<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1996.
1933 Act: Registration No. 33-11025
1940 Act: Registration No. 811-5259
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. 31 [_____]
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940 [ X ]
-------
Amendment No. 29
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: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
Kirkpatrick & Lockhart LLP
Second Floor
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
[ X ] Immediately upon filing pursuant to Rule 485(b)
[_____] On _______________ pursuant to Rule 485(b)
[_____] 60 days after filing pursuant to Rule 485(a)(i)
[_____] On _______________ pursuant to Rule 485(a)(i)
[_____] 75 days after filing pursuant to Rule 485(a)(ii)
[_____] On _______________ pursuant to Rule 485(a)(ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 and filed the notice required by such Rule for its most
recent fiscal year on December 28, 1995
<PAGE>
PaineWebber Investment Series
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Class A, B, and C shares of:
PaineWebber Global Income Fund
- ------------------------------
Part A - Prospectus
Part B - Statement of Additional Information
PaineWebber Global Income Fund - Class Y shares
- -----------------------------------------------
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PaineWebber Investment Series
Class A, B, and C Shares of:
PaineWebber Global Income Fund
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<S> <C>
1. Cover Page......................... Cover Page
2. Synopsis........................... Prospectus Summary
3. Condensed Financial
Information........................ Financial Highlights; Performance
Information
4. General Description of
Registrant......................... Prospectus Summary; Investment
Objectives and Policies; General
Information
5. Management of the Fund............. Management; General Information
6. Capital Stock and
Other Securities................... Cover Page; Conversion of Class B
Shares; Dividends and Taxes;
General Information
7. Purchase of Securities
Being Offered...................... Purchases; Exchanges; Other
Services and Information;
Management; Valuation of
Shares
8. Redemption or
Repurchase......................... Purchases; Redemptions; Other
Services and Information
9. Pending Legal
Proceedings........................ Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
<S> <C>
10. Cover page......................... Cover Page
11. Table of Contents.................. Table of Contents
12. General Information
and History........................ Other Information
13. Investment Objective and
Policies........................... Investment Policies and
Restrictions;
Hedging and Related Income
Strategies; Portfolio Transactions
14. Management of the Fund............. Trustees and Officers
15. Control Persons and
Principal Holders of
Securities......................... Trustees and Officers
16. Investment Advisory and
Other Services..................... Investment Advisory and
Distribution Arrangements; other
information
17. Brokerage Allocation............... Portfolio Transactions
18. Capital Stock and Other
Securities......................... Conversion of Class B Shares;
Other Information
19. Purchase, Redemption Reduced Sales Charges, Additional
and Pricing of Securities Exchange and Redemption
Being Offered...................... Information and Other Services;
Valuation of Shares
20. Tax Status......................... Taxes
21. Underwriters....................... Investment Advisory and
Distribution Arrangements
22. Calculation of Performance
Data............................... Performance Information
23. Financial Statements............... Financial Statements
</TABLE>
<PAGE>
PaineWebber Investment Series
PaineWebber Global Income Fund - Class Y Shares
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<S> <C>
1. Cover Page......................... Cover Page
2. Synopsis........................... Fund Expenses
3. Condensed Financial
Information........................ Financial Highlights; Performance
Information
4. General Description of
Registrant......................... Investment Objectives and
Policies; General Information
5. Management of the Fund............. Management; General Information
6. Capital Stock and
Other Securities................... Cover Page; Dividends and Taxes;
General Information
7. Purchase of Securities
Being Offered...................... Purchases; Management; Valuation
of Shares
8. Redemption or
Repurchase......................... Redemptions
9. Pending Legal
Proceedings........................ Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
-------------- -----------------------
<S> <C>
10. Cover Page......................... Cover Page
11. Table of Contents.................. Table of Contents
12. General Information
and History........................ Other Information
13. Investment Objective and
Policies........................... Investment Policies and
Restrictions; Hedging and Related
Income Strategies; Portfolio
Transactions
14. Management of the Fund............. Trustees and Officers
15. Control Persons and
Principal Holders of
Securities......................... Trustees and Officers
16. Investment Advisory and
Other Services..................... Investment Advisory and
Distribution Arrangements; Other
Information
17. Brokerage Allocation............... Portfolio Transactions
18. Capital Stock and Other
Securities......................... Other Information
19. Purchase, Redemption
and Pricing of Securities
Being Offered...................... Valuation of Shares
20. Tax Status......................... Taxes
21. Underwriters....................... Investment Advisory and
Distribution Arrangements
22. Calculation of Performance
Data............................... Performance Information
23. Financial Statements............... Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
--------------------------
- --------------------------------------------------------------------------------
PaineWebber Global Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- February , 1996.
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
February , 1996 (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.
-------------
- --------------------------------------------------------------------------------
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.................................................................. 19
Redemptions................................................................ 20
Conversion of Class B Shares............................................... 21
Other Services and Information............................................. 22
Dividends and Taxes........................................................ 23
Valuation of Shares........................................................ 24
Management................................................................. 24
Performance Information.................................................... 26
General Information........................................................ 27
Appendix................................................................... 28
</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: $1.2 billion at January 31, 1996.
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an
asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), manages approximately $44.8 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 C 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% is imposed on most redemptions 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 C Shares Offered at net asset value without an initial sales charge (for
shares purchased on or after November 10, 1995, a contingent de-
ferred sales charge of 0.75% is imposed on most redemptions made
within one year of date of purchase). Class C shares pay higher
ongoing expenses than Class A shares and do not convert into an-
other Class.
Exchanges: Shares may be exchanged for shares of the corresponding Class of
most other PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber; other share-
holders must redeem through the Transfer Agent.
Dividends: Declared and paid monthly; net capital gain is distributed annual-
ly. 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)
- --------------------------------------------------------------------------------
Other Features: Automatic investment plan Quantity discounts on initial
Class A Shares Systematic withdrawal plan sales charge 365-day reinstate-
Rights of accumulation ment privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class C Shares Automatic investment plan Systematic withdrawal plan
------------------
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 Services ("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 C
------- ------- -------
<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 net asset value at the time of
purchase or redemption, whichever is lower)....... None(2) 5% 0.75%(3)
</TABLE>
-------------
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management fees......................................... 0.73% 0.73% 0.73%
12b-1 fees(5)........................................... 0.25 1.00 0.75
Other expenses(a)....................................... 0.22 0.23 0.23
---- ---- ----
Total operating expenses................................ 1.20% 1.96% 1.71%
==== ==== ====
</TABLE>
(a) Does not include 0.04% in non-recurring reorganization expenses that were
incurred during the fiscal year ended October 31, 1995. If those expenses
were included, "Other expenses" for the Class A, B and C shares would be
0.26%, 0.27% and 0.27%, respectively, and "Total operating expenses" would
be 1.24%, 2.00% and 1.75%, respectively.
- -------
(1) Sales charge and exchange fee waivers are available for all shares and
reduced sales charge purchase plans are available for Class A shares. 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) Purchases of Class A shares of $1 million or more are not subject to an
initial sales charge. A contingent deferred sales charge of 1% will be
applied to the redemptions of such shares within one year of purchase. See
"Purchases."
(3) A contingent deferred sales charge of 0.75% will be applied to most
redemptions of Class C shares within one year of purchase. See "Purchases."
(4) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<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 C 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)..................................... $52 $77 $103 $180
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $70 $92 $126 $191
Assuming no redemption(3)........................... $20 $62 $106 $191
Class C Shares:
Assuming a complete redemption at end of period(2).. $25 $54 $ 93 $202
Assuming no redemption.............................. $17 $54 $ 93 $202
</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 C 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, 1995, 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 they relate
to each of the periods presented in the five year period ended October 31, 1995
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
---------------------------------------------------------
FOR THE
PERIOD
FOR THE YEARS ENDED JULY 1,
OCTOBER 31, 1991+ TO
-------------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $ 9.99 $ 10.97 $ 10.64 $ 10.75 $ 10.40
-------- -------- -------- -------- -------
Net investment
income........... 0.77@ 0.72 0.59 0.83 0.20
Net realized and
unrealized gains
(losses) from
investment and
foreign currency
transactions..... 0.31@ (1.05) 0.68 (0.12) 0.40
-------- -------- -------- -------- -------
Total
increase/decrease
from investment
operations........ 1.08 (0.33) 1.27 0.71 0.60
-------- -------- -------- -------- -------
Dividends from net
investment
income........... (0.72) (0.33) (0.80) (0.64) (0.23)
Distributions from
realized gains on
investments and
foreign currency
transactions..... -- -- (0.14) (0.18) (0.02)
Paid-in capital... -- (0.32) -- -- --
-------- -------- -------- -------- -------
Total dividends and
distributions..... (0.72) (0.65) (0.94) (0.82) (0.25)
-------- -------- -------- -------- -------
Net asset value,
end of period..... $ 10.35 $ 9.99 $ 10.97 $ 10.64 $ 10.75
======== ======== ======== ======== =======
Total investment
return(1)......... 11.09% (3.10)% 12.41% 6.70% 5.79%
======== ======== ======== ======== =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)... $663,022 $611,855 $648,853 $107,033 $16,501
Expenses to
average net
assets........... 1.24%(2) 1.17% 1.32%** 1.21% 1.35%*
Net investment
income to average
net assets....... 7.47%(2) 6.94% 6.82%** 7.84% 8.59%*
Portfolio turnover
rate............. 113% 108% 90% 92% 53%
<CAPTION>
CLASS B
-------------------------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31,
-------------------------------------------------------------
1995 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
------------ ---------- ------------- ----------- -----------
Net investment
income........... 0.69@ 0.86 0.78 0.94 0.85
Net realized and
unrealized gains
(losses) from
investment and
foreign currency
transactions..... 0.30@ (1.28) 0.40 (0.32) (0.09)
------------ ---------- ------------- ----------- -----------
Total
increase/decrease
from investment
operations........ 0.99 (0.42) 1.18 0.62 0.76
------------ ---------- ------------- ----------- -----------
Dividends from net
investment
income........... (0.64) (0.29) (0.71) (0.56) (0.97)
Distributions from
realized gains on
investments and
foreign currency
transactions..... -- -- (0.14) (0.18) (0.12)
Paid-in capital... -- (0.28) -- -- --
------------ ---------- ------------- ----------- -----------
Total dividends and
distributions..... (0.64) (0.57) (0.85) (0.74) (1.09)
------------ ---------- ------------- ----------- -----------
Net asset value,
end of period..... $ 10.31 $ 9.96 $ 10.95 $ 10.62 $ 10.74
============ ========== ============= =========== ===========
Total investment
return(1)......... 10.24% (3.90)% 11.45% 5.93% 7.39%
============ ========== ============= =========== ===========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)... $484,534 $725,553 $1,188,890 $1,542,255 $1,593,814
Expenses to
average net
assets........... 2.00%(2) 1.94% 2.11%** 1.98% 1.94%
Net investment
income to average
net assets....... 6.71%(2) 6.05% 5.97%** 7.11% 8.09%
Portfolio turnover
rate............. 113% 108% 90% 92% 33%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of issuance of shares.
@ Calculated using the average shares outstanding for the year.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable 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 investment return information for
periods less than one year is not annualized.
(2) These ratios include non-recurring reorganization expenses of 0.04% for
each Class.
-------------
- --------------------------------------------------------------------------------
Prospectus Page 6
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C(3)
----------------------------------------------- ---------------------------------------------
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 1995 1994 1993 1992
---------- ---------- ---------- ----------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.08 $ 11.10 $ 10.28 $ 10.00 $ 9.98 $ 10.96 $ 10.64 $ 10.94
---------- ---------- ---------- -------- ------- ------- -------- -------
Net investment income.. 1.01 1.01 0.98 0.47 0.71@ 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 0.31@ (1.09) 0.52 (0.13)
---------- ---------- ---------- -------- ------- ------- -------- -------
Total increase/decrease
from investment
operations............. 1.97 0.37 2.13 0.60 1.02 (0.39) 1.20 0.07
---------- ---------- ---------- -------- ------- ------- -------- -------
Dividend from net
investment income..... (0.98) (0.94) (1.06) (0.32) (0.67) (0.30) (0.74) (0.21)
Distribution from net
realized gains on
investments and
foreign currency
transactions.......... -- (0.45) (0.25) -- -- -- (0.14) (0.16)
Paid-in capital........ -- -- -- -- -- (0.29) -- --
---------- ---------- ---------- -------- ------- ------- -------- -------
Total dividends and
distributions.......... (0.98) (1.39) (1.31) (0.32) (0.67) (0.59) (0.88) (0.37)
---------- ---------- ---------- -------- ------- ------- -------- -------
Net asset value, end of
period................. $ 11.07 $ 10.08 $ 11.10 $ 10.28 $ 10.33 $ 9.98 $ 10.96 $ 10.64
========== ========== ========== ======== ======= ======= ======== =======
Total investment
return(1).............. 20.32% 3.66% 18.29% 6.00% 10.49% (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 $71,329 $92,480 $135,847 $36,598
Expenses to average net
assets................ 1.90% 1.95% 2.05% 2.08%* 1.75%(2) 1.68% 1.83%** 1.75%*
Net investment income
to average net assets. 9.88% 9.73% 9.13% 8.39%* 6.96%(2) 6.34% 6.17%** 7.02%*
Portfolio turnover
rate.................. 126% 124% 120% 52% 113% 108% 90% 92%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of issuance of shares.
@ Calculated using the average shares outstanding for the year.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and other distributions
at net asset value on the payable 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.
(2) These ratios include non-recurring reorganization expenses of 0.04% for
each Class.
(3) Formerly Class D shares.
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PAINEWEBBER GLOBAL INCOME FUND
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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
4.0% 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 5.0% upon redemption; distribution fee of A shares approximately
declines to zero after six years 0.75% six years after issuance
Class C Contingent deferred sales charge of Service fee of 0.25%; --
0.75% upon redemption for first year 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 4.0% 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 5.0%, applies to most redemptions
made within six years of purchase. Class C shareholders pay no initial sales
charges, although a contingent deferred sales charge of 0.75% applies to most
redemptions made within one year after purchase. Thus, the entire amount of a
Class B or Class C 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 C shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. Class A, B and C shares of the Fund 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 C
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
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PAINEWEBBER GLOBAL INCOME FUND
and Class C shares would approximate the expense of the 4.0% 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 C 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 Class C 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 C 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 it 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 the cumulative expenses an investor would pay over
time on a hypothetical investment in each Class of Fund shares, assuming an
annual return of 5.0%.
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 Class A, B and C 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 Trust's 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
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Prospectus Page 9
<PAGE>
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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. Within
this 35% limitation, 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.
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, 1995, more than 65.7% 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 nine 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, 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
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Prospectus Page 10
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
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 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
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Prospectus Page 11
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
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. Within this 35%
limitation, 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 the past,
and its growth has generally paralleled a long economic expansion. In the past,
the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk
that holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or 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, 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
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Prospectus Page 12
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
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 are
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. Use of options and futures solely to enhance
income may be considered a form of speculation. 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, securities indices, foreign currencies and
such futures contracts. The Fund may enter into options and futures contracts
under which the full value of its portfolio is at risk. Under normal
circumstances, however, the Fund's use of these
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PAINEWEBBER GLOBAL INCOME FUND
instruments will place at risk a much smaller portion of its assets.
The Fund may enter into forward 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 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
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
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PAINEWEBBER GLOBAL INCOME FUND
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.
LENDING OF PORTFOLIO SECURITIES. 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 deemed qualified. Lending securities enables
the Fund to earn additional income, but could result in a loss or delay in
recovering the securities.
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.
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Prospectus Page 15
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------
GENERAL. Class A shares are sold to investors subject to an initial sales
charge. Class B shares 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 most redemptions. Class B shares automatically convert to
Class A shares approximately six years after issuance. Class C shares are sold
without an initial sales charge but are subject to higher ongoing expenses than
Class A shares and a contingent deferred sales charge of 0.75% payable on most
redemptions made within one year of purchase. Class C shares 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 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 C 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 third 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. Most redemptions of these shares within one year of purchase
will be subject to a contingent deferred sales charge of 1.0%. See
"Contingent Deferred Sales Charge--Class A Shares."
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.
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Prospectus Page 16
<PAGE>
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--------------------------
PAINEWEBBER GLOBAL INCOME 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.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales 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 mutual fund, their spouses, parents and children and advisory
clients of Mitchell Hutchins. Class A shares may also be purchased without a
sales charge by employee benefit plans qualified under sections 401 or 403(b)
of the Internal Revenue Code ("Code"), including salary reduction plans
qualified under section 401(k) of the Code, subject to minimum requirements
established by Mitchell Hutchins with respect to number of employees or amount
of purchase. Currently, the employers establishing the plan must have 100 or
more eligible employees or the amount invested or to be invested during the
subsequent 13-month period in the Fund or any other PaineWebber mutual fund
must total at least $1 million. If investments by an employee benefit plan
without a sales charge are made through a dealer (including PaineWebber) who
has executed a dealer agreement with Mitchell Hutchins, Mitchell Hutchins may
make a payment, out of its own resources, to the dealer in an amount not to
exceed 1% of the amount invested.
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 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 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 investment
executives for more information.
Certificate holders of unit investment trusts ("UITs") sponsored by PaineWebber
may acquire Class A shares 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 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 shares of the Fund.
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Prospectus Page 17
<PAGE>
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--------------------------
PAINEWEBBER GLOBAL INCOME FUND
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES. Class A shares purchased
without an initial sales charge due to the sales charge waiver for purchases of
$1 million or more and held less than one year are subject to a contingent
deferred sales charge upon redemption equal to 1% of the lower of (a) the net
asset value of the shares at the time of purchase or (b) the net asset value of
the shares at the time of redemption. The holding period of Class A shares
acquired through an exchange with another PaineWebber mutual fund is calculated
from the date the Class A shares of the other PaineWebber mutual fund were
initially purchased without a sales charge, and Class A shares acquired through
an exchange will be considered to represent, as applicable, dividend and
capital gain distribution reinvestments in such other funds. Redemption order
will be determined as described for Class B shares (see "Contingent Deferred
Sales Charge--Class B Shares"). Class A shares held one year or longer and
Class A shares acquired through reinvestment of dividends or capital gain
distributions are not subject to this contingent deferred sales charge. The
contingent deferred sales charge is waived for exchanges, as described below,
and for most redemptions in connection with the systematic withdrawal plan.
THIS CONTINGENT DEFERRED SALES CHARGE DOES NOT APPLY TO REDEMPTIONS OF CLASS A
SHARES PURCHASED PRIOR TO NOVEMBER 10, 1995. 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, realized on redemption. The amount of
any contingent deferred sales charge will be paid to Mitchell Hutchins.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares is the next determined net asset value, and no initial sales
charge is imposed. A contingent deferred sales charge, however, is imposed upon
most redemptions of Class B shares.
The maximum contingent deferred sales charge for Class B shares equals 5% of
the lower of (a) the net asset value of the shares at the time of purchase or
(b) the net asset value of the shares at the time of redemption. Class B shares
held six years or longer and Class B shares acquired through reinvestment of
dividends or capital gains distributions are not subject to the contingent
deferred sales charge. The following table shows the contingent deferred sales
charge percentages charged in each year following purchase:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
REDEMPTION DURING ASSET VALUE
- ----------------- -------------------
<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 is assumed that a redemption is made first of Class B shares
representing the reinvestment of dividends and capital gain distributions and
then of other shares held by the shareholder for the longest period of time.
The holding period of Class B shares 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 mutual funds,
and Class B shares being redeemed will be considered to represent, as
applicable, 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, 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 most 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 a redemption of shares held
at the time of death. The contingent deferred sales charge will also be waived
(or a credit equal to the amount of the charge will be applied to the
shareholder's account) in connection with a lump-sum or other distribution in
the case of an IRA, a self-employed individual
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Prospectus Page 18
<PAGE>
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--------------------------
PAINEWEBBER GLOBAL INCOME FUND
retirement plan (so-called "Keogh Plan") or a custodial account under Section
403(b) of the 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 C SHARES. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. Class C shares held less than
one year will be subject to a contingent deferred sales charge on redemptions
in an amount equal to 0.75% of the lower of (a) the net asset value of the
shares at the time of purchase or (b) the net asset value of the shares at the
time of redemption. The holding period of Class C shares acquired through an
exchange with another PaineWebber mutual fund is calculated from the date the
Class C shares of the other PaineWebber mutual fund were initially purchased
without a sales charge, and Class C shares will be considered to represent, as
applicable, dividend and capital gain distribution reinvestments in such other
funds. Redemption order will be determined as described for Class B shares (see
"Contingent Deferred Sales Charge--Class B Shares"). Redemptions of Class C
shares acquired through an exchange and held less than one year will be subject
to the same contingent deferred sales charge that would have been imposed on
Class C shares of the PaineWebber mutual fund originally purchased that were
subsequently exchanged into Class C shares of the Fund. Class C shares held one
year or longer and Class C shares acquired through reinvestment of dividends or
capital gain distributions are not subject to this contingent deferred sales
charge. The contingent deferred sales charge is waived for exchanges, as
described below, and for most redemptions in connection with the systematic
withdrawal plan. THIS CONTINGENT DEFERRED SALES CHARGE DOES NOT APPLY TO CLASS
C SHARES PURCHASED PRIOR TO NOVEMBER 10, 1995. 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, realized on redemption. The amount of
any contingent deferred sales charge will be paid to Mitchell Hutchins.
- --------------------------------------------------------------------------------
Exchanges
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber 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 shares acquired
through an exchange. 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 mutual funds with which Fund shares may be exchanged
include:
PAINEWEBBER INCOME FUNDS
. High Income Fund
. Investment Grade Income Fund
. Low Duration U.S. Government Income Fund
. Strategic Income Fund
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
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Prospectus Page 19
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
PAINEWEBBER GROWTH FUNDS
. Capital Appreciation Fund
. Emerging Markets Equity Fund
. Financial Services Growth Fund
. Global Equity Fund
. Growth Fund
. Small Cap Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Balanced Fund
. Growth and Income Fund
. Tactical Allocation 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 mutual 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 mutual 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 after receipt of a redemption request, as described
below. 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 A shares, then Class C
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 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.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or
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Prospectus Page 20
<PAGE>
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--------------------------
PAINEWEBBER GLOBAL INCOME FUND
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," 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."
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, it 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
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. See "Valuation of
Shares." 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.
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Prospectus Page 21
<PAGE>
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--------------------------
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. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through
periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class C shares with a value of $5,000 or more or non-certificated Class B
shares 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. Shareholders who participate in the systematic withdrawal plan
must elect to have all dividends invested in additional shares of the same
Class. The minimum amount for all withdrawals of Class A or Class C 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. Provided that the shareholder does not withdraw an
amount exceeding 12% (in the first year after purchase for Class A and Class C
shares, annually for Class B shares) 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, no contingent deferred
sales charge is imposed on such withdrawals. A 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 $5,000 for Class A and Class C shareholders or
$20,000 for Class B shareholders. Purchases of additional shares of the Fund
concurrent with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and, for Class A shares, 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 or her brokerage account to another
firm, the Fund shares will be transferred to an account with the Transfer
Agent. However, if the other firm has entered into a selected dealer agreement
with Mitchell Hutchins relating to the Fund, the shareholder may be able to
hold Fund shares in an account with the other firm.
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Prospectus Page 22
<PAGE>
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PAINEWEBBER GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
Dividends and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS. The Fund distributes substantially all of its net investment income
to shareholders each year. Income dividends are declared monthly 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 on all Classes of Fund shares are calculated
at the same time and in the same manner. Dividends on Class B and Class C
shares are expected to be lower than those on Class A shares because of the
higher expenses resulting from the distribution fees borne by the Class B and
Class C shares. For the same reason, dividends on Class B shares are expected
to be lower than those on Class C 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 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 also is required from
dividends and capital gain distributions payable to 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 initial sales charge paid on Class
A shares). An exchange of Fund shares for shares of another PaineWebber mutual
fund generally will have
-------------
- --------------------------------------------------------------------------------
Prospectus Page 23
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
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 mutual 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 mutual
fund shares subsequently acquired. In addition, if shares of the Fund are
purchased within 30 days before or after redeeming other Fund shares
(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 in which the Fund may invest, 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, 1995, the Fund paid
advisory fees at the effective annual rate of 0.73% of the Fund's average daily
net assets. 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 the Transfer
Agent. The Fund incurs various other expenses, and for the fiscal year ended
October 31, 1995, the Fund's total expenses for its Class A, Class B and Class
C shares, stated as a
-------------
- --------------------------------------------------------------------------------
Prospectus Page 24
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
percentage of average net assets, were 1.24%, 2.00% and 1.75%, 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, 1996, Mitchell Hutchins was adviser or sub-adviser
of 34 investment companies with 68 separate portfolios and aggregate assets of
approximately $30.4 billion, including approximately $2.9 billion in global
funds.
Stuart Waugh has been primarily responsible for the day-to-day portfolio
management of the 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 more than the last five years.
Other members of Mitchell Hutchins' international fixed income group provide
input on market outlook, interest rate forecasts and other considerations
pertaining to global fixed income investments.
Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
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 C shares ("Class A Plan," "Class B Plan" and
"Class C Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins monthly
service fees at the annual rate of 0.25% of the average daily net assets of
each Class of shares 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 C 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 C
Plans to offset the commissions it pays to PaineWebber for selling Class B and
Class C 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 C 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 C 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 C shares. If PaineWebber makes such payments, it
will retain the service and distribution fees on Class C shares until it has
been reimbursed and thereafter will pass a portion of the service and
distribution fees on Class C 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 A, Class B and Class C 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")
obligate the Fund to pay service and distribution
-------------
- --------------------------------------------------------------------------------
Prospectus Page 25
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PAINEWEBBER GLOBAL INCOME FUND
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 Trust's board of 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 reflects deduction of the Fund's maximum initial sales charge at the
time of purchase, and standardized return for the Class B shares and Class C
shares 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 C 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.
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 26
<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. At present, there are no series other than the Fund.
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 Y shares.
Each Class represents interests in the same assets of the Fund. Class A, B and
C differ as follows: (1) each Class has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class A shares are generally
subject to an initial sales charge; (3) Class B shares bear ongoing
distribution fees, may be subject to a contingent deferred sales charge upon
redemption and will automatically convert to Class A shares approximately six
years after issuance; (4) Class C shares are not subject to an initial sales
charge but may be subject to a contingent deferred sales charge if redeemed
within one year of purchase, 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 Y shares, which may be offered only to limited
classes of investors, are subject to neither an initial or contingent deferred
sales charge nor ongoing service or distribution fees.
The different sales charges and other expenses applicable to the different
Classes of Fund shares may affect the performance of those Classes. More
information concerning the Class Y shares of the Fund may be obtained from a
PaineWebber investment executive or correspondent firm or by calling 1-800-647-
1568.
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 on the Class B and
Class C shares than on the Class A shares and are likely to be lower on every
other Class of shares than for Class Y shares.
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 share 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 27
<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.
-------------
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Prospectus Page 28
<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
PLEASE PRINT Funds
- --------------------------------------------------------------------------------
---------------------------------------------------------
[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 C [_] 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
---------------------------------------------------------
1. Individual ____________ _______________ ___/____/_____
Not valid First Name Last Name MI Soc. Sec. No.
without
signature and 2. Joint Tenancy _________ _______________ ___/____/_____
Soc. Sec. or First Name Last Name MI Soc. Sec. No.
Tax ID #
- --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, Minor's Name Soc. Sec. No.
use Lines 1
and 3 Under the _________________ Uniform Gifts Uniform Trans-
State of Residence of Minor to Minors Act / fers to Minors
- --In the name Act
of a 4. Other Registrations ____________________ ______________
corporation, Name Tax Ident. No.
trust or 5. If Trust, Date of Trust Instrument: ____________________
other
organization
or any
fiduciary
capacity,
use Line 4
---------------------------------------------------------
[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 Joint Registrant Date
(or Custodian) (if any)
---------------------- ---------------------- ----------
Corporate Officer, Title Date
Partner, Trustee, etc.
---------------------------------------------------------------------
[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>
Shares of the Fund can be exchanged for shares of other PaineWebber mutual
funds, which include:
PAINEWEBBER INCOME FUNDS
. High Income Fund
. Investment Grade Income Fund
. Low Duration U.S. Government Income Fund
. Strategic Income Fund
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Capital Appreciation Fund
. Emerging Markets Equity Fund
. Financial Services Growth Fund
. Global Equity Fund
. Growth Fund
. Small Cap Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Balanced Fund
. Growth and Income Fund
. Tactical Allocation Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
---------------
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) 1996 PaineWebber Incorporated
[RECYCLING LOGO Recycled
APPEARS HERE] Paper
- --------------------------------------------------------------------------------
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
February , 1996
<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 February , 1996. 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 February , 1996.
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.
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
<PAGE>
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 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
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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 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
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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 Services ("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
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
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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. As indicated in the Prospectus, 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 acceptable collateral with the
Fund's custodian bank, marked to market daily, in an amount at least equal to
the market value of the securities loaned, plus accrued interest. Acceptable
collateral is limited to cash, U.S. government securities and irrevocable
letters of credit that meet certain guidelines established by Mitchell
Hutchins. In determining whether to lend securities to a particular broker-
dealer or institutional investor, Mitchell Hutchins will consider, and during
the period of the loan will monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. 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 portion
of the interest earned on the 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 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 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'
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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 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
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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 Fund will continue to interpret fundamental investment
limitation (7) to prohibit investment in real estate limited partnerships.
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 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 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.
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
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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. 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, the 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.
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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.
(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.
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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. Writing covered call
options serves as a limited short hedge, because declines in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the security appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to sell the security at less
than its market value. Writing covered put options serves as a limited long
hedge because increases in the value of the hedged investment would be offset
to the extent of the premium received for writing the 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.
10
<PAGE>
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.
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
11
<PAGE>
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 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
12
<PAGE>
prices are moving unfavorably to avoid being subject to further calls. These
liquidations could increase price volatility of the instruments and distort
the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the futures
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities
markets involving arbitrage, "program trading" and other investment strategies
might result in temporary price distortions.
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
13
<PAGE>
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.
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, parties to forward currency contracts
can enter into offsetting closing transactions, similar to closing
transactions on futures, by entering into an instrument identical to the
existing instrument, in the opposite direction. 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
14
<PAGE>
position, and would continue to be required to maintain a position in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, 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
15
<PAGE>
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 entered into by the Fund.
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 ages, 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 and a
Jr.**; 69 Chairman of the consultant to, Paine Webber Group
Board of Trustees Inc. ("PW Group") (holding company
of PaineWebber and Mitchell
Hutchins). 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, NaPro
BioTherapeutics, Inc. and a direc-
tor or trustee of 24 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Meyer Feldberg; 53 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., and New World Commu-
nications Group Incorporated and a
director or trustee of 16 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
George W. Gowen; 66 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 14 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Frederic V. Malek; 59 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 executive vice
president and president of Marriott
Hotels and Resorts. Mr. Malek is
also a director of American Manage-
ment Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc., National Educa-
tion Corporation and Northwest Air-
lines Inc. and a director or
trustee of 14 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Judith Davidson Moyers; 60 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 Ogden Corporation and a di-
rector or trustee of 14 other in-
vestment companies for which Mitch-
ell 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>
Margo N. Alexander; 49 President Mrs. Alexander is president, chief
executive officer and a director of
Mitchell Hutchins and an executive
vice president and a director of
PaineWebber. Mrs. Alexander is also
a director or trustee of eight in-
vestment companies and president of
29 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Manage-
ment, Inc., an investment advisory
firm. Prior to April 1993, Ms.
Boyle was a vice president and man-
ager--legal administration of
Mitchell Hutchins. Ms. Boyle is
also a vice president of 29 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 31 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 24 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance division of Mitchell
Hutchins. Mr. Maher is also a vice
president and assistant treasurer
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dennis McCauley; 48 Vice President Mr. McCauley is a managing director
and chief investment officer--fixed
income of Mitchell Hutchins. Prior
to December 1994, he was Director
of Fixed Income
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
Investments of IBM Corporation. Mr.
McCauley is also a vice president
of 17 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 38 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 29 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and deputy general counsel of
Mitchell Hutchins. Ms. O'Donnell is
also a vice president and secretary
of 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 45 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. Ms. Schon-
feld is also a vice president of 29
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a vice president and
Assistant Treasurer a senior manager of the mutual fund
finance division of Mitchell
Hutchins. From August 1992 to Au-
gust 1994, he was a vice president
at BlackRock Financial Management,
Inc. Prior to August 1992, he
was an audit manager with Ernst &
Young LLP. Mr. Schubert is also a
vice president and assistant trea-
surer of 29 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 35 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
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; BUSINESS EXPERIENCE;
AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
------------------ ------------------- --------------------
<S> <C> <C>
is also a vice president and trea-
surer of 29 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 39 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 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Stuart Waugh; 40 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 four other in-
vestment companies for which
Mitchell Hutchins serves as invest-
ment adviser.
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. From September
1987 to May 1995, he was an attor-
ney in private practice. Mr. Weller
is also a vice president and assis-
tant secretary of 24 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mr. Bewkes is an "interested person" of the Trust as defined in the 1940
Act by virtue of his position with PW Group.
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.
20
<PAGE>
The table below includes certain information relating to the compensation of
the Trust's current trustees who held office during the fiscal year ended
October 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED FROM THE TRUST AND
COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS THE FUND COMPLEX
NAME OF PERSON, POSITION FROM THE TRUST* A FUND'S EXPENSES UPON RETIREMENT PAID TO TRUSTEES**
- ------------------------ --------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees.. -- -- -- --
Meyer Feldberg,
Trustee................ $7,000 -- -- $140,375
George W. Gowen,
Trustee................ 7,000 -- -- 129,625
Frederic V. Malek,
Trustee................ 7,000 -- -- 129,375
Judith Davidson Moyers,
Trustee................ 7,000 -- -- 128,625
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended October 31,
1995.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1995.
21
<PAGE>
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>
For the fiscal years ended October 31, 1995, October 31, 1994 and October
31, 1993, the Fund paid (or accrued) to Mitchell Hutchins advisory and
administrative fees of $9,229,318, $12,723,592 and $11,643,58, 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, 1995, October 31, 1994 and October 31,
1993, PaineWebber earned service fees of $376,299, $487,859 and $467,885,
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 or the Trust's other series are allocated among 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
22
<PAGE>
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 $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1995, October 31, 1994 and October 31, 1993, no
reimbursements were made pursuant to such limitation.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon its assignment and is terminable at any time
without penalty by the Trust's board of trustees or by vote of the holders of
a majority of the Fund's outstanding voting securities, on 60 days' written
notice to Mitchell Hutchins or by Mitchell Hutchins on 60 days' written notice
to the Fund.
The following table shows the approximate net assets as of January 31, 1996,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).............................. $ 5,694.9
Global......................................................... 2,879.2
Equity/Balanced................................................ 2,858.1
Fixed Income (excluding Money Market).......................... 5,716.0
Taxable Fixed Income......................................... 3,965.6
Tax-Free Fixed Income........................................ 1,750.4
Money Market Funds............................................. 21,810.3
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owned to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber mutual funds and other
Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class C shares of the Fund under separate distribution
contracts with the Trust dated July 7, 1993 and November 10, 1995
(collectively, "Distribution Contracts"), that require Mitchell Hutchins to
use its best
23
<PAGE>
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 and
November 10, 1995, relating to the Class A, Class B and Class C 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 C 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 C
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 C 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 C 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 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, 1995, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class C
Plans:
<TABLE>
<S> <C>
Class A.............................................................. $1,499,377
Class B.............................................................. 5,822,394
Class C.............................................................. 538,004
</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,
1995:
CLASS A
<TABLE>
<S> <C>
Marketing and advertising........................................... $ 335,668
Printing of prospectuses and statements of additional information... 2,061
Branch network costs allocated and interest expense................. 3,764,453
Service fees paid to PaineWebber investment executives.............. 674,720
</TABLE>
24
<PAGE>
CLASS B
<TABLE>
<S> <C>
Marketing and advertising........................................... $ 203,843
Amortization of commissions......................................... 2,756,777
Printing of prospectuses and statements of additional information... 1,252
Branch network costs allocated and interest expense................. 3,047,478
Service fees paid to PaineWebber investment executives.............. 655,020
CLASS C
Marketing and advertising........................................... $ 89,803
Amortization of commissions......................................... 158,675
Printing of prospectuses and statements of additional information... 551
Branch network costs allocated and interest expense................. 1,110,149
Service fees paid to PaineWebber investment executives.............. 80,701
</TABLE>
"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 Pricing SM 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, 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, 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
25
<PAGE>
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 C Plan, 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 free from contingent
deferred sales charges upon redemption for shares held more than one year and
paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief
that the ability of PaineWebber investment executives and correspondent firms
to receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and generally do not
face contingent deferred sales charges, would prove attractive to the
investment executives and correspondent firms, resulting in greater growth to
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The trustees also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives, without the concomitant
receipt by Mitchell Hutchins of initial sales charges or contingent deferred
sales charges upon redemption, was conditioned upon its expectation of being
compensated under the Class C Plan.
With respect to each Plan, the 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 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,
-------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Earned............................................. $43,136 $193,492 $560,223
Retained........................................... 26,258 15,764 11,464
</TABLE>
For the fiscal year ended October 31, 1995, Mitchell Hutchins earned and
retained $2,395,994 in contingent deferred sales charges paid upon certain
redemptions of Class B shares.
26
<PAGE>
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 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, 1995, October 31, 1994 and October 31,
1993, 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 the
fiscal year ended October 31, 1995, Mitchell Hutchins directed no portfolio
transactions to brokers chosen for research services.
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
27
<PAGE>
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.
Information and research services furnished by brokers or dealers through
which or with which the Fund effects securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts, and, conversely,
research services furnished to Mitchell Hutchins by brokers or dealers in
connection with other funds or accounts Mitchell Hutchins advises may be used
by Mitchell Hutchins in advising the Fund. Information and research received
from brokers or dealers will be in addition to, and not in lieu of, the
services required to be performed by Mitchell Hutchins under the Advisory
Contract.
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 not 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, 1995 and October 31, 1994, the portfolio turnover rates for the
Fund were: 113% and 108%, 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
28
<PAGE>
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.
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).
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber mutual
fund. The purchaser must provide sufficient information to permit confirmation
of his or her holdings, and the acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or terminated at
any time.
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
29
<PAGE>
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 PaineWebber mutual funds. Shareholders will
receive at least 60 days' notice of any termination or material modification
of the exchange offer, except no notice need be given of an amendment whose
only material effect is to reduce the exchange fee, and no notice need be
given if, under extraordinary circumstances, either redemptions are suspended
under the circumstances described below or 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
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tax basis for shares acquired pursuant to the reinstatement privilege. Gain or
loss on a redemption also will be adjusted for federal income tax purposes by
the amount of any sales charge paid on Class A shares, under the circumstances
and to the extent described in "Dividends and Taxes" in the Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLANSM;
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 three Business Days (defined under "Valuation
of Shares") after the trade date, and the purchase price of the shares is
withdrawn from the investor's RMA account on the settlement date from the
following sources and in the following order: uninvested cash balances,
balances in RMA money market funds, or margin borrowing power, if applicable
to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to
enrolling in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may
take up to two weeks to become effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether 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.
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PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard(R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the seven RMA money market funds--RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California
Municipal Money Fund, RMA Connecticut Municipal Money Fund, RMA New
Jersey Municipal Money Fund and RMA New York Municipal Money Fund. Each
money market fund attempts to maintain a stable price per share of $1.00,
although there can be no assurance that it will be able to do so.
Investments in the money market funds are not insured or guaranteed by
the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $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 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
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
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<PAGE>
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 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 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 Business Day,
which is defined as each Monday through Friday when the NYSE is open.
Currently, the NYSE is closed on the observance of the following holidays: New
Year's Day, 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
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<PAGE>
rate for purchasing or selling currency prevailing on the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
PERFORMANCE INFORMATION
The 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 and Class C shares, the applicable contingent deferred sales charge
imposed on a redemption of Class B or Class C shares held for the period is
deducted. All dividends and other distributions are assumed to have been
reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
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<PAGE>
The following table shows performance information for the Class A, Class B
and Class C shares (formerly Class D shares) for the periods indicated. All
returns for periods of more than one year are expressed as an annual average
return.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended October 31, 1995:
Standardized Return*................................. 6.61% 5.24% 10.49%
Non-Standardized Return.............................. 11.09% 10.24% 9.74%
Five years ended October 31, 1995:
Standardized Return*................................. NA 32.28% NA
Non-Standardized Return.............................. NA 34.28% NA
Inception** to October 31, 1995:
Standardized Return.................................. 31.13% 120.93% 19.74%
Non-Standardized Return.............................. 36.55% 120.93% 19.74%
</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 and Class C shares reflect deduction of the applicable contingent
deferred sales charge imposed on a redemption of shares held for the period.
**The inception date for each Class is as follows: Class A--July 1, 1991,
Class B--March 20, 1987 and Class C--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 C 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 C 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
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<PAGE>
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 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, 1995, the yields for its Class A shares, Class B shares and Class
C shares were 5.83%, 4.71% and 4.96%, 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 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 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
37
<PAGE>
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 the stock of "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, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain 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 the Fund probably would have to distribute to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax--even if those
earnings and gain are not distributed to the Fund by the PFIC. 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. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains 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 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
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<PAGE>
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, forward currency contracts and
foreign currency positions 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 a 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 them
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, forward currency contracts or foreign currency position,
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." Prior to November 10, 1995, the
Fund's Class C shares were known as "Class D" shares.
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 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 C shares. The higher fee is imposed due to the
higher costs incurred by the Transfer Agent in
39
<PAGE>
tracking shares subject to a contingent deferred sales charge because, upon
redemption, the duration of the shareholder's investment must be determined in
order to determine the applicable charge. Moreover, the tracking and
calculations required by the automatic conversion feature of the Class B
shares will cause the Transfer Agent to incur additional costs. Although the
transfer agency fee will differ on a per account basis as stated above, the
specific extent to which the transfer agency fees will differ between the
Classes as a percentage of net assets is not certain, because the fee as a
percentage of net assets will be affected by the number of shareholder
accounts in each Class and the relative amounts of net assets in each Class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, counsel to the Fund, has passed
upon the legality of the shares offered by the Prospectus. Kirkpatrick &
Lockhart LLP 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, 1995 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.
40
<PAGE>
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 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
41
<PAGE>
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.
42
<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>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions..................................... 1
Hedging and Related Income Strategies.................................... 7
Trustees and Officers.................................................... 16
Investment Advisory and Distribution Arrangements........................ 22
Portfolio Transactions................................................... 27
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 28
Conversion of Class B Shares............................................. 32
Valuation of Shares...................................................... 33
Performance Information.................................................. 34
Taxes.................................................................... 37
Other Information........................................................ 39
Financial Statements..................................................... 40
Appendix................................................................. 41
</TABLE>
(C)1996 PaineWebber Incorporated
[RECYCLING LOGO APPEARS HERE] Recycled Paper
PaineWebber
Global Income Fund
- --------------------------------------------------------------------------------
Statement of Additional Information
February , 1996
- --------------------------------------------------------------------------------
[LOGO OF PAINE WEBBER APPEARS HERE]
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
PaineWebber Global Income Fund ("Fund"), a series of PaineWebber Investment
Series ("Trust"), seeks high current income consistent with prudent investment
risk and, secondarily, capital appreciation. 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.
This Prospectus concisely sets forth information about the Fund a prospective
investor should know before investing. Please retain this Prospectus for fu-
ture reference. A Statement of Additional Information dated February , 1996
(which is incorporated by reference herein) has been filed with the Securities
and Exchange Commission. The Statement of Additional Information can be ob-
tained 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. Participants in the PaineWebber
Savings Investment Plan ("PW SIP") may make further inquiries by contacting
the PaineWebber Incorporated Benefits Department, 1000 Harbor Boulevard, 10th
Floor, Weehawken, New Jersey 07087 or by calling 1-201-902-4444.
The Class Y shares described in this Prospectus are currently offered for
sale primarily to participants in the INSIGHT Investment Advisory Program
("INSIGHT"), when purchased through that program, and the trustee of the PW
SIP on behalf of that Plan. See "Purchases."
----------------
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 REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is February , 1996.
PAINEWEBBER INCORPORATED
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS 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.
--------------
FUND EXPENSES
The following tables are intended to assist investors in understanding the
expenses associated with investing in Class Y shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales charge on purchases of shares........................................ None
Sales charge on reinvested dividends....................................... None
Redemption fee or deferred sales charge.................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees........................................................... 0.73%
12b-1 fees................................................................ 0.00%
Other expenses(a)......................................................... 0.18%
----
Total operating expenses.................................................. 0.91%
====
</TABLE>
- -------
(a) Does not include 0.04% in non-recurring reorganization expenses that were
incurred during the fiscal year ended October 31, 1995. If those expenses
were included, "Other expenses" would be 0.22% and "Total operating ex-
penses" would be 0.95%.
* See "Management" for additional information. Participation in INSIGHT is sub-
ject to payment of an advisory fee at the maximum annual rate of 1.50% of as-
sets held through INSIGHT. This account charge is not included in the table be-
cause non-INSIGHT participants are permitted to purchase Class Y shares.
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 YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$9 $29 $50 $112
</TABLE>
This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses 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 Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of the Class Y shares of the Fund.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to the Fund's Class Y 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.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class Y
share of the Fund for each of the periods shown. This information is supple-
mented by the financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended October 31,
1995, which are incorporated by reference into the Statement of Additional In-
formation. The financial statements and notes and the financial information in
the table below, insofar as they relate to the four years in the period ended
October 31, 1995 and the period August 26, 1991 (commencement of offering of
shares) to October 31, 1991, have been audited by Price Waterhouse LLP, inde-
pendent accountants, whose unqualified report thereon also is included in the
Annual Report to Shareholders. Further information about the Fund's perfor-
mance also is included in the Annual Report to Shareholders, which may be ob-
tained without charge.
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED AUGUST 26,
OCTOBER 31, 1991+ TO
--------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991
------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 9.99 $10.97 $ 10.64 $10.76 $10.53
------- ------- ------- ------ ------
Net investment income.... 0.78@ 0.75 0.71 0.81 0.17
Net realized and
unrealized gains
(losses) from investment
and foreign currency
transactions............ 0.32@ (1.06) 0.58 (0.08) 0.32
------- ------- ------- ------ ------
Total increase/decrease
from investment
operations............... 1.10 (0.31) 1.29 0.73 0.49
------- ------- ------- ------ ------
Dividends from net
investment income....... (0.74) (0.34) (0.82) (0.67) (0.24)
Distributions from net
realized gains on
investments and foreign
currency transactions... -- -- (0.14) (0.18) (0.02)
Paid in capital.......... -- (0.33) -- -- --
------- ------- ------- ------ ------
Total dividends and
distributions............ (0.74) (0.67) (0.96) (0.85) (0.26)
------- ------- ------- ------ ------
Net asset value, end of
period................... $ 10.35 $9.99 $ 10.97 $10.64 $10.76
======= ======= ======= ====== ======
Total investment
return(1)................ 11.39% (2.86)% 12.60% 6.98% 4.63%
======= ======= ======= ====== ======
Ratios/Supplemental Data:
Net assets, end of period
(000's)................. $16,613 $12,975 $12,043 $7,252 $2,565
Expenses to average net
assets.................. 0.95%(2) 0.88% 1.06%** 0.94% 1.09%*
Net investment income to
average net assets...... 7.77%(2) 7.23% 7.00%** 8.15% 8.79%*
Portfolio turnover rate.. 113% 108% 90% 92% 53%
</TABLE>
- -------
* Annualized.
** Includes 0.15% of interest expense related to the reverse repurchase agree-
ment transactions entered into during the fiscal year.
+ Commencement of offering of shares.
@ Calculated using the average shares outstanding for the year.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions at net asset value on the payable date, and a sale at net as-
set value on the last day of each period reported. Total investment return
information for periods less than one year is not annualized.
(2) These ratios include non-recurring reorganization expenses of 0.04%.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is high current income consistent
with prudent investment risk; capital appreciation is a secondary objective.
The Fund is a non-diversified series of an open-end management investment com-
pany. Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") is the
Fund's investment adviser and administrator.
The Fund seeks to achieve its 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 su-
pranational organizations, or issued by foreign or U.S. companies.
There can be no assurance that the Fund will achieve its investment objec-
tives. The Fund's net asset value fluctuates based upon changes in the value
of its portfolio securities. The Fund's investment objectives and certain in-
vestment 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 Trust's board of trustees
without shareholder approval.
Normally, at least 65% of the Fund's total assets are invested in high qual-
ity debt securities, denominated in foreign currencies or U.S. dollars, of is-
suers located in at least three of the following countries: Australia, Aus-
tria, 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 securi-
ties 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 Standard & Poor's Ratings Services
("S&P"), Moody's Investors Service, Inc. ("Moody's") or another nationally
recognized statistical rating organization ("NRSRO") or, if unrated, deter-
mined 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 quality debt securities issued or guaranteed by U.S. or foreign gov-
ernments or their agencies, instrumentalities or political subdivisions; (2)
high quality debt securities issued or guaranteed by supranational organiza-
tions 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 securi-
ties. 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 con-
version. 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. Within
this 35% limitation, the Fund may invest up to 20% of its total assets in sov-
ereign 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 compara-
bly rated by another NRSRO or, in the case of such securities assigned a com-
mercial paper rating, no lower than B by S&P or comparably rated by another
NRSRO or, if not so rated, determined
4
<PAGE>
by Mitchell Hutchins to be of comparable quality. Mitchell Hutchins will pur-
chase 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.
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 in-
terdependence of economic cycles and currency exchange rates. As of December
31, 1995, more than 65.7% of the Salomon Brothers World Government Bond Index
was represented by securities denominated in currencies other than the U.S.
dollar.
Over the past nine years, debt securities offered by certain foreign govern-
ments 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 curren-
cies, which have had a substantial impact on investment in foreign fixed in-
come 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 cer-
tain 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 for-
eign fixed income markets and in the U.S. government and corporate bond mar-
kets is less risky than a portfolio comprised exclusively of foreign debt se-
curities 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, so-
cial and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and mar-
kets are subject. These risks may include expropriation, confiscatory taxa-
tion, 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 recog-
nized exchanges or in over-the-counter markets, from time to time foreign se-
curities may be difficult to liquidate rapidly without significantly depress-
ing the price of such securities. There may be less publicly available infor-
mation 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
5
<PAGE>
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 gain, 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 in-
crease; 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, interna-
tional balances of payments, speculation and other economic and political con-
ditions. In addition, some foreign currency values may be volatile and there
is the possibility of governmental controls on currency exchange or governmen-
tal intervention in currency markets. Any of these factors could adversely af-
fect the Fund.
The costs attributable to foreign investing that the Fund must bear fre-
quently 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 gener-
ally 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 af-
fected 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 fluctu-
ations in inflation rates have had and may continue to have very negative ef-
fects on the economies and securities markets of certain emerging market coun-
tries. 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 activi-
ties 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 addi-
tional 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 in-
versely with interest 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 at-
tempt to evaluate the safety of principal and interest payments and do not re-
flect 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
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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 capac-
ity for such securities to make principal and interest payments than is the
case for higher-rated securities. Within this 35% limitation, the Fund may in-
vest 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 commer-
cial 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 specu-
lative with respect to the issuer's capacity to pay interest and repay princi-
pal 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 cur-
rent yield than that available for higher grade issues, but they involve
higher risks, in that they are especially subject to adverse changes in gen-
eral economic conditions and in the industries in which the issuers are en-
gaged, to changes in the financial condition of the issuers and to price fluc-
tuations in response to changes in interest rates. During periods of economic
downturn or rising interest rates, highly leveraged issuers may experience fi-
nancial 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 se-
curities frequently are unsecured and subordinated to the prior payment of se-
nior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth has generally paralleled a long economic expansion. In
the past, the prices of many lower rated debt securities declined substantial-
ly, reflecting an expectation that many issuers of such securities might expe-
rience financial difficulties. As a result, the yields on lower rated debt se-
curities 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 por-
tion of their value as a result of the issuers' financial restructuring or de-
fault. 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 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.
7
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government (such as Treasury bills, notes and bonds) and obligations issued or
guaranteed by U.S. government agencies and instrumentalities, including secu-
rities 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 Val-
ley Authority) and securities that are supported primarily or solely by spe-
cific 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 in-
vest in mortgage-backed securities guaranteed by the Government National Mort-
gage 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 in-
terest coupons, and receipts or certificates representing interest in such
stripped debt obligations and coupons. A zero coupon security pays no cash in-
terest 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 are
subject to greater fluctuations of market value in response to changing inter-
est 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 orga-
nizations 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 Inter-American Development
Bank.
Foreign government securities also include debt securities of "quasi-govern-
mental agencies" and debt securities denominated in multinational currency
units of an issuer (including supranational issuers). An example of a multina-
tional 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 in-
clude mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including quasi-governmental agen-
cies.
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 ex-
change-traded and over-the-counter) and futures contracts to attempt to en-
hance income and may attempt to re-
8
<PAGE>
duce 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 use of options and futures contracts solely to enhance
income may be considered a form of speculation. The Fund's ability to use
these strategies may be limited by market conditions, regulatory limits and
tax considerations. Use of options and futures contracts solely to enhance in-
come may be considered a form of speculation. The Appendix to this Prospectus
describes the hedging instruments that may be used by the Fund and the State-
ment of Additional Information contains further information on these strate-
gies.
The Fund may enter into forward contracts, buy or sell foreign currency
futures contracts, write (sell) covered put or call options and buy put or
call options on securities, foreign currencies and such futures contracts. The
Fund may enter into options and futures contracts under which the full value
of its portfolio is at risk. Under normal circumstances, however, the Fund's
use of these instruments will place at risk a much smaller portion of its as-
sets.
The Fund may enter into forward 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 its portfolio positions. For example, when
Mitchell Hutchins anticipates making a currency exchange transaction in con-
nection with the purchase or sale of a security, the Fund may enter into a
forward currency 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 fluctua-
tions in the value of another currency when Mitchell Hutchins anticipates
there will be a correlation between the two and may use forward 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 in-
terest rate swaps and interest rate caps, collars and floors, for hedging pur-
poses. For example, the Fund may enter into interest rate protection transac-
tions 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 in-
terest rate protection transactions only with banks and recognized securities
dealers believed by Mitchell Hutchins to present minimal credit risks in ac-
cordance 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 po-
sition 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 in-
struments are different from those needed to select the Fund's securities, (2)
possible imperfect correlation, or even no correlation, between price move-
ments 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 pos-
sible 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
9
<PAGE>
time, due to the need for the Fund to maintain "cover" or to segregate securi-
ties 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 devel-
oped. The Fund may use these instruments and techniques to the extent consis-
tent 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 secu-
rities to the bank or dealer at an agreed-upon date and price reflecting a mar-
ket rate of interest unrelated to the coupon rate or maturity of the purchased
securities. Repurchase agreements carry certain risks not associated with di-
rect 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 guide-
lines 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 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. 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase debt obli-
gations on a "when-issued" basis or may purchase or sell securities for delayed
delivery. In when-issued or delayed delivery transactions, delivery of the se-
curities 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 deliv-
ery basis, it immediately assumes the risks of ownership, including the risk of
price fluctuation. Failure by a counterparty to deliver a security purchased on
a when-issued or delayed delivery basis may result in a loss or missed opportu-
nity 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 il-
liquid securities, including certain cover for over-the-counter options, repur-
chase 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 har-
bor" from the registration requirements of the Securities Act of 1933 ("1933
Act"). Institutional markets for restricted securities have developed as a re-
sult of Rule 144A, providing both readily ascertainable values for restricted
securities and the ability to liquidate an investment to satisfy share redemp-
tion orders. An insufficient number of qualified institutional buyers inter-
ested 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 fa-
vorable prices.
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<PAGE>
LENDING OF PORTFOLIO SECURITIES. 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. Lending securities enables
the Fund to earn additional income, but could result in a loss or delay in re-
covering the securities.
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 cap-
ital gains.
OTHER INFORMATION. The Fund is "non-diversified," as that term is defined in
the Investment Company Act of 1940 ("1940 Act"), but 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
Fund's total assets 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 as-
sets 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 secu-
rities, 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 may also engage
in short sales of securities "against the box" to defer realization of gains
or 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.
PURCHASES
Class Y shares are sold to eligible investors at the net asset value next
determined (see "Valuation of Shares") after the purchase order is received at
PaineWebber's New York City offices or, for purchases by the trustee of the PW
SIP, by the Fund's transfer agent ("Transfer Agent"). No initial or contingent
deferred sales charge is imposed, nor are Class Y shares subject to Rule 12b-1
distribution or service fees. Mitchell Hutchins is the distributor of the
Fund's shares and has appointed Paine Webber Incorporated ("PaineWebber") as
the exclusive dealer for the sale of those shares. The Fund and Mitchell
Hutchins reserve the right to reject any purchase order and to suspend the of-
fering of Class Y shares for a period of time.
PURCHASES BY INSIGHT PARTICIPANTS. An investor who purchases $50,000 or more
of shares of the mutual funds that are available to INSIGHT participants
(which include the PaineWebber mutual funds in the Flexible Pricing System SM
and certain specified other mutual funds) may take part in INSIGHT, a total
portfolio asset allocation program sponsored by PaineWebber, and thus become
eligible to purchase Class Y shares. INSIGHT offers comprehensive investment
services, including a personalized asset allocation investment strategy using
an appropriate combination of funds, monitoring of investment performance and
comprehensive quarterly reports that cover market trends, portfolio summaries
and personalized account information. Participation in INSIGHT is subject to
payment of an advisory fee to PaineWebber at the maximum
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<PAGE>
annual rate of 1.5% of assets held through the program (generally charged quar-
terly in advance), which covers all INSIGHT investment advisory services and
program administration fees. Employees of PaineWebber and its affiliates are
entitled to a 50% reduction in the fee otherwise payable for participation in
INSIGHT. INSIGHT clients may elect to have their INSIGHT fees charged to their
PaineWebber accounts (by the automatic redemption of money market fund shares)
or, if a qualified plan, invoiced. Please contact your PaineWebber investment
executive or PaineWebber correspondent firm or call 1-800-647-1568 for more in-
formation concerning mutual funds that are available to INSIGHT participants or
for other INSIGHT program information.
PURCHASES BY THE TRUSTEE OF THE PW SIP. Class Y shares also are offered for
sale to the trustee of the PW SIP, a defined contribution plan sponsored by
Paine Webber Group Inc. ("PW Group"). The trustee of the PW SIP purchases Class
Y shares to implement the investment choices of individual plan participants
with respect to their PW SIP contributions. INDIVIDUAL PLAN PARTICIPANTS SHOULD
CONSULT THE PLAN INFORMATION STATEMENT AND SUMMARY PLAN DESCRIPTION OF THE PW
SIP (COLLECTIVELY, "PLAN DOCUMENTS") FOR A DESCRIPTION OF THE PROCEDURES AND
LIMITATIONS APPLICABLE TO MAKING AND CHANGING INVESTMENT CHOICES. Copies of the
Plan Documents are available from the PaineWebber Incorporated Benefits Depart-
ment, 1000 Harbor Boulevard, 10th Floor, Weehawken, New Jersey 07087 (telephone
1-201-902-4444).
As described in the Plan Documents, the average net asset value per share at
which Class Y shares of the Fund are purchased by the trustee of the PW SIP for
the accounts of individual participants might be more or less than the net as-
set value per share prevailing at the time that such participants made their
investment choices or made their contributions to the PW SIP.
ACQUISITION OF CLASS Y SHARES BY OTHERS. Certain present holders of Class Y
shares who are not current INSIGHT participants may acquire Class Y shares of
the Fund without a sales charge. This category includes former employees of
Kidder, Peabody & Co., Incorporated, their associated accounts and present and
former directors and trustees of the former Mitchell Hutchins/Kidder, Peabody
mutual funds.
The Fund is authorized to offer Class Y shares to other employee benefit and
retirement plans of PW Group and its affiliates and certain other investment
programs that are sponsored by PaineWebber and that may invest in PaineWebber
mutual funds. At present, however, INSIGHT participants and the PW SIP are the
only purchasers in these two categories.
REDEMPTIONS
Class Y shares may be redeemed at their net asset value, and redemption pro-
ceeds will be paid after receipt of a redemption request, as described below.
REDEMPTIONS THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. INSIGHT participants
who are Class Y shareholders 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
Class Y 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
will be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and correspon-
dent firms are responsible for promptly forwarding redemption requests to
PaineWebber's New York City offices. A "Business Day" is any day, Monday
through Friday,
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<PAGE>
on which the New York Stock Exchange, Inc. ("NYSE") is open for business.
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.
REDEMPTION THROUGH THE TRANSFER AGENT. Shareholders also may redeem Class Y
shares through the Transfer Agent,). Shareholders should mail redemption re-
quests 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 and (3) other
supporting legal documents for estates, trusts, guardianships, custodianships,
partnerships and corporations. Shareholders are responsible for ensuring that
a request for redemption is received in "good order."
REDEMPTIONS FOR PARTICIPANTS IN PW SIP. The trustee of the PW SIP redeems
Class Y shares to implement the investment choices of individual plan partici-
pants with respect to their PW SIP contributions, as described in the Plan
Documents referenced under "Purchases" above. As described in the Plan Docu-
ments, the average net asset value per share at which Class Y shares are re-
deemed by the trustee of the PW SIP might be more or less than the net asset
value per share prevailing at the time that such participants made their in-
vestment choices.
ADDITIONAL INFORMATION ON REDEMP- TIONS. A shareholder (other than a partic-
ipant 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 ac-
count designated by the shareholder. Questions about this option, or redemp-
tion requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm. If a shareholder re-
quests 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 ac-
counts, it reserves the right to redeem all Fund shares in any shareholder ac-
count having a net asset value below the lesser of $500 or the current minimum
for initial purchases. If the Fund elects to do so, it will notify the share-
holder and provide the shareholder the opportunity to increase the amount in-
vested 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.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund distributes substantially all of its net investment income
to shareholders each year. Income dividends are declared monthly 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
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<PAGE>
short-term capital gain and realized gains from foreign currency transactions
is distributed annually. The Fund may make additional distributions if neces-
sary to avoid a 4% excise tax on certain undistributed income and capital
gain. If the Fund's dividends and other distributions exceed its taxable in-
come 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-tax-
able return of capital to shareholders for tax purposes.
PW SIP PARTICIPANTS. Dividends and distributions are paid in additional
Class Y shares at net asset value unless the Transfer Agent is instructed oth-
erwise.
INSIGHT PARTICIPANTS. Dividends and other distributions are paid in addi-
tional Class Y shares at net asset value unless the shareholder has requested
cash payments. Class Y 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 in-
vestment executives or correspondent firms.
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 short-term capital gain
and net gains from certain foreign currency transactions) and net capital gain
that is distributed to its shareholders.
PW SIP PARTICIPANTS. Qualified profit-sharing plans such as the PW SIP pay
no federal income tax. Individual participants in the PW SIP should consult
the Plan Documents and their own tax advisers for information on the tax con-
sequences associated with participating in the PW SIP.
INSIGHT PARTICIPANTS. Dividends from the Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) generally are tax-
able 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 distri-
butions 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 is also required from divi-
dends and capital gain distributions payable to such shareholders who other-
wise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the re-
deeming 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. In addition, if shares of the Fund are purchased within 30
days before or after redeeming other Fund shares at a loss, all or a portion
of that loss will not be deductible and will increase the basis of the newly
acquired shares.
The foregoing is only a summary of some of the important federal tax consid-
erations generally affecting the Fund and its shareholders; see the Statement
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<PAGE>
of Additional Information for a further discussion. There may be other feder-
al, 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 as of
the close of regular trading on the NYSE (currently 4:00 p.m., Eastern time)
each Business Day. Net asset value per share is computed by dividing the value
of the securities held by the Fund plus any cash or other assets minus all li-
abilities 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 gen-
erally is used to value debt obligations with 60 days or less remaining to ma-
turity, 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 rec-
ognized that judgment plays a greater role in valuing lower rated debt securi-
ties because there is less reliable, objective data available.
MANAGEMENT
The Trust's board of trustees, as part of its overall management responsi-
bility, oversees various organizations responsible for the Fund's day-to-day
management. Mitchell Hutchins, the Fund's investment adviser and administra-
tor, 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, 1995, the Fund paid advisory
fees at the effective annual rate of 0.75% of its average daily net assets.
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 incurs other expenses and, for the fiscal year ended October 31,
1995, the Fund's total expenses for its Class Y shares, stated as a percentage
of net assets was 0.95%. See "Fund Expenses."
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 PW Group, the sponsor of the PW SIP and a publicly owned fi-
nancial services holding company. At January 31, 1996, Mitchell Hutchins was
adviser or sub-adviser of 34 investment companies with 68 separate portfolios
and aggregate assets of over $30.4 billion, including over $2.9 billion in
global funds.
Stuart Waugh has been primarily responsible for the day-to-day portfolio
management of the Fund since its inception. Mr. Waugh is a vice president of
the Trust and a managing director of global fixed income investments of Mitch-
ell Hutchins. Mr. Waugh has been employed by Mitchell Hutchins as a portfolio
manager for more than the past five years.
Other members of Mitchell Hutchins' international fixed income group provide
input on market outlook, interest rate forecasts and other considerations per-
taining to global fixed income investments.
Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to a code of ethics that establishes proce-
dures for persons investing and restricts certain transactions.
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and
may show this
15
<PAGE>
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. One-, five- and ten-year periods will be shown,
unless the Class has been in existence for a shorter period. Total return cal-
culations assume reinvestment of dividends and other distributions.
The Fund may use other total return presentations in conjunction with stan-
dardized 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.
The Fund also may advertise its yield. Yield reflects investment income net
of expenses over a 30-day (or one-month) period on a Class Y share, expressed
as an annualized percentage of the net asset value per share 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.
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 share-
holder's cost.
GENERAL INFORMATION
ORGANIZATION. PaineWebber Investment Series is registered with the SEC as an
open-end management investment company and was organized as a 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 num-
ber of shares of beneficial interest of separate series, par value $.001 per
share. At present, there are no series other than the Fund.
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 Y shares.
Each Class represents interests in the same assets of the Fund. Class A, B and
C differ as follows: (1) each Class has exclusive voting rights on matters per-
taining to its plan of distribution; (2) Class A shares generally are subject
to an initial sales charge; (3) Class B shares bear ongoing distribution fees,
may be subject to a contingent deferred sales charge upon most redemptions and
will automatically convert to Class A shares approximately six years after is-
suance; (4) Class C shares are not subject to an initial sales charge, but are
subject to a coeferred sales charge if redeemed within one year after issuance,
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
Y shares are subject to neither an initial or contingent deferred sales charge
nor ongoing service or distribution fees.
The different sales charges and other expenses applicable to the different
Classes of Fund shares may affect the performance of those Classes. More infor-
mation concerning the other Classes of Fund shares offered to the public may be
obtained from a PaineWebber investment executive or correspondent firm or by
calling 1-800-647-1568.
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 re-
quested 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, ex-
cept as noted above. Each share of the
16
<PAGE>
Fund is entitled to participate equally in dividends and other distributions
and the proceeds of any liquidation, except that, due to the differing ex-
penses borne by the four Classes, such dividends and proceeds are likely to be
lower for the other Classes than for the Class Y shares. Dividends and distri-
butions on all Classes of Fund shares are calculated at the same time and in
the same manner.
To avoid additional operating costs and for investor convenience, share cer-
tificates are not issued. Ownership of shares of the Fund is recorded on a
share 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 em-
ploys foreign sub-custodians, approved by the Trust's board of trustees in ac-
cordance 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, Wil-
mington, Delaware 19809, is the Fund's transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Share-holders receive confirmations of pur-
chases 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. Sharehold-
ers also receive audited annual and unaudited semi-annual financial statements
of the Fund. The PW SIP receives confirmations of purchases and redemptions of
shares of the Fund and quarterly statements from the Transfer Agent. The PW
SIP also receives audited annual and unaudited semi-annual financial state-
ments of the Fund. PW SIP participants receive periodic information, including
quarterly statements, about their plan participation from the PW SIP plan ad-
ministrator.
17
<PAGE>
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 exer-
cise 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 for-
eign currency futures contracts are bilateral agreements pursuant to which one
party agrees to make, and the other party agrees to accept, delivery of a spec-
ified type of currency at a specified future time and at a specified price. Al-
though such futures contracts by their terms call for actual delivery or ac-
ceptance of 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 op-
tions 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 po-
sition 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 exer-
cise 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 repre-
sents 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 as-
sume 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 obliga-
tion 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 par-
ties, at a price set at the time the contract is entered into.
18
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund Expenses............................................................... 2
Financial Highlights........................................................ 3
Investment Objectives and Policies.......................................... 4
Purchases................................................................... 11
Redemptions................................................................. 12
Dividends and Taxes......................................................... 14
Valuation of Shares......................................................... 15
Management.................................................................. 15
Performance Information..................................................... 16
General Information......................................................... 16
Appendix.................................................................... 18
</TABLE>
(C) 1996 PaineWebber Incorporated
[RECYCLED PAPER LOGO APEARS HERE] Printed on Recycled Paper
PAINEWEBBER
GLOBAL INCOME FUND
Class Y Shares
PROSPECTUS
February , 1996
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
CLASS Y SHARES
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 February
, 1996. 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. Participants in the PaineWebber Savings Investment Plan may obtain a copy
of the Prospectus by contacting the PaineWebber Incorporated Benefits
Department, 1000 Harbor Boulevard, 10th Floor, Weehawken, New Jersey 07087, or
by calling 1-201-902-4444. This Statement of Additional Information is dated
February , 1996.
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
<PAGE>
converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. 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.
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.
2
<PAGE>
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 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
3
<PAGE>
a demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible restricted
securities held by the 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 offers
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 Services, ("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. 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
4
<PAGE>
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
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by the
Fund upon their 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 reviews and
monitors 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
5
<PAGE>
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. As indicated in the Prospectus, 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 acceptable collateral with the
Fund's custodian bank, marked to market daily, in an amount at least equal to
the market value of the securities loaned, plus accrued interest. Acceptable
collateral is limited to cash, U.S. government securities and irrevocable
letters of credit that meet certain guidelines established by Mitchell
Hutchins. In determining whether to lend securities to a particular broker-
dealer or institutional investor, Mitchell Hutchins will consider, and during
the period of the loan will monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. 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 portion
of the interest earned on the 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 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 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' 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
6
<PAGE>
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 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
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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 Fund will continue to interpret fundamental investment
limitation (7) to prohibit investment in real estate limited partnerships.
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 the officers and trustees of
the Trust and the officers and directors of PaineWebber and 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
Stock Exchange, Inc. ("NYSE") or American Stock Exchange, Inc. ("AMEX"),
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 that, together with any
predecessors, have been in continuous operation for less than three years; and
(5) invest more than 35% of its total assets 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.
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 used by the Fund 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 the 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
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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. The Fund might enter
into a long straddle when Mitchell Hutchins believes it is 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 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, the 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.
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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 and currency
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.
(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
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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. Writing covered call options serves as
a limited short hedge, because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and
the Fund will be obligated to sell the security at less than its market value.
Writing covered put options serves as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
security at more than its market value. 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. 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
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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.
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 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 Fund may purchase and sell foreign currency futures contracts
and interest rate futures contracts, although the Fund does not intend to use
interest rate futures contracts during the coming year. The Fund may also
purchase put and call options, and write covered put and call
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options, on futures in which it is allowed to invest. The purchase of futures
or call options thereon can serve as a long hedge, and the sale of futures or
the purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, 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, 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, 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 is purchasing
the futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, 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 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.
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Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
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
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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 value of which Mitchell Hutchins
believes will have a positive correlation to the value of the currency being
hedged. The risk that movements in the price of the 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.
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 also may seek to hedge against changes in the value
of a particular currency by using forward contracts on another foreign currency
or a basket of currencies, the value of which Mitchell Hutchins believes will
have a positive correlation to the values of the currency
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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, parties to forward currency contracts
can enter into offsetting closing transactions, similar to closing transactions
on futures, by entering into an instrument identical to the existing instrument
in the opposite direction. 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 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.
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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 entered into by the
Fund.
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.
17
<PAGE>
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Chairman of Mr. Bewkes is a director and a
Jr.**; 69 the Board of Trustees consultant to Paine Webber Group
Inc. ("PW Group") (holding com-
pany of PaineWebber and Mitchell
Hutchins). Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company.
Mr. Bewkes is also a director of
Interstate Bakeries Corporation,
NaPro BioTherapeutics, Inc. and a
director or trustee of 24 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 53 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 July 1989, he
was president of the Illinois In-
stitute of Technology. Dean
Feldberg is also a director of
AMSCO International Inc., Feder-
ated Department Stores, Inc., and
New World Communications Group
Incorporated and a director or
trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
an investment adviser.
George W. Gowen; 66 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was
a partner in the law firm of Fry-
er, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of 14 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Frederic V. Malek; 59 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, he was
campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was
vice chairman, and from 1989 to
1990, he was president of North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to 1989, he was em-
ployed by the Marriott Corpora-
tion (hotels, restaurants, air-
line catering and contract feed-
ing), where he most recently was
an executive vice president and
president of Marriott Hotels and
Resorts. Mr. Malek is also a di-
rector of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc., National Educa-
tion Corporation and Northwest
Airlines Inc. and a director or
trustee of 14 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Judith Davidson Moyers; 60 Trustee Mrs. Moyers is president of Public
Public Affairs Television Affairs Television, Inc., an edu-
356 W. 58th Street cational consultant and a home
New York, New York 10019 economist. Mrs. Moyers is also a
director of Ogden Corporation and
a director or trustee of 14 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Margo N. Alexander; 49 President Mrs. Alexander is president, chief
executive officer and a director
of Mitchell Hutchins and an exec-
utive vice president and a direc-
tor of PaineWebber. Mrs. Alexan-
der is also a director or trustee
of eight investment companies and
president of 29 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice presi-
dent and manager--advisory admin-
istration of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an in-
vestment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal ad-
ministration of Mitchell
Hutchins. Ms. Boyle is also a
vice president of 29 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 31 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 assis-
tant secretary of 24 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice presi-
Assistant Treasurer dent and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. Mr. Maher is
also a vice president and assis-
tant treasurer of 29 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Dennis McCauley; 48 Vice President Mr. McCauley is a managing direc-
tor and chief investment offi-
cer--fixed income of Mitchell
Hutchins. Prior to December 1994,
he was Director of Fixed Income
Investments of IBM Corporation.
Mr. McCauley is also a vice pres-
ident of 17 other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of 29 other in-
vestment compa- nies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice presi-
dent and secretary of 29 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing direc-
45 tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Ms. Schonfeld is also a vice
president of 29 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ---------- --------------------
<S> <C> <C>
Paul H. Schubert; 33 Vice President and Mr. Schubert is a vice president
Assistant Treasurer and a senior manager of the mu-
tual fund finance division of
Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of 29
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice
Treasurer president 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 29 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd; 39 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 29 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; POSITION BUSINESS EXPERIENCE;
AGE WITH TRUST OTHER DIRECTORSHIPS
- ------------------ ---------- --------------------
<S> <C> <C>
Stuart Waugh; 40 Vice President Mr. Waugh is a first vice presi-
dent and a portfolio manager of
Mitchell Hutchins responsible for
global fixed income investments
and currency trading. Mr. Waugh
is also a vice president of four
other investment companies for
which Mitchell Hutchins serves as
investment adviser.
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice presi-
Assistant Secretary dent and associate general coun-
sel of Mitchell Hutchins. From
September 1987 to May 1995, he
was an attorney in private prac-
tice. Mr. Weller is also a vice-
president and assistant secretary
of 24 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
- -------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mr. Bewkes is an "interested person" of the Trust as defined in the 1940 Act
by virtue of his position with PW Group.
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.
23
<PAGE>
The table below includes certain information relating to the compensation of
the Trust's current trustees who held office during the fiscal year ended
October 31, 1995.
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................... $7,000 -- -- $140,375
George W. Gowen,
Trustee................... 7,000 -- -- 129,625
Frederic V. Malek,
Trustee................... 7,000 -- -- 129,375
Judith Davidson Moyers,
Trustee................... 7,000 -- -- 128,625
</TABLE>
- -------
* Represents fees paid to each trustee during the fiscal year ended October 31,
1995.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1995.
24
<PAGE>
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>
For the fiscal years ended October 31, 1995, October 31, 1994 and October 31,
1993, the Fund paid (or accrued) to Mitchell Hutchins advisory and
administrative fees of $9,229,318, $12,723,592 and $11,643,584, respectively.
In addition, 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, 1995, October 31, 1994 and October
31, 1993, PaineWebber earned fees in the approximate amounts of $376,229,
$487,859 and $467,885, 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 or to the Trust's other series are allocated among 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
25
<PAGE>
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 $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1995, October 31, 1994 and October 31, 1993 no reimbursements
were made pursuant to such limitation.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Contract terminates
automatically upon its assignment and is terminable at any time without penalty
by the Trust's board of trustees or by vote of the holders of a majority of the
Fund's outstanding voting securities, on 60 days' written notice to Mitchell
Hutchins or by Mitchell Hutchins on 60 days' written notice to the Fund.
The following table shows the approximate net assets as of January 31, 1996,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT NET
CATEGORY ASSETS
---------- ---------
($ MIL)
<S> <C>
Domestic (excluding Money Market)............................... $ 5,694.9
Global.......................................................... 2,879.2
Equity/Balanced................................................. 2,858.1
Fixed Income (excluding Money Market)........................... 5,716.0
Taxable Fixed Income.......................................... 3,965.6
Tax-Free Fixed Income......................................... 1,750.4
Money Market Funds.............................................. 21,810.3
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber mutual funds and other
Mitchell Hutchins advisory clients.
26
<PAGE>
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class Y shares of the Fund under a distribution contract with the Trust dated
July 1, 1991, as amended November 10, 1995 ("Distribution Contract") that
requires Mitchell Hutchins to use its best efforts, consistent with its other
business, to sell shares of the Fund. Class Y shares of the Fund are offered
continuously. Under an exclusive dealer contract between Mitchell Hutchins and
PaineWebber dated July 1, 1991, as amended November 10, 1995 ("Exclusive Dealer
Contract"), PaineWebber sells the Fund's Class Y 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 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, 1995, October 31, 1994 and October 31, 1993, 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 has not paid
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
27
<PAGE>
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. During
the fiscal year ended October 31, 1994, the Fund did not direct any portfolio
transactions to brokers chosen because they provide research services.
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.
Information and research services furnished by brokers or dealers through
which the Fund effects securities transactions may be used by Mitchell Hutchins
in advising other funds or accounts and, conversely, research services
furnished to Mitchell Hutchins by brokers or dealers in connection with other
funds or accounts Mitchell Hutchins advises may be used by Mitchell Hutchins in
advising the Fund. Information and research received from brokers or dealers
will be in addition to, and not in lieu of, the services required to be
performed by Mitchell Hutchins under the Advisory Contract.
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 not 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
28
<PAGE>
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 Fund's annual portfolio turnover rate may vary
greatly from year to year, but it will not be a limiting factor when management
deems portfolio changes appropriate. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended October
31, 1995 and October 31, 1994, the portfolio turnover rates for the Fund were
113% and 108%, respectively.
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 Business Day, which
is defined as each Monday through Friday when the NYSE is open. Currently, the
NYSE is closed on the observance of the following holidays: New Year's Day,
President's 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. 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 (i.e., 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.
29
<PAGE>
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. 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 then
dividing the remainder by the initial value.
The following table shows performance information for the Class Y shares
(formerly Class C shares) of the Fund for the periods indicated. All returns
for periods of more than one year are expressed as an average return.
<TABLE>
<CAPTION>
CLASS Y
-------
<S> <C>
Fiscal year ended October 31, 1995:
Standardized Return................................................... 11.39%
Non-Standardized Return............................................... 11.39
Five years ended October 31, 1995:
Standardized Return*.................................................. NA
Non-Standardized Return............................................... NA
Inception (August 26, 1991) to October 31, 1995:
Standardized Return*.................................................. 36.32%
Non-Standardized Return............................................... 36.32
</TABLE>
- -------
NOTE: Class Y shares do not impose an initial or a contingent deferred sales
charge; therefore, Non-Standardized Return is identical to Standardized
Return.
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
thirty-day period ("Period"), net of
30
<PAGE>
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 net asset
value per share 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 the Class outstanding
during the Period that were entitled to receive dividends
d = the net asset value per share 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 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% sales charge on Class A shares is
included. The yield of the Fund's Class Y shares for the 30-day period ended
October 31, 1995 was 5.74%.
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 Solomon Brothers World
Government Index, the Solomon 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. The Fund also may
refer in such materials to mutual fund performance rankings and other data,
such as comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of the Fund and comparative mutual fund data and
31
<PAGE>
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 and 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.
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 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
32
<PAGE>
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 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 the stock of "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, the Fund will be subject to
federal
33
<PAGE>
income tax on a portion of any "excess distribution" received on the stock of a
PFIC 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 the Fund probably 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 by the PFIC. 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. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
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 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, forward currency contracts and foreign currency positions 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
34
<PAGE>
that accrues on the securities during the taxable year, even if the Fund
receives no corresponding payment on them during the year. Because the Fund
annually must distribute substantially all of its investment company taxable
income, including any accrued original issue 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, forward
currency, foreign currency position 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." Prior to November 10, 1995, the
Fund's Class Y shares were known as "Class C" shares.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of the Fund could, under
certain circumstances, be held personally liable for the obligations of the
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 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.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, counsel to the Fund, has passed upon
the legality of the shares offered by the Fund's Prospectus. Kirkpatrick &
Lockhart LLP 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.
35
<PAGE>
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended October
31, 1995 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.
36
<PAGE>
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
37
<PAGE>
accordance with the terms of the obligation. "BB" indicates the lowest degree
of speculation. While such debt will likely have some quality and 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.
38
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL IN-
FORMATION 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 STATE-
MENT 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>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions................................... 1
Hedging and Related Income Strategies.................................. 8
Trustees and Officers.................................................. 18
Investment Advisory and Distribution Arrangements...................... 25
Portfolio Transactions................................................. 27
Valuation of Shares.................................................... 29
Performance Information................................................ 30
Taxes.................................................................. 32
Other Information...................................................... 34
Financial Statements................................................... 35
Appendix............................................................... 36
</TABLE>
(C) 1996 PaineWebber Incorporated
[RECYCLING LOGO Recycled
APPEARS HERE] Paper
PAINEWEBBER
GLOBAL INCOME FUND
CLASS Y SHARES
- ----------------------------------
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY , 1996
- ----------------------------------
PAINEWEBBER
<PAGE>
-------------------------------------------------
PaineWebber REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------------------------------
To the Shareholders and Trustees of
PaineWebber Investment Series
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio 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 Global Income Fund (a series
of PaineWebber Investment Series and hereafter referred to as the
"Fund") at October 31, 1995, the results of its operations for the
year then ended, the changes in its 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 Fund's 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,
1995 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 20, 1995
<PAGE>
PART C. OTHER INFORMATION
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: (Filed herewith)
PaineWebber Global Income Fund
- ------------------------------
Included in Part A of this Registration Statement:
Financial Highlights for one Class A share of the Fund for each of the four
years in the period ended October 31, 1995 and for the period July 1, 1991
(commencement of offering) to October 31, 1991.
Financial Highlights for one Class B share of the Fund for each of the
eight years in the period ended October 31, 1995 and for the period March
20, 1987 (commencement of operations) to October 31, 1987.
Financial Highlights for one Class C share of the Fund for each of the
three years in the period ended October 31, 1995 and for the period July 2,
1992 (commencement of operations) to October 31, 1992.
Financial Highlights for one Class Y share of the Fund for each of the four
years in the period ended October 31, 1995 and for the period August 26,
1991 (commencement of offering) to October 31, 1991.
Included in Part B of this Registration Statement through incorporation by
reference from the Registrant's Annual Report to Shareholders filed with the SEC
through EDGAR on January 5, 1996, Accession No. 0000950130-95-000047:
Portfolio of Investments at October 31, 1995.
Statement of Assets and Liabilities at October 31, 1995.
Statement of Operations for the year ended October 31, 1995.
Statement of Changes in Net Assets for each of the two years in the period
ended October 31, 1995.
Notes to Financial Statements.
Financial Highlights for one Class A share of the Fund for each of the four
years in the period ended October 31, 1995 and for the period July 1, 1991
(commencement of offering) to October 31, 1991.
Financial Highlights for one Class B share of the Fund for each of the five
years in the period ended October 31, 1995.
Financial Highlights for one Class C share of the Fund for each of the
three years in the period ended October 31, 1995 and for
C - 1
<PAGE>
the period July 2, 1992 (commencement of offering) to October 31, 1992.
Financial Highlights for one Class Y share of PaineWebber Global Income
Fund for each of the four years in the period ended October 31, 1995 and
for the period August 26, 1991 (commencement of offering) to October 31,
1991.
Report of Independent Accountants dated December 20, 1995.
(b) Exhibits:
(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 4/
-
(c) Amendment effective March 15, 1989 to Declaration of Trust 5/
-
(d) Amendment effective November 27, 1989 to Declaration of Trust 6/
-
(e) Amendment effective October 15, 1990 to Declaration of Trust 7/
-
(f) Amendment effective October 24, 1990 to Declaration of Trust 7/
-
(g) Amendment effective April 25, 1991 to Declaration of Trust 10/
--
(h) Amendment effective May 1, 1991 to Declaration of Trust 10/
--
(i) Amendment effective July 1, 1991 to Declaration of Trust 10/
--
(j) Amendment effective September 24, 1991 to Declaration of
Trust 12/
--
(k) Amendment effective October 30, 1991 to Declaration of Trust 13/
--
(l) Amendment effective November 18, 1991 to Declaration of
Trust 13/
--
(m) Amendment effective June 30, 1992 to Declaration of Trust 17/
--
(n) Amendment effective July 30, 1993 to Declaration of Trust 19/
--
(o) Amendment effective November 17, 1993 to Declaration of
Trust 19/
--
(p) Amendments effective November 10 and November 29, 1995 to Declaration
of Trust (filed herewith)
(2) (a) By-Laws 1/
-
(b) Amendment dated March 19, 1991 to By-Laws 9/
-
(c) Amendment dated Sept. 28, 1994 to By-Laws 20/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 21/
--
(5) (a) Investment Advisory and Administration Contract 4/
-
(6) (a) Distribution Contract with respect to Class A shares 19/
--
(b) Distribution Contract with respect to Class B shares 19/
--
(c) Distribution Contract with respect to Class C shares (filed herewith)
(d) Distribution Contract with respect to Class Y shares (filed herewith)
C - 2
<PAGE>
(e) Exclusive Dealer Agreement with respect to Class A shares 19/
--
(f) Exclusive Dealer Agreement with respect to Class B shares 19/
--
(g) Exclusive Dealer Agreement with respect to Class C shares (filed
herewith)
(h) Exclusive Dealer Agreement with respect to Class Y shares (filed
herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement with respect to PaineWebber Global Income Fund 3/
-
(9) (a) Transfer Agency Agreement 7/
-
(b) Service Contract 5/
-
(10) (a) Opinion and consent of counsel regarding Class A, B, and Y
shares 9/
-
(b) Opinion and consent of Counsel regarding Class C shares 16/
--
(11) Other opinions, appraisals, rulings and consents:
Accountants' Consent (filed herewith)
(12) Financial statements omitted from Part B - none
(13) Letter of investment intent 2/
-
(14) Prototype Retirement Plan 14/
--
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A shares 13/
--
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
shares 13/
--
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C
shares 17/
--
(16) (a) Schedules for Computation of Total Return Quotations for
Class B shares 8/
-
(b) Schedules for Computation of Total Return Quotations for Class A and
Class Y shares 15/
--
(c) Schedules for Computation of Yield Quotations for Class A, Class B and
Class Y shares 15/
--
(d) Schedules for Computation of Total Return Quotations for Class C
shares 18/
--
(e) Schedule for Computation of Yield Quotations for Class C
shares 18/
--
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 22/
--
- ----------------------
1/ Incorporated by reference from Registration Statement on Form N-1A,
- - File No. 33-11025, filed December 22, 1986.
2/ Incorporated by reference from Pre-Effective Amendment No. 2, File No.
- - 33-11025, filed March 20, 1987.
3/ Incorporated by reference from Post-Effective Amendment No. 1, File No.
- - 33-11025, filed July 20, 1987.
4/ Incorporated by reference from Post-Effective Amendment No. 3, File No.
- - 33-11025, filed April 29, 1988.
C - 3
<PAGE>
5/ Incorporated by reference from Post-Effective Amendment No. 6, File No.
- - 33-11025, filed November 30, 1989.
6/ Incorporated by reference from Post-Effective Amendment No. 8, File No.
- - 33-11025, filed February 28, 1990.
7/ Incorporated by reference from Post-Effective Amendment
- - No. 11, File No. 33-11025, filed October 24, 1990.
8/ Incorporated by reference from Post-Effective Amendment
- - No. 13, File No. 33-11025, filed March 1, 1991.
9/ Incorporated by reference from Post-Effective Amendment No. 15, File No.
- - 33-11025, filed May 2, 1991.
10/ Incorporated by reference from Post-Effective Amendment No. 16, File No.
- -- 33-11025, filed July 31, 1991.
11/ Incorporated by reference from Post-Effective Amendment No. 17, File No.
- -- 33-11025, filed August 26, 1991.
12/ Incorporated by reference from Post-Effective Amendment No. 18, File No.
- -- 33-11025, filed September 24, 1991.
13/ Incorporated by reference from Post-Effective Amendment No. 19, File No.
- -- 33-11025, filed February 14, 1992.
14/ Incorporated by reference from Post-Effective Amendment No. 20 to the
- -- registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
15/ Incorporated by reference from Post-Effective Amendment No. 20, File No.
- -- 33-11025, filed February 28, 1992
16/ Incorporated by reference from Post-Effective Amendment No. 21, File No.
- -- 33-11025, filed April 30, 1992.
17/ Incorporated by reference from Post-Effective Amendment No. 23, File No.
- -- 33-11025, filed December 31, 1992.
18/ Incorporated by reference from Post-Effective Amendment No. 24, File No.
- -- 33-11025, filed March 1, 1993.
19/ Incorporated by reference from Post-Effective Amendment No. 25, filed
- -- March 1, 1994.
20/ Incorporated by reference from Post-Effective Amendment No. 27, File No.
- -- 33-11025, filed December 30, 1994.
21/ Incorporated by reference from Articles III, VIII, IX, X and XI of
- -- Registrant's Declaration of Trust, as amended effective January 28, 1988,
March 15, 1989, November 27, 1989, October 15,
C - 4
<PAGE>
1990, October 24, 1990, April 21, 1991, May 1, 1991, July 1, 1991,
September 24, 1991, October 30, 1991, November 18, 1991, June 30, 1992,
November 17, 1993 and November 10 and 29, 1995, and from Articles II, VII
and X of Registrant's By-Laws, as amended March 19, 1991 and September 28,
1994.
22/ Incorporated by reference from Post-Effective Amendment No.30,
- -- File No. 33-11025, filed September 1, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders as
Title of Class of February 21, 1996
- -------------- ----------------------------
Shares of beneficial interest
($.001 par value)
PaineWebber Global Income Fund
- Class A shares 45,874
- Class B shares 40,909
- Class C shares 4,541
- Class Y shares 335
Item 27. Indemnification
---------------
Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of the Registrant will indemnify 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.
C - 5
<PAGE>
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
C - 6
<PAGE>
Statement or from any alleged omission to state in the Registration Statement a
material fact required to be stated in it or necessary to make the statements in
it, in light of the circumstances under which they were made, not misleading,
except insofar as liability arises from untrue statements or omissions made in
reliance upon and in conformity with information furnished by Mitchell Hutchins
to the Registrant for use in the Registration Statement; and provided that this
indemnity agreement shall not protect any such persons against liabilities
arising by reason of their bad faith, gross negligence or willful misfeasance;
and shall not inure to the benefit of any such persons unless a court of
competent jurisdiction or controlling precedent determines that such result is
not against public policy as expressed in the Securities Act of 1933. Section 9
of each Distribution Contract also provides that Mitchell Hutchins agrees to
indemnify, defend and hold the Registrant, its officers and 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
C - 7
<PAGE>
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV as filed
with the Securities and Exchange Commission (registration number 801-13219) and
is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following investment companies:
ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND, INC.
GLOBAL SMALL CAP FUND, INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST I
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.
b) Mitchell Hutchins is the Registrant's principal underwriter.
PaineWebber acts as exclusive dealer of the Registrant's shares. The directors
and officers of Mitchell Hutchins, their principal business addresses, and their
positions and offices with Mitchell Hutchins are identified in its Form ADV as
filed with the Securities and Exchange Commission (registration number
801-13219).
C - 8
<PAGE>
The directors and officers of PaineWebber, their principal business addresses,
and their positions and offices with PaineWebber are identified in its Form ADV
as filed with the Securities and Exchange Commission (registration number
801-7163). The foregoing information is hereby incorporated herein by reference.
The information set forth below is furnished for those directors and officers of
Mitchell Hutchins or PaineWebber who also serve as trustees or officers of the
Registrant:
<TABLE>
<CAPTION>
Positions and
Name and Positions and Offices With
Principal Business Offices With Underwriter or
Address Registrant Exclusive Dealer
- ------------------ ------------- ----------------
<S> <C> <C>
Margo N. Alexander President President and Chief
1285 Avenue of the Executive Officer
Americas and a Director of
New York, NY 10019 Mitchell Hutchins;
Director and
Executive Vice
President of
PaineWebber
Teresa M. Boyle Vice President First Vice President
1285 Avenue of the and Manager - Advisory
Americas Administration of
New York, NY 10019 Mitchell Hutchins
Joan L. Cohen Vice President and Vice President and
1285 Avenue of the Assistant Secretary Attorney of Mitchell
Americas Hutchins
New York, NY 10019
Dennis McCauley Vice President Managing Director and
1285 Avenue of the Chief Investment
Americas Officer - Fixed
New York, NY 10019 Income of Mitchell
Hutchins
C. William Maher Vice President and First Vice President
1285 Avenue of the Assistant Treasurer and a Senior Manager
Americas of the Mutual Fund
New York, NY 10019 Finance Division of
Mitchell Hutchins
Ann E. Moran Vice President and Vice President of
1285 Avenue of the Assistant Treasurer Mitchell Hutchins
Americas
New York, NY 10019
Dianne E. O'Donnell Vice President and Senior Vice President
1285 Avenue of the Secretary and Deputy General
Americas Counsel of Mitchell
New York, NY 10019 Hutchins
</TABLE>
C - 9
<PAGE>
<TABLE>
<CAPTION>
Positions and
Name and Positions and Offices With
Principal Business Offices With Underwriter or
Address Registrant Exclusive Dealer
- ------------------ ------------- ----------------
<S> <C> <C>
Victoria E. Schonfeld Vice President Managing Director and
1285 Avenue of the General Counsel of
Americas Mitchell Hutchins
New York, NY 10019
Paul H. Schubert Vice President and First Vice President
1285 Avenue of the Assistant Treasurer and a Senior Manager
Americas of the Mutual Fund
New York, NY 10019 Finance Division of
Mitchell Hutchins
Julian F. Sluyters Vice President and Senior Vice President
1285 Avenue of the Treasurer and Director of
Americas the Mutual Fund
New York, NY 10019 Finance Division of
Mitchell Hutchins
Gregory K. Todd Vice President and First Vice President
1285 Avenue of the Assistant Secretary and Associate General
Americas Counsel of Mitchell
New York, NY 10019 Hutchins
Stuart Waugh Vice President Managing Director and
1285 Avenue of the Portfolio Manager of
Americas Mitchell Hutchins
New York, NY 10019
Keith A. Weller Vice President and First Vice President
1285 Avenue of the Assistant Secretary and Associate General
Americas Counsel of Mitchell
New York, NY 10019 Hutchins
</TABLE>
C) None
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's Portfolio Manager, Mitchell Hutchins, 1285
Avenue of the Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession of
Registrant's transfer agent and custodian.
C - 10
<PAGE>
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
C - 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, PaineWebber Investment Series,
hereby certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment No. 31 to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this Post-Effective
Amendment to be executed on its behalf by the undersigned, thereunto duly
authorized, in this City of New York and State of New York, on the 23rd day of
February, 1996.
PAINEWEBBER INVESTMENT SERIES
By: /s/ Dianne E. O'Donnell
---------------------------------
Dianne E. O'Donnell
Vice President, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander * President
- ------------------------------ (Chief Executive February 23, 1996
Margo N. Alexander Officer)
/s/ E. Garrett Bewkes, Jr. ** Trustee and
- ------------------------------ Chairman of the February 23, 1996
E. Garrett Bewkes, Jr. Board of Trustees
/s/ Meyer Feldberg *** Trustee
- ------------------------------ February 23, 1996
Meyer Feldberg
/s/ George W. Gowen **** Trustee
- ------------------------------ February 23, 1996
George W. Gowen
/s/ Frederic V. Malek **** Trustee
- ------------------------------ February 23, 1996
Frederic V. Malek
/s/ Judith Davidson Moyers**** Trustee
- ------------------------------ February 23, 1996
Judith Davidson Moyers
/s/ Julian F. Sluyters Vice President
- ------------------------------ and Treasurer February 23, 1996
Julian F. Sluyters (Principal
Financial and
Accounting
Officer)
</TABLE>
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 8, 1995 and incorporated by reference from Post-Effective Amendment No. 34
to the registration statement of PaineWebber America Fund, SEC File No. 2-78626,
filed May 10, 1995.
** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
January 3, 1994 and incorporated by reference from Post-Effective Amendment No.
25 to the registration statement of PaineWebber Investment Series, SEC File No.
33-11025, filed March 1, 1994.
*** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
June 12, 1991 and incorporated by reference from Post-Effective Amendment No. 16
to the registration statement of PaineWebber Investment Series, SEC File No. 33-
11025, filed July 31, 1991.
**** Signatures affixed by Elinor W. Gammon pursuant to powers of attorney dated
March 27, 1990 and incorporated by reference from Post-Effective Amendment No. 7
to the registration statement of PaineWebber Municipal Series, SEC File No. 33-
11611, filed June 29, 1990.
- 2 -
<PAGE>
PAINEWEBBER INVESTMENT SERIES
EXHIBIT INDEX
-------------
Exhibit
Number
- ------
(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 4/
-
(c) Amendment effective March 15, 1989 to Declaration of Trust 5/
-
(d) Amendment effective November 27, 1989 to Declaration of Trust 6/
-
(e) Amendment effective October 15, 1990 to Declaration of Trust 7/
-
(f) Amendment effective October 24, 1990 to Declaration of Trust 7/
-
(g) Amendment effective April 25, 1991 to Declaration of Trust 10/
--
(h) Amendment effective May 1, 1991 to Declaration of Trust 10/
--
(i) Amendment effective July 1, 1991 to Declaration of Trust 10/
--
(j) Amendment effective September 24, 1991 to Declaration of
Trust 12/
--
(k) Amendment effective October 30, 1991 to Declaration of Trust 13/
--
(l) Amendment effective November 18, 1991 to Declaration of
Trust 13/
--
(m) Amendment effective June 30, 1992 to Declaration of Trust 17/
--
(n) Amendment effective July 30, 1993 to Declaration of Trust 19/
--
(o) Amendment effective November 17, 1993 to Declaration of
Trust 19/
--
(p) Amendments effective November 10 and November 29, 1995 to Declaration
of Trust (filed herewith)
(2) (a) By-Laws 1/
-
(b) Amendment dated March 19, 1991 to By-Laws 9/
-
(c) Amendment dated Sept. 28, 1994 to By-Laws 20/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 21/
--
(5) (a) Investment Advisory and Administration Contract 4/
-
(6) (a) Distribution Contract with respect to Class A shares 19/
--
(b) Distribution Contract with respect to Class B shares 19/
--
(c) Distribution Contract with respect to Class C shares (filed herewith)
(d) Distribution Contract with respect to Class Y shares (filed herewith)
(e) Exclusive Dealer Agreement with respect to Class A shares 19/
--
(f) Exclusive Dealer Agreement with respect to Class B shares 19/
--
(g) Exclusive Dealer Agreement with respect to Class C shares (filed
herewith)
<PAGE>
(h) Exclusive Dealer Agreement with respect to Class Y shares (filed
herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement with respect to PaineWebber Global Income Fund 3/
-
(9) (a) Transfer Agency Agreement 7/
-
(b) Service Contract 5/
-
(10) (a) Opinion and consent of counsel regarding Class A, B, and Y
shares 9/
-
(b) Opinion and consent of Counsel regarding Class C shares 16/
--
(11) Other opinions, appraisals, rulings and consents:
Accountants' Consent (filed herewith)
(12) Financial statements omitted from Part B - none
(13) Letter of investment intent 2/
-
(14) Prototype Retirement Plan 14/
--
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A shares 13/
--
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
shares 13/
--
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C
shares 17/
--
(16) (a) Schedules for Computation of Total Return Quotations for
Class B shares 8/
-
(b) Schedules for Computation of Total Return Quotations for Class A and
Class Y shares 15/
--
(c) Schedules for Computation of Yield Quotations for Class A, Class B and
Class Y shares 15/
--
(d) Schedules for Computation of Total Return Quotations for Class C
shares 18/
--
(e) Schedule for Computation of Yield Quotations for Class C
shares 18/
--
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 22/
--
- ----------------------
1/ Incorporated by reference from Registration Statement on Form N-1A, File
- - No. 33-11025, filed December 22, 1986.
2/ Incorporated by reference from Pre-Effective Amendment No. 2, File No.
- - 33-11025, filed March 20, 1987.
3/ Incorporated by reference from Post-Effective Amendment No. 1, File No.
- - 33-11025, filed July 20, 1987.
4/ Incorporated by reference from Post-Effective Amendment No. 3, File No.
- - 33-11025, filed April 29, 1988.
5/ Incorporated by reference from Post-Effective Amendment No. 6, File No.
- - 33-11025, filed November 30, 1989.
6/ Incorporated by reference from Post-Effective Amendment No. 8, File No.
- - 33-11025, filed February 28, 1990.
7/ Incorporated by reference from Post-Effective Amendment
- -
<PAGE>
No. 11, File No. 33-11025, filed October 24, 1990.
8/ Incorporated by reference from Post-Effective Amendment
- - No. 13, File No. 33-11025, filed March 1, 1991.
9/ Incorporated by reference from Post-Effective Amendment No. 15, File No.
- - 33-11025, filed May 2, 1991.
10/ Incorporated by reference from Post-Effective Amendment No. 16, File No.
- -- 33-11025, filed July 31, 1991.
11/ Incorporated by reference from Post-Effective Amendment No. 17, File No.
- -- 33-11025, filed August 26, 1991.
12/ Incorporated by reference from Post-Effective Amendment No. 18, File No.
- -- 33-11025, filed September 24, 1991.
13/ Incorporated by reference from Post-Effective Amendment No. 19, File No.
- -- 33-11025, filed February 14, 1992.
14/ Incorporated by reference from Post-Effective Amendment No. 20 to the
- -- registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
15/ Incorporated by reference from Post-Effective Amendment No. 20, File No.
- -- 33-11025, filed February 28, 1992.
16/ Incorporated by reference from Post-Effective Amendment No. 21, File No.
- -- 33-11025, filed April 30, 1992.
17/ Incorporated by reference from Post-Effective Amendment No. 23, File No.
- -- 33-11025, filed December 31, 1992.
18/ Incorporated by reference from Post-Effective Amendment No. 24, File No.
- -- 33-11025, filed March 1, 1993.
19/ Incorporated by reference from Post-Effective Amendment No. 25, filed
- -- March 1, 1994.
20/ Incorporated by reference from Post-Effective Amendment No. 27, File No.
- -- 33-11025, filed December 30, 1994.
21/ Incorporated by reference from Articles III, VIII, IX, X and XI of
- -- Registrant's Declaration of Trust, as amended effective January 28, 1988,
March 15, 1989, November 27, 1989, October 15, 1990, October 24, 1990,
April 21, 1991, May 1, 1991, July 1, 1991, September 24, 1991, October 30,
1991, November 18, 1991, June 30, 1992, November 17, 1993 and November 10
and 29, 1995, and from Articles II, VII and X of Registrant's By-Laws, as
amended March 19, 1991 and September 28, 1994.
22/ Incorporated by reference from Post-Effective Amendment No. 30,
- -- File No. 33-11025, filed September 1, 1995.
<PAGE>
EXHIBIT 1(p)
PAINEWEBBER INVESTMENT SERIES
AMENDMENT TO DECLARATION OF TRUST AND
CERTIFICATE OF VICE PRESIDENT AND SECRETARY
I, Dianne E. O'Donnell, Vice President and Secretary of PaineWebber
Investment Series ("Trust"), hereby certify that the board of trustees of the
Trust adopted the following resolutions which became effective on November 10,
1995 and November 29, 1995, as indicated below:
Resolutions Effective November 10, 1995:
- ----------------------------------------
RESOLVED, that the unlimited number of shares of beneficial interest
previously known as the "Class D shares" of PaineWebber Global Income Fund
be renamed the "Class C" shares of that Fund; and be it further
RESOLVED, that the unlimited number of shares of beneficial interest
previously known as the "Class C shares" of PaineWebber Global Income Fund
be renamed the "Class Y" shares of that Fund.
Resolutions Effective November 29, 1995:
- ----------------------------------------
WHEREAS, the three series of shares of beneficial interest of the Trust
designated as the "PaineWebber Europe Growth Fund," "PaineWebber Global
Energy Fund" and "PaineWebber Global Growth and Income Fund" have
terminated pursuant to Section 4(c) of Article XI of the Trust's
Declaration of Trust as a result of each series' participation in a
reorganization pursuant to which all its assets and liabilities were
acquired by another investment company in exchange for shares of beneficial
interest in that investment company, which shares were then distributed to
the series' shareholders; and
WHEREAS, a fourth series of shares of beneficial interest designated as the
"PaineWebber Intermediate Income Fund," which was established in 1991 but
which never acquired any assets or shareholders, should be abolished and
terminated; now therefore be it
RESOLVED, that PaineWebber Intermediate Income Fund be terminated and
abolished pursuant to Section 2 of Article III of the Trust's Declaration
of Trust; and be it further
<PAGE>
RESOLVED, that Section 1 of Article III of the Trust's Declaration of Trust
be amended to reflect the termination of PaineWebber Europe Growth Fund,
PaineWebber Global Energy Fund, PaineWebber Global Growth and Income Fund
and PaineWebber Intermediate Income Fund, the amended section to read, in
relevant part, as follows:
Section 1 ... Without limiting the authority of the Trustees set forth
in this Section 1 to establish and designate any further Series, the
Trustees have established one Series of Shares to be known as the
"PaineWebber Global Income Fund."
Dated: November 30, 1995 By:/s/Dianne E. O'Donnell
----------------------
Dianne E. O'Donnell
Vice President and Secretary
New York, New York (ss)
Subscribed and sworn to before me this 30th day of November 1995.
/s/Karyn Freeman
--------------------
Notary Public
<PAGE>
EXHIBIT 6(c)
PAINEWEBBER INVESTMENT SERIES
DISTRIBUTION CONTRACT
CLASS C SHARES
CONTRACT made as of November 10, 1995 between PAINEWEBBER INVESTMENT
SERIES, a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and currently
has one distinct series of shares of beneficial interest ("Series"), which
corresponds to a distinct portfolio and has been designated as the PaineWebber
Global Income Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
C shares ("Class C Shares") (previously known as Class D shares); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act for its Class C Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class C Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class C Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration
<PAGE>
Statement" shall mean the currently effective registration statement of the
Fund, and any supplements thereto, under the Securities Act of 1933, as amended
("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to sell Class C Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class C Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class C Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class C Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class C Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or
- 2 -
<PAGE>
hereafter deemed to be appropriate subjects for the payments of "service fees"
under Section 26(d) of the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice (collectively, "service activities"). "Service
activities" do not include the transfer agency-related and other services for
which PaineWebber receives compensation under the Service Contract between
PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
--------------------------------------------------------------
Delegate Duties as Distributor. With respect to the Class C Shares of any or
- ------------------------------
all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class C Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
-------------
(a) As compensation for its service activities under this contract
with respect to the Class C Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class C Shares of the Series, as such
- 3 -
<PAGE>
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive from the Fund a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Fund with respect to the Class C Shares of
the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class C
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering
Class C Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class C Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class C Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class C Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class C Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of
- 4 -
<PAGE>
Mitchell Hutchins to sell and arrange for the sale of the Class C Shares of the
Series and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class C Shares under the 1933 Act to the end that there will be available for
sale such number of Class C Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class C Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class C Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
--------------------
registering the Class C Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class C Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
- 5 -
<PAGE>
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class C Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class C Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class C Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained herein be so construed as to protect
Mitchell Hutchins against any liability to the Fund or to the shareholders of
any Series to which Mitchell Hutchins would otherwise be subject by reason of
- 6 -
<PAGE>
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations under this
Contract. The Fund shall not be liable to Mitchell Hutchins under this
indemnity agreement with respect to any claim made against Mitchell Hutchins or
any person indemnified unless Mitchell Hutchins or other such person shall have
notified the Fund in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon Mitchell Hutchins or such other person (or
after Mitchell Hutchins or the person shall have received notice of service on
any designated agent). However, failure to notify the Fund of any claim shall
not relieve the Fund from any liability which it may have to Mitchell Hutchins
or any person against whom such action is brought otherwise than on account of
this indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class C Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell
- 7 -
<PAGE>
Hutchins in connection with its duties under this Contract. Mitchell Hutchins
shall be entitled to participate, at its own expense, in the defense or, if it
so elects, to assume the defense of any suit brought to enforce the claim, but
if Mitchell Hutchins elects to assume the defense, the defense shall be
conducted by counsel chosen by Mitchell Hutchins and satisfactory to the
indemnified defendants whose approval shall not be unreasonably withheld. In
the event that Mitchell Hutchins elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If Mitchell Hutchins does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
--------------------------------------------------------------------
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months
- 8 -
<PAGE>
each, provided that such continuance is specifically approved at least annually
(i) by a vote of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the Board
or with respect to any given Series by vote of a majority of the outstanding
voting securities of the Class C Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act[, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective
- 9 -
<PAGE>
successors. As used in this Contract, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER INVESTMENT SERIES
By:
- ------------------------- -------------------------
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:
- ------------------------- -------------------------
- 10 -
<PAGE>
EXHIBIT 6(d)
PAINEWEBBER INVESTMENT SERIES
DISTRIBUTION CONTRACT
CLASS Y SHARES
CONTRACT made as of July 1, 1991 and amended November 10, 1995, between
PAINEWEBBER INVESTMENT SERIES, a Massachusetts business trust ("Fund"), and
MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell
Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and currently
offers for public sale one distinct series of shares of beneficial interest
("Series"), which corresponds to a distinct portfolio and has been designated as
the PaineWebber Global Income Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
Y shares ("Class Y Shares") (previously known as Class C shares); and
WHEREAS the Fund desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class Y Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class Y Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class Y Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class Y Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class Y Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
state-
<PAGE>
ment of the Fund, and any supplements thereto, under the Securities Act of 1933,
as amended ("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to sell Class Y Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class Y Shares by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class Y Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class Y Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class Y Shares.
(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class Y Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.
(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
- 2 -
<PAGE>
3. Authorization to Enter into Exclusive Dealer Contracts and to Delegate
----------------------------------------------------------------------
Duties as Distributor. With respect to the Class Y Shares of any or all Series,
- ---------------------
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
Y Shares. In a separate contract or as part of any such exclusive dealer
agreement, Mitchell Hutchins also may delegate to PaineWebber or another
registered and qualified dealer ("sub-distributor") any or all of its duties
specified in this Contract, provided that such separate contract or exclusive
dealer agreement imposes on the sub-distributor bound thereby all applicable
duties and conditions to which Mitchell Hutchins is subject under this Contract,
and further provided that such separate contract or exclusive dealer agreement
meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation and Reimbursement of Distribution Expenses. The Fund
-------------------------------------------------------
shall have no obligation to compensate or reimburse Mitchell Hutchins for any
services performed by it hereunder.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering
Class Y Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class Y Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class Y Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class Y Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and
- 3 -
<PAGE>
other papers which Mitchell Hutchins may reasonably request for use in
connection with the distribution of Class Y Shares, including, without
limitation, certified copies of any financial statements prepared for the Fund
by its independent public accountant and such reasonable number of copies of the
most current prospectus, statement of additional information, and annual and
interim reports of any Series as Mitchell Hutchins may request, and the Fund
shall cooperate fully in the efforts of Mitchell Hutchins to sell and arrange
for the sale of the Class Y Shares of the Series and in the performance of
Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class Y Shares under the 1933 Act to the end that there will be available for
sale such number of Class Y Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class Y Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Fund or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class Y Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class Y Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
---------------------
registering the Class Y Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, state-
- 4 -
<PAGE>
ments of additional information and proxy materials to shareholders; and (iv)
the qualifications of Class Y Shares for sale and of the Fund as a broker or
dealer under the securities laws of such jurisdictions as shall be selected by
the Fund and Mitchell Hutchins pursuant to Paragraph 6(e) hereof, and the costs
and expenses payable to each such jurisdiction for continuing qualification
therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class Y Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class Y Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class Y Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund
- 5 -
<PAGE>
within the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect Mitchell Hutchins against any liability to
the Fund or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Fund shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the Fund
and satisfactory to indemnified defendants in the suit whose approval shall not
be unreasonably withheld. In the event that the Fund elects to assume the
defense of any suit and retain counsel, the indemnified defendants shall bear
the fees and expenses of any additional counsel retained by them. If the Fund
does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Fund agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class Y Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a
- 6 -
<PAGE>
material fact contained in information furnished in writing by Mitchell Hutchins
to the Fund for use in the Registration Statement, arising out of or based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement necessary to
make such information not misleading, or arising out of any agreement between
Mitchell Hutchins and any retail dealer, or arising out of any supplemental
sales literature or advertising used by Mitchell Hutchins in connection with its
duties under this Contract. Mitchell Hutchins shall be entitled to participate,
at its own expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume
the defense, the defense shall be conducted by counsel chosen by Mitchell
Hutchins and satisfactory to the indemnified defendants whose approval shall not
be unreasonably withheld. In the event that Mitchell Hutchins elects to assume
the defense of any suit and retain counsel, the defendants in the suit shall
bear the fees and expenses of any additional counsel retained by them. If
Mitchell Hutchins does not elect to assume the defense of any suit, it will
reimburse the indemnified defendants in the suit for the reasonable fees and
expenses of any counsel retained by them.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
--------------------------------------------------------------------
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in this Contract or in any agreements related thereto (all such
Trustees collectively being referred to herein as the
- 7 -
<PAGE>
"Independent Trustees"), cast in person at a meeting called for the purpose of
voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class Y Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the 1940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall
- 8 -
<PAGE>
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby. This Contract shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors. As used in this Contract, the terms "majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER INVESTMENT SERIES
By:
- ------------------------- -------------------------
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:
- ------------------------- -------------------------
- 9 -
<PAGE>
EXHIBIT 6(g)
EXCLUSIVE DEALER AGREEMENT
CLASS C SHARES OF PAINEWEBBER INVESTMENT SERIES
AGREEMENT made as of November 10, 1995, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Investment Series ("Fund") is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended ("1940
Act"), as an open-end management investment company; and
WHEREAS the Fund currently has one distinct series of shares of beneficial
interest ("Series"), which corresponds to a distinct portfolio and has been
designated as the PaineWebber Global Income Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
C shares ("Class C Shares") (previously known as Class D shares) and has adopted
a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Plan") with
respect to the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class C
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class C Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class C Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
<PAGE>
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class C Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class C Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the Class C Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class C Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class C Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in
the manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class C Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class C Shares.
- 2 -
<PAGE>
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class C Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) Painewebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class C Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class C Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class C Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class C Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class C Shares in jurisdictions in which they have not been
approved for offer and sale.
- 3 -
<PAGE>
3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. Compensation.
------------
(a) As compensation for its service activities under this Agreement
with respect to the Class C Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class C Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class C shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class C Shares of any or all Series by written notice
to Mitchell Hutchins.
- 4 -
<PAGE>
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class C
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class C Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class C Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales
-----------
and advertising materials relating to the Class C Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class C Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the Class C Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and
-----------------------
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class C Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class C Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class C Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both
- 5 -
<PAGE>
parties. Mitchell Hutchins shall advise the Board of any such agreement as to
additional costs and expenses borne by PaineWebber at their first regular
meeting held after such agreement but shall not be required to obtain prior
approval for such agreements from the Board.
9. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class C Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact
- 6 -
<PAGE>
contained in information furnished in writing by PaineWebber to Mitchell
Hutchins or the Fund for use in the Registration Statement; arising out of or
based upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or necessary to
make such information not misleading; or arising out of any agreement between
PaineWebber and a correspondent firm or any other retail dealer; or arising out
of any sales or advertising material used by PaineWebber in connection with its
duties under this Agreement.
10. Duration and Termination.
------------------------
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto (all such trustees
collectively being referred to herein as the "Independent Trustees") cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class C Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Class C Shares of such Series on 30 days' written
notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the
- 7 -
<PAGE>
event of its assignment or in the event that the Distribution Contract is
terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class C Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
- 8 -
<PAGE>
successors. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
------------------------ -------------------------
PAINEWEBBER INCORPORATED
Attest: By:
------------------------ -------------------------
- 9 -
<PAGE>
EXHIBIT 6(h)
EXCLUSIVE DEALER AGREEMENT
CLASS Y SHARES OF PAINEWEBBER INVESTMENT SERIES
AGREEMENT made as of July 1, 1991 and amended November 10, 1995, between
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a Delaware
corporation, and PaineWebber Incorporated ("PaineWebber"), a Delaware
corporation.
WHEREAS PaineWebber Investment Series ("Fund") is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended ("1940
Act"), as an open-end management investment company; and
WHEREAS the Fund currently offers for public sale one distinct series of
shares of beneficial interest ("Series"), which corresponds to a distinct
portfolio and has been designated as the PaineWebber Global Income Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
Y shares ("Class Y Shares") (previously known as Class C shares); and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class Y
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class Y Shares established; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class Y Shares of each
such Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Fund under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class Y Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
<PAGE>
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class Y Shares on the
terms and for the period set forth in this Contract. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class Y Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Contract,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the Class Y Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Contract and the Registration
Statement.
(b) Upon the later of the date of this Contract or the initial
offering of Class Y Shares by a Series, PaineWebber will hold itself available
to receive orders, satisfactory to PaineWebber and Mitchell Hutchins, for the
purchase of Class Y Shares and will accept such orders on behalf of Mitchell
Hutchins and the Fund as of the time of receipt of such orders and will promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) PaineWebber in its discretion may sell Class Y Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class Y Shares.
(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, PaineWebber is
- 2 -
<PAGE>
authorized but not required on behalf of Mitchell Hutchins and the Fund to
repurchase Class Y Shares presented to it by shareholders, its correspondent
firms and other dealers at the price determined in accordance with, and in the
manner set forth in, the Registration Statement.
(g) PaineWebber represents and warrants that: (i) it is a member in
good standing of the National Association of Securities Dealers, Inc. and agrees
to abide by the Rules of Fair Practice of such Association; (ii) it is
registered as a broker-dealer with the Securities and Exchange Commission; (iii)
it will maintain any filings and licenses required by federal and state laws to
conduct the business contemplated under this Agreement; and (iv) it will comply
with all federal and state laws and regulations applicable to the offer and sale
of the Class Y Shares.
(h) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class Y Shares and in complying with the terms and conditions of
this Contract as more specifically set forth in paragraph 8.
(i) PaineWebber shall not permit any employee or agent to offer or
sell Class Y Shares unless such person is duly licensed under applicable federal
and state laws and regulations.
(j) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class Y Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class Y Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. Compensation.
------------
Mitchell Hutchins shall not be obligated to pay any compensation to
PaineWebber hereunder nor to reimburse any of PaineWebber's expenses incurred
hereunder.
- 3 -
<PAGE>
5. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class Y Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class Y
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class Y Shares
and in the performance of PaineWebber under this Contract.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class Y Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales
-----------
and advertising materials relating to the Class Y Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class Y Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials without first receiving such approval in writing. Mitchell
Hutchins shall assist PaineWebber in obtaining any regulatory approvals of such
materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the Class Y Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and
-----------------------
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class Y Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's investment executives or other employees and others for selling
Class Y
- 4 -
<PAGE>
Shares, and all expenses of PaineWebber, its investment executives and employees
and others who engage in or support the sale of Class Y Shares as may be
incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell
Hutchins shall advise the Board of any such agreement as to additional costs and
expenses borne by PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.
9. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class Y Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Contract.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investi-
- 5 -
<PAGE>
gating or defending against such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins or its officers
or directors or the Fund, its officers or trustees, or any such controlling
person may incur under the 1933 Act, under common law or otherwise arising out
of or based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Contract.
10. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of this Contract or in any agreements related thereto (all such
trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board with respect to any given Series or by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Contract may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class Y Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
- 6 -
<PAGE>
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series. This Contract will
automatically terminate in the event of its assignment or in the event that the
Distribution contract is terminated.
11. Amendment of this Agreement. No provision of this Contract may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class Y Shares, but
only for so long as this Contract or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. Governing Law. This Contract shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the
- 7 -
<PAGE>
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
----------------------- ------------------------
PAINEWEBBER INCORPORATED
Attest: By:
----------------------- -------------------------
- 8 -
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 31 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 20, 1995, relating to the financial
statements and financial highlights appearing in the October 31, 1995 Annual
Report to Shareholders of PaineWebber Global Income Fund, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the
Prospectuses and under the headings "Independent Accountants" in the Statements
of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
February 21, 1996
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<PAGE>
<ARTICLE> 6
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<NAME> GLOBAL INCOME FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 636,977
<INVESTMENTS-AT-VALUE> 648,922
<RECEIVABLES> 69,185
<ASSETS-OTHER> 2,846
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 720,953
<PAYABLE-FOR-SECURITIES> 47,383
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,548
<TOTAL-LIABILITIES> 57,931
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<PAID-IN-CAPITAL-COMMON> 678,757
<SHARES-COMMON-STOCK> 64,073
<SHARES-COMMON-PRIOR> 61,274
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<OVERDISTRIBUTION-NII> 1,461
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 22,967
<ACCUM-APPREC-OR-DEPREC> 8,693
<NET-ASSETS> 663,022
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,206
<OTHER-INCOME> 0
<EXPENSES-NET> (7,415)
<NET-INVESTMENT-INCOME> 44,791
<REALIZED-GAINS-CURRENT> (9,135)
<APPREC-INCREASE-CURRENT> 29,277
<NET-CHANGE-FROM-OPS> 64,933
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40,377)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 281,329
<NUMBER-OF-SHARES-REDEEMED> (334,286)
<SHARES-REINVESTED> 25,654
<NET-CHANGE-IN-ASSETS> (2,747)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,373
<OVERDIST-NET-GAINS-PRIOR> 8,090
<GROSS-ADVISORY-FEES> (4,376)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (7,415)
<AVERAGE-NET-ASSETS> 599,751
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> 0.72
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<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
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<NAME> GLOBAL INCOME FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 465,501
<INVESTMENTS-AT-VALUE> 474,230
<RECEIVABLES> 50,561
<ASSETS-OTHER> 2,080
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 526,871
<PAYABLE-FOR-SECURITIES> 34,628
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,709
<TOTAL-LIABILITIES> 42,337
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,034
<SHARES-COMMON-STOCK> 46,982
<SHARES-COMMON-PRIOR> 72,828
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,068
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 16,785
<ACCUM-APPREC-OR-DEPREC> 6,353
<NET-ASSETS> 484,534
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 50,735
<OTHER-INCOME> 0
<EXPENSES-NET> (11,650)
<NET-INVESTMENT-INCOME> 39,085
<REALIZED-GAINS-CURRENT> (6,675)
<APPREC-INCREASE-CURRENT> 21,395
<NET-CHANGE-FROM-OPS> 53,805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (35,685)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,102
<NUMBER-OF-SHARES-REDEEMED> (239,411)
<SHARES-REINVESTED> 22,872
<NET-CHANGE-IN-ASSETS> (187,317)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 3,927
<OVERDIST-NET-GAINS-PRIOR> 5,912
<GROSS-ADVISORY-FEES> (4,249)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,650)
<AVERAGE-NET-ASSETS> 582,239
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> (0.64)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 15,960
<INVESTMENTS-AT-VALUE> 16,259
<RECEIVABLES> 1,734
<ASSETS-OTHER> 71
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,064
<PAYABLE-FOR-SECURITIES> 1,187
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264
<TOTAL-LIABILITIES> 1,451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,007
<SHARES-COMMON-STOCK> 1,604
<SHARES-COMMON-PRIOR> 1,299
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 37
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 575
<ACCUM-APPREC-OR-DEPREC> 218
<NET-ASSETS> 16,613
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 974
<OTHER-INCOME> 0
<EXPENSES-NET> (105)
<NET-INVESTMENT-INCOME> 869
<REALIZED-GAINS-CURRENT> (229)
<APPREC-INCREASE-CURRENT> 733
<NET-CHANGE-FROM-OPS> 1,373
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (783)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,373
<NUMBER-OF-SHARES-REDEEMED> (7,995)
<SHARES-REINVESTED> 783
<NET-CHANGE-IN-ASSETS> 3,751
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000808424
<NAME> PAINEWEBBER INVESTMENT SERIES - GLOBAL INCOME FUND
<SERIES>
<NUMBER> 4
<NAME> GLOBAL INCOME - CLASS D
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
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</TABLE>
