@ $ 498,075
-----------
Repurchase Agreement - 1.19%
Repurchase Agreement dated 04/28/95 with Brown
Brothers Harriman & Co., collateralized by $275,968
U.S. Treasury Notes, 7.750% due 03/31/96, proceeds:
275 $275,125 (cost - $275,000)......................... 05/01/95 5.438 275,000
-----------
Total Investments (cost - $19,800,318) - 90.67%.............. 20,947,925
Other assets in excess of liabilities - 9.33%................ 2,155,268
-----------
Net Assets - 100.00%......................................... $23,103,193
<FN> ===========
- ------
* Non-income producing security
ADR American Depositary Receipt
@ Yield to maturity
</TABLE>
See accompanying notes to financial statements
Paine Webber
GLOBAL ENERGY FUND
14
<PAGE>
PORTFOLIO OF INVESTMENTS
April 30, 1995 (unaudited)
Common Stocks - 52.50%
Number of
Shares Value
- ---------- -----------
Argentina - 1.52%
Infrastructure - 1.52%
519,600 Comercial Del Plata........ $ 1,169,042
-----------
Austria - 0.45%
Oil & Gas - 0.11%
804 OMV AG..................... 83,102
- -----------
Technology - 0.34%
2,381 VA Technologie AG.......... 262,702
- -----------
Total Austria Common Stocks........... 345,804
- -----------
Australia - 1.27%
Food - 0.81%
245,504 Burns Philip & Co., Ltd. .. 621,414
-----------
Transportation - 0.46%
35,620 Brambles Industries Ltd.... 351,315
- -----------
Total Australia Common Stocks......... 972,729
-----------
Brazil - 1.37%
Food - 0.86%
50,900,000 Ceval Alimentos............ 663,792
-----------
Mining - 0.51%
13,000 Tubarao ADR................ 393,205
- -----------
Telecommunications - 0.00%
18,846 Telebras................... 564
-----------
Total Brazil Common Stocks............ 1,057,561
-----------
Canada - 1.53%
Non-Ferrous Metals - 0.57%
15,000 Cameco Corp................ 441,339
-----------
Mining - 0.96%
78,000 Echo Bay Mines Ltd. ....... 741,000
-----------
Total Canada Common Stocks............ 1,182,339
- -----------
Paine Webber
GLOBAL GROWTH AND INCOME FUND
15
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (continued)
Number of
Shares Value
- --------- -----------
Denmark - 0.68%
Commercial Services - 0.09%
2,486 ISS International Service System A/S 'B'.. $ 72,620
-----------
Telecommunications - 0.59%
8,736 Teledenmark 'B'........................... 455,818
-----------
Total Denmark Common Stocks......................... 528,438
-----------
Finland - 0.49%
Capital Goods - 0.49%
149,860 Tampella AB OY*........................... 379,369
-----------
France - 6.52%
Automotive - 0.93%
12,623 Valeo SA.................................. 717,871
-----------
Banking - 0.51%
8,088 Banque Nationale de Paris................. 392,613
-----------
Construction - 0.26%
2,628 Legris Industries*........................ 198,561
-----------
Consumer Products - 0.03%
109 Robertet SA............................... 25,615
- -----------
Energy - 1.28%
15,797 Total SA (Class B)........................ 985,648
- -----------
Food - 1.41%
2,162 Carrefour SA.............................. 1,082,427
-----------
Industrial Holdings - 0.19%
4,695 Dynaction*................................ 142,466
-----------
Infrastructure - 0.47%
6,000 Technip SA/Compagnie Francaise............ 358,282
-----------
Leisure - 0.31%
2,400 Club Mediterranee......................... 241,779
-----------
Oil & Gas - 0.58%
14,743 Coflexip S.A. ADR......................... 444,824
- -----------
Utilities - 0.55%
4,000 Generale des Eaux......................... 420,839
-----------
Total France Common Stocks.......................... 5,010,925
- -----------
Paine Webber
GLOBAL GROWTH AND INCOME FUND
16
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
<CAPTION>
Common Stocks - (continued)
Number of
Shares Value
- --------- -----------
<S> <C>
Germany - 1.57%
Automotive - 1.38%
2,850 Veba AG.............................................................. $ 1,061,001
- -----------
Pharmecuetical - 0.10%
170 Gehe AG.............................................................. 73,100
- -----------
Retail - 0.09%
186 AVA Allgemeine Handelsgesellschaftder der Verbraucher AG............. 69,781
-----------
Total Germany Common Stocks.................................................... 1,203,882
-----------
Hong Kong - 4.70%
Aerospace - 1.02%
6,033,400 China Aerospace*..................................................... 787,202
-----------
Broadcast - 0.40%
82,000 Television Broadcasts Ltd. .......................................... 304,547
-----------
Conglomerates - Diversified - 0.24%
42,000 Hutchison Whampoa Ltd................................................ 181,759
-----------
Infrastructure - 1.75%
1,890,000 Hopewell Holdings Ltd. .............................................. 1,342,850
-----------
Insurance - 0.10%
138,000 National Mutual Asia Ltd............................................. 80,668
-----------
Retail - 1.00%
681,700 Dickson Concept International, Ltd................................... 352,254
632,000 Giordano Holdings Ltd................................................ 416,380
-----------
768,634
-----------
Utilities - 0.19%
67,800 Consolidated Electric Power Asia..................................... 148,020
-----------
Total Hong Kong Common Stocks.................................................. 3,613,680
-----------
Indonesia - 0.40%
Automotive - 0.40%
239,000 P.T. Astra International............................................. 305,038
-----------
Italy - 0.36%
Telecommunications - 0.36%
120,565 Societa Finanziaria Telefonica SPA (non-convertible savings shares).. 276,142
-----------
</TABLE>
Paine Webber
GLOBAL GROWTH AND INCOME FUND
17
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (continued)
Number of
Shares Value
- --------- -----------
Japan - 8.59%
Automotive - 1.50%
108,000 Suzuki Motor Corp., Ltd. ............... $ 1,156,523
-----------
Electronics - 3.82%
17,000 Canon Inc. ............................. 281,159
8,000 Murata Manufacturing Co., Ltd........... 321,732
13,000 Nintendo Corp........................... 833,720
23,000 Secom Co. .............................. 1,499,673
-----------
2,936,284
-----------
Food - 1.40%
20,000 Ito - Yokado............................ 1,077,994
-----------
Telecommunications - 1.87%
163 DDI Corp................................ 1,435,184
-----------
Total Japan Common Stocks......................... 6,605,985
-----------
Korea - 0.24%
Electric Utility - 0.24%
5,012 Korea Electric Power ADR................ 183,426
-----------
Malaysia - 0.62%
Banking - 0.32%
25,000 AMMB Holdings Berhad.................... 246,814
-----------
Mining - 0.07%
32,000 Malaysia Mining Berhad.................. 53,862
-----------
Telecommunications - 0.23%
26,000 Telekom Malaysia Berhad................. 178,839
-----------
Total Malaysia Common Stocks...................... 479,515
-----------
Mexico - 0.29%
Telecommunications - 0.29%
6,698 Grupo Carso SA ADR...................... 72,004
7,429 Grupo Televisa.......................... 147,651
- -----------
Total Mexico Common Stocks........................ 219,655
- -----------
Netherlands - 0.23%
Financial Services - 0.23%
3,352 Internationale Nederlanden Groep N.V. .. 176,636
-----------
Paine Webber
GLOBAL GROWTH AND INCOME FUND
18
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (continued)
Number of
Shares Value
- --------- -----------
Norway - 1.65%
Commercial Services - 0.11%
2,941 Petroleum Geo-Service*............ $ 80,221
-----------
Machinery & Engineering - 0.93%
16,500 Kvaerner 'B' Free................. 714,816
-----------
Oil Services - 0.61%
37,529 Aker A/S 'B' SHS.................. 469,687
-----------
Total Norway Common Stocks.................. 1,264,724
- -----------
Poland - 0.37%
Construction - 0.37%
50,000 Mostostal Export 'B'.............. 280,774
-----------
South Africa - 2.40%
Investment Companies - 0.48%
50,652 Rembrandt Group Ltd. ............. 370,923
-----------
Mining - 1.77%
63,416 Gencor, Ltd. ..................... 205,910
760,000 South African Iron & Steel/Iscor.. 942,978
40,528 Randfontein Estates Goldmine...... 213,909
-----------
1,362,797
-----------
Petroleum - 0.15%
12,000 Sasol Ltd......................... 114,404
-----------
Total South Africa Common Stocks............ 1,848,124
-----------
Sweden - 0.39%
Appliances - 0.18%
2,737 Electrolux Ab 'B' Free............ 139,610
-----------
Pharmeceuticals - 0.21%
5,569 Astra Ab 'B' Free................. 158,495
-----------
Total Sweden Common Stocks.................. 298,105
-----------
Switzerland - 4.28%
Equipment - 0.97%
756 BBC Brown Boveri Ltd. ............ 745,942
-----------
Food - 1.26%
989 Nestle SA-Registered.............. 965,488
-----------
Paine Webber
GLOBAL GROWTH AND INCOME FUND
19
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (continued)
Number of
Shares Value
- --------- -----------
Switzerland - (concluded)
Insurance - 0.19%
211 Swiss Reinsurance Registered.. $ 147,079
-----------
Pharmecueticals - 1.86%
238 Roche Holdings AG............. 1,429,557
-----------
Total Switzerland Common Stocks......... 3,288,066
-----------
Thailand - 0.25%
Banking - 0.25%
21,900 Thai Farmers Bank, Ltd. ...... 192,332
-----------
Turkey - 0.56%
Banking - 0.47%
1,333,182 Akbank........................ 360,319
-----------
Machinery - 0.09%
205,192 Koc Yatirim................... 66,308
-----------
Total Turkey Common Stocks.............. 426,627
-----------
United Kingdom - 2.80%
Capital Goods - 1.12%
230,000 Weir Group.................... 862,129
-----------
Drugs - 1.19%
235,000 Medeva plc. .................. 911,115
-----------
Leisure - 0.04%
10,000 Ladbroke Group................ 28,957
-----------
Mining - 0.45%
75,000 Antofagasta Holdings.......... 343,870
-----------
Total United Kingdom Common Stocks...... 2,146,071
-----------
United States - 8.97%
Biotechnology - 0.89%
3,000 Amgen Inc.*................... 219,750
15,432 Sunrise Medical Inc. ......... 466,818
-----------
686,568
-----------
Commercial Services - 0.50%
15,000 Ogden Corp. .................. 305,625
3,456 Ecolab Inc. .................. 79,488
-----------
385,113
-----------
Paine Webber
GLOBAL GROWTH AND INCOME FUND
20
<PAGE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
Common Stocks - (concluded)
Number of
Shares Value
- --------- -----------
United States - (concluded)
Conglomerates - 1.05%
20,335 Allied Signal Inc. ..................... $ 805,774
-----------
Consumer Products - 0.11%
1,232 Colgate-Palmolive Co. .................. 86,548
-----------
Electronics & Instrumentation - 0.31%
884 Intel Corporation....................... 90,500
600 International Business Machines Corp. .. 56,850
1,031 Motorola Inc. .......................... 58,638
697 Zebra Technologies Corp. (Class A)...... 31,975
-----------
237,963
-----------
Environmental Services - 0.97%
51,338 Wheelabrator Technologies, Inc. ........ 744,401
-----------
Financial Services - 1.69%
36,745 Countrywide Credit Industries, Inc. .... 675,189
7,689 First Financial Management Corp. ....... 562,258
884 J.P. Morgan & Co. ...................... 58,013
-----------
1,295,460
-----------
Food - 1.01%
27,000 RJR Nabisco Holdings Corp. ............. 739,125
3,590 Wholesome & Hearty Foods, Inc. ......... 39,490
-----------
778,615
-----------
Insurance - 0.77%
14,299 The Travelers........................... 591,621
-----------
Machinery - 0.59%
25,000 Giddings & Lewis Inc. .................. 453,125
-----------
Paper - 0.07%
700 International Paper Co. ................ 53,900
-----------
Retail - 1.01%
30,744 Toys 'R' Us, Inc. ...................... 776,286
-----------
Total United States Common Stocks................. 6,895,374
-----------
Total Common Stocks (cost - $42,130,465).......... 40,350,363
-----------
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GLOBAL GROWTH AND INCOME FUND
21
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
<CAPTION>
Preferred Stocks - 2.47%
Number of
Shares Value
- --------- -----------
<S> <C>
Austria - 0.33%
Bank - 0.33%
4,410 Creditanstalt Bank, Pfd............................................. $ 252,328
-----------
Brazil - 0.70%
Machinery - 0.70%
1,995,000 Brasmotor Preferred Reg'd........................................... 539,995
-----------
Telecommunications - 0.00%
5,570 Telebras Reg'd...................................................... 200
-----------
Total Brazil Preferred Stocks................................................. 540,195
-----------
Germany - 1.44%
Automotive - 1.32%
2,780 Porsche AG Non-Voting............................................... 1,014,884
-----------
Computer Systems - 0.12%
91 Sap AG.............................................................. 89,946
-----------
Total Germany Preferred Stocks................................................ 1,104,830
-----------
Total Preferred Stocks (cost - $2,147,726).................................... 1,897,353
-----------
Stock Rights - 0.03%
Turkey - 0.03%
Banking - 0.03%
96,350 Akbank - Rights, expiring 05/26/95 (cost - $12,336) ................ 26,041
-----------
Number of
Contracts
- ---------
Warrants - 0.02%
Hong Kong - 0.02%
Aerospace - 0.02%
1,698,000 China Aerospace Int'l Holding, expiring 12/31/95 (cost - $257,427).. 11,845
-----------
</TABLE>
<TABLE>
Long-Term Debt Securities - 27.56%
Principal
Amount Maturity Interest
(000)** Dates Rates
- --------- ------------------- -----------------
<S> <C> <C> <C>
Denmark - 4.93%
$20,000 Government of Denmark.. 11/15/00 9.000% 3,787,605
---------
Finland - 3.75%
12,000 Republic of Finland.... 03/15/04 9.500 2,883,086
---------
</TABLE>
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GLOBAL GROWTH AND INCOME FUND
22
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
<CAPTION>
Long-Term Debt Securities - (concluded)
Principal
Amount Maturity Interest
(000)** Dates Rates Value
- --------- -------------------- ------------------------------- ------------
<S> <C> <C> <C>
Indonesia - 1.11%
$1,000 Eka Guntama Mandiri Convertible...................... 10/04/97 4.000% $ 850,000
------------
Poland - 3.64%
8,000 Government of Poland................................. 10/27/24 2.750 2,800,000
------------
South Africa - 4.96%
20,000 Electrical Supply Commission of South Africa......... 06/01/08 11.000 3,811,814
------------
Spain - 4.93%
460,000 Government of Spain.................................. 08/30/96 to 03/25/00 11.850 to 12.250 3,791,000
------------
United Kingdom - 3.23%
1,300 United Kingdom Gilt.................................. 07/14/04 13.000 2,484,160
------------
Venezuela - 1.01%
900 Bariven Petroleos de Venezuela, SA................... 03/17/02 10.625 774,000
------------
Total Long-Term Debt Securities (cost - $21,126,438)........... 21,181,665
------------
Short-Term Debt Securities - 16.22%
United States - 16.22%
12,500 U.S. Treasury Bills (cost - $12,467,110)............. 05/04/95 to 06/01/95 5.535 to 5.600@ 12,467,125
------------
Repurchase Agreement - 2.55%
Repurchase Agreement dated 04/28/95 with
Nomura Securities, Inc., collateralized by $2,010,000
U.S. Treasury Notes, 3.875% due 09/30/95;
1,956 proceeds: $1,956,962 (cost - $1,956,000)............. 05/01/95 5.900 1,956,000
------------
Total Investments (cost - $80,097,502) - 101.35%............... 77,890,392
Liabilities in excess of other assets - (1.35)%................ (1,027,728)
------------
Net Assets - 100.00%........................................... $76,862,664
============
<FN>
- ------
* Non-income producing security
** In local currency unless otherwise indicated.
ADR American Depositary Receipt
@ Yield to maturity
</TABLE>
See accompanying notes to financial statements
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GLOBAL GROWTH AND INCOME FUND
23
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
April 30, 1995 (unaudited)
<CAPTION>
Long-Term Debt Securities - 69.27%
Principal
Amount Maturity Interest
(000)* Dates Rates Value
- ---------- -------------------- ---------------------------------- --------------
<S> <C> <C> <C>
Australia - 8.43%
$66,591 New South Wales Treasury Corp. .............. 07/01/99 to 12/01/01 11.500 to 12.000% $ 53,547,697
60,670 Queensland Treasury Corp. Global Issue....... 08/15/01 to 05/15/03 10.500 to 12.000 48,000,130
--------------
101,547,827
--------------
Canada - 3.02%
10,000 Bell Canada.................................. 05/21/96 9.875 7,446,120
72,013 Ontario Hydro Global Bonds................... 04/11/07 to 04/11/11 10.502 to 10.551@ 15,962,343
31,914 Province of British Columbia Residual Bonds.. 01/09/12 9.061 to 9.115@ 5,380,426
10,100 Province of Ontario.......................... 05/01/96 10.750 7,626,075
--------------
36,414,964
--------------
Denmark - 3.22%
211,697 Government of Denmark........................ 11/15/00 to 05/15/03 8.000 to 9.000 38,803,941
--------------
Finland - 0.92%
46,000 Government of Finland........................ 03/15/04 9.500 11,051,829
--------------
France - 2.07%
120,500 Government of France......................... 10/25/19 8.500 24,968,843
--------------
Germany - 6.95%
118,745 Federal Republic of Germany.................. 05/22/00 to 01/04/24 4.801** to 8.750 83,756,029
--------------
Ireland - 1.99%
14,300 Republic of Ireland.......................... 11/15/97 to 07/15/01 9.000 to 11.500 23,917,068
--------------
Netherlands - 4.48%
75,430 Government of Netherlands.................... 10/16/00 to 09/15/01 8.750 to 9.250 53,986,278
--------------
New Zealand - 5.35%
77,090 Government of New Zealand.................... 10/15/96 to 07/15/97 9.000 to 14.000 54,032,816
International Bank for Reconstruction and
14,230 Development (1).............................. 07/25/97 12.500 10,377,695
--------------
64,410,511
--------------
Spain - 6.82%
10,038,600 Government of Spain.......................... 08/30/96 to 03/25/00 11.450 to 12.250 82,130,754
--------------
United Kingdom - 9.31%
33,244 Government of United Kingdom Exchequer....... 05/15/96 13.250 56,623,276
29,526 United Kingdom Gilt.......................... 01/22/97 to 07/14/00 13.000 to 15.500 55,521,923
- --------------
112,145,199
--------------
</TABLE>
Paine Webber
GLOBAL INCOME FUND
24
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (continued)
April 30, 1995 (unaudited)
<CAPTION>
Long-Term Debt Securities - (concluded)
Principal
Amount Maturity Interest
(000)* Dates Rates Value
- --------- -------------------- --------------- --------------
<S> <C> <C> <C>
United States - 16.71%
$18,000 Chase Manhattan Corp. .............................. 12/01/97 7.500% $18,105,228
16,000 Clorox Corporation.................................. 07/15/01 8.800 17,149,136
15,000 Ford Motor Credit Corp. ............................ 07/01/01 9.500 16,441,485
50,000 General Motors Acceptance Corp. MTN................. 07/15/96 to 04/30/97 7.950 to 8.625 50,835,160
96,600 U.S. Treasury Notes................................. 12/31/96 to 11/30/99 7.500 to 7.750 98,695,844
--------------
201,226,853
--------------
Total Long-Term Debt Securities (cost - $823,497,577)......... 834,360,096
--------------
Short-Term Debt Securities - 9.44%
Finland - 1.76%
90,000 Government of Finland............................... 06/15/95 11.000 21,215,448
--------------
Germany - 2.96%
48,130 Federal Republic of Germany......................... 01/22/96 8.875 35,686,448
--------------
Spain - 1.90%
2,745,130 Government of Spain................................. 04/15/96 13.450 22,851,977
--------------
United States - 2.61%
33,000 U.S. Treasury Bills................................. 03/07/96 6.173@ 31,409,960
--------------
Uruguay - 0.21%
US$2,500 Republic of Uruguay................................. 06/08/95 8.250 2,497,438
--------------
Total Short-Term Debt Securities (cost - $105,700,587)........ 113,661,271
--------------
Repurchase Agreements - 8.32%
Repurchase Agreement dated 04/28/95 with Citibank
N.A., collateralized by $21,920,000 U.S. Treasury
25,194 Bonds, 8.750% due 05/15/17, proceeds: $25,206,387... 05/01/95 5.900 25,194,000
Repurchase Agreement dated 04/28/95 with Daiwa
Securities, Inc., collateralized by $21,820,000 U.S.
Treasury Bonds, 8.875% due 08/15/17, proceeds:
25,000 $25,012,333......................................... 05/01/95 5.920 25,000,000
Repurchase Agreement dated 04/28/95 with First
Chicago Capital Markets, Inc., collateralized by
$25,140,000 U.S. Treasury Notes, 4.125% due
25,000 05/31/95, proceeds: $25,012,292..................... 05/01/95 5.900 25,000,000
Repurchase Agreement dated 04/28/95 with Yamaichi
International (America) Inc., collateralized by
$25,375,000 U.S. Treasury Notes, 6.500% due
25,000 09/30/96, proceeds: $25,012,333..................... 05/01/95 5.920 25,000,000
--------------
Total Repurchase Agreements (cost - $100,194,000)............. 100,194,000
--------------
Total Investments (cost - $1,029,392,164) - 87.03%............ 1,048,215,367
Other assets in excess of liabilities - 12.97%................ 156,281,365
--------------
Net Assets - 100.00%.......................................... $1,204,496,732
==============
<FN>
- ------
Note: The Portfolio of Investments is listed by the issuer's country of origin.
* In local currency unless otherwise indicated.
** Reflects rate at April 30, 1995 on variable rate instrument.
@ Yield to maturity
MTN Medium term note
(1) "Supranational" security denominated in New Zealand Dollars.
</TABLE>
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GLOBAL INCOME FUND
25
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (concluded)
April 30, 1995 (unaudited)
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACTS
Unrealized
Contract to In Exchange Maturity Appreciation
Deliver for Dates (Depreciation)
-------------- ----------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars.... 147,453,000 US$ 108,583,056 05/03/95 to 11/03/95 $1,912,017
Belgian Francs........ 1,200,000,000 US$ 39,215,686 08/21/95 (2,900,355)
Belgian Francs........ 738,000,000 US$ 23,471,789 01/03/96 (2,609,996)
British Pounds........ 27,500,000 US$ 42,990,750 06/12/95 (1,244,576)
British Pounds........ 27,500,000 US$ 43,001,750 07/10/95 (1,230,405)
British Pounds........ 17,568,000 US$ 27,462,298 05/15/95 (800,205)
Danish Kronas......... 207,000,000 US$ 38,222,813 07/26/95 271,847
Finnish Markkas....... 99,900,000 US$ 22,860,412 06/16/95 (561,654)
German Deutschemarks.. 21,935,655 US$ 15,808,342 05/02/95 (18,438)
Greek Drachmas........ 19,628,602,000 US$ 79,631,261 05/10/95 to 06/26/95 (6,341,507)
New Zealand Dollars... 40,890,000 US$ 26,194,134 06/09/95 (1,208,471)
Spanish Pesetas....... 18,300,000,000 US$ 137,822,352 05/22/95 to 08/21/95 (10,339,160)
Spanish Pesetas....... 2,440,000,000 US$ 18,202,842 05/10/95 (1,613,652)
U.S. Dollars.......... 25,131,013 AUD 34,453,000 05/03/95 (71,625)
U.S. Dollars.......... 16,528,864 BFR 481,529,200 08/21/95 348,864
U.S. Dollars.......... 41,854,628 ESP5,273,222,883 05/22/95 to 07/10/95 971,925
U.S. Dollars.......... 18,286,057 ESP2,440,000,000 05/10/95 1,530,437
U.S. Dollars.......... 30,697,583 GBP 19,066,822 05/15/95 (24,081)
U.S. Dollars.......... 9,529,881 GRD 2,167,817,900 05/10/95 to 06/26/95 65,370
U.S. Dollars.......... 1,177,313 NZD 1,750,000 06/09/95 (1,050)
--------------
$(23,864,715)
==============
</TABLE>
- ------
Currency Type Abbreviations:
AUD - Australian Dollars
BFR - Belgian Francs
ESP - Spanish Pesetas
GBP - British Pounds
GRD - Greek Drachmas
NZD - New Zealand Dollars
INVESTMENTS BY TYPE OF ISSUER Percentage of Net Assets
------------------------
Long-term Short-term
----------- ------------
Government and other public issuers.. 59.28% 9.44%
Repurchase Agreements................ - 8.32%
Financial institutions............... 5.59% -
Banks................................ 1.50% -
Other................................ 2.90% -
----------- ------------
69.27% 17.76%
=========== ============
See accompanying notes to financial statements
Paine Webber
GLOBAL INCOME FUND
26
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (unaudited)
<CAPTION>
Global
Europe Global Growth Global
Growth Energy and Income Income
Fund Fund Fund Fund
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Assets
Investments, at value (cost - $92,069,949, $19,800,318, $80,097,502
and $1,029,392,164, respectively)................................... $99,091,356 $20,947,925 $77,890,392 $1,048,215,367
Cash................................................................ 136,052 999 9,973 382
Cash denominated in foreign currencies, at value (cost -
$241,596, $0, $1,746,496, and $88,303,490, respectively)............ 241,596 - 1,765,384 87,741,525
Receivable for investments sold..................................... 3,115,478 2,441,725 7,384,319 210,087,762
Receivable for shares of beneficial interest sold................... 121,649 23,259 28,896 305,649
Unrealized appreciation on forward foreign currency contracts....... - - - 5,104,021
Dividends and interest receivable................................... 697,647 66,990 939,364 37,665,352
Other assets........................................................ 50,196 17,613 56,545 80,366
------------- ------------ ------------ --------------
Total assets........................................................ 103,453,974 23,498,511 88,074,873 1,389,200,424
------------- ------------ ------------ --------------
Liabilities
Payable for investments purchased................................... 1,784,772 - 9,815,012 144,104,993
Payable for shares of beneficial interest repurchased............... 939,905 175,675 1,029,778 8,839,106
Unrealized depreciation on forward foreign currency contracts....... - - - 28,968,736
Payable to affiliates............................................... 122,731 30,004 98,497 1,397,214
Accrued expenses and other liabilities.............................. 290,370 189,639 268,922 1,393,643
------------- ------------ ------------ --------------
Total liabilities................................................... 3,137,778 395,318 11,212,209 184,703,692
------------- ------------ ------------ --------------
Net Assets
Beneficial interest shares of $0.001 par value outstanding
(unlimited amount authorized)....................................... 92,040,268 24,242,133 80,251,557 1,244,270,185
Undistributed (distribution in excess of) net investment income..... (221,511) (40,730) 947,311 (2,207,080)
Accumulated net realized gains (losses) from investments and
foreign currency transactions....................................... 1,468,455 (2,246,725) (2,169,783) (31,511,778)
Net unrealized appreciation (depreciation) of investments, other
assets, liabilities and forward contracts denominated in foreign
currencies.......................................................... 7,028,984 1,148,515 (2,166,421) (6,054,595)
------------- ------------ ------------ --------------
Net assets.......................................................... $100,316,196 $23,103,193 $76,862,664 $1,204,496,732
============= ============ ============ ==============
Class A:
Net assets.......................................................... $61,226,556 $9,529,536 $44,112,475 $546,196,933
------------- ------------ ------------ --------------
Shares outstanding.................................................. 6,629,796 852,349 4,485,277 53,383,774
------------- ------------ ------------ --------------
Net asset value and redemption value per share...................... $9.24 $11.18 $9.83 $10.23
============= ============ ============ ==============
Maximum offering price per share (net asset value plus sales charge
of 4.50%, 4.50%, 4.50% and 4.00%, respectively, of offering price).. $9.68 $11.71 $10.29 $10.66
============= ============ ============ ========================
Class B:
Net assets.......................................................... $28,982,720 $12,905,199 $25,081,046 $575,409,083
------------- ------------ ------------ --------------
Shares outstanding.................................................. 3,215,428 1,155,688 2,602,026 56,410,220
------------- ------------ ------------ --------------
Net asset value and offering price per share........................ $9.01 $11.17 $9.64 $10.20
============= ============ ============ ========================
Class C:
Net assets.......................................................... $12,477,569
--------------
Shares outstanding.................................................. 1,218,507
--------------
Net asset value, offering price and redemption value per share...... $10.24
========================
Class D:
Net assets.......................................................... $10,106,920 $668,458 $7,669,143 $70,413,147
------------- ------------ ------------ --------------
Shares outstanding.................................................. 1,114,814 60,602 794,340 6,889,670
------------- ------------ ------------ --------------
Net asset value, offering price and redemption value per share...... $9.07 $11.03 $9.65 $10.22
============= ============ ============ ========================
</TABLE>
See accompanying notes to financial statements
Paine Webber
27
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1995 (unaudited)
<CAPTION>
Global
Growth
Europe Global and Global
Growth Energy Income Income
Fund Fund Fund Fund
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment income:
Dividends (net of foreign withholding taxes)............................. $709,308 $181,142 $430,284 $-
Interest (net of foreign withholding taxes).............................. 215,619 74,913 1,411,298 56,654,941
------------- ------------- -------------- --------------
924,927 256,055 1,841,582 56,654,941
------------- ------------- -------------- --------------
Expenses:
Investment advisory and administration................................... 479,377 101,460 397,026 4,711,666
Service fees-Class A..................................................... 83,767 11,935 63,226 712,753
Service and distribution fees-Class B.................................... 160,177 67,715 142,164 3,158,736
Service and distribution fees-Class D.................................... 57,500 3,917 46,072 295,618
Custody and accounting................................................... 183,800 34,190 188,600 433,981
Transfer agency and service fees......................................... 92,705 23,303 64,476 595,049
Legal and audit fees..................................................... 30,527 20,014 36,514 83,967
Amortization of organizational expenses.................................. 25,423 - - -
Reports and notices to shareholders...................................... 23,565 19,473 20,317 159,313
Federal and state registration fees...................................... 23,422 27,879 22,869 83,987
Trustees' fees and expenses.............................................. 2,375 2,375 2,375 2,375
Other expenses........................................................... 600 2,524 16,964 125,694
------------- ------------- -------------- --------------
1,163,238 314,785 1,000,603 10,363,139
------------- ------------- -------------- --------------
Net investment income (loss)............................................. (238,311) (58,730) 840,979 46,291,802
------------- ------------- -------------- --------------
Realized and unrealized gains (losses) from investment transactions:
Net realized gains (losses) from:
Investment transactions.................................................. 4,532,022 (376,584) (1,614,626) (22,424,847)
Foreign currency transactions............................................ (184,410) 3,710 (342,042) 5,987,500
Net change in unrealized appreciation/depreciation of:
Investments.............................................................. (2,410,194) (575,093) (8,844,650) 52,008,839
Other assets, liabilities and forward contracts denominated in
foreign currencies....................................................... 64,194 (43) 117,881 (13,532,287)
------------- ------------- -------------- --------------
Net realized and unrealized gains (losses) from investment transactions.. 2,001,612 (948,010) (10,683,437) 22,039,205
------------- ------------- -------------- --------------
Net increase (decrease) in net assets resulting from operations.......... $1,763,301 $(1,006,740) $(9,842,458) $68,331,007
============= ============= ============== ==============
</TABLE>
See accompanying notes to financial statements
Paine Webber
28
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Europe Growth Fund Global Energy Fund
---------------------------- -----------------------------
For the Six For the Year For the Six For the Year
Months Ended Ended Months Ended Ended
April 30, 1995 October 31, April 30, 1995 October 31,
(unaudited) 1994 (unaudited) 1994
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
From operations:
Net investment loss........................................ $(238,311) $(931,313) $(58,730) $(99,411)
Net realized gains (losses) from investment transactions... 4,532,022 24,878,615 (376,584) (1,873,851)
Net realized gains (losses) from foreign currency
transactions............................................... (184,410) (22,560,640) 3,710 (12,394)
Net change in unrealized appreciation/depreciation of
investments................................................ (2,410,194) (14,026,063) (575,093) (404,872)
Net changes in unrealized appreciation/depreciation of
other assets, liabilities and forward contracts
denominated in foreign currencies.......................... 64,194 4,467,567 (43) 11,461
-------------- ------------- -------------- --------------
Net increase (decrease) in net assets resulting from
operations................................................. 1,763,301 (8,171,834) (1,006,740) (2,379,067)
-------------- ------------- -------------- --------------
Dividends and distributions to/from:
Net investment income-Class A.............................. - (189,958) - (92,910)
Net investment income-Class B.............................. - - - -
Net investment income-Class D.............................. - - - (294)
Net realized gains from foreign currency
transactions-Class A....................................... - (3,382,032) - -
Net realized gains from foreign currency
transactions-Class B....................................... - (1,272,185) - -
Net realized gains from foreign currency
transactions-Class D....................................... - (559,399) - -
Net realized gains from investments transactions-Class A... - - - (1,668,385)
Net realized gains from investments transactions-Class B... - - - (2,966,006)
Net realized gains from investments transactions-Class D... - - - (138,983)
-------------- ------------- -------------- --------------
- (5,403,574) - (4,866,578)
-------------- ------------- -------------- --------------
From beneficial interest transactions:
Net proceeds from the sale of shares....................... 12,489,569 68,815,455 5,821,533 22,625,132
Cost of shares repurchased................................. (43,810,899) (78,076,131) (11,763,286) (28,108,399)
Proceeds from dividends reinvested......................... - 5,029,677 - 4,162,810
-------------- ------------- -------------- --------------
Net decrease in net assets derived from beneficial interest
transactions............................................... (31,321,330) (4,230,999) (5,941,753) (1,320,457)
-------------- ------------- -------------- --------------
Net decrease in net assets................................. (29,558,029) (17,806,407) (6,948,493) (8,566,102)
Net assets:
Beginning of period........................................ 129,874,225 147,680,632 30,051,686 38,617,788
-------------- ------------- -------------- --------------
End of period.............................................. $100,316,196 $129,874,225 $23,103,193 $30,051,686
============== ============= ============== ==============
</TABLE>
See accompanying notes to financial statements
Paine Webber
29
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS (concluded)
<CAPTION>
Global Growth
and Income Fund Global Income Fund
---------------------------- -------------------------------
For the Six For the Year For the Six For the Year
Months Ended Ended Months Ended Ended
April 30, 1995 October 31, April 30, 1995 October 31,
(unaudited) 1994 (unaudited) 1994
-------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
From operations:
Net investment income..................................... $840,979 $894,600 $46,291,802 $113,786,644
Net realized gains (losses) from investment transactions.. (1,614,626) 8,863,363 (22,424,847) (17,079,241)
Net realized gains (losses) from foreign currency
transactions.............................................. (342,042) (3,547,489) 5,987,500 (59,719,415)
Net change in unrealized appreciation/depreciation of
investments............................................... (8,844,650) (6,077,963) 52,008,839 (90,644,293)
Net changes in unrealized appreciation/depreciation of
other assets, liabilities and forward contracts
denominated in foreign currencies......................... 117,881 (639,496) (13,532,287) (15,050,480)
-------------- ------------- --------------- ---------------
Net increase (decrease) in net assets resulting from
operations................................................ (9,842,458) (506,985) 68,331,007 (68,706,785)
-------------- ------------- --------------- ---------------
Dividends and distributions to/from:
Net investment income-Class A............................. - (956,383) (18,048,880) (20,955,179)
Net investment income-Class B............................. - (264,496) (17,754,454) (25,638,320)
Net investment income-Class C............................. - - (405,137) (429,608)
Net investment income-Class D............................. - (109,921) (2,278,355) (3,358,807)
Net realized gains from foreign currency
transactions-Class A...................................... - (663,491) - -
Net realized gains from foreign currency
transactions-Class B...................................... - (216,832) - -
Net realized gains from foreign currency
transactions-Class D...................................... - (84,089) - -
Net realized gains from investment transactions-Class A... (1,872,125) - - -
Net realized gains from investment transactions-Class B... (1,059,343) - - -
Net realized gains from investment transactions-Class D... (354,475) - - -
Paid in capital-Class A................................... - - - (20,613,399)
Paid in capital-Class B................................... - - - (25,220,157)
Paid in capital-Class C................................... - - - (422,602)
Paid in capital-Class D................................... - - - (3,304,025)
-------------- ------------- --------------- ---------------
(3,285,943) (2,295,212) (38,486,826) (99,942,097)
-------------- ------------- --------------- ---------------
From beneficial interest transactions:
Net proceeds from the sale of shares...................... 2,122,991 46,748,339 13,898,761 113,562,148
Cost of shares repurchased................................ (22,851,949) (31,170,520) (307,328,991) (567,552,519)
Proceeds from dividends reinvested........................ 2,947,184 2,010,599 25,219,025 79,870,752
-------------- ------------- --------------- ---------------
Net increase (decrease) in net assets derived from
beneficial interest transactions.......................... (17,781,774) 17,588,418 (268,211,205) (374,119,619)
-------------- ------------- --------------- ---------------
Net increase (decrease) in net assets..................... (30,910,175) 14,786,221 (238,367,024) (542,768,501)
Net assets:
Beginning of period....................................... 107,772,839 92,986,618 1,442,863,756 1,985,632,257
-------------- ------------- --------------- ---------------
End of period ............................................ $76,862,664 $107,772,839 $1,204,496,732 $1,442,863,756
============== ============= =============== ===============
</TABLE>
See accompanying notes to financial statements
Paine Webber
30
<PAGE>
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Investment Series ("Trust") was organized under Massachusetts law
by a Declaration of Trust dated December 22, 1986 and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Trustees have
authority to issue an unlimited number of shares of beneficial interest, par
value $0.001.
Organizational Matters - Prior to commencing investment operations, on February
7, 1990, September 18, 1987, June 9, 1989 and March 20, 1987, respectively,
PaineWebber Europe Growth Fund ("Europe Growth Fund"), PaineWebber Global
Energy Fund ("Global Energy Fund"), PaineWebber Global Growth and Income Fund
("Global Growth and Income Fund") and PaineWebber Global Income Fund ("Global
Income Fund") (collectively the "Funds") had no activities other than
organizational matters and activities related to the initial public offering
and the issuance, at net asset value, of one or more shares of each Fund to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Funds. Costs of $277,515, $215,000,
$382,000 and $310,306, respectively, incurred by each Fund in connection with
the organization and registration of shares, have been deferred and are being
amortized, using the straight-line method over the period of benefit, not to
exceed five years, beginning with the commencement of operations of each Fund.
Mitchell Hutchins has agreed that, in the event any Fund's initial shares are
redeemed or the Fund discontinues operations, that the Fund will be reimbursed
for its pro-rata share of unamortized organizational costs.
Prior to July 1, 1991, Europe Growth Fund and Global Growth and Income Fund
issued only Class A shares and Global Energy Fund and Global Income Fund issued
only Class B shares. Subsequent to that date, all Funds have been authorized to
issue Class A, Class B, and Class C shares. On July 2, 1992, each Fund
commenced issuing Class D shares (except Europe Growth Fund and Global Energy
Fund, which commenced issuing Class D shares on July 6, 1992 and July 8, 1992,
respectively). Each Class represents an interest in the same assets of the
applicable Fund and the Classes are identical except for differences in their
sales charge structure, ongoing distribution charges and transfer agency
expenses. In addition, Class B shares automatically convert to Class A shares
approximately six years after initial issuance. All Classes of shares have
equal rights as to earnings, assets and voting privileges, except that each
class bears different distribution charges and transfer agency expenses and has
exclusive voting rights with respect to its distribution plan.
Valuation of Investments - Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sale price on the day the securities are
being valued or, lacking any sales on such day, at the last available bid
price. In cases
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(unaudited)
31
<PAGE>
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by Mitchell Hutchins as the primary market.
Securities traded in the over-the-counter ("OTC") market and listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") are valued at the last trade price on NASDAQ prior to the time of
valuation; other OTC securities are valued at the last bid price available in
the OTC market prior to the time of valuation. The amortized cost method of
valuation is used to value short-term debt instruments with sixty days or less
remaining to maturity. Securities and assets for which market quotations are
not readily available (including restricted securities subject to limitations
as to their sale) are valued at fair value as determined in good faith by or
under the direction of the Trust's board of trustees. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is
determined by each Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange ("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 the NYSE, which will not be reflected in a
computation of the Fund's net asset value. If events materially affecting the
value of such securities or currency exchange rates occurred during such time
period, the securities will be valued at their fair value as determined in good
faith by or under the direction of the Trust's board of trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments
and foreign exchange transactions are calculated using the identified cost
method. Interest income is recorded on an accrual basis and dividend income is
recorded on the ex-dividend date (except in the case of certain foreign
dividends which are recorded as soon after the ex-dividend date as the
respective Fund becomes aware of such dividend). Discounts are accreted as
adjustments to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses), and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class specific expenses are charged directly to the applicable class
of shares.
Foreign Currency Translation - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) market value of investment securities, other assets and liabilities-at the
exchange rates prevailing at the end of the period.
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
32
<PAGE>
(2) purchases and sales of investment securities, income and expenses-at the
rates of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market values of the Funds are presented at the
foreign exchange rates at the close of the period, the Funds do not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Funds do isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Pursuant to federal income tax
regulations, certain foreign exchange gains/losses included in realized and
unrealized gain/loss are included in or are a reduction of ordinary income for
federal income tax purposes.
Forward Foreign Currency Contracts - Each Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency.
The Funds have no specific limitation on the percentage of assets which may be
committed to such contracts. Each Fund may enter into forward contracts or
maintain a net exposure to forward 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 maintains cash, U.S. government securities or liquid,
high-grade debt securities in a segregated account in an amount not less than
the value of its total assets committed to the consummation of the forward
contracts and not covered as provided in (1) above, as marked-to-market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Funds. Realized gains and losses include
net gains and losses recognized by the Funds on contracts which have matured.
Repurchase Agreements - The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligations. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings.
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
33
<PAGE>
Each of the Funds occasionally participates in joint repurchase agreement
transactions with other funds managed by Mitchell Hutchins.
Reverse Repurchase Agreements - Each Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 5% of its total assets (10% in the case of Global Income Fund). As of
April 30, 1995, the Funds had no reverse repurchase agreements outstanding.
Federal Tax Status - Each Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions - Dividends and distributions to shareholders are
recorded on the ex-dividend date. Net capital gains, if any, will be
distributed at least annually, but the Fund may make more frequent
distributions of such gains, if necessary, to avoid income or excise taxes.
Dividends from net investment income and distributions from realized gains from
investment transactions have been determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions, as well
as the ability of the issuers of debt securities held by the Funds to meet
their obligations, may involve certain considerations and risks not typically
associated with investing in U.S. companies and U.S. government securities.
These risks include revaluation of currencies, adverse fluctuations in foreign
currency values and possible adverse political, social and economic
developments, including those particular to a specific industry, country or
region, which could cause the securities and their markets to be less liquid
and prices more volatile than those of comparable U.S. companies and U.S.
government securities. These risks are greater with respect to securities of
issuers located in emerging market countries, in which each Fund is authorized
to invest.
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
34
<PAGE>
Certain investment grade debt securities in which the Funds may invest have
speculative characteristics. Such securities are subject to greater risks of
default or price fluctuation than investment grade securities and are
considered predominantly speculative. The use of options, futures contracts and
forward currency contracts also entails special risks.
As a non-diversified Fund, Global Growth and Income Fund is subject to greater
risk with respect to its portfolio securities than investment companies that
have broader range of investments, because changes in the financial condition
or market assessment of a single issuer may cause greater fluctuation in the
Fund's total return and the price of its shares. Also, Global Energy Fund's
policy of concentrating its investments in the energy and energy service
industries may cause the value of its shares to fluctuate more than if it
invested in a greater number of industries. In particular, its shares will be
affected by economic, competitive and regulatory developments in those
industries, including changes in the price and supply of different energy
fuels.
INVESTMENT ADVISER AND ADMINISTRATOR
Each of the Funds has entered into an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins. In accordance with the
Advisory Contract, each Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and paid monthly, in accordance with
the following schedule:
EUROPE GROWTH FUND
Annual
Average Daily Net Assets Rate
- ---------------------------------------------- -------
Up to $50 million............................. 0.900%
In excess of $50 million up to $100 million... 0.850
In excess of $100 million up to $150 million.. 0.800
In excess of $150 million up to $200 million.. 0.750
Over $200 million............................. 0.700
GLOBAL ENERGY FUND
Annual
Average Daily Net Assets Rate
- ---------------------------------------------- -------
Up to $250 million............................ 0.850%
In excess of $250 million up to $500 million.. 0.800
Over $500 million............................. 0.750
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
35
<PAGE>
GLOBAL GROWTH AND INCOME FUND
Annual
Average Daily Net Assets Rate
- ---------------------------------------------- -------
Up to $500 million............................ 0.900%
In excess of $500 million up to $1.0 billion.. 0.875
In excess of $1.0 billion up to $1.5 billion.. 0.850
In excess of $1.5 billion up to $2.0 billion.. 0.825
Over $2.0 billion............................. 0.800
GLOBAL INCOME FUND
Annual
Average Daily Net Assets Rate
- ---------------------------------------------- -------
Up to $500 million............................ 0.750%
In excess of $500 million up to $1.0 billion.. 0.725
In excess of $1.0 billion up to $1.5 billion.. 0.700
In excess of $1.5 billion up to $2.0 billion.. 0.675
Over $2.0 billion............................. 0.650
At April 30, 1995, Europe Growth Fund, Global Energy Fund, Global Growth and
Income Fund and Global Income Fund owed Mitchell Hutchins $72,587, $15,915,
$58,242 and $731,196, respectively, for investment advisory and administration
fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse each Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
April 30, 1995, no reimbursements were required pursuant to the above
limitations for any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B and Class D
shares ("Class A Plan," "Class B Plan" and "Class D Plan," collectively the
"Plans"), each Fund pays Mitchell Hutchins monthly service fees at the annual
rate of 0.25% of the average daily net assets of Class A, Class B and Class D
shares and monthly distribution fees at the annual rate of 0.75% of the average
daily net assets on Class B and Class D shares (0.50% for Global Income
Fund-Class D Shares). At April 30, 1995, Europe Growth Fund, Global Energy
Fund, Global Growth and Income Fund and Global Income Fund owed Mitchell
Hutchins $45,007, $12,931, $36,823 and $635,964, respectively, for service and
distribution fees.
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
36
<PAGE>
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charge
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
each Fund that for the six months ended April 30, 1995, it had earned the
following amounts in sales charges:
Global
Europe Global Growth Global
Growth Energy and Income Income
Fund Fund Fund Fund
-------- ------- ---------- ----------
Initial sales charges - Class A..... $15,178 $248 $6,335 $20,656
Contingent deferred sales charges -
Class B............................. $145,326 $40,405 $94,079 $1,474,713
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Funds' transfer
agent. For these services for the six months ended April 30, 1995, PaineWebber
earned $34,549, $14,160, $22,005 and $196,066 for Europe Growth Fund, Global
Energy Fund, Global Growth and Income Fund and Global Income Fund,
respectively. At April 30, 1995, Europe Growth Fund, Global Energy Fund, Global
Growth and Income Fund and Global Income Fund owed PaineWebber $5,137, $1,158,
$3,432 and $30,054, respectively, for transfer agency service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at April 30, 1995
was substantially the same as the cost of securities for financial statement
purposes.
At April 30, 1995, the components of net unrealized appreciation (depreciation)
of investments were as follows:
<TABLE><CAPTION>
Global
Europe Growth
Growth Global Energy and Income Global Income
Fund Fund Fund Fund
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross appreciation
(investments having an
excess of value over
cost)...................... $9,647,237 $1,648,828 $2,477,013 $36,680,395
Gross depreciation
(investments having an
excess of cost over
value)..................... (2,625,830) (501,221) (4,684,123) (17,857,192)
------------ ------------- ------------- -------------
Net unrealized appreciation
(depreciation) of
investments................ $7,021,407 $1,147,607 $(2,207,110) $18,823,203
============ ============= ============= =============
</TABLE>
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
37
<PAGE>
For the six months ended April 30, 1995, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
Global
Europe Growth
Growth Global Energy and Income Global Income
Fund Fund Fund Fund
----------- ------------- ----------- -------------
Purchases.. $29,844,849 $4,664,219 $69,016,855 $489,847,189
Sales...... $68,050,363 $10,670,961 $86,796,742 $704,932,626
FEDERAL INCOME TAX STATUS
At October 31, 1994, the following Funds had net capital loss carryforwards
available as reductions, to the extent provided in the regulations, of any
future net gains realized before the end of the fiscal years indicated below.
Global
Europe Growth
Growth Global Energy and Income Global Income
Fund Fund Fund Fund
---------- ------------- ---------- -------------
2000.. $2,744,747 - - -
2002.. - $1,873,851 - $16,081,468
---------- ------------- ---------- -------------
$2,744,747 $1,873,851 - $16,081,468
========== ============= ========== =============
In addition, Global Income Fund has a net capital loss carryforward of
$1,285,400 available at October 31, 1994 pursuant to its reorganization with
PaineWebber Short-Term Global Income Fund. If unused, this carryover expires in
2001.
To the extent that such losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed.
During the year ended October 31, 1994, Europe Growth Fund and Global Growth
and Income Fund utilized net capital loss carryforwards of $23,951,313 and
$2,539,889, respectively.
SUBSEQUENT EVENT
On May 25, 1995, the shareholders of the Global Income Plus Fund, Inc. ("Global
Income Plus") voted to convert Global Income Plus from a closed-end investment
company to an open-end investment company and reorganize into the Global Income
Fund. The reorganization is expected to occur at the close of business on June
30, 1995, when Global Income Fund will acquire all the assets of Global Income
Plus in exchange solely for shares of beneficial interest in Global Income Fund
and the assumption by Global Income Fund of Global Income Plus' liabilities.
Those Global Income shares will then be distributed to the Shareholders of
Global Income Plus, so that each Shareholder of Global Income Plus will receive
shares of Global Income equal in value, on the closing date of the
reorganization, to the value of the shareholder's holdings in Global Income
Plus. The net assets of Global Income Plus were $231,306,558 as of April 30,
1995.
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(continued)
38
<PAGE>
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest were as follows:
<TABLE><CAPTION>
Class A Class B Class C Class D
--------------------------- --------------------------- ------------- --------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------ -------------- ------------ -------------- ------ ------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Europe Growth Fund
Six months ended
April 30, 1995:
Shares sold........... 115,470 $1,014,256 144,522 $1,239,973 - - 1,189,378 $10,235,340
Shares repurchased.... (2,214,930) (19,428,761) (1,172,674) (10,053,283) - - (1,662,804) (14,328,855)
Shares converted from
Class B to Class A.... 17,533 153,297 (17,549) (153,297) - - - -
------------ -------------- ------------ -------------- ------ ------ ------------ -------------
Net decrease.......... (2,081,927) $(18,261,208) (1,045,701) $(8,966,607) - - (473,426) $(4,093,515)
============ ============== ============ ============== ====== ====== ============ =============
Year ended
October 31, 1994:
Shares sold........... 1,638,650 $15,777,959 2,684,476 $25,599,107 - - 2,860,941 $27,438,389
Shares repurchased.... (3,395,338) (31,812,212) (2,033,871) (18,165,212) - - (2,931,267) (28,098,707)
Dividends reinvested.. 358,842 3,391,062 122,238 1,139,258 - - 53,293 499,357
Shares converted from
Class B to Class A.... 85,947 820,629 (87,351) (820,629) - - - -
------------ -------------- ------------ -------------- ------ ------ ------------ -------------
Net increase
(decrease)............ (1,311,899) $(11,822,562) 685,492 $7,752,524 - - (17,033) $(160,961)
============ ============== ============ ============== ====== ====== ============ =============
<CAPTION>
Class A Class B Class C Class D
--------------------------- --------------------------- ------------- --------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------ -------------- ------------ -------------- ------ ------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Global Energy Fund
Six months ended
April 30, 1995:
Shares sold........... 23,489 $252,070 67,358 $693,500 - - 487,658 $4,875,963
Shares repurchased.... (216,926) (2,237,556) (375,235) (3,879,981) - - (558,410) (5,645,749)
Shares converted from
Class B to Class A.... 59,892 620,986 (59,932) (620,986) - - - -
------------ -------------- ------------ -------------- ------ ------ ------------ -------------
Net decrease.......... (133,545) $(1,364,500) (367,809) $(3,807,467) - - (70,752) $(769,786)
============ ============== ============ ============== ====== ====== ============ =============
Year ended
October 31, 1994:
Shares sold........... 110,905 $1,292,127 398,620 $4,642,652 - - 1,447,759 $16,690,353
Shares repurchased.... (398,295) (4,620,488) (559,337) (6,730,374) - - (1,454,001) (16,757,537)
Dividends reinvested.. 132,100 1,463,674 230,629 2,571,514 - - 11,539 127,622
Shares converted from
Class B to Class A.... 247,545 2,904,923 (246,989) (2,904,923) - - - -
------------ -------------- ------------ -------------- ------ ------ ------------ -------------
Net increase
(decrease)............ 92,255 $1,040,236 (177,077) $(2,421,131) - - 5,297 $60,438
============ ============== ============ ============== ====== ====== ============ =============
</TABLE>
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(concluded)
39
<PAGE>
<TABLE>
SHARES OF BENEFICIAL INTEREST (concluded)
<CAPTION>
Class A Class B Class C Class D
---------------------------- ----------------------------- ---------------------- ---------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- -------------- ------------- --------------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Global Growth and
Income Fund
Six months ended
April 30, 1995:
Shares sold........... 68,119 $696,796 121,368 $1,224,307 - - 20,608 $201,888
Shares repurchased.... (1,308,227) (13,041,178) (701,428) (6,877,087) - - (301,342) (2,933,684)
Dividends reinvested.. 166,714 1,667,143 95,573 939,483 - - 34,608 340,558
Shares converted from
Class B to Class A.... 37,830 386,529 (38,487) (386,529) - - - -
------------- -------------- ------------- --------------- --------- ------------ ------------ --------------
Net decrease.......... (1,035,564) $(10,290,710) (522,974) $(5,099,826) - - (246,126) $(2,391,238)
============= ============== ============= =============== ========= ============ ============ ==============
Year ended
October 31, 1994:
Shares sold........... 961,568 $11,044,453 2,240,479 $25,322,472 - - 912,439 $10,381,414
Shares repurchased.... (1,607,199) (17,748,047) (722,448) (7,804,523) - - (516,302) (5,617,950)
Dividends reinvested.. 122,953 1,418,885 36,647 419,239 - - 15,050 172,475
Shares converted from
Class B to Class A.... 92,659 1,017,396 (93,641) (1,017,396) - - - -
------------- -------------- ------------- --------------- --------- ------------ ------------ --------------
Net increase
(decrease)............ (430,019) $(4,267,313) 1,461,037 $16,919,792 - - 411,187 $4,935,939
============= ============== ============= =============== ========= ============ ============ ==============
<CAPTION>
Class A Class B Class C Class D
---------------------------- ----------------------------- ---------------------- ---------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- -------------- ------------- --------------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Global Income Fund
Six months ended
April 30, 1995:
Shares sold........... 342,953 $3,441,268 712,663 $7,150,363 138,008 $1,394,233 190,803 $1,912,897
Shares repurchased.... (13,509,364) (135,659,273) (14,139,533) (141,612,847) (258,282) (2,601,759) (2,738,089) (27,455,112)
Dividends reinvested.. 1,166,072 11,752,041 1,130,824 11,359,943 40,146 405,137 169,141 1,701,904
Shares converted from
Class B to Class A.... 4,110,238 41,199,679 (4,121,311) (41,199,679) - - - -
------------- -------------- ------------- --------------- --------- ------------ ------------ --------------
Net decrease.......... (7,890,101) $(79,266,285) (16,417,357) $(164,302,220) (80,128) $(802,389) (2,378,145) $(23,840,311)
============= ============== ============= =============== ========= ============ ============ ==============
Year ended
October 31, 1994:
Shares sold........... 1,514,200 $16,176,896 5,198,224 $55,716,072 281,719 $3,006,542 3,572,779 $38,662,638
Shares repurchased.... (20,711,269) (213,693,063) (26,589,848) (275,723,807) (178,060) (1,807,652) (7,261,892) (76,327,998)
Dividends reinvested.. 3,010,952 31,242,466 3,993,779 41,711,865 97,310 1,010,823 567,607 5,905,599
Shares converted from
Class B to Class A.... 18,303,275 191,707,515 (18,356,029) (191,707,515) - - - -
------------- -------------- ------------- --------------- --------- ------------ ------------ --------------
Net increase
(decrease)............ 2,117,158 $25,433,814 (35,753,874) $(370,003,385) 200,969 $2,209,713 (3,121,506) $(31,759,761)
============= ============== ============= =============== ========= ============ ============ ==============
</TABLE>
Paine Webber
NOTES TO FINANCIAL STATEMENTS
(concluded)
40
<PAGE>
[This Page Intentionally Left Blank]
41
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE><CAPTION>
Class A
--------------------------------------------------------------------------------
For the For the Years Ended October 31, For the Period
Six Months Ended --------------------------------------------- February 7, 1990~
April 30, 1995 to October 31,
(unaudited) 1990 1994 1993 1992 1991
- ---------------- ----------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $8.99 $9.75 $7.19 $8.48 $8.94 $9.55
---------------- --------- ------------- ---------- ---------- -----------------
Income (loss) from investment operations:
Net investment income (loss) ............ (0.01) (0.03) 0.02 0.08 0.06 0.12
Net realized and unrealized gains
(losses) from investment and foreign
currency transactions.................... 0.26 (0.36) 2.54 (1.13) (0.35) (0.73)
---------------- --------- ------------- ---------- ---------- -----------------
Total income (loss) from investment
operations............................... 0.25 (0.39) 2.56 (1.05) (0.29) (0.61)
---------------- --------- ------------- ---------- ---------- -----------------
Less dividends and distributions to/from:
Net investment income.................... - (0.02) - (0.06) (0.12) -
Net realized gains on investments and
foreign currency transactions............ - (0.35) - (0.18) (0.05) -
---------------- --------- ------------- ---------- ---------- -----------------
Total dividends and distributions........ - (0.37) - (0.24) (0.17) -
---------------- --------- ------------- ---------- ---------- -----------------
Net asset value, end of period........... $9.24 $8.99 $9.75 $7.19 $8.48 $8.94
================ ========= ============= ========== ========== =================
Total investment return (1).............. 2.78 % (4.24)% 35.61% (12.69)% (3.21)% (6.39)%
================ ========= ============= ========== ========== =================
Ratios/Supplemental data:
Net assets, end of period (000's)........ $61,227 $78,285 $97,773 $78,667 $128,888 $158,736
Ratio of expenses to average net assets.. 1.81 %* 1.65 % 1.84% 2.05 % 1.78 % 1.85 %*
Ratio of net investment income (loss) to
average net assets....................... (0.52)%* (0.35)% 0.19% 0.82 % 0.64 % 1.92 %*
Portfolio turnover rate.................. 30 % 174 % 252% 60 % 87 % 49 %
<FN>
- ----------
* Annualized
~ Commencement of operations
</TABLE>
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
Paine Webber
EUROPE GROWTH FUND
42
<PAGE>
<TABLE><CAPTION>
Class B Class D
- --------------------------------------------------------------- ---------------------------------------------------
For the Years
For the Years Ended Ended
For the October 31, For the Period For the October 31, For the Period
Six Months Ended ------------------------------- July 1, 1991~ Six Months Ended ------------------- July 6, 1992~
April 30, 1995 to October 31, April 30, 1995 to October 31,
(unaudited) 1991 (unaudited) 1992 1994 1993 1992 1994 1993
- ---------------- -------------- ---------------- -------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$8.81 $9.62 $7.14 $8.45 $8.52 $8.86 $9.67 $7.17 $8.33
- ---------------- --------- --------- ----------- -------------- ---------------- --------- --------- --------------
(0.10) (0.09) (0.03) 0.06 (0.02) (0.13) (0.11) (0.02) (0.01)
0.30 (0.37) 2.51 (1.15) (0.05) 0.34 (0.35) 2.52 (1.15)
- ---------------- --------- --------- ----------- -------------- ---------------- --------- --------- --------------
0.20 (0.46) 2.48 (1.09) (0.07) 0.21 (0.46) 2.50 (1.16)
- ---------------- --------- --------- ----------- -------------- ---------------- --------- --------- --------------
- - - (0.04) - - - - -
- (0.35) - (0.18) - - (0.35) - -
- ---------------- --------- --------- ----------- -------------- ---------------- --------- --------- --------------
- (0.35) - (0.22) - - (0.35) - -
- ---------------- --------- --------- ----------- -------------- ---------------- --------- --------- --------------
$9.01 $8.81 $9.62 $7.14 $8.45 $9.07 $8.86 $9.67 $7.17
================ ========= ========= =========== ============== ================ ========= ========= ==============
2.27 % (5.03)% 34.73 % (13.19)% (0.82)% 2.37 % (5.00)% 34.87 % (13.93)%
================ ========= ========= =========== ============== ================ ========= ========= ==============
$28,983 $37,525 $34,386 $5,446 $1,641 $10,107 $14,064 $15,522 $681
2.55 %* 2.40 % 2.46 % 2.79 % 2.60 %* 2.56 %* 2.39 % 2.39 % 3.26 %*
(1.27)%* (1.05)% (0.77)% 0.39 % (1.36)%* (1.32)%* (1.00)% (0.74)% (0.94)%*
30 % 174 % 252 % 60 % 87 % 30 % 174 % 252 % 60 %
</TABLE>
PaineWebber
EUROPE GROWTH FUND
43
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE><CAPTION>
Class A
-------------------------------------------------------------------
For the Years Ended
For the October 31,
Six Months Ended --------------------------------- For the Period
April 30, 1995 July 1, 1991~ to
(unaudited) October 31, 1991 1994 1993 1992
- ---------------- ---------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $11.39 $14.21 $11.63 $12.18 $11.20
---------------- --------- ------------- --------- ----------------
Income (loss) from investment operations:
Net investment income (loss).................... (0.02) 0.03 0.16 0.25 0.01
Net realized and unrealized gains (losses) from
investment and foreign currency transactions.... (0.19) (0.91) 2.69 (0.66) 0.97
---------------- --------- ------------- --------- ----------------
Total income (loss) from investment operations.. (0.21) (0.88) 2.85 (0.41) 0.98
---------------- --------- ------------- --------- ----------------
Less dividends and distributions to/from:
Net investment income........................... - (0.10) (0.27) (0.14) -
Net realized gains on investments and foreign
currency transactions........................... - (1.84) - - -
---------------- --------- ------------- --------- ----------------
Total dividends and distributions............... - (1.94) (0.27) (0.14) -
---------------- --------- ------------- --------- ----------------
Net asset value, end of period.................. $11.18 $11.39 $14.21 $11.63 $12.18
================ ========= ============= ========= ================
Total investment return (1)..................... (1.84)% (5.79)% 24.90% (3.44)% 8.84%
================ ========= ============= ========= ================
Ratios/Supplemental Data:
Net assets, end of period (000's)............... $9,530 $11,230 $12,702 $2,575 $80
Ratio of expenses to average net assets......... 2.23 %* 1.99 % 2.05% 2.05 % 1.83%*
Ratio of net investment income (loss) to average
net assets...................................... (0.07)%* 0.20 % 1.21% 2.89 % 0.26%*
Portfolio turnover rate......................... 21 % 157 % 148% 89 % 51%
<FN>
- ----------
* 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
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
Paine Webber
GLOBAL ENERGY FUND
44
<PAGE>
<TABLE><CAPTION>
Class B Class D
- ----------------------------------------------------------------- ---------------------------------------------------
For the
Years Ended
For the For the Years Ended October 31, For the October 31
Six Months Ended ------------------------------------------------ Six Months Ended ----------------- For the Period
April 30, 1995 April 30, 1995 July 8, 1992~ to
(unaudited) (unaudited) October 31, 1992 1994 1993 1992 1991 1990 1994 1993
- ---------------- ---------------- ---------------- --------- -------- --------- ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.38 $14.19 $11.60 $12.16 $12.45 $12.05 $11.28 $14.09 $11.60 $11.95
- ---------------- --------- -------- --------- ---------- -------- ---------------- --------- ------- ----------------
- (0.05) 0.19 0.13 0.17 0.08 (0.03) (0.04) 0.26 0.02
(0.21) (0.92) 2.56 (0.64) 0.36 1.16 (0.22) (0.93) 2.47 (0.37)
- ---------------- --------- -------- --------- ---------- -------- ---------------- --------- ------- ----------------
(0.21) (0.97) 2.75 (0.51) 0.53 1.24 (0.25) (0.97) 2.73 (0.35)
- ---------------- --------- -------- --------- ---------- -------- ---------------- --------- ------- ----------------
- - (0.16) (0.05) (0.13) (0.11) - - (0.24) -
- (1.84) - - (0.69) (0.73) - (1.84) - -
- ---------------- --------- -------- --------- ---------- -------- ---------------- --------- ------- ----------------
- (1.84) (0.16) (0.05) (0.82) (0.84) - (1.84) (0.24) -
- ---------------- --------- -------- --------- ---------- -------- ---------------- --------- ------- ----------------
$11.17 $11.38 $14.19 $11.60 $12.16 $12.45 $11.03 $11.28 $14.09 $11.60
================ ========= ======== ========= ========== ======== ================ ========= ======= ================
(1.85)% (6.56)% 23.80% (4.09)% 4.89% 10.37% (2.22)% (6.59)% 23.84% (2.93)%
================ ========= ======== ========= ========== ======== ================ ========= ======= ================
$12,905 $17,341 $24,140 $36,460 $53,506 $58,748 $668 $1,481 $1,777 $56
2.90 %* 2.82 % 2.82% 3.04 % 2.50% 2.48% 3.05 %* 2.74 % 2.76% 2.13 %*
(0.76)%* (0.59)% 0.72% 0.76 % 1.39% 1.01% (0.94)%* (0.49)% 0.24% 1.39 %*
21 % 157 % 148% 89 % 51% 77% 21 % 157 % 148% 89 %
</TABLE>
Paine Webber
GLOBAL ENERGY FUND
45
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
Class A
--------------------------------------------------------------
For the
Six Months Ended
April 30,1995 For the Years Ended October 31,
---------------------------------------------
(unaudited) 1994 1993 1992 1991 1990
---------------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $11.20 $11.31 $8.73 $9.26 $10.09 $10.02
---------------- -------- -------- --------- -------- --------
Income (loss) from investment operations:
Net investment income........................... 0.27 0.17 0.30 0.50 0.49 0.58
Net realized and unrealized gains (losses) from
investment and foreign currency transactions.... (1.28) (0.01) 2.32 (0.66) 0.02 0.18
---------------- -------- -------- --------- -------- --------
Total income (loss) from investment operations.. (1.01) 0.16 2.62 (0.16) 0.51 0.76
---------------- -------- -------- --------- -------- --------
Less dividends and distributions to/from:
Net investment income........................... - (0.16) (0.04) (0.37) (0.54) (0.55)
Net realized gains on investments and foreign
currency transactions........................... (0.36) (0.11) - - (0.80) (0.14)
---------------- -------- -------- --------- -------- --------
Total dividends and distributions............... (0.36) (0.27) (0.04) (0.37) (1.34) (0.69)
---------------- -------- -------- --------- -------- --------
Net asset value, end of period.................. $9.83 $11.20 $11.31 $8.73 $9.26 $10.09
================ ======== ======== ========= ======== ========
Total investment return (1)..................... (9.11)% 1.35% 30.10% (1.90)% 5.90% 7.73%
================ ======== ======== ========= ======== ========
Ratios/Supplemental data:
Net assets, end of period (000's)............... $44,112 $61,813 $67,284 $60,540 $83,431 $98,354
Ratio of expenses to average net assets......... 1.92 %* 1.76% 2.02% 1.72 % 1.95% 2.04%
Ratio of net investment income to average net
assets.......................................... 2.25 %* 1.10% 2.54% 4.76 % 5.04% 5.50%
Portfolio turnover rate......................... 84 % 172% 206% 59 % 65% 142%
<FN>
- ----------
* 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
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
Paine Webber
GLOBAL GROWTH AND INCOME FUND
46
<PAGE>
<TABLE><CAPTION>
Class B Class D
- ----------------------------------------------------------- ------------------------------------------------
For the For the Period For the For the Years For the Period
Six Months Ended For the Years Ended July 1, 1991~ Six Months Ended Ended July 2, 1992~
April 30,1995 October 31, to October 31, April 30,1995 October 31, to October 31,
--------------------------- ----------------
(unaudited) 1994 1993 1992 1991 (unaudited) 1994 1993 1992
- ---------------- -------- -------- --------- -------------- ---------------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$11.03 $11.20 $8.68 $9.23 $8.58 $11.05 $11.22 $8.71 $9.32
- ---------------- -------- -------- --------- -------------- ---------------- -------- ------- --------------
0.08 0.04 0.03 0.35 0.05 0.07 0.05 0.03 0.06
(1.11) 0.04 2.50 (0.58) 0.60 (1.11) 0.04 2.51 (0.67)
- ---------------- -------- -------- --------- -------------- ---------------- -------- ------- --------------
(1.03) 0.08 2.53 (0.23) 0.65 (1.04) 0.09 2.54 (0.61)
- ---------------- -------- -------- --------- -------------- ---------------- -------- ------- --------------
- (0.14) (0.01) (0.32) - - (0.15) (0.03) -
(0.36) (0.11) - - - (0.36) (0.11) - -
- ---------------- -------- -------- --------- -------------- ---------------- -------- ------- --------------
(0.36) (0.25) (0.01) (0.32) - (0.36) (0.26) (0.03) -
- ---------------- -------- -------- --------- -------------- ---------------- -------- ------- --------------
$9.64 $11.03 $11.20 $8.68 $9.23 $9.65 $11.05 $11.22 $8.71
================ ======== ======== ========= ============== ================ ======== ======= ==============
(9.44)% 0.60% 29.11% (2.61)% 7.58% (9.51)% 0.68% 29.20% (6.55)%
================ ======== ======== ========= ============== ================ ======== ======= ==============
$25,081 $34,468 $18,639 $4,554 $1,947 $7,669 $11,492 $7,063 $683
2.73 %* 2.54% 2.74% 2.50 % 2.52%* 2.77 %* 2.55% 2.72% 2.82 %*
1.46 %* 0.38% 1.52% 4.07 % 3.32%* 1.38 %* 0.34% 1.40% 3.92 %*
84 % 172% 206% 59 % 65% 84 % 172% 206% 59 %
</TABLE>
Paine Webber
GLOBAL GROWTH AND INCOME FUND
47
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE><CAPTION>
Class A
----------------------------------------------------------------
For the Years Ended
For the October 31, For the Period
Six Months Ended -------------------------------- July 1, 1991~
April 30, 1995 to October 31,
(unaudited) 1991 1994 1993 1992
- ---------------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $9.99 $10.97 $10.64 $10.75 $10.40
----------------
---------- ----------- --------- --------------
Income (loss) from investment operations:
Net investment income........................... 0.39 0.72 0.59 0.83 0.20
Net realized and unrealized gains (losses) from
investment and foreign currency transactions.... 0.17 (1.05) 0.68 (0.12) 0.40
----------------
---------- ----------- --------- --------------
Total income (loss) from investment operations.. 0.56 (0.33) 1.27 0.71 0.60
----------------
---------- ----------- --------- --------------
Less dividends and distributions to/from:
Net investment income........................... (0.32) (0.33) (0.80) (0.64) (0.23)
Net realized gains on investments and foreign
currency transactions........................... - - (0.14) (0.18) (0.02)
Paid in capital................................. - (0.32) - - -
---------------- ---------- ----------- --------- --------------
Total dividends and distributions............... (0.32) (0.65) (0.94) (0.82) (0.25)
---------------- ---------- ----------- --------- --------------
Net asset value, end of period.................. $10.23 $9.99 $10.97 $10.64 $10.75
================ ========== =========== ========= ==============
Total investment return (1)..................... 5.71% (3.10)% 12.41% 6.70% 5.79%
================ ========== =========== ========= ==============
Ratios/Supplemental Data:
Net assets, end of
period (000's).................................. $546,197 $611,855 $648,853 $107,033 $16,501
Ratio of expenses to average net assets......... 1.20%* 1.17 % 1.32%** 1.21% 1.35%*
Ratio of net investment income to average net
assets.......................................... 7.57%* 6.94 % 6.82%** 7.84% 8.59%*
Portfolio turnover rate......................... 92% 108 % 90% 92% 53%
<FN>
- ----------
* Annualized
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
~ 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
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
Paine Webber
GLOBAL INCOME FUND
48
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
Class B Class C
- ----------------------------------------------------------------- --------------------------------------------------------------
For the Years Ended
For the For the Years Ended October 31, For the October 31, For the Period
Six Months Ended ------------------------------------------------ Six Months Ended ---------------------------- August 26, 1991~
April 30, 1995 April 30, 1995 to October 31,
(unaudited) (unaudited) 1991 1994 1993 1992 1991 1994 1993 1992
- ---------------- ---------------- ---------------- ---------- ------------- ----------- ----------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$9.96 $10.95 $10.62 $10.74 $11.07 $9.99 $10.97 $10.64 $10.76 $10.53
- ----------------
- ---------- ------------- ----------- ----------- ---------------- --------- ---------- ------- ----------------
0.54 0.86 0.78 0.94 0.85 0.41 0.75 0.71 0.81 0.17
(0.01) (1.28) 0.40 (0.32) (0.09) 0.18 (1.06) 0.58 (0.08) 0.32
- ---------------- -------------
- ---------- ----------- ----------- ---------------- --------- ---------- ------- ----------------
0.53 (0.42) 1.18 0.62 0.76 0.59 (0.31) 1.29 0.73 0.49
- ---------------- -------------
- ---------- ----------- ----------- ---------------- --------- ---------- ------- ----------------
(0.29) (0.29) (0.71) (0.56) (0.97) (0.34) (0.34) (0.82) (0.67) (0.24)
- - (0.14) (0.18) (0.12) - - (0.14) (0.18) (0.02)
- (0.28) - - - - (0.33) - - -
- ---------------- -----------
- ---------- ------------- ----------- ---------------- --------- ---------- ------- ----------------
(0.29) (0.57) (0.85) (0.74) (1.09) (0.34) (0.67) (0.96) (0.85) (0.26)
- ---------------- -----------
- ---------- ------------- ----------- ---------------- --------- ---------- ------- ----------------
$10.20 $9.96 $10.95 $10.62 $10.74 $10.24 $9.99 $10.97 $10.64 $10.76
================ ===========
========== ============= =========== ================ ========= ========== ======= ================
5.39% (3.90)% 11.45% 5.93% 7.39% 5.84% (2.86)% 12.60% 6.98% 4.63%
================ ===========
========== ============= =========== ================ ========= ========== ======= ================
$575,409 $725,553 $1,188,890 $1,542,255 $1,593,814 $12,478 $12,975 $12,043 $7,252 $2,565
1.97%* 1.94 % 2.11%** 1.98% 1.94% 0.91%* 0.88 % 1.06%** 0.94% 1.09%*
6.79%* 6.05 % 5.97%** 7.11% 8.09% 7.86%* 7.23 % 7.00%** 8.15% 8.79%*
92% 108 % 90% 92% 33% 92% 108 % 90% 92% 53%
</TABLE>
Paine Webber
GLOBAL INCOME FUND
49
<PAGE>
<TABLE><CAPTION>
Class D
-----------------------------------------------------
For the Years
For the Ended For the Period
Six Months Ended October 31, July 2, 1992~
April 30, 1995 --------------------- to October 31,
(unaudited) 1992 1994 1993
- ---------------- -------------- --------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period............................ $9.98 $10.96 $10.64 $10.94
- ---------------- --------- ----------- --------------
Income (loss) from investment operations:
Net investment income........................... 0.40 0.70 0.68 0.20
Net realized and unrealized gains (losses) from
investment and foreign currency transactions.... 0.14 (1.09) 0.52 (0.13)
- ---------------- --------- ----------- --------------
Total income (loss) from investment operations.. 0.54 (0.39) 1.20 0.07
- ---------------- --------- ----------- --------------
Less dividends and distributions to/from:
Net investment income........................... (0.30) (0.30) (0.74) (0.21)
Net realized gains on investments and foreign
currency transactions........................... - - (0.14) (0.16)
Paid in capital................................. - (0.29) - -
- ---------------- --------- ----------- --------------
Total dividends and distributions............... (0.30) (0.59) (0.88) (0.37)
- ---------------- --------- ----------- --------------
Net asset value, end of period.................. $10.22 $9.98 $10.96 $10.64
================ ========= =========== ==============
Total investment return (1)..................... 5.49% (3.56)% 11.64% 0.61%
================ ========= ===========
==============
Ratios/Supplemental Data:
Net assets, end of
period (000's).................................. $70,413 $92,480 $135,847 $36,598
Ratio of expenses to average net assets......... 1.70%* 1.68 % 1.83%** 1.75%*
Ratio of net investment income to average net
assets.......................................... 7.05%* 6.34 % 6.17%** 7.02%*
Portfolio turnover rate......................... 92% 108 % 90% 92%
<FN>
- ----------
* Annualized
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
~ 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
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for Class A and Class B
shares would be lower if sales charges were included. Total investment
returns for periods of less than one year have not been annualized.
</TABLE>
Paine Webber
GLOBAL INCOME FUND
50
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
PAINEWEBBER AND MITCHELL
HUTCHINS/KIDDER, PEABODY
MUTUAL FUNDS
PAINEWEBBER OFFERS A FAMILY OF 35 MUTUAL FUNDS WHICH ENCOMPASS A DIVERSIFIED
RANGE OF INVESTMENT GOALS. INVESTORS MAY EXCHANGE THEIR FUND SHARES WITH OTHER
FUNDS WITHIN THE FAMILY.
INCOME FUNDS
o MH/KP ADJUSTABLE RATE GOVERNMENT FUND
o MH/KP GLOBAL FIXED INCOME FUND
o MH/KP GOVERNMENT INCOME FUND
o MH/KP INTERMEDIATE FIXED INCOME FUND
o PW GLOBAL INCOME FUND
o PW HIGH INCOME FUND
o PW INVESTMENT GRADE INCOME FUND
o PW SHORT-TERM U.S. GOVERNMENT INCOME FUND
o PW SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
o PW STRATEGIC INCOME FUND
o PW U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
o MH/KP MUNICIPAL BOND FUND
o PW CALIFORNIA TAX-FREE INCOME FUND
o PW MUNICIPAL HIGH INCOME FUND
o PW NATIONAL TAX-FREE INCOME FUND
o PW NEW YORK TAX-FREE INCOME FUND
GROWTH FUNDS
o MH/KP EMERGING MARKETS EQUITY FUND
o MH/KP GLOBAL EQUITY FUND
o MH/KP SMALL CAP GROWTH FUND
o PW ATLAS GLOBAL GROWTH FUND
o PW BLUE CHIP GROWTH FUND
o PW CAPITAL APPRECIATION FUND
o PW COMMUNICATIONS & TECHNOLOGY GROWTH FUND
o PW EUROPE GROWTH FUND
o PW GROWTH FUND
o PW REGIONAL FINANCIAL GROWTH FUND
o PW SMALL CAP VALUE FUND
GROWTH AND INCOME FUNDS
o MH/KP ASSET ALLOCATION FUND
o MH/KP EQUITY INCOME FUND
o PW ASSET ALLOCATION FUND
o PW GROWTH AND INCOME FUND
o PW GLOBAL ENERGY FUND
o PW GLOBAL GROWTH AND INCOME FUND
o PW UTILITY INCOME FUND
PAINEWEBBER MONEY MARKET FUND
- ------------------
(COPYRIGHT)1995 PAINEWEBBER INCORPORATED
PRINTED ON
RECYCLED PAPER
MITCHELL HUTCHINS/
KIDDER, PEABODY
GLOBAL FIXED
INCOME FUND
SEMI-ANNUAL REPORT
February 28, 1995
<PAGE>
- --------------------------------------------------------------------------------
April 15, 1995
Dear Shareholder,
The world continues to enjoy a phase of economic recovery, although central
banks worldwide have recently effected credit tightening policies in order to
check prospective inflation, a side effect of vigorous economic expansion. In
the United States, the Federal Reserve raised interest rates six times in 1994
for a total increase of 2.5%. The Federal Reserve tightened another 0.5% on
February 1, 1995, increasing the Federal Funds rate to 6.0%.
In the last several months, Australia, New Zealand, the United Kingdom, Sweden
and Finland also raised their short-term interest rates. In many instances,
long-term yields have also risen and the differences in short- and long-term
interest rates have declined, causing yield curves to flatten. Central bankers
around the world appear to be acting diligently in their guard against
prospective inflation. Moreover, government budget deficits are falling
worldwide. Lower deficits translate into reduced pressure on bond yields as
governments reduce their borrowing demands.
Effective February 13, 1995, as a result of an asset purchase transaction by and
among Kidder, Peabody Group Inc., its parent, General Electric Company, and
Paine Webber Group Inc., the investment management for the Fund was transferred
to Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'). Mitchell
Hutchins' appointment as the Fund's investment adviser and administrator was
approved by shareholders on April 13, 1995. Mitchell Hutchins, a wholly owned
investment management subsidiary of PaineWebber Incorporated, provides
investment advisory and portfolio management services to individuals, pension
and endowment funds, trusts and institutions. As of February 28, 1995, Mitchell
Hutchins was adviser or sub-adviser to 42 investment companies with 77 separate
portfolios and aggregate assets of approximately $22 billion.
Although the Fund's name has been changed to Mitchell Hutchins/Kidder, Peabody
Global Fixed Income Fund, the investment objective remains the same: to seek
total return consisting of current income and capital appreciation by investing
in fixed-income securities primarily issued by U.S. and foreign governments and
authorities and supranational organizations. Strategic Fixed Income ('SFI')
remains as the Fund's sub-adviser. Ken Windheim of SFI remains the Fund's
portfolio manager and is responsible for the day-to-day management of the Fund.
PORTFOLIO REVIEW
During the six months ended February 28, 1995, an overweighted exposure to the
German mark against the U.S. dollar and high-yielding European currencies, as
well as a rally in the Japanese bond market resulted in the Fund's positive
performance. The Fund's total return for the period without deducting sales
charges was 5.28% for Class A shares, 5.04% for Class B shares and 5.40% for
Class C shares. The Fund's total return for the period after deducting the
maximum applicable sales charges was 2.72% for Class A shares, 5.04% for Class B
shares and 5.40% for Class C shares. In comparison, the Salomon Brothers World
Government Bond Index had a total return of 5.98% for the period.
The six-month period ended February 28, 1995 was remarkable for the turmoil in
global fixed-income markets caused by events such as the Mexican peso crisis and
the unraveling of Barings PLC, the British investment bank. These events
underscored the risks of investing in emerging markets, and redirected both
institutional and individual investors to traditional safe havens. This
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
shift in investor interest aided the appreciation of the already strong German
Deutschemark, and benefited the Fund, which had 13.1% of net assets invested in
Deutschemark-denominated bonds as of February 28, 1995. Relative to the U.S.
dollar, European currencies in general were strong during the period; this also
bolstered the Fund's return.
During the period, the Fund's European bond holdings were heavily concentrated
in core markets. This had a positive influence on relative performance as yield
spreads between core and peripheral markets widened. The Fund was well
positioned for the strong rally in Japan, with moderately overweighted exposure
to the yen and the Japanese government bond market. These gains were partially
offset by our underweighted position in the U.S. Treasury market, however, where
yields fell in response to the slowdown in economic growth in the first months
of 1995.
Economic statistics for the first quarter of 1995 indicate that the U.S. economy
has slowed so far this year. A primary reason is weakness in consumer spending,
although consumer confidence remains near peak levels. We believe that the
retrenchment in consumer spending is temporary, and that it may accelerate in
the second quarter. Another harness on growth is a decrease in exports to
Mexico, caused by the depreciated peso, which has pushed U.S. goods beyond the
reach of the average Mexican consumer. The drain on Mexican exports may be
balanced by increased U.S. exports to Europe and Asia, where a weaker dollar may
heighten demand for U.S. products. Inflation, which was the impetus behind the
Federal Reserve's tightening policy, has begun to appear at the retail level,
with the Consumer Price Index (a measure of the prices of goods, including food
and energy) growing at an annual rate of 3.5% in 1995 versus a pace of 2.5% late
last year. We believe that the first quarter slowdown of the U.S. economy is
temporary, and that growth might speed up in the second quarter, raising the
possibility of further credit tightening by the Federal Reserve and a rise in
bond yields.
Global fixed income markets present many challenges going forward. The German
bond market has moved in lockstep with the U.S. market during the period ended
February 28, 1995, despite the sharp rise in the Deutschemark against the
dollar. In the next few months, however, we expect that U.S. Treasury yields may
rise relative to German Bund yields. Outside Germany, European markets have been
mixed, with Italy and Spain's markets declining while the Northern European
markets have risen in dollar terms. In Japan, the strength of the yen has driven
bond yields below 4%. The record high level of the yen is expected to further
slow an already sluggish Japanese recovery and intensify deflationary pressures.
As global cycles of economic growth evolve, we will continue to search for
opportunities to achieve our objectives of income and capital appreciation in
1995.
Thank you for your participation in the Mitchell Hutchins/Kidder, Peabody Global
Fixed Income Fund. We value you as a shareholder and as a client and welcome any
comments or questions you may have.
Sincerely,
FRANK P.L. MINARD KENNETH A. WINDHEIM
Chairman, Portfolio Manager,
Mitchell Hutchins Asset Management Mitchell Hutchins/Kidder, Peabody
Inc. Global Fixed Income Fund
- --------------------------------------------------------------------------------
2
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
<TABLE>
- --------------------------------------------------------------------------------
Recent Performance Results (unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURN1
--------------------------------
NET ASSET VALUE 12 MONTHS 6 MONTHS
--------------------------------- ------------- -------------
2/28/95 8/31/94 2/28/94 ENDED 2/28/95 ENDED 2/28/95
<S> <C> <C>
Class A Shares $11.99 $11.93 $12.27 4.66% 5.28%
Class B Shares 11.99 11.93 12.27 4.15 5.04
Class C Shares 12.00 11.94 12.28 4.91 5.40
</TABLE>
<TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<CAPTION>
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C>
12/24/92-12/31/92 $ 12.00 $11.99 -- $ 0.0069 1.83 %
1993 11.99 12.48 $ 0.517 0.6956 14.45
1994 12.48 11.59 -- 0.8144 -0.58
01/01/95-02/28/95 11.59 11.99 -- 0.0801 4.13
Total: $ 0.517 $ 1.5970
CUMULATIVE TOTAL RETURN AS OF 2/28/95: 18.22%
<CAPTION>
PERFORMANCE SUMMARY CLASS B SHARES
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C>
05/10/93-12/31/93 $ 12.77 $12.48 $ 0.517 $ 0.3242 4.33 %
1994 12.48 11.59 -- 0.7540 -1.08
01/01/95-02/28/95 11.59 11.99 -- 0.0727 4.06
Total: $ 0.517 $ 1.1509
CUMULATIVE TOTAL RETURN AS OF 2/28/95: 7.42%
<CAPTION>
PERFORMANCE SUMMARY CLASS C SHARES
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN(1)
<S> <C> <C> <C> <C>
05/10/93-12/31/93 $ 12.77 $12.49 $ 0.517 $ 0.3878 4.92 %
1994 12.49 11.60 -- 0.8448 -0.33
01/01/95-02/28/95 11.60 12.00 -- 0.0838 4.16
Total: $ 0.517 $ 1.3164
CUMULATIVE TOTAL RETURN AS OF 2/28/95: 8.95%
</TABLE>
<TABLE>
AVERAGE ANNUAL RETURN
<CAPTION>
% RETURN WITHOUT DEDUCTING % RETURN AFTER DEDUCTING
MAXIMUM SALES CHARGES MAXIMUM SALES CHARGES
------------------------------------------- ------------------------------------------
CLASS CLASS
------------------------------------------- ------------------------------------------
A* B** C*** A* B** C***
<S> <C> <C>
Twelve Months
Ended 3/31/95 11.98% 11.69% 12.59% 9.45% 11.69% 12.59%
Five Years
Ended 3/31/95 N/A N/A N/A N/A N/A N/A
Commencement of
Operations Through
3/31/95 10.61 7.25 8.09 9.49 7.25 8.09
<FN>
(1) Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not include
sales charges; results for Class A would be lower if sales charges were
included.
* Maximum sales charge for Class A shares is 2.25% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Class B shares are sold without initial or contingent deferred sales
charges, but bear ongoing 12b-1 distribution and service fees.
*** Class C shares are sold without initial or contingent deferred sales charges
and are available exclusively to PaineWebber employees.
+ Commencement of operations was December 24, 1992, May 10, 1993 and May 10,
1993 for Class A, Class B and Class C shares, respectively.
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
LONG-TERM DEBT SECURITIES--79.55%
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ---------- ----------------- -------------- ------------
<S> <C> <C> <C>
AUSTRIA--0.43%
JPY 60,000 Republic of Austria Government Bonds................ 09/28/05 4.50% $ 614,748
------------
AUSTRALIA--0.24%
470 Australian Government Bonds......................... 01/15/01 8.75 333,254
------------
BELGIUM--1.33%
60,000 Belgium Kingdom Government Bonds.................... 04/29/04 7.25 1,879,458
------------
CANADA--1.70%
3,645 Canadian Government Bonds........................... 12/01/03-06/01/25 6.50 to 9.25 2,399,282
------------
DENMARK--2.53%
21,600 Denmark Bullets..................................... 11/15/01-05/15/03 8.00 3,570,669
------------
FRANCE--3.46%
25,800 French Government Bonds O.A.T.'s.................... 01/25/01-04/25/23 5.50 to 9.50 4,896,583
------------
GERMANY--13.13%
2,090 Bundesrepublik Deutschland Bonds Floating Rate
Note................................................ 09/20/04 5.28 1,413,310
11,900 Bundesrepublik Deutschland Bonds.................... 10/20/00-01/04/24 6.25 to 9.00 8,366,890
6,990 Bundesschatzanweisungen Bonds....................... 02/24/99 6.875 4,784,218
5,800 Treuhandanstalt Bonds............................... 01/29/03-09/09/04 7.125 to 7.50 4,000,321
------------
Total Germany Long-Term Debt Securities............. 18,564,739
------------
ITALY--2.99%
8,010,000 Italian Buoni Poliennali del Tesoro Bonds........... 04/01/99-08/01/99 8.50 4,231,869
------------
JAPAN--17.06%
170,000 Export-Import Bank of Japan Bonds................... 10/01/03 4.375 1,746,184
2,056,915 Japanese Government Bonds........................... 06/21/99-09/20/04 4.10 to 6.70 22,380,281
------------
Total Japan Long-Term Debt Securities............... 24,126,465
------------
NETHERLANDS--3.57%
8,280 Netherlands Government Bonds........................ 06/15/99-10/01/04 7.25 to 8.50 5,044,751
------------
NEW ZEALAND--5.97%
13,410 New Zealand Government Bonds........................ 11/15/96-04/15/04 6.50 to 9.00 8,445,567
------------
NORWAY--0.60%
5,000 Norwegian Government Bonds.......................... 10/31/02 9.50 842,734
------------
SPAIN--0.75%
154,000 Spanish Government Bonds............................ 06/15/02-05/30/04 8.00 to 10.30 1,060,123
------------
SUPRANATIONAL--0.29%
40,000 International Organizations Bank for Reconstruction
& Development World Bank Japan Global Bonds......... 03/20/03 4.50 416,818
------------
SWEDEN--0.65%
6,600 Sweden Government Bonds............................. 01/21/99 11.00 924,111
------------
UNITED KINGDOM--5.19%
4,770 United Kingdom Treasury Bonds....................... 02/26/01-12/07/05 6.75 to 10.00 7,333,670
------------
4
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
LONG-TERM DEBT SECURITIES--79.55%--(CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
- ---------- ----------------- -------------- ------------
<S> <C> <C> <C>
UNITED STATES--19.66%
14,489 United States Treasury Bonds........................ 11/15/12-11/15/24 7.50 to 10.375% $ 15,387,777
12,841 United States Treasury Notes........................ 11/30/98-02/15/04 5.125 to 7.75 12,417,878
------------
Total United States Long-Term Debt Securities....... 27,805,655
------------
TOTAL LONG-TERM DEBT SECURITIES
(cost--$110,090,402)............................................. 112,490,496
------------
- --------------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES--27.61%
- -----------------------------------------------------------------------------------------------------------------------
AUSTRALIA--5.52%
10,800 Australia Treasury Bills............................ 06/01/95 7,810,346
------------
CANADA--1.62%
3,200 Canadian Treasury Bills............................. 03/23/95 2,290,490
------------
DENMARK--5.46%
45,000 Denmark Treasury Bills.............................. 04/03/95 7,703,333
------------
FRANCE--6.70%
49,000 French Treasury Bills............................... 04/20/95 9,479,670
------------
JAPAN--7.69%
1,051,000 Japan Time Deposit.................................. 03/20/95-03/23/95 2.15625 10,877,102
------------
NEW ZEALAND--0.62%
1,400 New Zealand Treasury Bills.......................... 04/05/95 880,130
------------
TOTAL SHORT-TERM DEBT SECURITIES
(cost--$38,467,402).............................................. 39,041,071
------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--2.57%
- -----------------------------------------------------------------------------------------------------------------------
3,637 Repurchase Agreement dated 02/28/95, with Citicorp
Securities Inc. Collateralized by $3,080,000 U.S.
Treasury Bonds, 10.75% due 02/15/03; proceeds
$3,637,614 (cost--$3,637,000)....................... 03/01/95 6.08 3,637,000
- --------------------------------------------------------------------------------
CURRENCY CALL OPTIONS PURCHASED--0.12%
- -----------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT
- ----------
7,904,017 German Deutsche Marks, expiring 06/23/1995 at FRF
3.000(a)............................................ 168,128
5,039,920 German Deutsche Marks, expiring 04/17/1995 at Bfr
2.000(b)............................................ 2,016
------------
TOTAL CALL OPTIONS (cost $109,712)............................... 170,144
------------
TOTAL INVESTMENTS (cost--$152,304,516)--109.85%.................. 155,338,711
Liabilities in excess of other assets--(9.85%)................... (13,926,579)
------------
NET ASSETS--100.00%.............................................. $141,412,132
------------
------------
<FN>
- ------------
* In Local Currency unless otherwise indicated.
(a) Contract face amount denominated in U.S. dollars representing DEM
11,385,897.43 against French Francs.
(b) Contract face amount denominated in U.S. dollars representing DEM
7,574,999.76 against Belgian Francs.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
UNREALIZED
CONTRACTS TO MATURITY APPRECIATION
DELIVER IN EXCHANGE FOR DATES (DEPRECIATION)
-------------- -------------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 25,446,787 US$ 19,393,855 03/24/95 to 05/24/95 $ 626,987
Belgian Francs.......................... 379,889,600 US$ 11,790,870 03/24/95 (844,950)
Canadian Dollars........................ 36,962,200 US$ 26,222,195 03/24/95 to 05/24/95 (275,418)
Swiss Francs............................ 76,246,447 US$ 59,711,705 04/24/95 to 06/22/95 (2,342,864)
German Deutsche Marks................... 127,071,929 US$ 83,395,191 03/24/95 to 06/22/95 (3,741,054)
Danish Kronas........................... 107,164,915 US$ 17,899,549 03/24/95 to 06/22/95 (546,835)
European Currency Units................. 1,842,173 US$ 2,277,478 05/24/95 (69,849)
Spanish Pesetas......................... 3,244,851,526 US$ 24,274,868 03/24/95 to 06/22/95 (930,930)
French Francs........................... 281,889,003 US$ 52,768,806 03/24/95 to 05/24/95 (2,174,463)
British Pounds.......................... 40,567,281 US$ 63,386,145 03/24/95 to 06/22/95 (843,526)
Italian Liras........................... 48,522,580,898 US$ 29,554,692 03/02/95 to 06/22/95 479,723
Japanese Yen............................ 7,810,119,425 US$ 79,641,078 03/24/95 to 06/22/95 (1,830,140)
Dutch Guilders.......................... 5,989,200 US$ 3,545,447 03/24/95 to 05/24/95 (119,181)
Norwegian Kronas........................ 5,471,808 US$ 814,378 03/24/95 (32,450)
New Zealand Dollars..................... 28,634,373 US$ 18,133,367 03/24/95 to 06/22/95 35,668
Swedish Kronas.......................... 158,894,173 US$ 21,101,652 03/24/95 to 06/22/95 (486,695)
U.S. Dollars............................ 11,522,029 AUD 15,117,535 03/24/95 to 06/22/95 (378,860)
U.S. Dollars............................ 9,714,333 Bfr 309,243,695 03/24/95 to 05/24/95 577,337
U.S. Dollars............................ 23,787,505 CAD 33,492,889 03/24/95 to 06/22/95 216,769
U.S. Dollars............................ 57,533,996 CHF 75,560,661 03/24/95 to 06/22/95 3,756,562
U.S. Dollars............................ 96,575,926 DEM 147,379,064 03/24/95 to 06/22/95 4,491,556
U.S. Dollars............................ 8,899,163 DKK 53,952,012 03/01/95 to 05/24/95 387,289
U.S. Dollars............................ 6,141,520 ECU 5,065,939 03/24/95 314,209
U.S. Dollars............................ 22,846,393 ESP 3,042,058,015 03/24/95 to 06/22/95 787,933
U.S. Dollars............................ 39,250,163 FRF 210,282,937 03/24/95 to 06/22/95 1,739,274
U.S. Dollars............................ 62,539,589 GBP 39,830,810 03/02/95 to 06/22/95 514,833
U.S. Dollars............................ 27,854,754 ITL 45,597,715,823 03/24/95 to 05/24/95 (583,017)
U.S. Dollars............................ 87,637,892 JPY 8,657,439,531 03/02/95 to 06/22/95 2,364,326
U.S. Dollars............................ 11,957,836 NLG 20,845,806 03/24/95 to 05/24/95 787,736
U.S. Dollars............................ 2,362,101 NOK 15,337,125 06/22/95 16,385
U.S. Dollars............................ 11,679,747 NZD 18,424,330 03/02/95 to 06/22/95 (74,060)
U.S. Dollars............................ 20,237,922 SEK 152,142,419 03/24/95 to 05/24/95 403,801
--------------
$ 2,226,096
--------------
--------------
<FN>
- ------------
CURRENCY TYPE ABBREVIATIONS:
AUD--Australian Dollars
Bfr--Belgian Francs
CAD--Canadian Dollars
CHF--Swiss Francs
DEM--German Deutsche Marks
DKK--Danish Kronas
ECU--European Currency Units
ESP--Spanish Pesetas
FRF--French Francs
GBP--British Pounds
ITL--Italian Liras
JPY--Japanese Yen
NLG--Dutch Guilders
NOK--Norweigan Kronas
NZD--New Zealand Dollars
SEK--Swedish Kronas
</TABLE>
6
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
<TABLE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at value (cost--$152,194,804)....................................... $155,168,567
Options, at value (cost--$109,712)............................................................. 170,144
Cash........................................................................................... 357
Cash denominated in foreign currencies, at value (cost--$7,106,284)............................ 7,139,734
Receivable for investments sold................................................................ 21,814,288
Receivable for shares of beneficial interest sold.............................................. 88,178
Unrealized appreciation on forward foreign currency contracts.................................. 15,322,074
Dividends and interest receivable (cost--$2,364,334)........................................... 2,433,881
Deferred organization expenses................................................................. 138,071
Other assets................................................................................... 1,606
------------
Total assets............................................................................... 202,276,900
------------
LIABILITIES:
Payable for investments purchased.............................................................. 40,266,843
Payable for shares of beneficial interest repurchased.......................................... 6,959,739
Unrealized depreciation on forward foreign currency contracts.................................. 13,095,978
Foreign deferred interest...................................................................... 3,938
Income distribution payable.................................................................... 294,951
Payable to affiliates.......................................................................... 114,539
Accrued expenses and other liabilities......................................................... 128,780
------------
Total liabilities.......................................................................... 60,864,768
------------
NET ASSETS:
Beneficial interest shares of $0.001 par value outstanding (unlimited amount authorized)....... 149,014,008
Overdistributed net investment income.......................................................... (6,508,981)
Accumulated net realized losses from investments............................................... (6,007,678)
Net unrealized appreciation of investments and other assets, liabilities and forward contracts
denominated in foreign currencies............................................................. 4,914,783
------------
Net assets................................................................................. $141,412,132
------------
------------
CLASS A:
Net assets..................................................................................... $108,994,863
------------
Shares outstanding............................................................................. 9,087,405
------------
Net asset value and redemption value per share................................................. $11.99
------------
------------
Maximum offering price per share (net asset value plus sales charge of 2.25% of offering
price)........................................................................................ $12.27
------------
------------
CLASS B:
Net assets..................................................................................... $ 19,660,680
------------
Shares outstanding............................................................................. 1,639,377
------------
Net asset value, offering price and redemption value per share................................. $11.99
------------
------------
CLASS C:
Net assets..................................................................................... $ 12,756,589
------------
Shares outstanding............................................................................. 1,062,685
------------
Net asset value, offering price and redemption value per share................................. $12.00
------------
------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended February 28, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest and discounts earned (net of foreign withholding
taxes)................................................. $5,449,450
----------
EXPENSES:
Investment advisory fees................................. 598,119
Service fees--Class A.................................... 165,436
Service fees--Class B.................................... 29,371
Distribution fees--Class B............................... 58,742
Custody and accounting fees.............................. 105,059
Transfer agency fees..................................... 54,207
Amortization of organization expenses.................... 23,622
Legal and audit fees..................................... 17,668
Federal and state registration fees...................... 16,005
Reports and notices to shareholders...................... 10,674
Trustees' fees and expenses.............................. 4,901
Other expenses........................................... 6,907
----------
1,090,711
----------
NET INVESTMENT INCOME....................................... 4,358,739
----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT AND FOREIGN
CURRENCY ACTIVITIES:
Net realized gains (losses) from:
Investment activities and options..................... (4,656,010)
Foreign currency activities........................... 3,310,424
Net change in unrealized appreciation of:
Investments and options............................... 4,451,180
Other assets, liabilities and forward contracts
denominated in
foreign currencies.................................. 1,050,764
----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT
ACTIVITIES................................................ 4,156,358
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $8,515,097
----------
----------
See accompanying notes to financial statements.
8
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six For the
Months Ended Year Ended
February 28, August 31,
1995 1994
------------ ------------
FROM OPERATIONS:
Net investment income.......................... $ 4,358,739 $ 9,536,271
Net realized losses from investment activities
and options.................................. (4,656,010 ) (6,602,287 )
Net realized gains from foreign currency
activities................................... 3,310,424 1,612,276
Net change in unrealized
appreciation/depreciation of investments and
options...................................... 4,451,180 (7,737,719 )
Net change in unrealized
appreciation/depreciation of other assets,
liabilities and forward contracts denominated
in foreign currencies........................ 1,050,764 315,301
------------ ------------
8,515,097 (2,876,158 )
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A................. (3,380,995 ) (7,680,804 )
Net investment income--Class B................. (542,232 ) (892,910 )
Net investment income--Class C................. (435,512 ) (962,557 )
Excess of net investment income--Class A....... (2,774,180 ) (1,560,400 )
Excess of net investment income--Class B....... (516,943 ) (176,688 )
Excess of net investment income--Class C....... (308,417 ) (157,785 )
Net realized short-term gains from investment
transactions--Class A........................ -- (6,122,714 )
Net realized short-term gains from investment
transactions--Class B........................ -- (693,291 )
Net realized short-term gains from investment
transactions--Class C........................ -- (619,117 )
------------ ------------
(7,958,279 ) (18,866,266 )
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares........... 10,508,717 72,966,458
Cost of shares repurchased..................... (79,422,763 ) (79,138,601 )
Proceeds from dividends reinvested............. 6,851,903 17,364,168
------------ ------------
Net increase (decrease) in net assets derived
from beneficial interest transactions........ (62,062,143 ) 11,192,025
------------ ------------
Net increase (decrease) in net assets.......... (61,505,325 ) (10,550,399 )
NET ASSETS:
Beginning of period............................ 202,917,457 213,467,856
------------ ------------
End of period (including distribution in excess
of net investment income of $6,508,981 and
$2,909,441, respectively).................... $141,412,132 $202,917,457
------------ ------------
------------ ------------
See accompanying notes to financial statements.
9
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund (formerly
Kidder, Peabody Global Fixed Income Fund) (the 'Fund') is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as a diversified, open-end investment company.
Organizational Matters--On May 10, 1993, the Fund adopted the Choice
Pricing SystemSM. Prior to May 10, 1993, the Fund issued only Class A shares;
subsequent to that date the Fund issued Class A, Class B and Class C shares.
Each class represents interests in the same assets of the Fund and the classes
are identical except for differences in their sales structure and ongoing
service and distribution charges. All classes of shares have equal rights as to
voting privileges, except that each class has exclusive voting rights with
respect to its distribution plan.
Organization costs are being amortized evenly over a sixty month period.
Prepaid registration fees are charged to income as the related shares are
issued.
Valuation of Investments--The Fund's investments are valued at market value
or, in the absence of a market value, at fair value as determined by or under
the direction of the Trustees. Investments in government securities and other
securities traded over-the-counter, other than short-term investments that
mature in 60 days or less, are valued at the average of the quoted bid and asked
prices in the over-the-counter market. Short-term investments that mature in 60
days or less are valued on the basis of amortized cost which the Trustees have
determined to represent fair value.
Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of the securities on their respective
exchanges. When an occurrence, subsequent to the time value was so established,
is likely to have changed that value, the fair market value of those securities
will be determined by consideration of other factors by or under the direction
of the Trustees.
A security that is primarily traded on a domestic or foreign stock exchange
is valued at the last sale price on that exchange or, if no sales occurred
during the day, at current quoted bid price.
An option that is written by the Fund is valued at the last sale price or,
in the absence of the last sales price, the last bid price. In carrying out the
Trustees' valuation policies, the Fund may consult with an independent pricing
service.
The value of a futures contract is equal to the unrealized gain or loss on
the contract that is determined by marking the contract to the current
settlement price for a like contract on the valuation date of the futures
contract. A settlement price may not be used if the market makes a limit move
with respect to a particular futures contract or if the securities underlying
the futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used
futures contracts will be valued at their fair market value as determined by or
under the direction of the Trustees.
10
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
Investment Transactions and Investment Income--Investment transactions are
recorded on trade date. Realized gains and losses from investment are calculated
using the identified cost method. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on an accrual basis. Discounts are accreted
and premiums are amortized on straight line basis as adjustments to interest
income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
Foreign Currency Translation--The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) market value of investment securities, other assets and
liabilities--at the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and
expenses--at the rates of exchange prevailing on the respective dates of
such transactions.
Although the net assets and the market value of the Fund are presented at
the foreign exchange rates at the end of the period, the Fund does not generally
isolate the effect of unrealized fluctuations in foreign exchange rates from the
effect of the changes in market prices of securities. However, the Fund does
isolate the effect of realized fluctuations in foreign exchange rates when
determining the realized gain or loss upon the sale or maturity of foreign
currency-denominated debt obligations pursuant to federal income tax
regulations. Foreign security and currency transactions may involve certain
considerations and risks not typically associated with investing in U.S.
companies and U.S. government securities. These risks include re-evaluation of
currencies and future adverse political and economic developments, which could
cause securities to be less liquid and their prices more volatile than those of
comparable U.S. companies and the U.S. government.
Forward Foreign Currency Contracts--The Fund is authorized to enter into
forward foreign currency exchange contracts in connection with planned purchases
or sales of securities or to hedge the U.S. dollar value of portfolio securities
denominated in a particular currency.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. Generally, the Fund
will enter into such forward contracts on the transaction's trade date with a
contracted date coinciding with the settlement date of the underlying security.
Certain risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar. During the period between the forward currency contract's trade date and
settlement date movements in the value of foreign currencies relative to
11
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
the U.S. dollar are recognized as unrealized gains or losses. On a daily basis
the Fund records an unrealized gain or loss to recognize the U.S. dollar value
of the foreign currency contract at the end of each day's trading. Should the
underlying security fail to settle within the contracted period the forward
currency contract is renegotiated at a new exchange rate. The gain or loss
resulting from the difference between the original and renegotiated settlement
values is recognized and included in realized transaction gain/loss.
Option Writing/Purchasing--The Fund may write options to increase its
income or to hedge a portion of its portfolio. When the Fund writes a call or
put option, an amount equal to the premium received is included in the Fund's
statement of assets and liabilities as an asset and an equivalent liability. The
amount of the liability is subsequently 'marked to market' to reflect the
current market value of the option written. If an option which the Fund has
written expires on its stipulated date, the Fund realizes a gain in the amount
of the premium originally received, and the liability related to such option is
extinguished. If the Fund enters into a closing purchase transaction, it
realizes a gain or loss determined by the difference between the premium
received and the cost of the closing transaction. If a call option which the
Fund has written is exercised, the Fund realizes a gain or loss from the sale of
the underlying security and the proceeds from such sale are increased by the
premium originally received. If a put option which the Fund has written is
exercised, the amount of the premium originally received reduces the cost of the
security that the Fund purchases upon exercise of the option. As the writer of
an option, the Fund may have no control over whether the underlying securities
are sold (called) or purchased (put) and as a result bears the market risk of an
unfavorable change in price of the security underlying the written option.
The Fund may purchase a call or put option to hedge against adverse market
shifts. The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's statement of assets and liabilities as an investment and
subsequently 'marked to market' to reflect the current market value of the
option purchased. If a call or put option which the Fund has purchased expires
on the stipulated expiration date, the Fund realizes a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, it
realizes a gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the option. If the Fund exercises a put option,
it realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are decreased by the premium originally paid. If the
Fund exercises a call option, the cost of the security that the Fund purchases
upon exercise is increased by the premium originally paid. Certain risks may
arise upon writing or purchasing options from the potential inability of
counterparties to meet the terms of the options.
Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The value of the
collateral must be a minimum of 102% of the market value of the securities being
loaned, allowing for minor variations arising from marking to market of such
collateral. If the issuer defaults or if bankruptcy or regulatory proceedings
are commenced with respect to the issuer, the realization of the proceeds may be
delayed or limited.
12
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
Federal Tax Status--The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions--Dividends and distributions to shareholders
are recorded on ex-dividend date. The Fund declares dividends from net
investment income daily and pays monthly. Net capital gains, if any, will be
distributed at least annually, but the Fund may make more frequent distributions
of such gains, if necessary, to avoid income or excise taxes.
The amount of dividends and distributions are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These 'book/tax' differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an Investment Advisory and Administration
Contract with Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
wholly owned subsidiary of PaineWebber Incorporated, pursuant to which Mitchell
Hutchins serves as the Fund's investment adviser and administrator and receives
a fee, accrued daily and paid monthly, at the annual rate of 0.70% of the Fund's
average daily net assets. Mitchell Hutchins in turn employs Strategic Fixed
Income, L.P. ('SFI') as the Fund's sub-adviser, in which capacity SFI receives
from Mitchell Hutchins a fee, paid monthly, calculated and accrued daily, at the
annual rate of .35% of the Fund's average daily net assets. At February 28,
1995, the Fund owed Kidder Peabody Asset Management, Inc. ('KPAM'), the Fund's
predecessor investment adviser and administrator, $33,651 in investment advisory
and administration fees.
At a special meeting of shareholders that took place on April 13, 1995,
Mitchell Hutchins was appointed as investment adviser and administrator of the
Fund. The Fund pays the same fee for investment advisory and administration
services to Mitchell Hutchins as previously paid to KPAM, as described in the
Fund's prospectus. Mitchell Hutchins and SFI continue to manage the Fund in
accordance with the Fund's investment objective, policies and restrictions as
stated in the prospectus.
13
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc., its parent, General
Electric Company, and Paine Webber Group Inc. That period began on February 13,
1995 and ended on April 13, 1995. At February 28, 1995, the Fund owed Mitchell
Hutchins $44,947 in investment advisory and administration fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest, brokerage fees, distribution fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitations applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. No expense reimbursement
was required for the six months ended February 28, 1995.
DISTRIBUTION PLANS
Effective February 13, 1995, Mitchell Hutchins serves as the exclusive
distributor of the Fund's shares. Under separate plans of distribution, Class A
shares are sold subject to a front-end sales load and bear a service fee of
0.25% per annum of average class net assets. Class B shares are sold at net
asset value without a sales load and bear a distribution fee of 0.50% per annum
and a service fee of 0.25% per annum of average class net assets. The Fund pays
Mitchell Hutchins the service and distribution fees monthly. For these services
for the period ended Feburary 13, 1995, Kidder, Peabody & Co. Incorporated, the
Fund's predecessor distributor, earned $234,406 in fees. At February 28, 1995,
$19,143 was payable to Mitchell Hutchins for the period from February 13 to
February 28, 1995. Mitchell Hutchins also receives the proceeds of any front-end
sales loads with respect to the purchase of Class A shares.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February
28, 1995 was substantially the same as the cost of securities for financial
statement purposes.
14
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
- --------------------------------------------------------------------------------
At February 28, 1995, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost)....... $4,185,029
Gross depreciation (investments having an excess of cost over value)....... (1,117,384)
----------
Net unrealized appreciation of investments................................. $3,067,645
----------
----------
</TABLE>
For the six months ended February 28, 1995, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases............................................................... $240,782,187
Sales................................................................... $527,796,173
</TABLE>
Transactions in call options purchased for the six months ended February
28, 1995 were as follows:
<TABLE> <CAPTION>
PAR VALUE
COVERED BY PREMIUMS
OPTIONS PAID
------------ ---------
<S> <C> <C>
Outstanding call options at beginning of year............................ $(13,294,017) $(135,080)
Options purchased........................................................ 22,524,017 237,019
Options closed........................................................... (22,173,937) (211,651)
------------ ---------
Outstanding call options at end of year.................................. $(12,943,937) $(109,712)
------------ ---------
------------ ---------
</TABLE>
BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest, par value $.001 per share. Transactions in
shares of beneficial interest were as follows:
<TABLE> <CAPTION>
CLASS A CLASS B CLASS C
------------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ----------- -------- -----------
<S> <C> <C> <C>
Six months ended February 28, 1995:
Shares sold......................... 666,493 $ 7,934,569 98,611 $ 1,174,503 117,220 $ 1,399,645
Dividends reinvested in additional
Fund shares....................... 445,387 5,221,284 82,621 967,489 56,449 663,130
Shares repurchased.................. (5,062,978) (60,211,233) (794,142) (9,394,788) (826,380) (9,816,742)
---------- ------------ --------- ----------- -------- -----------
Net decrease.......................... (3,951,098) $(47,055,380) (612,910) $(7,252,796) (652,711) $(7,753,967)
---------- ------------ --------- ----------- -------- -----------
---------- ------------ --------- ----------- -------- -----------
Year ended August 31, 1994:
Shares sold......................... 3,108,216 $ 39,707,546 1,832,752 $23,303,224 793,248 $ 9,955,688
Dividends reinvested in additional
Fund shares....................... 1,124,982 14,067,862 135,828 1,695,816 127,228 1,600,490
Shares repurchased.................. (4,991,354) (61,405,906) (598,936) (7,372,563) (825,212) (10,360,132)
---------- ------------ --------- ----------- -------- -----------
Net increase (decrease)............... (758,156) $ (7,630,498) 1,369,644 $17,626,477 95,264 $ 1,196,046
---------- ------------ --------- ----------- -------- -----------
---------- ------------ --------- ----------- -------- -----------
</TABLE>
15
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout the
periods presented below:
<TABLE> <CAPTION>
Class A
--------------------------------------------------
For the Six For the Year For the Period
Months Ended Ended December 24, 1992+
February 28, August 31, to August 31,
1995 1994 1993
------------ ------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period............................... $ 11.93 $ 13.10 $ 12.00
------------ ------------ ----------
Income (loss) from investment operations:
Net investment income............................................ 0.18 0.43 0.45
Net realized and unrealized gains (losses) from investment and
foreign currency activities.................................... 0.45 (0.56) 1.18
------------ ------------ ----------
Total income (loss) from investment operations..................... 0.63 (0.13) 1.63
------------ ------------ ----------
Dividends and distributions:
Dividends from net investment income............................. (0.57) (0.63) (0.53)
Distributions from net realized gains............................ -- (0.41) --
------------ ------------ ----------
Total dividends and distributions................................ (0.57) (1.04) (0.53)
------------ ------------ ----------
Net asset value, end of period..................................... $ 11.99 $ 11.93 $ 13.10
------------ ------------ ----------
------------ ------------ ----------
Total return (1)................................................... 5.28% (1.10)% 13.79%
------------ ------------ ----------
------------ ------------ ----------
Ratios/Supplemental data:
Net assets, end of period (000's).................................. $108,995 $155,575 $180,686
Ratio of expenses, net of reimbursement, to average net assets..... 1.23%* 1.19% 1.14%*
Ratio of expenses, before reimbursement from manager,
to average net assets............................................ 1.23%* 1.19% 1.22%*
Ratio of net investment income to average net assets............... 5.16%* 4.22% 4.44%*
Portfolio turnover................................................. 150.86% 534.84% 130.43%
<FN>
- ------------------
* Annualized
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The figures
do not include sales charges; results of Class A shares would be lower if
sales charges were included. Total returns for periods of less than one year
have not been annualized.
</TABLE>
16
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights--(continued)
- --------------------------------------------------------------------------------
<TABLE> <CAPTION>
Class B
---------------------------------------------
For the
For the Six For the Year Period
Months Ended Ended May 10, 1993+
February 28, August 31, to August 31,
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of period................................... $ 11.93 $ 13.09 $ 12.77
------------ ------------ -------------
Income (loss) from investment operations:
Net investment income................................................ 0.20 0.49 0.17
Net realized and unrealized gains (losses) from investment and
foreign currency activities........................................ 0.40 (0.67) 0.32
------------ ------------ -------------
Total income (loss) from investment operations......................... 0.60 (0.18) 0.49
------------ ------------ -------------
Dividends and distributions:
Dividends from net investment income................................. (0.54) (0.57) (0.17)
Distributions from net realized gains................................ -- (0.41) --
------------ ------------ -------------
Total dividends and distributions.................................... (0.54) (0.98) (0.17)
------------ ------------ -------------
Net asset value, end of period......................................... $ 11.99 $ 11.93 $ 13.09
------------ ------------ -------------
------------ ------------ -------------
Total return (1)....................................................... 5.04% (1.51)% 3.84%
------------ ------------ -------------
------------ ------------ -------------
Ratios/Supplemental data:
Net assets, end of period (000's)...................................... $ 19,661 $ 26,866 $11,555
Ratio of expenses, net of reimbursement, to average net assets......... 1.74%* 1.68% 1.58%*
Ratio of expenses, before reimbursement from manager,
to average net assets................................................ 1.74%* 1.68% 1.66%*
Ratio of net investment income to average net assets................... 4.66%* 3.73% 4.00%*
Portfolio turnover..................................................... 150.86% 534.84% 130.43%
<FN>
- ------------------
* Annualized
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. Total
returns for periods of less than one year have not been annualized.
</TABLE>
17
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights--(concluded)
- --------------------------------------------------------------------------------
<TABLE> <CAPTION>
Class C
---------------------------------------------
For the
For the Six For the Year Period
Months Ended Ended May 10, 1993+
February 28, August 31, to August 31,
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of period................................... $ 11.94 $ 13.10 $ 12.77
------------ ------------ -------------
Income (loss) from investment operations:
Net investment income................................................ 0.24 0.57 0.20
Net realized and unrealized gains (losses) from investment and
foreign currency activities........................................ 0.41 (0.66) 0.33
------------ ------------ -------------
Total income (loss) from investment operations......................... 0.65 (0.09) 0.53
------------ ------------ -------------
Dividends and distributions:
Dividends from net investment income................................. (0.59) (0.66) (0.20)
Distributions from net realized gains................................ -- (0.41) --
------------ ------------ -------------
Total dividends and distributions.................................... (0.59) (1.07) (0.20)
------------ ------------ -------------
Net asset value, end of period......................................... $ 12.00 $ 11.94 $ 13.10
------------ ------------ -------------
------------ ------------ -------------
Total return (1)....................................................... 5.40% (0.71)% 4.17%
------------ ------------ -------------
------------ ------------ -------------
Ratios/Supplemental data:
Net assets, end of period (000's)...................................... $ 12,757 $ 20,474 $21,226
Ratio of expenses, net of reimbursement, to average net assets......... 0.98%* 0.94% 0.89%*
Ratio of expenses, before reimbursement from manager,
to average net assets................................................ 0.98%* 0.94% 0.97%*
Ratio of net investment income to average net assets................... 5.41%* 4.50% 4.69%*
Portfolio turnover..................................................... 150.86% 534.84% 130.43%
<FN>
- ------------------
* Annualized
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. Total
returns for periods of less than one year have not been annualized.
</TABLE>
18
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund
(one of the portfolios constituting the Mitchell Hutchins/Kidder, Peabody
Investment Trust):
We have audited the accompanying statement of assets and liabilities,
including the portfolio
of investments, of Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund,
as of February 28, 1995, and the related statements of operations and of changes
in net assets and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund as of February 28, 1995, the
results of its operations, the changes in its net assets and financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
April 21, 1995
19
<PAGE>
- --------------------------------------
TRUSTEES
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
- --------------------------------------
OFFICERS
Frank P. L. Minard
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
- --------------------------------------
INVESTMENT ADVISER, ADMINISTRATOR
AND DISTRIBUTOR
Mitchell Hutchins Asset Management
Inc.
1285 Avenue of the Americas
New York, New York 10019
- --------------------------------------
INVESTMENT SUB-ADVISER
Strategic Fixed Income, L.P.
1001 19th Street North
Arlington, Virginia 22209
- --------------------------------------
This report is not to be used in
connection with the offering of shares
of the Fund unless accompanied or
preceded by an effective prospectus.
A Prospectus containing more complete
information for any of the funds
listed on the back cover can be
obtained from a PaineWebber investment
executive or correspondent firm. Read
the prospectus carefully before
investing.
<PAGE>
PAINEWEBBER INVESTMENT SERIES
PART C
OTHER INFORMATION
Item 15. Indemnification
Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall
be indemnified where there has been an adjudication or other determination, as
described in Article X, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office
or did not act in good faith in the reasonable belief that his action was in
the best interest of the Registrant. Section 2 of "Indemnification" in Article
X also provides that the Registrant may maintain insurance policies covering
such rights of indemnification.
Additionally, "Limitation of Liability" in Article X of the Declaration of
Trust provides that the trustees or officers of the Registrant shall not be
personally liable to any person extending credit to, contracting with or having
a claim against the Registrant or a particular series; and that, provided they
have exercised reasonable care and have acted under the reasonable belief that
their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee or investment adviser of the Registrant.
Section 2 of Article XI of the Declaration of Trust additionally provides
that, subject to the provisions of Section 1 of Article XI and to Article X,
trustees shall not be liable for errors of judgement or mistakes of fact or
law, for any act or omission in accordance with advice of counsel or other
experts, or for failing to follow such advice, with respect to the meaning and
operation of the Declaration of Trust.
Article IX of the By-Laws provides that the Registrant may purchase and
maintain insurance on behalf of any person who is or was a trustee, officer or
employee of the Registrant, or is or was serving at the request of the
Registrant as a trustee, officer or employee of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the Registrant would have the power to indemnify him
against such liability to the Registrant or its shareholders, provided that the
Registrant may not purchase or maintain insurance that protects any such person
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Section 9 of the Investment Advisory and Administration Contract
("Contract") provides that Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") shall not be liable for any error of judgement or mistake of law or
for any loss suffered by any series of the Registrant in connection with the
matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 10 of the Contract provides that the
trustees shall not be liable for any obligations of any series or the
Registrant under the Contract and that Mitchell Hutchins shall look only to the
assets and property of the Registrant or appropriate series in settlement of
such right or claim and not to the assets and property of the trustees.
Section 9 of each Distribution Contract provides that the 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
<PAGE>
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 trustees free and harmless of any claims
arising out of any alleged untrue statement or any alleged omission of material
fact contained in information furnished by Mitchell Hutchins for use in the
Registration Statement or arising out of an agreement between Mitchell Hutchins
and any retail dealer, or arising out of supplementary literature or
advertising used by Mitchell Hutchins in connection with each Distribution
Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions similar
to Section 9 of the relevant Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Section 6 of the Service Contract provides that PaineWebber shall be
indemnified and held harmless by the Registrant against all liabilities, except
those arising out of bad faith, gross negligence, willful misfeasance or
reckless disregard of its duties under the Service Contract.
Section 10 of each Distribution Contract and Section 7 of the Service
Contract contain provisions similar to Section 10 of the Investment Advisory
and Administration Contract, applicable to Mitchell Hutchins and PaineWebber,
respectively.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the 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 trustee, 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 trustee, 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.
(b) Exhibits:
(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 3/
-
(c) Amendment effective March 15, 1989 to Declaration of Trust 4/
-
(d) Amendment effective November 27, 1989 to Declaration of Trust 5/
-
(e) Amendment effective October 15, 1990 to Declaration of Trust 6/
-
(f) Amendment effective October 24, 1990 to Declaration of Trust 6/
-
(g) Amendment effective April 25, 1991 to Declaration of Trust 8/
-
(h) Amendment effective May 1, 1991 to Declaration of Trust 8/
-
(i) Amendment effective July 1, 1991 to Declaration of Trust 8/
-
(j) Amendment effective September 24, 1991 to Declaration of Trust 9/
-
(k) Amendment effective October 30, 1991 to Declaration of Trust 10/
--
(l) Amendment effective November 18, 1991 to Declaration of Trust 10/
--
(m) Amendment effective June 30, 1992 to Declaration of Trust 11/
--
(n) Amendment effective July 30, 1993 to Declaration of Trust 12/
--
(o) Amendment effective November 17, 1993 to Declaration of Trust 12/
--
(2) (a) By-Laws 1/
-
(b) Amendment dated March 19, 1991 to By-Laws 7/
-
(c) Amendment dated September 28, 1994 to By-Laws 13/
--
(3) Voting trust agreement - none
(4) Amended Agreement and Plan of Reorganization and Termination (filed
herewith)
<PAGE>
(5) All instruments defining the rights of holders -- none
(6) (a) Investment Advisory and Administration Contract 3/
-
(i) Investment Advisory Fee Agreement with respect to
PaineWebber Global Growth and Income Fund 4/
-
(ii) Investment Advisory Fee Agreement with respect to
PaineWebber Europe Growth Fund 5/
-
(7) (a) Distribution Contract with respect to Class A shares 12/
--
(b) Distribution Contract with respect to Class B shares 13/
--
(c) Distribution Contract with respect to Class C shares 10/
--
(d) Distribution Contract with respect to Class D shares 12/
--
(e) Exclusive Dealer Agreement with respect to Class A shares 12/
--
(f) Exclusive Dealer Agreement with respect to Class B shares 12/
--
(g) Exclusive Dealer Agreement with respect to Class C shares 10/
--
(h) Exclusive Dealer Agreement with respect to Class D shares 12/
--
(8) Bonus, profit sharing or pension plans - none
(9) (a) Custodian Agreement with respect to PaineWebber Global Income
Fund 2/
-
(b) Custodian Agreement with respect to PaineWebber Global Energy
Fund 3/
-
(c) Custodian Agreement with respect to PaineWebber Global Growth and
Income Fund 4/
-
(d) Custodian Agreement with respect to PaineWebber Europe Growth
Fund 5/
-
(10) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
A shares 10/
--
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
B shares 10/
--
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
D shares 11/
--
(d) Rule 18f-3 Plan (filed herewith)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith)
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters (filed herewith)
(b) Opinion and consent of Willkie Farr & Gallagher regarding certain
tax matters (filed herewith)
(13) (a) Transfer Agency Agreement with respect to Painewebber Investment
Series 6/
-
(b) Service Contract 4/
-
(14) (a) Consent of Price Waterhouse LLP (filed herewith)
(b) Consent of Deloitte & Touche LLP (filed herewith)
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Powers of Attorney - none
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 (filed herewith)
(b) Proxy Cards (filed herewith)
(c) Financial Data Schedules (filed herewith)
<PAGE>
- ----------------------
1/ Incorporated by Reference from Registration Statement on Form N-1A, File
- - No. 33-11025, filed December 22, 1986.
2/ Incorporated by Reference from Post-Effective Amendment No. 1, File No.
- - 33-11025, filed July 20, 1987.
3/ Incorporated by Reference from Post-Effective Amendment No. 3, File No.
- - 33-11025, filed April 29, 1988.
4/ Incorporated by Reference from Post-Effective Amendment No. 6, File No.
- - 33-11025, filed November 30, 1989.
5/ Incorporated by Reference from Post-Effective Amendment No. 8, File No.
- - 33-11025, filed February 28, 1990.
6/ Incorporated by Reference from Post-Effective Amendment No. 11, File No.
- - 33-11025, filed October 24, 1990.
7/ Incorporated by Reference from Post-Effective Amendment No. 15, File No.
- - 33-11025, filed May 2, 1991.
8/ Incorporated by Reference from Post-Effective Amendment No. 16, File No.
- - 33-11025, filed July 31, 1991.
9/ Incorporated by Reference from Post-Effective Amendment No. 18, File No.
- - 33-11025, filed September 24, 1991.
10/ Incorporated by Reference from Post-Effective Amendment No. 19, File No.
- -- 33-11025, filed February 14, 1992.
11/ Incorporated by Reference from Post-Effective Amendment No. 23, File No.
- -- 33-11025, filed December 31, 1992.
12/ Incorporated by Reference from Post-Effective Amendment No. 25, File No.
- -- 33-11025, filed March 1, 1994.
13/ Incorporated by Reference from Post-Effective Amendment No. 27, File No.
- -- 33-11025, filed December 30, 1994.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the applicable
registration form for reoffering by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the Securities Act of 1933, each post-effective amendment
shall be deemed to be a new Registration Statement for the
securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of
them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of New York
and the State of New York, on this 20th day of July, 1995.
PAINEWEBBER INVESTMENT SERIES
By: /s/ Dianne E. O'Donnell
---------------------------
Dianne E. O'Donnell
Vice President, Secretary
Each of the undersigned trustees and officers of PaineWebber Investment
Series ("Series") hereby severally constitutes and appoints Victoria E.
Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Elinor W. Gammon and Robert A.
Wittie, and each of them singly, our true and lawful attorneys, with full power
to them to sign for each of us, and in each of our names and in the capacities
indicated below, any and all amendments to the Registration Statement of the
Series, and all instruments necessary or desirable in connection therewith,
filed with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by said attorney to any and all
amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Margo N. Alexander President July 20, 1995
---------------------------- (Chief Executive
Margo N. Alexander Officer)
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman July 20, 1995
---------------------------- of the Board of
E. Garrett Bewkes, Jr. Trustees
/s/ Meyer Feldberg Trustee July 20, 1995
----------------------------
Meyer Feldberg
/s/ George W. Gowen Trustee July 20, 1995
----------------------------
George W. Gowen
/s/ Frederic V. Malek Trustee July 20, 1995
----------------------------
Frederic V. Malek
/s/ Frank P. L. Minard Trustee July 20, 1995
----------------------------
Frank P. L. Minard
/s/ Judith Davidson Moyers Trustee July 20, 1995
----------------------------
Judith Davidson Moyers
/s/ Thomas F. Murray Trustee July 20, 1995
----------------------------
Thomas F. Murray
/s/ Julian F. Sluyters Vice President and July 20, 1995
---------------------------- Treasurer (Principal
Julian F. Sluyters Financial and
Accounting
Officer)
Exhibit 4
AMENDED AND RESTATED
--------------------
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION ("Agreement") is made as of July 25, 1995, between PaineWebber
Investment Series, a Massachusetts business trust ("PW Trust"), on behalf of
PaineWebber Global Income Fund, a segregated portfolio of assets ("series")
thereof ("Acquiring Fund"), and Mitchell Hutchins/Kidder, Peabody Investment
Trust, a Massachusetts business trust ("MHKP Trust"), on behalf of its Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund series ("Target").
(Acquiring Fund and Target are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and PW Trust and MHKP Trust are some-
times referred to herein collectively as the "Investment Companies.")
RECITAL
The parties entered into an Agreement and Plan of Reorganization and
Termination dated as of May 19, 1995 ("Original Agreement"), which provided,
inter alia, for Target shareholders to receive Acquiring Fund shares pursuant
to the transactions contemplated thereby. The parties now desire to amend and
restate the Original Agreement to reflect a change in the class of Acquiring
Fund shares to be distributed to holders of Class C Target Shares (as defined
below). Therefore, the Original Agreement is hereby amended and restated to
read in its entirety as follows:
AMENDED AND RESTATED PROVISIONS
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the assump-
tion by Acquiring Fund of Target's liabilities, followed by the constructive
distribution of the Acquiring Fund Shares to the holders of shares of
beneficial interest in Target ("Target Shares") in exchange therefor, all upon
the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by PW Trust on behalf of
Acquiring Fund and by MHKP Trust on behalf of Target.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring
Fund Shares," respectively). Except as noted in the following sentence, these
classes differ only with respect to the sales charges imposed on the purchase
of shares and the fees ("12b-1 fees") payable by each class pursuant to plans
<PAGE>
adopted under Rule 12b-1 promulgated under the Investment Company Act of 1940
("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are offered at net
asset value ("NAV") plus a sales charge, if applicable, and are subject to a
12b-1 service fee at the annual rate of 0.25% of the average daily net assets
attributable to the class ("class assets"); (2) Class B Acquiring Fund Shares
are offered at NAV without imposition of any sales charge and are subject to a
contingent deferred sales charge and 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.75% of class assets; (3) Class C
Acquiring Fund Shares are offered, currently only to the trustee of the
PaineWebber Savings Investment Plan on behalf of that plan, at NAV without
imposition of any sales charge and are not subject to any 12b-1 fee; and
(4) Class D Acquiring Fund Shares are offered at NAV without imposition of any
sales charge and are subject to 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.50% of class assets. These classes also
may differ from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees. Only Classes A, C and D Acquiring
Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A, Class
B, and Class C shares ("Class A Target Shares," "Class B Target Shares," and
"Class C Target Shares," respectively). Apart from differences in certain
ancillary class-specific expenses, these classes differ only with respect to
the sales charges imposed on the purchase of shares and the 12b-1 fees, as
follows: (1) Class A Target Shares are offered at NAV plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25%
of class assets; (2) Class B Target Shares are offered at NAV without
imposition of any sales charge and are subject to 12b-1 service and
distribution fees at the respective annual rates of 0.25% and 0.50% of class
assets; and (3) Class C Target Shares are offered, currently to a limited group
of investors (consisting of former employees of Kidder, Peabody & Co. Incor-
porated ("Kidder") and their associated accounts, directors and trustees of
mutual funds formerly distributed by Kidder (now known as Mitchell Hutch-
ins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds), Kidder's
employee benefit plans, and participants in a certain portfolio asset allo-
cation program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set
forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class D
A-2
<PAGE>
Acquiring Fund Shares determined by dividing the Target Value attributable
to the Class B Target Shares by the NAV (as so computed) of a Class D
Acquiring Fund Share, and (iii) Class C Acquiring Fund Shares determined
by dividing the Target Value attributable to the Class C Target Shares by
the NAV (as so computed) of a Class C Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph
3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses described in
paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare
and pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such dis-
tribution shall be accomplished by the Funds' transfer agent ("Transfer Agent")
opening accounts on Acquiring Fund's share transfer books in the Shareholders'
names and transferring such Acquiring Fund Shares thereto. Each Shareholder's
account shall be credited with the respective pro rata number of full and
fractional (rounded to the third decimal place) Acquiring Fund Shares due that
Shareholder, by class (i.e., the account for a Shareholder of Class A Target
Shares shall be credited with the respective pro rata number of Class A
Acquiring Fund Shares due that Shareholder, the account for a Shareholder of
Class B Target Shares shall be credited with the respective pro rata number of
Class D Acquiring Fund Shares due that Shareholder, and the account for a
Shareholder of Class C Target Shares shall be credited with the respective pro
rata number of Class C Acquiring Fund Shares due that Shareholder). All out-
A-3
<PAGE>
standing Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as
a series of MHKP Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be
(a) the value of the Assets computed as of the close of regular trading on the
New York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation
Time"), using the valuation procedures set forth in Target's then-current pro-
spectus and statement of additional information less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring
Fund Share, a Class C Acquiring Fund Share, and a Class D Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
October 27, 1995, or at such other place and/or on such other date as the par-
ties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as the parties may agree ("Effective Time"). If, immediately before
the Valuation Time, (a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
is disrupted, so that accurate appraisal of the net value of Target and the NAV
per Acquiring Fund Share is impracticable, the Effective Time shall be
A-4
<PAGE>
postponed until the first business day after the day when such trading shall
have been fully resumed and such reporting shall have been restored.
3.2. MHKP Trust shall deliver to PW Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred
to Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunc-
tion with the delivery of the Assets, including all applicable federal and
state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3. MHKP Trust shall deliver to PW Trust at the Closing a list of the
names and addresses of the Shareholders and the number (by class) of
outstanding Target Shares owned by each Shareholder, all as of the Effective
Time, certified by the Secretary or Assistant Secretary of Target. The
Transfer Agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders' names.
PW Trust shall issue and deliver a confirmation to MHKP Trust evidencing the
Acquiring Fund Shares (by class) to be credited to Target at the Effective Time
or provide evidence satisfactory to MHKP Trust that such Acquiring Fund Shares
have been credited to Target's account on Acquiring Fund's books. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts, or other documents as the other
party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to
the effect that the representations and warranties it made in this Agreement
are true and correct at the Effective Time except as they may be affected by
the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. MHKP Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and
a copy of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. MHKP Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of MHKP
Trust;
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4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act
and the rules and regulations thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
MHKP Trust's Declaration of Trust or By-Laws or of any agreement, instru-
ment, lease, or other undertaking to which Target is a party or by which
it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as previously
disclosed in writing to and accepted by PW Trust;
4.1.7. Except as disclosed in writing to and accepted by PW Trust,
all material contracts and other commitments of or applicable to Target
(other than this Agreement and investment contracts, including options,
futures, and forward contracts) will be terminated, or provision for
discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to be
taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
PW Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Target's
knowledge) threatened against MHKP Trust with respect to Target or any of
its properties or assets that, if adversely determined, would materially
and adversely affect Target's financial condition or the conduct of its
business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is
not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially or adversely
affects its business or its ability to consummate the transactions
contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on
the part of MHKP Trust's board of trustees, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to approval by Target's shareholders and receipt of any necessary
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exemptive relief or no-action assurances requested from the Securities and
Exchange Commission ("SEC") or its staff with respect to sections 17(a)
and 17(d) of the 1940 Act, this Agreement will constitute a valid and
legally binding obligation of Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of
this Agreement by MHKP Trust, except for (a) the filing with the SEC of a
registration statement by PW Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a prospectus/proxy statement
("Proxy Statement"), (b) receipt of the exemptive relief referenced in
subparagraph 4.1.9, and (c) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by PW Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
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4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Trust is a Business Trust; it is duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and a copy of its Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.2.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
PW Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and
validly issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable, except to the extent that under Massachusetts law
shareholders of a Business Trust may, under certain circumstances, be held
personally liable for its obligations. Except as contemplated by this
Agreement, Acquiring Fund does not have outstanding any options, warrants,
or other rights to subscribe for or purchase any of its shares, nor is
there outstanding any security convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of addi-
tional information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regu-
lations thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law
or any provision of PW Trust's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
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which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by MHKP Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by
MHKP Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against PW Trust with respect to
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund knows
of no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on
the part of PW Trust's board of trustees, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to receipt of any necessary exemptive relief or no-action assurances
requested from the SEC or its staff with respect to sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by PW Trust, except for
(a) the filing with the SEC of the Registration Statement, (b) the filing
with the SEC of a post-effective amendment to the registration statement
of PW Trust ("PEA"), (c) receipt of the exemptive relief referenced in
subparagraph 4.2.9, and (d) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MHKP Trust for use therein;
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4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2)
of the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its cur-
rent taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M
did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for dispositions
made in the ordinary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M of the Code, and
(c) expects to retain substantially all the Assets in the same form as it
receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock or securities of five or fewer
issuers; and
4.2.17. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when received
by the Shareholders, will be approximately equal to the fair market value of
their Target Shares constructively surrendered in exchange therefor;
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4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis. Nor
does its management anticipate that there will be extraordinary
redemptions of Acquiring Fund Shares immediately following the Reorganiza-
tion;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to im-
mediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made
to conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is
an employee of Target will be separate consideration for, or allocable to,
any of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
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4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the Closing;
provided that Target shall not dispose of more than an insignificant portion of
its historic business assets during such period without Acquiring Fund's prior
consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval
of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist PW Trust in obtaining such
information as PW Trust reasonably requests concerning the beneficial ownership
of Target Shares.
5.5. Target covenants that Target's books and records (including all
books and records required to be maintained under the 1940 Act and the rules
and regulations thereunder) will be turned over to PW Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when re-
quested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and
possession of all the Assets, and (b) Target, title to and possession of the
Acquiring Fund Shares to be delivered hereunder, and otherwise to carry out the
intent and purpose hereof.
5.8. PW Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to
be taken all actions, and to do or cause to be done all things, reasonably
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necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before
the Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by MHKP Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement and the PEA shall
have become effective under the 1933 Act, no stop orders suspending the
effectiveness thereof shall have been issued, and the SEC shall not have issued
an unfavorable report with respect to the Reorganization under section 25(b) of
the 1940 Act nor instituted any proceedings seeking to enjoin consummation of
the transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory authori-
ties (including the SEC and state securities authorities) deemed necessary by
either Fund to permit consummation, in all material respects, of the transac-
tions contemplated hereby shall have been obtained, except where failure to
obtain same would not involve a risk of a material adverse effect on the assets
or properties of either Fund, provided that either Fund may for itself waive
any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. MHKP Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to PW Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of PW Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such
counsel, to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Acquiring Fund and (b) assuming due
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authorization, execution, and delivery of this Agreement by MHKP Trust on
behalf of Target, is a valid and legally binding obligation of PW Trust
with respect to Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, except to the extent
that under Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obligations, and
no shareholder of Acquiring Fund has any preemptive right to subscribe for
or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate PW Trust's Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel, without any independent inquiry or
investigation) to which PW Trust (with respect to Acquiring Fund) is a
party or by which it is bound or (to the knowledge of such counsel,
without any independent inquiry or investigation) result in the accel-
eration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which PW Trust (with respect to Ac-
quiring Fund) is a party or by which it is bound, except as set forth in
such opinion or as previously disclosed in writing to and accepted by MHKP
Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
PW Trust on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934
Act, and the 1940 Act and such as may be required under state securities
laws;
6.4.6. PW Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to PW Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring Fund and
(b) PW Trust (with respect to Acquiring Fund) is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Acquiring Fund's
business, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by MHKP Trust.
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In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with such firm who have devoted sub-
stantive attention to matters directly related to this Agreement and the
Reorganization.
6.5. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MHKP Trust, substantially to the effect that:
6.5.
1. Target is a duly established series of MHKP Trust, a Business Trust duly
organized and validly existing under the laws of the Commonwealth of Massa-
chusetts with power under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on its business as
presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by MHKP Trust on behalf of Target and (b) assuming due author-
ization, execution, and delivery of this Agreement by PW Trust on behalf
of Acquiring Fund, is a valid and legally binding obligation of MHKP Trust
with respect to Target, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate MHKP Trust's Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel, without any independent inquiry or
investigation) to which MHKP Trust (with respect to Target) is a party or
by which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which MHKP Trust (with respect to Target) is a
party or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by PW Trust;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
MHKP Trust on behalf of Target of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act, and
the 1940 Act and such as may be required under state securities laws;
6.5.5. MHKP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
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6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to MHKP Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) MHKP
Trust (with respect to Target) is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to and accepted
by PW Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word "knowledge" and related terms
to mean the knowledge of attorneys then with such firm who have devoted sub-
stantive attention to matters directly related to this Agreement and the
Reorganization.
6.6. MHKP Trust shall have received an opinion of Willkie Farr &
Gallagher, its counsel, addressed to and in form and substance satisfactory to
MHKP Trust, and PW Trust shall have received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, addressed to and in form and substance satisfactory
to PW Trust, each as to the federal income tax consequences mentioned below
(each a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may
rely as to factual matters, exclusively and without independent verification,
on the representations made in this Agreement (or in separate letters addressed
to such counsel) and the certificates delivered pursuant to paragraph 3.4.
Each Tax Opinion shall be substantially to the effect that, based on the facts
and assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabili-
ties, followed by Target's distribution of those shares to the Sharehol-
ders constructively in exchange for the Shareholders' Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C) of
the Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in construc-
tive exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
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6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares, and its holding period for those Acquiring Fund
Shares will include its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder (regarding the recognition of gain or loss and/or the determination
of the basis or holding period) with respect to any asset (including certain
options, futures, and forward contracts included in the Assets) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of PW Trust's board of trustees, such
waiver will not have a material adverse effect on its shareholders' interests,
and (b) Target may waive any of the foregoing conditions if, in the judgment of
MHKP Trust's board of trustees, such waiver will not have a material adverse
effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by the Funds proportionately, as follows:
each such expense will be borne by the Funds in proportion to their respective
net assets as of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement; (b) expenses associated with the preparation and filing of the
Registration Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident as of the
date of the mailing of the Proxy Statement to such shareholders; (d) printing
A-17
<PAGE>
and postage expenses; (e) legal and accounting fees; and (f) solicitation
costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed
at or prior to the Effective Time, (b) if a condition to its obligations has
not been met and it reasonably appears that such condition will not or cannot
be met, or (c) if the Closing has not occurred on or before December 31, 1995;
or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers
of either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts; provided that, in
the case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
A-18
<PAGE>
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of
each Investment Company's trustees solely in their capacity as trustees, and
not individually, and that each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its trustees,
officers, or shareholders, but are only binding on and enforceable against the
respective Funds' assets and property. Each Fund agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the other Fund's
assets and property in settlement of such rights or claims and not to such
trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: PAINEWEBBER INVESTMENT SERIES,
on behalf of its series,
PAINEWEBBER GLOBAL INCOME FUND
By: /s/Ilene Shore /s/Dianne E. O'Donnell
----------------------------- ------------------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER,
PEABODY INVESTMENT TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER,
PEABODY GLOBAL FIXED INCOME
FUND
By: /s/Stephanie Hemphill-Johnson /s/Scott H. Griff
----------------------------- -----------------------------
Assistant Secretary Vice President
A-19
PAINEWEBBER INVESTMENT SERIES
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
PaineWebber Investment Series, hereby adopts this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act") on behalf of its current operating series, PaineWebber Global
Income Fund, and any series that may be established in the future (referred to
hereinafter collectively as the "Funds" and individually as a "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. Class A Shares. Class A shares of each Fund are sold to the
general public subject to an initial sales charge. The initial sales charge
for each Fund is waived for certain eligible purchasers and reduced or waived
for certain large volume purchases.
The maximum sales charge is 4% of the public offering price for Class A
shares of a Fund that invests primarily in debt securities.
The maximum sales charge is 4.5% of the public offering price for Class A
shares of a Fund that invests primarily in equity securities or a combination
of equity and debt securities.
Class A shares of each Fund are subject to an annual service fee of .25%
of the average daily net assets of the Class A shares of each Fund paid
pursuant to a plan of distribution adopted pursuant to Rule 12b-1 under the
1940 Act.
Class A shares of each Fund issued on or after November 1, 1995 will be
subject to a contingent deferred sales charge ("CDSC") on redemptions of shares
(i) purchased without an initial sales charge due to a sales charge waiver for
purchases of $1 million or more and (ii) held less than one year. The Class A
CDSC is equal to 1% of the lower of: (i) the net asset value of the shares at
the time of purchase or (ii) the net asset value of the shares at the time of
redemption. Class A shares of each Fund held one year or longer and Class A
shares of each Fund acquired through reinvestment of dividends or capital gains
distributions on shares otherwise subject to a Class A CDSC are not subject to
the CDSC. The CDSC for Class A shares of each Fund will be waived under
certain circumstances.
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 2
2. Class B Shares. Class B shares of each Fund are sold to the
general public subject to a CDSC, but without imposition of an initial sales
charge.
The maximum CDSC for Class B shares of each Fund is equal to 5% of the
lower of: (i) the net asset value of the shares at the time of purchase or (ii)
the net asset value of the shares at the time of redemption.
Class B shares of each Fund held six years or longer and Class B shares of
each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC.
Class B shares of each Fund are subject to an annual service fee of .25%
of average daily net assets and a distribution fee of .75% of average daily net
assets of the Class B shares of each Fund, each paid pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of each Fund convert to Class A shares approximately six
years after issuance at relative net asset value.
3. Class C Shares. Class C shares are sold without imposition of an
initial sales charge or CDSC and are not subject to any service or distribution
fees.
Class C shares of each Fund are available for purchase only by: (i)
employee benefit and retirement plans, other than individual retirement
accounts and self-employed retirement plans, of Paine Webber Group Inc. and its
affiliates; (ii) certain unit investment trusts sponsored by PaineWebber
Incorporated; (iii) participants in certain wrap fee investment advisory
programs that are currently or in the future sponsored by PaineWebber
Incorporated and that may invest in PaineWebber proprietary funds, provided
that shares are purchased through or in connection with those programs; and
(iv) the holders of Class C shares of any Mitchell Hutchins/Kidder Peabody
("MH/KP") mutual fund provided that such shares are issued in connection with
the reorganization of a MH/KP mutual fund into that Fund.
4. Class D Shares. Class D shares of each Fund are sold to the
general public without imposition of a sales charge.
Class D shares of a Fund that invests primarily in equity securities or a
combination of equity and debt securities are subject to an annual service fee
of .25% of average daily net assets and a distribution fee of .75% of average
daily net assets of Class D shares of such Fund, each pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class D shares of a Fund that invests primarily in debt securities are
subject to an annual service fee of .25% of average daily net assets and a
distribution fee of .50% of average daily net assets of Class D shares of such
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 3
Fund, each pursuant to a plan of distribution adopted pursuant to Rule 12b-1
under the 1940 Act.
Class D shares of a Fund that invests primarily in debt securities will be
subject to a CDSC on redemptions of Class D shares held less than one year
equal to .75% of the lower of: (i) the net asset value of the shares at the
time of purchase or (ii) the net asset value of the shares at the time of
redemption; provided that such CDSC shall apply only to Class D shares issued
on or after November 1, 1995.
Class D shares of a Fund that invests primarily in equity securities or in
a combination of equity and debt securities will be subject to a CDSC on
redemptions of Class D shares held less than one year equal to 1% of the lower
of: (i) the net asset value of the shares at the time of purchase or (ii) the
net asset value of the shares at the time of redemption; provided that such
CDSC shall apply only to Class D shares issued on or after November 1, 1995.
Class D shares of each Fund held one year or longer and Class D shares of
each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC. The CDSC for Class D shares of each
Fund will be waived under certain circumstances.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of shares of
each Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a specific
Class;
(2) Blue Sky registration fees incurred by a specific Class of
shares;
(3) SEC registration fees incurred by a specific Class of shares;
(4) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(5) Trustees' fees incurred as a result of issues relating to a
specific Class of shares;
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 4
(6) litigation expenses or other legal expenses relating to a
specific Class of shares; and
(7) transfer agent fees identified as being attributable to a
specific Class.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Class B and Class D shares of each Fund may be exchanged for
shares of the corresponding Class of other PaineWebber mutual funds and MH/KP
mutual funds, or may be acquired through an exchange of shares of the
corresponding Class of those funds. Class C shares of the Funds are not
exchangeable.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Trustees of PaineWebber Investment
Series, a Fund may alter the nomenclature for the designations of one or more
of its classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for the applicable Classes; provided, however, that
none of the terms set forth in any such prospectus shall be inconsistent with
the terms of the Classes contained in this Plan. The prospectus for each Fund
contains additional information about the Classes and each Fund's multiple
class structure.
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective as of the date hereof, provided that
the CDSC imposed on the Class A shares and Class D shares of each Fund shall
apply only to Class A shares and Class D shares issued on or after November 1,
1995, and further provided that this Plan shall not become effective with
respect to any Fund unless such action has first been approved by the vote of a
majority of the Board and by vote of a majority of those trustees of the Fund
who are not interested persons of PaineWebber Investment Series.
July 20, 1995
July 27, 1995
PaineWebber Investment Series
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by PaineWebber Investment Series ("Trust") of Class A, Class C and
Class D shares of beneficial interest (the "Shares") of PaineWebber Global
Income Fund ("PW Fund"), a series of the Trust, pursuant to an Amended and
Restated Agreement and Plan of Reorganization and Termination ("Plan")
between the Trust, on behalf of PW Fund, and Mitchell Hutchins/Kidder,
Peabody Global Fixed Income Fund ("MH/KP Fund"), a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust. Under the Plan, PW Fund would
acquire the assets of MH/KP Fund in exchange for the Shares and the
assumption by PW Fund of MH/KP Fund's liabilities. In connection with the
Plan, the Trust is about to file a Registration Statement on Form N-14 (the
"N-14") for the purpose of registering the Shares under the Securities Act
of 1933, as amended ("1933 Act") to be issued pursuant to the Plan.
We have examined originals or copies believed by us to be genuine of
the Trust's Declaration of Trust and By-Laws, minutes of meetings of the
Trust's board of trustees, the Plan, and such other documents relating to
the authorization and issuance of the Shares as we have deemed relevant.
Based upon that examination, we are of the opinion that the Shares being
registered by the N-14 may be issued in accordance with the Plan and the
Trust's Declaration of Trust and By-Laws, subject to compliance with the
1933 Act, the Investment Company Act of 1940, as amended, and applicable
state laws regulating the distribution of securities, and when so issued,
those Shares will be legally issued, fully paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, Trust shareholders could, under
certain circumstances, be held personally liable for the obligations of the
Trust or a series of the Trust, including PW Fund (each, a "Series"). The
Declaration of Trust states that the creditors of, contractors with, and
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 2
claimants against, the Trust or a Series shall look only to the assets of
the Trust or such Series for payment. It also requires that notice of such
disclaimer be given in each note, bond, contract, certificate, undertaking
or instrument made or issued by the officers or the trustees of the Trust
on behalf of the Trust or a Series. The Declaration of Trust further
provides: (i) for indemnification from Trust or Series assets, as
appropriate, for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust or Series solely by virtue of
ownership of Shares of a Series; and (ii) for a Series to assume the
defense of any claim against the shareholder for any act or obligation of
the Series. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust or a Series would be unable to meet its obligations.
We hereby consent to this opinion accompanying the Form N-14 that the
Trust plans to file with the Securities and Exchange Commission and to the
reference to our firm under the caption "Miscellaneous -- Legal Matters" in
the Prospectus/Proxy Statement filed as part of the Form N-14.
Sincerely yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Elinor W. Gammon
---------------------------
Elinor W. Gammon
July 27, 1995
PaineWebber Investment Series
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber Investment Series ("PW Trust"), on behalf of PaineWebber
Global Income Fund, a segregated portfolio of assets ("series") of PW Trust
("Acquiring Fund"), has requested our opinion as to certain federal income tax
consequences of the proposed acquisition by Acquiring Fund of Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund ("Target"), a series of
Mitchell Hutchins/Kidder, Peabody Investment Trust ("MHKP Trust"),1/ pursuant
-
to an Amended and Restated Agreement and Plan of Reorganization and Termination
between them dated as of July 25, 1995 ("Plan"), attached as an exhibit to the
prospectus/proxy statement to be furnished in connection with the solicitation
of proxies by MHKP Trust's board of trustees for use at a special meeting of
Target shareholders ("Special Meeting") to be held on October 5, 1995
("Proxy"), included in the registration statement on Form N-14 to be filed with
the Securities and Exchange Commission ("SEC") on or about the date hereof
("Registration Statement").2/ Specifically, PW Trust has requested our
-
opinion:
(1) that the acquisition by Acquiring Fund of Target's assets in
exchange solely for voting shares of beneficial interest in Acquiring
Fund and the assumption by Acquiring Fund of Target's liabilities,
followed by the distribution of those shares by Target pro rata to
its shareholders of record as of the close of regular trading on the
New York Stock Exchange, Inc. on the date of the Closing (as
hereinafter defined) ("Shareholders") constructively in exchange for
their shares of beneficial interest in Target ("Target Shares") (such
- --------------------
1/ Acquiring Fund and Target are referred to herein individually
-
either by such names or as a "Fund" and collectively as the
"Funds," and PW Trust and MHKP Trust are referred to herein indi-
vidually either by such names or as a "Trust" and collectively as
the "Trusts."
2/ This letter supersedes and replaces our previous letter ad-
-
dressed to the Trusts dated May 22, 1995, which is hereby
withdrawn and may not be relied on for any purpose.
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 2
transaction sometimes being referred to herein as the "Reorganiza-
tion"), will constitute a "reorganization" within the meaning of
section 368(a)(1)(C)3/ and that each Fund will be a "party to a reor-
-
ganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will
recognize no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reorganiza-
tion of the transferred assets and the shares of Acquiring Fund
issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's currently
effective prospectus, dated December 29, 1994 (as supplemented February 13,
1995), its currently effective statement of additional information ("SAI"),
dated December 29, 1994, and the currently effective prospectus and SAI of
Acquiring Fund, both dated March 1, 1995, (2) the Proxy, (3) the Plan, and
(4) such other documents as we have deemed necessar&y or appropriate for the
purposes hereof. As to various matters of fact material to this opinion, we
have relied, exclusively and without independent verification, on statements of
responsible officers of each Trust and the representations described below and
made in the Plan (as contemplated in paragraph 6.6 thereof) (collectively "Rep-
resentations").
FACTS
-----
PW Trust is as an unincorporated voluntary association with transferable
shares formed as a business trust under the laws of the Commonwealth of
Massachusetts (commonly referred to as a "Massachusetts business trust")
pursuant to a Declaration of Trust dated December 22, 1986; Acquiring Fund
commenced operations as a series thereof on March 20, 1987. MHKP Trust was
formed as a Massachusetts business trust pursuant to a Declaration of Trust
dated March 28, 1991; Target commenced operations as a series thereof on
December 24, 1992. Each Trust is registered with the SEC as an open-end
management investment company under the Investment Company Act of 1940 ("1940
Act"). Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
owned subsidiary of PaineWebber Incorporated, serves as administrator to each
Fund, investment manager to Target, and investment adviser to Acquiring Fund
and is the distributor of each Fund's shares. Strategic Fixed Income, L.P. is
a sub-advisor to Target, but will not serve in that capacity to Acquiring Fund
after the Reorganization.
Target currently offers for sale three classes of shares, designated Class
A, Class B, and Class C shares ("Class A Target Shares," "Class B Target
- --------------------
3/ All section references are to the Internal Revenue Code of
-
1986, as amended ("Code"), and all "Treas. Reg. Sec." references are
to the regulations under the Code ("Regulations").
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 3
Shares," and "Class C Target Shares," respectively). Apart from differences in
certain ancillary class-specific expenses, these classes differ only with re-
spect to the sales charges imposed on the purchase of shares and the fees
("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the 1940 Act.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring
Fund Shares," respectively). Except for possible differences with respect to
the allocation of class-specific expenses other than 12b-1 fees, these classes
differ only with respect to the sales charges imposed on the purchase of shares
and the 12b-1 fees payable by each class. Only Classes A, C, and D Acquiring
Fund Shares are involved in the Reorganization.
At or immediately before the close of business on the date on which the
Reorganization, together with all related acts necessary to consummate the same
("Closing") occurs, scheduled for October 27, 1995 (or on such other date or at
such other time as the parties may agree) ("Effective Time"), Target shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
The Funds' investment objectives, which are quite similar, and their
investment policies are described in the Proxy and their respective
prospectuses and SAIs. Although there are differences in those policies, it is
not expected that Acquiring Fund will revise its investment objective or
policies following the Reorganization to reflect those of Target. Mitchell
Hutchins believes that most, if not all, of the assets held by Target will be
consistent with Acquiring Fund's investment policies and thus could be trans-
ferred to and held by Acquiring Fund pursuant to the Reorganization. If the
Reorganization is approved, Target will sell any assets that are inconsistent
with Acquiring Fund's investment policies prior to the Effective Time, and the
proceeds thereof will be held in temporary investments or reinvested in assets
that qualify to be held by Acquiring Fund.
The Reorganization was recommended by Mitchell Hutchins to MHKP Trust's
and PW Trust's boards of trustees (each a "board") at meetings thereof held on
April 26 and April 28, 1995, respectively, and at separate meetings of each
board held on July 20, 1995. In considering the Reorganization, each board
made an extensive inquiry into a number of factors (which are described in the
Proxy, together with Mitchell Hutchins's advice and recommendations to the
boards and the purposes of the Reorganization). Pursuant thereto, each board
approved the Plan, subject to approval of Target's shareholders. In doing so,
each board, including a majority of its members who are not "interested per-
sons" (as that term is defined in the 1940 Act) of MHKP Trust or PW Trust, as
applicable, determined that the Reorganization is in its Fund's best interests,
that the terms of the Reorganization are fair and reasonable, and that its
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 4
Fund's shareholders' interests will not be diluted as a result of the Reorgani-
zation.
The Plan, which specifies that it is intended to be, and is adopted as, a
plan of a reorganization described in section 368(a)(1)(C), provides in
relevant part for the following:
(1) The acquisition by Acquiring Fund of all the Assets (as
defined below) in exchange solely for
(a) the number of full and fractional (i) Class A
Acquiring Fund Shares determined by dividing the net value
of Target ("Target Value") attributable to the Class A
Target Shares by the net asset value ("NAV") of a Class A
Acquiring Fund Share, (ii) Class D Acquiring Fund Shares
determined by dividing the Target Value attributable to the
Class B Target Shares by the NAV of a Class D Acquiring
Fund Share, and (iii) Class C Acquiring Fund Shares
determined by dividing the Target Value attributable to the
Class C Target Shares by the NAV of a Class C Acquiring
Fund Share, and
(b) Acquiring Fund's assumption of the Liabilities (as
defined below),
(2) The constructive distribution of such Acquiring Fund Shares
to the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring the
Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder, by class. All outstanding
Target Shares, including any represented by certificates, simultaneously will
be canceled on Target's share transfer records.
The Target assets to be acquired by Acquiring Fund include all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (collectively "Assets").
Acquiring Fund will assume all of Target's liabilities, debts, obliga-
tions, and duties of whatever kind or nature, whether absolute, accrued, con-
tingent, or otherwise, whether or not arising in the ordinary course of busi-
ness, whether or not determinable at the Effective Time, and whether or not
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 5
specifically referred to in the Plan, including without limitation Target's
share of the expenses incurred in connection with the Reorganization
(collectively "Liabilities"). Target agreed in the Plan to use its best
efforts to discharge all of its known liabilities and obligations prior to the
Effective Time.
REPRESENTATIONS
---------------
The representations enumerated below have been made to us by appropriate
officers of each Trust.
Each of PW Trust, on behalf of Acquiring Fund, and MHKP Trust, on behalf
of Target, has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when received by
the Shareholders, will be approximately equal to the fair market value of their
Target Shares constructively surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis. Nor
does its management anticipate that there will be extraordinary
redemptions of Acquiring Fund Shares immediately following the Reorganiza-
tion;
3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to im-
mediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
5. The fair market value on a going concern basis of the Assets will
equal or exceed the Liabilities to be assumed by Acquiring Fund and those
to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 6
7. Pursuant to the Reorganization, Target will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by Target immediately before the Reorganization. For
the purposes of this representation, any amounts used by Target to pay its
Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made
to conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 and (b) redemptions not made as part of
the Reorganization) will be included as assets thereof held immediately
before the Reorganization;
8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to,
any of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
section 304(c).
MHKP Trust also has represented and warranted to us on behalf of Target as
follows:
1. The Liabilities were incurred by Target in the ordinary course of
its business;
2. Target is a "fund" as defined in section 851(h)(2); it qualified
for treatment as a regulated investment company ("RIC") under Subchapter M
of the Code ("Subchapter M") for each past taxable year since it commenced
operations and will continue to meet all the requirements for such quali-
fication for its current taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M
did not apply to it;
3. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the
meaning of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
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PaineWebber Investment Series
July 27, 1995
Page 7
5. Target will be terminated as soon as reasonably practicable after
the Reorganization, but in all events within six months after the
Effective Time.
PW Trust also has represented and warranted to us on behalf of Acquiring
Fund as follows:
1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a RIC under Subchapter M for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business immedi-
ately before the Reorganization, (b) has no plan or intention to sell or
otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M, and (c) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make dispo-
sitions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to be dissolved
or merged into another corporation or business trust or any "fund" thereof
(within the meaning of section 851(h)(2)) following the Reorganization;
5. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock or securities of five or fewer
issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at the
Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
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PaineWebber Investment Series
July 27, 1995
Page 8
OPINION
-------
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange for
the Acquiring Fund Shares and Acquiring Fund's assumption of the Lia-
bilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for their Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C),
and each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
2. No gain or loss will be recognized to Target on the transfer of
the Assets to Acquiring Fund solely in exchange for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or upon the
subsequent distribution of those shares to the Shareholders in construc-
tive exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares and
its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization
(section 362(b)), and Acquiring Fund's holding period for the Assets will
include Target's holding period therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be re-
ceived by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares (section 358(a)), and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder on the
Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the Internal Revenue Service
("Service") in existence on the date hereof and (2) is applicable only to the
extent each Fund is solvent. We express no opinion about the tax treatment of
the transactions described herein if either Fund is insolvent.
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 9
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C),
and Each Fund Will Be a Party to a Reorganization.
-----------------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore,
both entities involved therein must be corporations (or associations taxable as
corporations). Each Trust, however, is a Massachusetts business trust, not a
corporation, and each Fund is a separate series of a Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
--- ---------------------
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
- ------------------- ------------
(1942).
Based on these criteria, neither Trust qualifies as a trust for federal
income tax purposes. While each Trust is an "investment trust," it does not
have a fixed pool of assets -- each Fund has been a managed portfolio of
securities, and its investment adviser has had the authority to buy and sell
securities for it. Neither Trust is simply an arrangement to protect or
conserve property for the beneficiaries, but each is designed to carry on a
profit-making business. In addition, the word "association" has long been held
to include "Massachusetts business trusts," such as the Trusts. See Hecht v.
--- --------
Malley, 265 U.S. 144 (1924). Accordingly, we believe that each Trust will be
- ------
treated as a corporation for federal income tax purposes.
Neither Trust as such, however, is participating in the Reorganization,
but rather series of each of them are the participants. Ordinarily, a
transaction involving segregated pools of assets (such as the Funds) could not
qualify as a reorganization, because the pools would not be corporations.
Under section 851(h), however, each Fund is treated as a separate corporation
for all purposes of the Code save the definitional requirement of section
851(a) (which is satisfied by each Trust). Thus, we believe that each Fund
will be a separate corporation, and each Fund's shares will be treated as
shares of corporate stock, for purposes of section 368(a)(1)(C).
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 10
B. Satisfaction of Section 368(a)(2)(F).
------------------------------------
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorganization
with respect to any such investment company or its shareholders unless, among
other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is
invested in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is
invested in the stock or securities of five or fewer
issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests
will be satisfied by each Fund. Accordingly, we believe that section
368(a)(2)(F) will not cause the Reorganization to fail to qualify as a C reor-
ganization with respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the
transferor corporation solely in exchange for all or part of the acquiring
corporation's stock. For purposes of issuing private letter rulings, the
Service considers the transfer of at least 70% of the transferor's gross
assets, and at least 90% of its net assets, held immediately before the
reorganization to satisfy the "substantially all" requirement. Rev. Proc. 77-
37, 1977-2 C.B. 568. The Reorganization will involve such a transfer. Accord-
ingly, we believe that the Reorganization will involve the transfer to
Acquiring Fund of substantially all of Target's properties.
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the
transferor's property solely in exchange for voting stock. Section
368(a)(2)(B)(iii). The assumption of liabilities by the acquiring corporation
or its acquisition of property subject to liabilities normally are disregarded
(section 368(a)(1)(C)), but the amount of any such liabilities will be treated
as money paid for the transferor's property if the acquiring corporation ex-
changes any money or property (other than its voting stock) therefor. Section
368(a)(2)(B). Because Acquiring Fund will exchange only the Acquiring Fund
Shares, and no money or other property, for the Assets, we believe that the
Reorganization will satisfy the solely-for-voting-stock requirement to qualify
as a C reorganization.
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PaineWebber Investment Series
July 27, 1995
Page 11
E. Requirements of Continuity.
--------------------------
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of inter-
est").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas. Reg. Sec.
1.368-1(d)(2) requires that the acquiring corporation must either (i) continue
the acquired corporation's historic business ("business continuity") or
(ii) use a significant portion of the acquired corporation's historic business
assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the Reorgan-
ization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continu-
ity as well.
The Funds' investment objectives and policies are similar. Furthermore,
Acquiring Fund will actively continue Target's business in the same manner that
Target conducted it immediately before the Reorganization. Accordingly, there
will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose
of any of the Assets, except for dispositions made in the ordinary course of
its business and dispositions necessary to maintain its status as a RIC, and
(2) expects to retain substantially all the Assets in the same form as it
receives them in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes necessary to
make dispositions thereof to maintain such status. Although there are some
differences in the Funds' investment policies, Mitchell Hutchins believes that
most, if not all, of the assets held by Target will be consistent with
Acquiring Fund's investment policies and thus could be transferred to and held
by Acquiring Fund pursuant to the Reorganization. Accordingly, there will be
asset continuity as well.
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 12
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement of Treas. Reg. Sec. 1.368-1(b) satisfied if
ownership in an acquiring corporation on the part of a transferor corporation's
former shareholders is equal in value to at least 50% of the value of all the
formerly outstanding shares of the transferor corporation. Rev. Proc. 77-37,
supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of interest was
- ----- --- ---
held to exist in a reorganization of two RICs where immediately after the reor-
ganization 26% of the shares were redeemed in order to allow investment in a
third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966),
---- --- --------------------------
cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor corpo-
- ------------
ration's stock was not a sufficient shift in proprietary interest to disqualify
a transaction as a reorganization under section 368(a)(2)(F) ("F Reor-
ganization"), even though only 52% of the transferor's shareholders would hold
all the transferee's stock); Aetna Casualty and Surety Co. v. U.S., 568 F.2d
-------------------------------------
811, 822-23 (2d Cir. 1976) (redemption of a 38.39% minority interest did not
prevent a transaction from qualifying as an F Reorganization); Rev. Rul.
61-156, 1961-2 C.B. 62 (a transaction qualified as an F Reorganization even
though the transferor's shareholders acquired only 45% of the transferee's
stock, while the remaining 55% of that stock was issued to new shareholders in
a public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of
ownership for a period of time sufficient to warrant the conclusion that such
ownership is definite and substantial" will suffice and that "ordinarily, the
Service will treat five years of unrestricted . . . ownership as a sufficient
period" for continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired corporation's
shareholders to dispose of more than 50% of an acquiring corporation's shares
could be problematic. Shareholders with no such preconceived plan or
arrangement, however, are basically free to sell any part of the shares
received by them in the reorganization without fear of breaking continuity of
interest, because the subsequent sale will be treated as an independent trans-
action from the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholder interests,
if any, that will be disposed of as a result of or at the time of the Reorgani-
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 13
zation will be de minimis. Accordingly, we believe that the Reorganization
will meet the continuity of interest requirement of Treas. Reg. Sec. 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a
C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. Sec. 1.368-2(g) -- Target
will distribute all the Acquiring Fund Shares to its shareholders in construc-
tive exchange for their Target Shares; as soon as is reasonably practicable
thereafter, Target will be terminated. Accordingly, we believe that the re-
quirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
--------------------
U.S. 465 (1935), and is now set forth in Treas. Reg. Sec. 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doc-
trine, a transaction must have a bona fide business purpose (and not a purpose
to avoid federal income tax) to constitute a valid reorganization. The
substantial business purposes of the Reorganization are described in the Proxy.
Accordingly, we believe that the Reorganization is being undertaken for bona
fide business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. Sec. 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of
property, pursuant to the plan of reorganization, solely for stock or
securities in another corporate party to the reorganization or (2) on the
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 14
distribution to its shareholders, pursuant to that plan, of stock in such other
corporation that was received by the distributing corporation in the exchange.
(Such a distribution is required by section 368(a)(2)(G)(i) for a reorganiza-
tion to qualify as a C reorganization.) Section 361(c)(4) provides that
specified provisions requiring recognition of gain on certain distributions
shall not apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in sec-
tion 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property sub-
ject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a plan
of reorganization. Target will exchange the Assets solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities and then will
terminate pursuant to the Plan, distributing those shares to its shareholders
in constructive exchange for their Target Shares. As also noted above, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax); we also do not
believe that the principal purpose of Acquiring Fund's assumption of the
Liabilities is avoidance of federal income tax on the proposed transaction.
Accordingly, we believe that no gain or loss will be recognized to Target on
the Reorganization.4/
-
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
----------------------------------------------------
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly,
- --------------------
4/ Notwithstanding anything herein to the contrary, no opinion
-
is expressed as to the effect of the Reorganization on the Funds
or any Shareholder (regarding the recognition of gain or loss
and/or the determination of the basis or holding period) with
respect to any asset (including certain options, futures, and
forward contracts included in the Assets) as to which any
unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting.
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 15
we believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its
Holding Period Will Include Target's Holding Period.
------------------------------------------------------------------------
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute
a C reorganization and Target will recognize no gain on the Reorganization
under section 361(a). Accordingly, we believe that Acquiring Fund's basis for
the Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange has a
carryover basis, the property will have a holding period in the hands of the
acquiror that includes the holding period of the property in the transferor's
hands. As stated above, Acquiring Fund's basis for the Assets will be a carry-
over basis. Accordingly, we believe that Acquiring Fund's holding period for
the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
----------------------------------------------------
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, where
the shares exchanged, as well as the shares received, are those of a
corporation that is a party to the reorganization. As stated above, the Reor-
ganization will constitute a C reorganization, the Plan constitutes a plan of
reorganization, and each Fund will be a party to a reorganization. Accord-
ingly, we believe that under section 354 a Shareholder will recognize no gain
or loss on the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period for
its Target Shares.
--------------------------------------------------------------------------
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
<PAGE>
PaineWebber Investment Series
July 27, 1995
Page 16
As noted above, the Reorganization will constitute a C reorganization and
under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder held its Target
Shares as capital assets on the Closing Date, we believe its holding period for
those Acquiring Fund Shares will include its holding period for those Target
Shares.
We hereby consent to this opinion accompanying the Registration Statement
and to the references to our firm under the captions "Approval of the
Reorganization -- Synopsis -- Federal Income Tax Consequences of the Reorgani-
zation" and "The Proposed Transaction -- Federal Income Tax Considerations" in
the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/Theodore L. Press
--------------------
Theodore L. Press
EXHIBIT 12(b)
[Willkie Farr & Gallagher
letterhead]
July 27, 1995
Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of
Mitchell Hutchins/Kidder, Peabody Global
Fixed Income Fund
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal
income tax consequences to (a) Mitchell Hutchins/Kidder, Peabody
Global Fixed Income Fund (the "Acquired Fund"), a series of
Mitchell Hutchins/Kidder, Peabody Investment Trust, (b)
PaineWebber Global Income Fund (the "Acquiring Fund"), a series
of PaineWebber Investment Series, and (c) holders of shares of
beneficial interest in the Acquired Fund (the "Acquired Fund
Shareholders") when the holders of Class A, Class B and Class C
shares of the Acquired Fund receive Class A, Class D and Class C
shares, respectively, of the Acquiring Fund (all such shares of
the Acquiring Fund referred to hereinafter as the "Acquiring Fund
Shares"), in liquidation of their interests in the Acquired Fund
pursuant to an acquisition by the Acquiring Fund of all or
substantially all of the assets of the Acquired Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund and the subsequent
liquidation of the Acquired Fund and distribution of the
Acquiring Fund Shares to the Acquired Fund Shareholders (the
"Reorganization").
We have reviewed such documents and materials as we have
considered necessary for the purpose of rendering the opinions
set forth herein. In rendering these opinions, we assume that
such documents as yet unexecuted will, when executed, conform in
all material respects to the proposed forms of such documents
that we have examined. In addition, we assume the genuineness of
all signatures, the capacity of each party executing a document
so to execute
<PAGE>
July 27, 1995
Page 2
that document, the authenticity of all documents submitted to us
as originals and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts that we
considered to be relevant to the opinions set forth in this
letter. The opinions expressed in this letter are based upon
certain factual statements relating to the Acquired Fund and the
Acquiring Fund set forth in the Registration Statement on Form
N-14 (the "Registration Statement") filed by PaineWebber
Investment Series, on behalf of the Acquiring Fund, with the
Securities and Exchange Commission and specifically upon the
representations made in the Amended and Restated Agreement and
Plan of Reorganization and Termination attached to the
Registration Statement as Appendix A. We have no reason to
believe that these representations and facts are not or will not
be valid, but we have not attempted and will not attempt to
verify independently any of these representations and facts, and
the opinions set forth herein are based upon the assumption that
each of them is accurate. Based on these representations and
facts, we have no reason to believe that we will not be able to
render these opinions in final form on the Closing Date.
Capitalized terms used herein and not otherwise defined shall
have the meaning given them in the Registration Statement.
The conclusions expressed herein are based upon the Internal
Revenue Code of 1986 (the "Code"), Treasury regulations issued
thereunder, published rulings and procedures of the Internal
Revenue Service and judicial decisions, all as in effect on the
date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the Acquiring Fund's acquisition of the assets of the
Acquired Fund in exchange solely for Acquiring Fund Shares and
the Acquiring Fund's assumption of the liabilities of the
Acquired Fund, followed by the Acquired Fund's distribution of
those shares to the Acquired Fund Shareholders constructively in
exchange for their shares of the Acquired Fund, will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the
Code, and each Fund will be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring
<PAGE>
July 27, 1995
Page 3
Fund upon the receipt of the assets of the Acquired Fund in
exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund
upon the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for Acquiring Fund Shares and the assumption by
the Acquiring Fund of the liabilities of the Acquired Fund or
upon the distribution (whether actual or constructive) of
Acquiring Fund Shares to Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund
Shareholders upon the constructive exchange of their shares of
the Acquired Fund for Acquiring Fund Shares pursuant to the
Reorganization;
(5) the aggregate tax basis of Acquiring Fund Shares
received by each Acquired Fund Shareholder pursuant to the
Reorganization will be the same as the aggregate tax basis of the
shares of the Acquired Fund constructively surrendered in
exchange therefor, and the holding period of the Acquiring Fund
Shares to be received by each Acquired Fund Shareholder will
include the period during which the shares of the Acquired Fund
exchanged therefor were held by such Acquired Fund Shareholder
(provided the shares of the Acquired Fund were held as capital
assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired
Fund's assets will be the same as the tax basis of such assets to
the Acquired Fund immediately prior to the Reorganization, and
the holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name and any
reference to our firm in the Registration Statement or in the
Prospectus/Proxy Statement constituting a part thereof.
Very truly yours,
/s/ Willkie Farr & Gallagher,
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement constituting part of this registration statement on Form N-14
(the "N-14 Registration Statement") of our report dated December 13, 1994,
relating to the financial statements and financial highlights of
PaineWebber Global Income Fund appearing in the October 31, 1994 Annual
Report to Shareholders, which is incorporated by reference in the Statement
of Additional Information constituting part of Post-Effective Amendment No.
29 to the Registration Statement on Form N-1A of such Fund, which is
incorporated by reference in such Prospectus/Proxy Statement. We also
consent to the reference to us under the heading "Miscellaneous - Experts"
in such Prospectus/Proxy Statement of the N-14 Registration Statement.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 26, 1995
CONSENT OF INDEPENDENT AUDITORS
Mitchell Hutchins/Kidder, Peabody Global Fixed Income Fund
(One of the portfolios constituting the Mitchell Hutchins/Kidder,
Peabody Investment Trust):
We consent to the incorporation by reference in this Registration
Statement on Form N-14 of our report dated October 14, 1994,
appearing in the annual report to shareholders for the year ended
August 31, 1994, our reports dated April 21, 1995, appearing in
the semi-annual report to shareholders for the six month period
ended February 28, 1995, and to the references to us under the
captions "Experts" and "Financial Highlights" appearing in the
Prospectus/Proxy Statement, which also is a part of such
Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
July 26, 1995
Exhibit 17(a)
As filed with the Securities and Exchange Commission on December 22, 1986
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----
Pre-Effective Amendment No. [ ]
---- ----
Post-Effective Amendment No. [ ]
---- ----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ X ]
-----
Amendment No.
-----
(Check appropriate box or boxes.)
PAINEWEBBER INVESTMENT SERIES
(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: (202) 713-2712
SAM SCOTT MILLER, Esq.
DIANNE E. O'DONNELL, Esq.
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ARTHUR J. BROWN, Esq.
THERESE L. MILLER, Esq.
Kirkpatrick & Lockhart
1800 M Street, N.W.
South Lobby, 9th Floor
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
<PAGE>
Pursuant to the provisions of Rule 24f-2 under the Investment Company
Act of 1940, an indefinite number of shares of beneficial interest is being
registered by this Registration Statement.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Rule 24f-2 NOTICE FOR
PAINEWEBBER INVESTMENT SERIES
EUROPE GROWTH FUND
GLOBAL ENERGY FUND
GLOBAL GROWTH AND INCOME FUND
GLOBAL INCOME FUND
(1933 Act File No. 33-11025)
1. The fiscal period for which the notice is filed: November 1, 1993 to
October 31, 1994
2. The number or amount of securities of the same class or series, if any,
which had been registered under the Securities Act of 1933 other than
pursuant to this section but which remain unsold at the beginning of
such fiscal period:
None
3. The number or amount of securities, if any, registered during such
fiscal period other than pursuant to this section:
$592,615,214 representing 59,739,437 shares of beneficial interest
($0.001 par value)
4. The number or amount of securities sold during such fiscal period:
$253,454,712 representing 23,804,240 shares of beneficial interest
($0.001 par value)
5. The number or amount of securities sold during such fiscal period in
reliance upon registration pursuant to this section:
$253,454,712 representing 23,804,240 shares of beneficial interest
($0.001 par value)
6. The calculation of filing fee:
(a) The total amount of registered shares of
beneficial interest ($0.001 par value) sold
including sales load: $253,454,712
(b) Less the total amount of registered shares
of beneficial interest ($0.001 par value)
redeemed or repurchased: (706,066,302)
--------------
(c) Difference (i.e., (a) less (b)): ($452,611,590)
--------------
(d) Filing fee pursuant to section 6(b) of
1933 Act (Line (c) Amount x. 000334483): $0
--------------
/s/ Ann Moran
----------------------
Ann Moran
Assistant Treasurer and Vice President
PaineWebber Investment Series
Date: December 16, 1994
PROXY
-----
Mitchell Hutchins/Kidder Peabody Investment Trust -
Mitchell Hutchins/Kidder Peabody Global Fixed Income Fund
Special Meeting of Shareholders - October 5, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A.
Urena and each of them (with power of substitution) to vote for the undersigned
all shares of beneficial interest of the undersigned at the aforesaid meeting
and any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. Unless indicated to the contrary, this proxy shall be deemed to
grant authority to vote "FOR" all proposals. This proxy is solicited on behalf
of the Board of Trustees of Mitchell Hutchins/Kidder Peabody Investment Trust.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive,
Deer Park, NY 11729.
Please indicate your vote by an "X" in the appropriate box below. The Board
of Trustees recommends a vote "FOR"
FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan of
Reorganization and Termination between
PaineWebber Global Income Fund and Mitchell
Hutchins/Kidder Peabody Global Fixed
Income Fund. [ ] [ ] [ ]
Continued and to be signed on reverse side
<PAGE>
This proxy will not be voted unless it is dated and signed exactly as
instructed below
Is shares are held jointly, each Shareholder named should sign. If only one
signs, his or her signature will be binding. If the Shareholder is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the Shareholder is a partnership, a partner should
sign in his or her own name, indicating that he or she is a "Partner."
Sign exactly as name appears hereon.
______________________________(L.S.)
______________________________(L.S.)
Date _________________________, 1995
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<NAME> PAINEWEBBER INVESTMENT SERIES - GLOBAL INCOME FUND
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 466,793
<INVESTMENTS-AT-VALUE> 475,329
<RECEIVABLES> 112,486
<ASSETS-OTHER> 42,139
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 629,954
<PAYABLE-FOR-SECURITIES> 64,347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,410
<TOTAL-LIABILITIES> 82,757
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 564,233
<SHARES-COMMON-STOCK> 53,384
<SHARES-COMMON-PRIOR> 61,274
<ACCUMULATED-NII-CURRENT> 1,714
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (17,005)
<ACCUM-APPREC-OR-DEPREC> (2,746)
<NET-ASSETS> 546,197
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25,000
<OTHER-INCOME> 0
<EXPENSES-NET> 3,407
<NET-INVESTMENT-INCOME> 21,593
<REALIZED-GAINS-CURRENT> (7,454)
<APPREC-INCREASE-CURRENT> 17,448
<NET-CHANGE-FROM-OPS> 31,587
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,049)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,411
<NUMBER-OF-SHARES-REDEEMED> (135,659)
<SHARES-REINVESTED> 11,752
<NET-CHANGE-IN-ASSETS> (120,496)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (4,540)
<OVERDIST-NET-GAINS-PRIOR> (6,836)
<GROSS-ADVISORY-FEES> 2,137
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,522
<AVERAGE-NET-ASSETS> 574,927
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> (.32)
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 42
<NAME> PAINEWEBBER INVESTMENT SERIES - GLOBAL INCOME FUND
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
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<PERIOD-END> APR-30-1995
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<INVESTMENTS-AT-VALUE> 500,751
<RECEIVABLES> 118,502
<ASSETS-OTHER> 44,393
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 663,645
<PAYABLE-FOR-SECURITIES> 68,841
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,395
<TOTAL-LIABILITIES> 88,236
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 594,410
<SHARES-COMMON-STOCK> 56,410
<SHARES-COMMON-PRIOR> 72,828
<ACCUMULATED-NII-CURRENT> 1,806
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (17,914)
<ACCUM-APPREC-OR-DEPREC> (2,892)
<NET-ASSETS> 575,409
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<INTEREST-INCOME> 27,667
<OTHER-INCOME> 0
<EXPENSES-NET> (6,231)
<NET-INVESTMENT-INCOME> 21,436
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<APPREC-INCREASE-CURRENT> 18,381
<NET-CHANGE-FROM-OPS> 31,965
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<DISTRIBUTIONS-OF-INCOME> (17,754)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 7,150
<NUMBER-OF-SHARES-REDEEMED> (141,613)
<SHARES-REINVESTED> 11,360
<NET-CHANGE-IN-ASSETS> (108,892)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (4,783)
<OVERDIST-NET-GAINS-PRIOR> (7,201)
<GROSS-ADVISORY-FEES> 2,251
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,231
<AVERAGE-NET-ASSETS> 636,983
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> (.29)
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<PER-SHARE-NAV-END> 10.20
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 43
<NAME> PAINEWEBBER INVESTMENT SERIES - GLOBAL INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 10,664
<INVESTMENTS-AT-VALUE> 10,859
<RECEIVABLES> 2,570
<ASSETS-OTHER> 963
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 1,493
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<TOTAL-LIABILITIES> 1,913
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<SHARES-COMMON-PRIOR> 1,299
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<OVERDISTRIBUTION-GAINS> (388)
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<INTEREST-INCOME> 538
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<EXPENSES-NET> (55)
<NET-INVESTMENT-INCOME> 483
<REALIZED-GAINS-CURRENT> (170)
<APPREC-INCREASE-CURRENT> 399
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<NET-CHANGE-IN-ASSETS> (497)
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<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .18
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</TABLE>
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<SERIES>
<NUMBER> 44
<NAME> PAINEWEBBER INVESTMENT SERIES - GLOBAL INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
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<PAID-IN-CAPITAL-COMMON> 75,828
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<NET-INVESTMENT-INCOME> 2,780
<REALIZED-GAINS-CURRENT> (961)
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<DISTRIBUTIONS-OF-INCOME> (2,278)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,913
<NUMBER-OF-SHARES-REDEEMED> 27,455
<SHARES-REINVESTED> 1,702
<NET-CHANGE-IN-ASSETS> (22,050)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (585)
<OVERDIST-NET-GAINS-PRIOR> (881)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 669
<AVERAGE-NET-ASSETS> 79,485
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.22
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 241
<NAME> GLOBAL FIXED INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 117,390,281
<INVESTMENTS-AT-VALUE> 121,444,705
<RECEIVABLES> 18,757,491
<ASSETS-OTHER> 5,503,299
<OTHER-ITEMS-ASSETS> 107,657
<TOTAL-ASSETS> 145,813,152
<PAYABLE-FOR-SECURITIES> 31,036,086
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,782,203
<TOTAL-LIABILITIES> 36,818,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,854,088
<SHARES-COMMON-STOCK> 9,087,405
<SHARES-COMMON-PRIOR> 13,038,503
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5,016,864)
<ACCUMULATED-NET-GAINS> (4,630,480)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,788,119
<NET-ASSETS> 108,994,863
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,200,220
<OTHER-INCOME> 0
<EXPENSES-NET> (810,687)
<NET-INVESTMENT-INCOME> 3,389,533
<REALIZED-GAINS-CURRENT> (1,037,124)
<APPREC-INCREASE-CURRENT> 4,240,680
<NET-CHANGE-FROM-OPS> 6,593,089
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,155,175)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 666,493
<NUMBER-OF-SHARES-REDEEMED> (5,062,978)
<SHARES-REINVESTED> 445,387
<NET-CHANGE-IN-ASSETS> (46,617,466)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,574,412)
<OVERDISTRIB-NII-PRIOR> (2,230,660)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 461,006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 810,687
<AVERAGE-NET-ASSETS> 131,933,085
<PER-SHARE-NAV-BEGIN> 11.93
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 243
<NAME> GLOBAL FIXED INCOME FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 13,739,175
<INVESTMENTS-AT-VALUE> 14,213,698
<RECEIVABLES> 2,195,348
<ASSETS-OTHER> 644,097
<OTHER-ITEMS-ASSETS> 12,601
<TOTAL-ASSETS> 17,065,744
<PAYABLE-FOR-SECURITIES> 3,632,415
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 676,740
<TOTAL-LIABILITIES> 4,309,155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,442,343
<SHARES-COMMON-STOCK> 1,062,685
<SHARES-COMMON-PRIOR> 1,715,396
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (587,166)
<ACCUMULATED-NET-GAINS> (541,944)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 443,356
<NET-ASSETS> 12,756,589
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 491,587
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