<PAGE>
Prospectus August 24, 1995
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PaineWebber
Global Equity Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
PaineWebber Global Equity Fund (the 'Fund'), a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust (the 'Trust'), an open-end management
investment company, is designed for investors seeking to expand their investment
horizon beyond the United States by investing their assets internationally. The
Fund's investment objective is long-term growth of capital, which the Fund
attempts to achieve by investing principally in foreign equity securities.
This Prospectus briefly sets forth certain information about the Fund, including
applicable operating expenses, that prospective investors should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated August 24, 1995, has been filed with the Securities and
Exchange Commission (the 'SEC') and is available to investors upon request and
without charge by calling (800) 647-1568. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
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INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
INVESTMENT SUB-ADVISER
GE Investment Management Incorporated
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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FEE TABLE
The table appearing below shows the costs and expenses that an investor would
incur, either directly or indirectly, as a shareholder of the Fund, based upon
the Fund's annual operating expenses.
<TABLE>
<CAPTION>
Class A Class B Class C Class E
------- ------- ------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases of Shares (as a
percentage of offering price).................................. 4.50% 0% 0% 0 %
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price).................................. 0% 0% 0% 0 %
Maximum Contingent Deferred Sales Charge (as a percentage of
redemption proceeds)........................................... 0% 0% 0% 5 %
Redemption Fees (as a percentage of amount redeemed)............. 0% 0% 0% 0 %
Maximum Exchange Fee............................................. 0% 0% 0% 0 %
Maximum Annual Investment Advisory Fee Payable by Shareholders
Holding Class C Shares through the INSIGHT Investment Advisory
Program (as a percentage of average daily value of shares
held).......................................................... 0% 0% 1.50% 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.................................................. .85% .85% .85% .85 %
Rule 12b-1 Fees.................................................. .25 1.00 0 1.00
Other Expenses................................................... .33 .33 .33 .33
------- ------- ------- ---------
Total Fund Operating Expenses................................ 1.43% 2.18% 1.18% 2.18 %
------- ------- ------- ---------
------- ------- ------- ---------
</TABLE>
The nature of the services provided to, and the aggregate management fees
paid by, the Fund are described below under 'Management of the Fund.' The Fund
bears an annual Rule 12b-1 service fee of .25% of the value of the average daily
net assets of Class A shares and an annual Rule 12b-1 fee of 1.00% of the value
of the average daily net assets of Class B and Class E shares, consisting of a
.25% service fee and a .75% distribution fee. Class E shares automatically
convert to Class A shares (which pay lower ongoing expenses) approximately six
years after purchase. Long-term shareholders of Class B and Class E shares may
pay more than the economic equivalent of the maximum front-end sales charge
currently permitted by the rules of the National Association of Securities
Dealers, Inc. governing investment company sales charges. See 'Distributor.'
The percentage of 'Other Expenses' in the table above is based on amounts
incurred during the Fund's most recent fiscal year, except that with respect to
Class E shares the percentage is based on an estimate of annual operating
expenses; these expenses include fees for shareholder services, custodial fees,
legal and accounting fees, printing costs and registration fees, the costs of
regulatory compliance, a portion of the costs associated with maintaining the
Trust's legal existence and the costs involved in communicating with the Fund's
shareholders.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above, (3) complete redemption at the end of the
period and (4) in the case of Class E shares, ten-year figures assume conversion
of Class E shares to Class A shares at end of sixth year.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------- ------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Class A................................ $ 59 $ 88 $ 120 $ 209
Class B................................ $ 22 $ 68 $ 117 $ 251
Class C................................ $ 12 $ 37 $ 65 $ 143
Class E
Assuming complete redemption at end
of period........................ $ 72 $ 98 $ 137 $ 215
Assuming no redemption............. $ 22 $ 68 $ 117 $ 215
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. The example should not be considered to be a
representation of past or future expenses. Actual expenses of the Fund may be
greater or less than those shown above. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
2
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HIGHLIGHTS
<TABLE>
<S> <C>
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The Trust
The Trust is an open-end management investment company. See 'General Information.'
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The Fund
The Fund, which is a series of the Trust, is a diversified fund that seeks long-term growth of
capital by investing principally in foreign equity securities. See 'Design of the Fund' and
'Investment Objective and Policies.'
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Benefits of
Investing
in the
Fund
Mutual funds, such as the Fund, are flexible investment tools that are increasingly
popular -- one of four American households now owns shares of at least one mutual fund -- for
very sound reasons. The Fund offers investors the following important benefits:
International Investing
The Fund offers investors the opportunity to participate in a number of international equity
markets that, in the view of GE Investment Management Incorporated ('GEIM'), the Fund's
investment sub-adviser, have in the recent past significantly outperformed the U.S. equity
markets. At the same time, the Fund provides investors the ability to expand their investment
portfolios beyond investments solely in U.S. securities and, as a result, to help to reduce
the volatility of those portfolios. The Fund also provides individual investors with a means
of dealing with certain difficulties generally involved in international investing, such as
limited access to foreign markets and typically high transaction costs. See 'Design of the
Fund.'
Professional Management
By pooling the monies of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and an array of investments that is typically beyond the
means of most investors. GEIM reviews the fundamental characteristics of far more securities
than can a typical individual investor and may employ portfolio management techniques that
frequently are not used by individual or many institutional investors. See 'Design of the
Fund -- Benefits of Investing through the Fund.'
Transaction Savings
By investing in the Fund, an investor is able to acquire ownership in a portfolio of
international securities without paying the higher transaction costs generally associated with
a series of small securities purchases. See 'Design of the Fund -- Benefits of Investing
through the Fund.'
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens normally
associated with direct ownership of securities. See 'Design of the Fund -- Benefits of
Investing through the Fund.'
</TABLE>
3
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<TABLE>
<S> <C>
Liquidity
The Fund's convenient purchase and redemption procedures provide shareholders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase of Shares' and 'Redemption of Shares.'
Flexible Pricing System
Under the Flexible Pricing SystemSM, the Fund presently offers four classes of shares
('Classes') that provide different methods of purchasing shares and allow investment
flexibility and a wider range of investment choices. See 'Purchase of Shares.'
Exchange Privilege
Shareholders of the Fund may exchange all or a portion of their shares for shares of a
corresponding Class of most PaineWebber and Mitchell Hutchins/Kidder, Peabody ('MH/KP') mutual
funds. See 'Exchange Privilege.'
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Purchase of
Shares
Shares of beneficial interest are available exclusively through PaineWebber Incorporated
('PaineWebber') and its correspondent firms for investors who are clients of PaineWebber or
those firms ('PaineWebber clients') and, for other investors, through PFPC Inc., the Fund's
transfer agent ('Transfer Agent'). The Fund presently offers four Classes of shares that differ
principally in terms of the sales charges and rate of expenses to which they are subject and
are designed to provide an investor with the flexibility of selecting an investment best suited
to the investor's needs. See 'Purchase of Shares' and 'Distributor.'
Class A Shares
The public offering price of Class A shares is the net asset value per share next determined
after a purchase order is received, plus a maximum sales charge of 4.50% (4.71% of the net
amount invested). The Fund pays Mitchell Hutchins Asset Management Inc., the Fund's
distributor ('Mitchell Hutchins'), a service fee with respect to Class A shares at the annual
rate of .25% of the value of the average daily net assets attributable to this Class.
Class B Shares
The public offering price of Class B Shares is the net asset value per share next determined
after a purchase order is received without imposition of a sales charge. The Fund pays
Mitchell Hutchins a service fee at the annual rate of .25%, and a distribution fee at the
annual rate of .75%, of the average daily net assets attributable to this Class.
</TABLE>
4
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<TABLE>
<S> <C>
Class C Shares
The public offering price of Class C shares is the net asset value per share next determined
after a purchase order is received without imposition of a sales charge. This Class bears no
service or distribution fees. Class C shares are available exclusively to (1) employee benefit
and retirement plans, other than individual retirement accounts and self-employed retirement
plans, of Paine Webber Group Inc. and its affiliates; (2) certain unit investment trusts
sponsored by PaineWebber; and (3) participants in certain wrap fee investment advisory pro-
grams, such as the INSIGHT program, that are currently or in the future sponsored by
PaineWebber and that may invest in PaineWebber proprietary funds, provided that shares are
purchased through or in connection with those programs . Participation in INSIGHT is subject
to payment of an advisory fee at the maximum annual rate of 1.50% of assets held through
INSIGHT, generally charged quarterly in advance.
Class E Shares
The public offering price of Class E Shares is the net asset value per share next determined
after a purchase order is received without imposition of a sales charge. A maximum contingent
deferred sales charge of 5% of redemption proceeds is imposed on certain redemptions made
within six years of date of purchase. The Fund pays Mitchell Hutchins a service fee at the
annual rate of .25%, and a distribution fee at the annual rate of .75%, of the average daily
net assets attributable to this Class. Class E shares automatically convert to Class A shares
(which pay lower ongoing expenses) approximately six years after purchase.
Investment Minimums
The minimum initial investment in the Fund is $1,000 and the minimum subsequent investment is
$50, except that for individual retirement accounts ('IRAs'), other tax qualified retirement
plans and accounts established pursuant to the Uniform Gifts to Minors Act, the minimum
initial investment is $250 and the minimum subsequent investment is $1.00. See 'Purchase of
Shares.'
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Redemption of
Shares
Shares of the Fund may be redeemed at the Fund's next determined net asset value per share. A
contingent deferred sales charge may apply to certain redemptions of Class E shares. See
'Purchase of Shares' and 'Redemption of Shares.'
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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Management
Mitchell Hutchins, a wholly owned subsidiary of PaineWebber, serves as the Fund's investment
adviser and administrator and receives a fee, accrued daily and paid monthly, at the annual
rate of .85% of the value of its average daily net assets up to and including $500 million,
.83% of its average daily net assets over $500 million and up to and including $1 billion and
.805% of its average daily net assets over $1 billion. In turn, Mitchell Hutchins (not the
Fund) pays GEIM, the Fund's investment sub-adviser, a monthly fee at the annual rate of .31% of
the value of the Fund's average daily net assets up to and including $500 million, .29% of the
Fund's average daily net assets over $500 million and up to and including $1 billion and .265%
of the Fund's average daily net assets over $1 billion. The rate of fee paid by the Fund for
investment management services, which is higher than the rate of management fees paid by most
other registered investment companies, reflects the need to devote additional time and incur
added expense in developing the specialized resources contemplated by international investing.
See 'Management of the Fund.'
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Risk Factors
and Special
Considerations
No assurance can be given that the Fund will achieve its investment objective. Investing in an
investment company that invests in securities of companies and governments of foreign
countries, particularly developing countries, involves risks that go beyond the usual risks
inherent in an investment company limiting its holdings to domestic investments; foreign
brokerage commissions, for example, are generally higher than those charged in the United
States, and foreign securities markets may be less liquid, more volatile and subject to less
governmental supervision than in the United States. A substantial portion of the Fund's assets
may be held in securities denominated in one or more foreign currencies, which will result in
the Fund's bearing the risk that those currencies may lose value in relation to the U.S.
dollar. In investing in non-publicly traded securities and in other investment companies, the
Fund is subject to a number of risks. The Fund may also be subject to certain risks in using
certain investment techniques and strategies such as entering into forward currency contracts,
trading futures contracts and options on futures contracts, entering into transactions
involving options on foreign currencies, stock indexes and securities, lending portfolio
securities, entering into repurchase agreements and purchasing securities on a when-issued or
delayed-delivery basis. See 'Investment Objective and Policies -- Risk Factors and Special
Considerations' at page 18 of this Prospectus.
</TABLE>
6
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FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Deloitte &
Touche LLP. Financial statements for the six month period ended February 28,
1995 and the fiscal year ended August 31, 1994 and the reports of independent
auditors are included in the Statement of Additional Information. No information
is provided for Class E shares, which will first be offered on or after the date
of this Prospectus. Further information about the performance of the Fund is
also included in the Annual Report to Shareholders, which may be obtained
without charge.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
FOR THE PERIOD
FOR THE SIX NOVEMBER 14,
MONTHS ENDED FOR THE YEARS ENDED 1991`D'
FEBRUARY 28, AUGUST 31, TO AUGUST 31,
------------------------------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------
Net asset value, beginning of period............... $16.98 $14.55 $12.87 $12.00
------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)....................... (0.02) 0.01 0.03 0.09
Net realized and unrealized gains (losses) from
investment and foreign currency activities....... (1.44) 2.63 1.89 0.78
------------------------------------------------------------
Total income (loss) from investment operations..... (1.46) 2.64 1.92 0.87
------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income............... -- -- (0.08) --
Distributions from net realized gains.............. (1.26) (0.21) (0.16) --
------------------------------------------------------------
Total dividends and distributions.................. (1.26) (0.21) (0.24) --
------------------------------------------------------------
Net asset value, end of period..................... $14.26 $16.98 $14.55 $12.87
------------------------------------------------------------
------------------------------------------------------------
Total return(1).................................... (8.67)% 18.23% 15.24% 7.25%
------------------------------------------------------------
------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).................. $ 145,104 $ 185,493 $ 156,451 $ 113,070
Ratios of expenses to average net assets........... 1.65%* 1.58% 1.53% 1.68%*
Ratio of net investment income (loss) to average
net assets....................................... (0.28)%* 0.07% 0.22% 0.93%*
PORTFOLIO TURNOVER................................. 32.45% 50.73% 56.35% 30.32%
</TABLE>
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* Annualized.
`D' Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net 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 would be lower if sales charges
were included. Total returns for periods less than one year are not
annualized.
7
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<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
FOR THE PERIOD
FOR THE SIX FOR THE MAY 10,
MONTHS ENDED YEAR ENDED 1993`D'
FEBRUARY 28, AUGUST 31, TO AUGUST 31,
-------------------------------------------------
1995 1994 1993
<S> <C> <C> <C> <C>
-------------------------------------------------
Net asset value, beginning of period................................... $16.81 $14.52 $13.80
-------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)........................................... 0.04 (0.07) (0.02)
Net realized and unrealized gains (losses) from investment and foreign
currency activities.................................................. (1.55) 2.57 0.74
-------------------------------------------------
Total income (loss) from investment operations......................... (1.51) 2.50 0.72
-------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................... -- -- --
Distributions from net realized gains.................................. (1.25) (0.21) --
-------------------------------------------------
Total dividends and distributions...................................... (1.25) (0.21) --
-------------------------------------------------
Net asset value, end of period......................................... $14.05 $16.81 $14.52
-------------------------------------------------
-------------------------------------------------
Total return(1)........................................................ (9.01)% 17.29% 5.22%
-------------------------------------------------
-------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...................................... $ 27,484 $ 31,837 $ 10,807
Ratios of expenses to average net assets............................... 2.40%* 2.33% 2.28%*
Ratio of net investment income (loss) to average
net assets........................................................... (1.03)%* (0.68)% (0.53)%*
PORTFOLIO TURNOVER..................................................... 32.45% 50.73% 56.35%
</TABLE>
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* Annualized.
`D' Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. Total returns for
periods less than one year are not annualized.
8
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<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------
FOR THE PERIOD
FOR THE SIX FOR THE MAY 10,
MONTHS ENDED YEAR ENDED 1993`D'
FEBRUARY 28, AUGUST 31, TO AUGUST 31,
-------------------------------------------------
1995 1994 1993
<S> <C> <C> <C> <C>
-------------------------------------------------
Net asset value, beginning of period................................... $17.03 $14.56 $13.80
-------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)........................................... 0.00 0.05 0.02
Net realized and unrealized gains (losses) from investment and foreign
currency activities.................................................. (1.45) 2.63 0.74
-------------------------------------------------
Total income (loss) from investment operations......................... (1.45) 2.68 0.76
-------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................... -- -- --
Distributions from net realized gains.................................. (1.25) (0.21) --
-------------------------------------------------
Total distributions.................................................... (1.25) (0.21) --
-------------------------------------------------
Net asset value, end of period......................................... $14.33 $17.03 $14.56
-------------------------------------------------
-------------------------------------------------
Total return(1)........................................................ (8.52)% 18.49% 5.51%
-------------------------------------------------
-------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...................................... $ 28,047 $ 28,390 $ 19,098
Ratios of expenses to average net assets............................... 1.40%* 1.33% 1.28%*
Ratio of net investment income (loss) to average
net assets........................................................... (0.03)%* 0.32% 0.47%*
PORTFOLIO TURNOVER..................................................... 32.45% 50.73% 56.35%
</TABLE>
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* Annualized.
`D' Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. Total returns for
periods less than one year are not annualized.
9
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DESIGN OF THE FUND
The Fund is designed for investors seeking the opportunity to expand their
investment horizon beyond the United States through an actively managed
portfolio principally composed of foreign equity securities. At the same time,
the Fund provides individual investors a means of dealing with the difficulties
often associated with international investing.
ATTRACTIVE INVESTMENT OPPORTUNITIES
By having the flexibility of investing in the securities of issuers located
throughout the world, the Fund is designed to benefit from emerging investment
opportunities existing outside of the United States. A number of international
equity markets have significantly outperformed the U.S. equity markets over the
recent past, and GEIM believes that foreign markets could continue to offer
attractive investment opportunities in the future. In Western Europe, for
example, market deregulation, privatization and lowered barriers to
international investment and trade have already created new investment
opportunities, and economic and political developments in Eastern Europe could
open previously inaccessible markets and provide low-cost labor, which could in
turn further stimulate European economies.
Like many European countries, the newly industrialized countries of Asia
and the Pacific Rim may offer significant opportunities in the future. The
relaxation of trade barriers and the freer movement of capital are increasing
the flow of commerce and promoting economic independence within many countries
in Asia and the Pacific Rim, and the relatively low-cost work force available in
those countries is attracting foreign capital and fueling the growth of
manufacturing industries there.
POTENTIALLY REDUCED VOLATILITY
The Fund's investing in multiple securities markets located throughout the world
that often act independently of each other should help to reduce the volatility
of the Fund's portfolio.
BENEFITS OF INVESTING THROUGH THE FUND
Individual investors undertaking foreign investments often encounter
complications and extra costs. They have found it difficult, for example: to
make purchases and sales of securities; to deal with clearance and settlement
procedures that may differ markedly from those applicable in the United States;
to obtain current information about foreign companies; to hold securities in
safekeeping; and to convert the value of their investments from foreign
currencies into U.S. dollars. The Fund attempts to solve these problems for an
investor by providing the investor with an international investment portfolio
that is managed actively by experienced professionals.
10
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INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term growth of capital, which the Fund
attempts to achieve by investing principally in foreign equity securities. No
assurance can be given that the Fund will be able to achieve its investment
objective, which may be changed only with the approval of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the '1940 Act'), as the lesser of (1) 67% or more of the
shares present at a Fund meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy or (2) more
than 50% of the outstanding shares of the Fund.
The Fund's annual report for the fiscal year ended August 31, 1994 contains
information regarding relevant market conditions and investment strategies and
techniques pursued by GEIM during such fiscal year and is available to
shareholders without charge upon request made to the Fund at the address listed
on the front cover page of this Prospectus.
INTERNATIONAL INVESTING
The Fund invests in a portfolio of securities issued by companies located in
developed and developing countries throughout the world. Although the Fund is
subject to no prescribed limits on geographic asset distribution, under normal
circumstances, at least 65% of the Fund's assets will be invested in no fewer
than three different countries. In addition, under normal circumstances, at
least 80% of the Fund's total assets will at any one time be invested in
companies or governments of countries represented in the Morgan Stanley Capital
International World Index, a well-known index reflecting developed and
developing markets throughout the world. Although, under normal circumstances,
the Fund invests principally in foreign securities, under unstable market,
economic, political or currency conditions abroad, the Fund may restrict the
securities markets in which its assets are invested and invest all or a
significant portion of its assets in securities of U.S. or Canadian issuers.
TYPES OF PORTFOLIO INVESTMENTS
The Fund does, under normal conditions, invest at least 65% of its assets in
common stocks, preferred stocks, convertible bonds, convertible debentures,
convertible notes, convertible preferred stocks and common stock purchase
warrants or rights, issued by established foreign and domestic companies. The
equity securities in which the Fund invests will in most cases be traded on
foreign or domestic securities exchanges.
In selecting investments on behalf of the Fund, GEIM seeks companies that
are expected to grow faster than relevant markets and whose securities are
available at a price that does not fully reflect the potential growth of those
companies. GEIM typically focuses on companies that possess one or more of a
variety of characteristics, including strong earnings growth relative to price
to earnings ratio, low price to book value, strong cash flow, presence in an
industry experiencing strong growth and high quality management.
11
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The Fund may invest up to 35% of its total assets in bonds, notes and
debentures of short-to medium-term maturity (that is, no longer than seven years
in maturity) issued by corporate or governmental entities when GEIM believes
that investing in those kinds of debt securities is consistent with the Fund's
investment objective of long-term growth of capital. Because the market value of
debt securities can be expected to vary inversely with changes in prevailing
interest rates, investing in debt securities may provide an opportunity for
capital appreciation when interest rates are expected to decline.
The Fund limits its purchases of debt securities to those that are
investment grade. Securities will be deemed to be of investment grade if they
are rated within the four highest categories established by Standard & Poor's
('S&P') or Moody's Investors Service, Inc. ('Moody's') or, if unrated, deemed by
GEIM to be of comparable quality. Securities rated in the fourth highest
category, that is, rated BBB by S&P or Baa by Moody's, are considered to possess
speculative characteristics. In addition, adverse changes in economic conditions
are more likely to weaken the ability of issuers of these debt securities to pay
principal and interest.
Up to 5% of the value of the Fund's total assets may be invested in
restricted securities, which are securities that may be sold only in a privately
negotiated transaction or in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933, as
amended. In addition, up to 10% of the value of the Fund's net assets may be
invested in restricted securities, illiquid securities (which are securities
lacking readily available markets) and securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
From time to time, the Fund invests in the following types of illiquid
securities: (1) venture capital investments (that is, investments in new and
early-stage companies whose securities are not publicly traded), (2) joint
venture participations, (3) options purchased by the Fund over-the-counter and
the assets used by the Fund to collateralize options written by the Fund
over-the-counter, (4) repurchase agreements not maturing within seven days and
(5) time deposits with maturities in excess of seven days. The Fund typically
invests through a joint venture participation when direct investment by
foreigners in certain entities is restricted by local law or custom. If the Fund
participates in such a joint venture, it anticipates doing so through a
specially created subsidiary or other special arrangement designed to protect
the Fund to the maximum extent feasible from potential liability.
The Fund may invest in investment funds that invest principally in
securities in which the Fund is authorized to invest. Under the 1940 Act, the
Fund may invest a maximum of 10% of its total assets in the securities of other
investment companies. In addition, under the 1940 Act, not more than 5% of the
Fund's total assets may be invested in the securities of any one investment
company, and the Fund may not own more than 3% of the securities of any
investment company.
The Fund may invest in securities of foreign issuers in the form of
American Depositary Receipts ('ADRs'), which are U.S. dollar-denominated
receipts typically issued by domestic banks or trust companies, and which
represent the deposit with those entities of securities of a foreign issuer.
ADRs are publicly traded on exchanges or over-the-counter in the United States
and are issued through 'sponsored' or 'unsponsored' arrangements. In a sponsored
ADR arrangement, the foreign issuer assumes the obligation to pay some or all of
the depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no
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obligations and the depositary's transaction fees are paid directly by the ADR
holders. The Fund may invest in ADRs through both sponsored and unsponsored
arrangements.
The Fund, in addition to investing in foreign securities in the form of
ADRs, may purchase European Depositary Receipts ('EDRs'), which are sometimes
referred to as Continental Depositary Receipts ('CDRs'). EDRs and CDRs are
generally issued by foreign banks and evidence ownership of either foreign or
domestic securities.
Under unstable market, economic, political or currency conditions abroad,
the Fund may assume a temporary defensive posture and without limitation hold
cash and invest in money market instruments. To the extent that it holds cash or
invests in money market instruments, the Fund will not achieve its investment
objective of long-term growth of capital.
The Fund may invest in the following types of money market instruments:
securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities ('Government Securities'); obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities that are rated AAA or AA by S&P, Aaa
or Aa by Moody's, or that have received an equivalent rating from another
nationally recognized statistical rating organization ('NRSRO'), or if unrated,
deemed by GEIM to be of equivalent quality; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of foreign or
domestic banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million); commercial paper
rated no lower than A-1 by S&P or Prime-1 by Moody's, or the equivalent from
another NRSRO, or, if unrated, of an issuer having an outstanding unsecured debt
issue then rated within the three highest rating categories; and repurchase
agreements meeting the conditions described below under 'Investment Techniques
and Strategies -- Repurchase Agreements.' At no time will the Fund's investments
in bank obligations, including time deposits, exceed 25% of the value of its
assets.
Government Securities in which the Fund may invest include direct
obligations of the United States Treasury and obligations issued or guaranteed
by the United States Government or one of its agencies or instrumentalities.
Among the Government Securities that may be held by the Fund are instruments
that are supported by the full faith and credit of the United States;
instruments that are supported by the right of the issuer to borrow from the
United States Treasury; and instruments that are supported solely by the credit
of the instrumentality.
The Fund is authorized to invest in obligations of foreign banks or foreign
branches of domestic banks that are traded in the United States or outside the
United States, but that are denominated in U.S. dollars. These obligations
entail risks that are different from those of investments in obligations of
domestic banks, including foreign economic and political developments outside
the United States, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding or other taxes on income. Foreign branches of domestic
banks are not necessarily subject to the same or similar regulatory requirements
that apply to foreign banks, such as mandatory reserve requirements, loan
limitations and accounting, auditing and financial recordkeeping requirements.
In addition, less information may be publicly available about a foreign branch
of a domestic bank than about a domestic bank.
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INVESTMENT TECHNIQUES AND STRATEGIES
The Fund may use derivatives, including options and futures, as described below.
FORWARD CURRENCY TRANSACTIONS. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Fund's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another at a future date. The date (which may be any agreed-upon fixed
number of days in the future), the amount of currency to be exchanged and the
price at which the exchange will take place will be negotiated and fixed for the
term of the contract at the time that the Fund enters into the contract. For
purposes of this prospectus, the term forward currency contract will not include
any currency transactions entered into for the purpose of meeting settlement
requirements for foreign securities. Forward currency contracts (1) are traded
in a market conducted directly between currency traders (typically, commercial
banks or other financial institutions) and their customers, (2) generally have
no deposit requirements and (3) are typically consummated without payment of any
commissions. The Fund, however, may enter into forward currency contracts
requiring deposits or involving the payment of commissions. To assure that the
Fund's forward currency contracts are not used to achieve investment leverage,
the Fund segregates cash or readily marketable securities with its custodian, or
a designated sub-custodian, in an amount at all times equal to or exceeding the
Fund's commitment with respect to the contracts.
Upon maturity of a forward currency contract, the Fund may (1) pay for and
receive the underlying currency, (2) negotiate with the dealer to roll over the
contract into a new forward currency contract with a new future settlement date
or (3) negotiate with the dealer to terminate the forward contract by entering
into an offset with the currency trader providing for the Fund's paying or
receiving the difference between the exchange rate fixed in the contract and the
then-current exchange rate. The Fund may also be able to negotiate such an
offset prior to maturity of the original forward contract. No assurance can be
given that new forward contracts or offsets will always be available to the
Fund.
In hedging a specific portfolio position, the Fund may enter into a forward
contract with respect to either the currency in which the position is
denominated or another currency deemed appropriate by GEIM. The amount the Fund
may invest in forward currency contracts is limited to the amount of the Fund's
aggregate investments in foreign currencies. See the Statement of Additional
Information for a further discussion of forward currency contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in the
U.S. dollar value of foreign currency-denominated securities and against
increases in the U.S. dollar cost of securities to be acquired by the Fund. Like
the writing of other kinds of options, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received; the Fund could also be required, with respect to any option it has
written, to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on a foreign currency
may constitute an effective hedge against fluctuations in exchange
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rates, although in the event of rate movements adverse to the Fund's position,
the Fund may forfeit the entire amount of the premium plus related transaction
costs. Options on foreign currencies to be written or purchased by the Fund are
traded on U.S. exchanges or over-the-counter. The Fund limits the premiums paid
on options on foreign currencies to 5% of the value of its total assets. See the
Statement of Additional Information for a further discussion of the use, risks
and costs of options on foreign currencies.
STOCK OPTIONS. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) 'covered' call options. A put option provides its purchaser
with the right to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during or at the
end of the option period. In contrast, a call option gives the purchaser the
right to buy the underlying security covered by the option from the writer of
the option at the stated exercise price. A covered call option contemplates
that, for so long as the Fund is obligated as the writer of the option, it will
own (1) the underlying securities subject to the option or (2) securities
convertible into, or exchangeable without the payment of any consideration for,
the securities subject to the option. The value of the underlying securities on
which covered call options will be written at any one time by the Fund will not
exceed 5% of the Fund's total assets.
The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has the right to sell the securities underlying the option and as the
holder of a call option, the Fund has the right to purchase the securities
underlying the option, in each case at the option's exercise price at any time
prior to, or on, the option's expiration date. The Fund may choose to exercise
the options it holds, permit them to expire or terminate them prior to their
expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investments, the Fund may purchase and write put and call options on stock
indexes listed on foreign or domestic securities exchanges, which indexes
include securities held in the Fund's portfolio. The Fund may also use stock
index options as a means of participating in a foreign equity market without
making direct purchases of equity securities. Such use of stock index options
entails risks similar to direct equity purchases made by the Fund, and the value
of the Fund's portfolio would be adversely affected by any losses resulting from
the use of those options. The specific indexes utilized for these purposes will
vary depending upon the portfolio strategy being employed, and will typically
correlate to countries or geographical regions in which the Fund is invested.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. Options on
stock indexes are generally similar to options on specific securities. Unlike
those on securities, however, options on stock indexes do not involve the
delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
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The Fund will write only options that are covered. A put or call option
written by the Fund will be deemed covered in any manner permitted under the
1940 Act or the rules and regulations thereunder or any other method determined
by the SEC to be permissible. If the Fund has written a stock index option, it
may terminate its obligation by effecting a closing purchase transaction, which
is accomplished by purchasing an option of the same series as the option
previously written.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may trade
stock index, currency and interest rate futures contracts, and options on those
contracts, for a variety of risk reduction purposes, such as hedging a portion
of the Fund's portfolio, providing an efficient means of regulating the Fund's
exposure to certain equity markets or hedging against changes in prevailing
levels of currency exchange rates. A stock index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. A currency futures contract is a standardized contract for the future
delivery of a specified amount of currency at a future date at a price set at
the time of the contract, and an interest rate futures contract is a similar
contract for the future delivery of a specific debt security. An option on a
futures contract, in contrast to a direct investment in the contract, gives the
purchaser the right, in return for the premium paid, to assume a position in the
underlying futures contract at a specified exercise price at any time on or
before the expiration date of the option.
The Fund may assume both 'long' and 'short' positions with respect to
futures contracts. A long position involves entering into a futures contract to
buy a commodity, whereas a short position involves entering into a futures
contract to sell a commodity. In entering into futures contracts, the Fund is
required to make initial 'margin' payments, which are payments in the nature of
performance bonds or good faith deposits, and to make 'variation' margin
payments from time to time as the values of the futures contracts fluctuate.
The Fund does not (1) trade any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid on
its outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Fund after taking into account unrealized profits and
losses on any futures contracts or options on futures contracts or (2) enter
into any futures contracts or options on futures contracts or forward currency
contracts if the aggregate of the market value of the Fund's outstanding futures
and forward currency contracts and market value of the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the market value of the total assets of the Fund. The current view of the SEC
staff is that a Fund's long and short positions in futures contracts as well as
put and call options on futures written by it must be collateralized with cash
or certain liquid assets held in a segregated account or 'covered' in a manner
similar to that for covered options on securities or stock indexes and designed
to eliminate any potential leveraging.
The Fund is also authorized to engage in any one or more of the specialized
investment techniques and strategies described below:
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping
to meet its operating expenses, the Fund may lend securities to well-known and
recognized U.S. and foreign brokers, dealers and banks. These loans, if and when
made, may not exceed 30% of the Fund's
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assets taken at market value. The Fund's loans of securities will be
collateralized by cash, letters of credit or Government Securities. The cash or
instruments collateralizing the Fund's loans of securities are maintained at all
times in a segregated account with the Fund's custodian, or with a designated
sub-custodian, in an amount at least equal to the current market value of the
loaned securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, will not exceed 10% of the Fund's net assets. The Fund may
engage in repurchase agreement transactions with certain member banks of the
Federal Reserve System and with certain dealers listed on the Federal Reserve
Bank of New York's list of reporting dealers. Under the terms of a typical
repurchase agreement, the Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than seven days) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the securities underlying a repurchase agreement of the Fund is
monitored on an ongoing basis by GEIM or Mitchell Hutchins to ensure that the
value is at least equal at all times to the total amount of the repurchase
obligation, including interest. GEIM or Mitchell Hutchins also monitors, on an
ongoing basis to evaluate potential risks, the creditworthiness of those banks
and dealers with which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund enters into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.
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INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with respect
to the Fund that may not be changed without approval of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). Included among those
fundamental restrictions are the following:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, or more than 10% of the securities of any class of any
one issuer, except that this limitation is not applicable to the Fund's
investments in Government Securities, and up to 25% of the Fund's assets
may be invested without regard to these 10% limitations.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government and (b) any supranational organization.
Certain other investment restrictions adopted by the Trust with respect to
the Fund are described in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as those
described below:
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by foreign
companies and governments involves considerations and potential risks not
typically associated with investing in obligations issued by the United States
Government and domestic corporations. Less information may be available about
foreign companies than about domestic companies, and foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. The values of foreign investments are affected
by changes in currency rates or exchange control regulations, restrictions or
prohibitions on the repatriation of
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foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States, and foreign securities markets may be less
liquid, more volatile and subject to less governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by the intervention of the U.S.
government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.
INVESTING IN DEVELOPING COUNTRIES. Investing in securities issued by
companies located in developing countries involves exposure to economic
structures that are generally less diverse and mature than, and to political
systems that can be expected to have less stability than, those of developed
countries. Other characteristics of developing countries that may affect
investment in their markets include certain national policies that may restrict
investment by foreigners in issuers or industries deemed sensitive to relevant
national interests and the absence of developed legal structures governing
private and foreign investments and private property. The typically small size
of the markets for securities issued by companies located in developing
countries and the possibility of a low or nonexistent volume of trading in those
securities may also result in a lack of liquidity and in price volatility of
those securities.
NON-PUBLICLY TRADED SECURITIES. Non-publicly traded securities may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In addition, companies whose
securities are not publicly traded are not subject to the disclosure and other
investor protection requirements that may be applicable if their securities were
publicly traded.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent the Fund invests
in other investment companies, the Fund's shareholders incur certain duplicative
fees and expenses, including investment advisory fees.
FORWARD CURRENCY CONTRACTS. In entering into foreign currency contracts,
the Fund is subject to a number of risks and special considerations. The market
for forward currency contracts, for example, may be limited with respect to
certain currencies. The existence of a limited market may in turn restrict the
Fund's ability to hedge against the risk of devaluation of currencies in which
the Fund holds a substantial quantity of securities. The successful use of
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forward currency contracts as a hedging technique draws upon GEIM's special
skills and experience with respect to those instruments and usually depends on
GEIM's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of forward currency contracts or
may realize losses and thus be in a less advantageous position than if those
strategies had not been used. Many forward currency contracts are subject to no
daily price fluctuation limits so that adverse market movements could continue
with respect to those contracts to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of those contracts and
movements in the prices of the currencies hedged or used for cover will not be
perfect.
The Fund's ability to dispose of its positions in forward currency
contracts depends on the availability of active markets in those instruments,
and GEIM cannot now predict the amount of trading interest that may exist in the
future in forward currency contracts. Forward currency contracts may be closed
out only by the parties entering into an offsetting contract. As a result, no
assurance can be given that the Fund will be able to utilize these contracts
effectively for the purposes described above.
STOCK OPTIONS. The Fund receives a premium when it writes call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise price of the option for as long as
the Fund's obligation as writer of the option continues. Thus, in some periods,
the Fund will receive less total return and in other periods greater total
return from its hedged positions than it would have received from its underlying
securities if unhedged.
In purchasing a put option, the Fund seeks to benefit from a decline in the
market price of the underlying security, whereas in purchasing a call option,
the Fund seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
STOCK INDEX OPTIONS. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded. If the Fund writes a stock index option, it may terminate its obligation
by effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases
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or writes stock index options only if a liquid secondary market for the options
purchased or sold appears to exist, no such secondary market may exist, or the
market may cease to exist at some future date, for some options. No assurance
can be given that a closing purchase transaction can be effected when the Fund
desires to engage in such a transaction.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
transactions involving futures contracts and options on those contracts, the
Fund is subject to a number of risks and special considerations. As suggested
above, many of the securities that may be held by the Fund are denominated in
currencies for which no, or only a highly illiquid, futures or option market
exists, which in turn restricts the Fund's ability to hedge against the risk of
devaluation of currencies in which the Fund holds a substantial quantity of
securities. The successful use of futures contracts and options on those
contracts draws upon GEIM's special skills and experience with respect to those
instruments and usually depends on GEIM's ability to forecast stock market,
currency exchange rate or interest rate movements correctly. Should stock
markets, exchange rates or interest rates move in an unexpected manner, the Fund
may not achieve the anticipated benefits of futures contracts or options on
those contracts or may realize losses and thus be in a less advantageous
position than if those strategies had not been used. Certain futures contracts
and options on futures contracts are subject to no daily price fluctuation
limits, so that adverse market movements could continue with respect to those
instruments to an unlimited extent over a period of time. In addition, the
correlation between movements in the prices of those instruments and movements
in the price of the securities and currencies hedged or used for cover is not
perfect.
The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities and currencies are relatively new and still developing. GEIM cannot
now predict the amount of trading interest that may exist in the future in
various types of futures contracts and options. Futures and options may be
closed out only on the exchange on which the contract was entered (or a linked
exchange) so that no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes described above. In
addition, although the Trust anticipates that the Fund's options and futures
transactions will not prevent the Fund from qualifying as a regulated investment
company for federal income tax purposes, the Fund's ability to engage in options
and futures transactions may be limited by this tax consideration. See
'Dividends, Distributions and Taxes -- Taxes.' In writing options, the Fund is
subject to the risk of loss resulting from the difference between the premium
received for the option and the price of the futures contract underlying the
option that the Fund must purchase or deliver upon exercise of the option.
LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which
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the Fund seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or a part of
the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
The Fund will not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. Purchasing
securities on a when-issued or delayed-delivery basis can involve the additional
risk that the yield available in the market when the delivery takes place may be
higher than that obtained in the transaction itself.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Trustees have determined that, to the extent consistent with applicable
provisions of the 1940 Act and rules and exemptions adopted by the SEC under the
1940 Act, transactions for the Fund may be executed through PaineWebber if, in
the judgment of GEIM, the use of PaineWebber is likely to result in price and
execution at least as favorable to the Fund as those obtainable through other
qualified broker-dealers, and if, in the transaction, PaineWebber charges the
Fund a fair and reasonable rate consistent with that charged to comparable
unaffiliated customers in similar transactions.
For the six months ended February 28, 1995 and the fiscal years ended
August 31, 1994 and August 31, 1993, the Fund's portfolio turnover rates were
32.45%, 50.7% and 56.4%, respectively. An annual turnover rate of 100% would
occur if all of the securities held by the Fund are replaced once during a
period of one year.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees, and the day-to-day operations of the Fund are
conducted through or under the direction of officers of the Trust. The Statement
of Additional Information contains general background information regarding each
Trustee and officer of the Trust.
INVESTMENT ADVISER AND ADMINISTRATOR
At a special meeting of shareholders that took place on April 13, 1995, Mitchell
Hutchins, 1285 Avenue of the Americas, New York, New York 10019, was approved as
the Fund's investment adviser and administrator. Mitchell Hutchins is a wholly
owned subsidiary of PaineWebber, which is a wholly owned subsidiary of Paine
Webber Group Inc. ('PW Group'), a publicly held financial services holding
company. Mitchell Hutchins provides investment advisory and portfolio management
services to investment companies, pension funds and other institutional,
corporate and individual clients. As of July 31, 1995, Mitchell Hutchins served
as investment adviser or sub-adviser to 41 registered investment companies with
87 separate portfolios having aggregate assets of approximately $28.9 billion.
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As the Fund's investment adviser and administrator, Mitchell Hutchins,
subject to the supervision and direction of the Trustees, is generally
responsible for furnishing, or causing to be furnished to the Fund, investment
advisory and management services. Included among the specific services provided
by Mitchell Hutchins as investment adviser and administrator are: the selection
and compensation of an investment adviser to the Fund; the review of all
purchases and sales of portfolio instruments made by the Fund to assess
compliance with its stated investment objective and policies; the monitoring of
the selection of brokers and dealers effecting transactions on behalf of the
Fund; the maintenance and furnishing of all required records or reports
pertaining to the Fund to the extent those records or reports are not maintained
or furnished by the Fund's transfer agent, custodian or other agents employed by
the Fund; the providing of general administrative services to the Fund not
otherwise provided by the Fund's transfer agent, custodian or other agents
employed by the Fund; the payment of reasonable salaries and expenses of those
of the Fund's officers and employees, and the fees and expenses of those
Trustees, who are directors, officers or employees of Mitchell Hutchins. From
time to time, Mitchell Hutchins in its sole discretion may waive all or a
portion of its fee and/or reimburse all or a portion of the Fund's operating
expenses.
For the fiscal year ended August 31, 1994, the Trust paid Kidder Peabody
Asset Management, Inc. ('KPAM'), then the Fund's investment manager, a fee for
services provided to the Fund that was accrued daily and paid monthly at the
annual rate of 1.00% of the Fund's average daily net assets. On August 21, 1995,
shareholders approved a new Investment Advisory and Administration Agreement
under which the Fund pays Mitchell Hutchins a fee accrued daily and paid monthly
at the annual rate of .85% of the value of its average daily net assets up to
and including $500 million, .83% of its average daily net assets over $500
million and up to and including $1 billion and .805% of its average daily net
assets over $1 billion. The rate of fee paid to Mitchell Hutchins, which is
higher than the rate of management fees paid by most other investment companies
registered under the 1940 Act, reflects the need to devote additional time and
incur added expense in developing the specialized resources contemplated by
international investing. For the fiscal year ended August 31, 1994, Class A's,
Class B's and Class C's total expenses represented 1.58%, 2.33% and 1.33% of
their average daily net assets, respectively. No Class E shares were outstanding
during that period.
Mitchell Hutchins and GEIM 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.
INVESTMENT SUB-ADVISER
Under the terms of an investment sub-advisory agreement among Mitchell Hutchins,
the Trust and GEIM, Mitchell Hutchins employs GEIM as the Fund's investment
sub-adviser. GEIM, located at 3003 Summer Street, P.O. Box 7900, Stamford,
Connecticut 06904, is a wholly owned subsidiary of General Electric Company
formed under the laws of Delaware in 1988 and a registered investment adviser
under the Advisers Act.
GEIM's principal officers and directors serve in similar capacities with
respect to General Electric Investment Corporation ('GEIC'), which like GEIM is
a wholly owned subsidiary of GE, and which currently acts as the investment
adviser of the Elfun group of funds, including the
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Elfun Global Fund, an open-end management investment company registered under
the 1940 Act that has an investment objective and policies substantially similar
to those of the Fund. Investment in the Elfun Global Fund is generally limited
to regular and senior members of the Elfun Society, whose regular members are
selected from active employees of GE and/or its majority-owned subsidiaries, and
whose senior members are former members who have retired from those companies.
GEIM and GEIC together manage assets in excess of $49 billion as of June 30,
1995.
Ralph R. Layman serves as Chief Investment Officer of the Fund and in that
capacity is the individual primarily responsible for the management of the
Fund's assets. Mr. Layman is an Executive Vice President of GEIM and GEIC. From
1989 to 1991, Mr. Layman served as Executive Vice President, partner and
portfolio manager of Northern Capital Management Co.
As the Fund's investment adviser, GEIM, subject to the supervision and
direction of the Trustees, and subject to review by Mitchell Hutchins, manages
the Fund's portfolio in accordance with the investment objective and stated
policies of the Fund, makes investment decisions for the Fund and places
purchase and sale orders for the Fund's portfolio transactions. GEIM also pays
the salaries of all officers and employees who are employed by both it and the
Trust, provides the Fund with investment officers who are authorized by the
Board of Trustees to execute purchases and sales of securities on behalf of the
Fund and employs a professional staff of portfolio managers who draw upon a
variety of sources for research information for the Fund.
For the fiscal year ended August 31, 1994, KPAM paid GEIM a fee for
services provided by GEIM to the Fund that was accrued daily and paid monthly at
the annual rate of .70% of the value of the Fund's average daily net assets. On
August 21, 1995, the shareholders of the Fund approved a new investment
sub-advisory agreement relating to the Fund under which Mitchell Hutchins pays
GEIM a monthly fee at the annual rate of .31% of the value of the Fund's average
daily net assets up to and including $500 million, .29% of the Fund's average
daily net assets over $500 million and up to and including $1 billion and .265%
of the Fund's average daily net assets over $1 billion. The Fund pays no direct
fee to GEIM. From time to time, GEIM in its sole discretion may waive all or a
portion of its fee.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by GEIM, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or more
other accounts managed by GEIM are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales are
allocated in a manner believed by GEIM to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund.
EXPENSES
Each Class bears its own expenses, which generally include all costs not
specifically borne by Mitchell Hutchins and GEIM. Included among a Class'
expenses are costs incurred in connection with the Class' and Fund's
organization; management and investment advisory fees; any distribution and/or
servicing fees; fees for necessary professional and brokerage services; fees for
any pricing service used in connection with the valuation of shares; the costs
of regulatory compliance; and a portion of the costs associated with maintaining
the Trust's legal existence and
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corresponding with shareholders of the Fund. The Trust's agreement with Mitchell
Hutchins provides that Mitchell Hutchins will reduce its fees to the Fund to the
extent required by applicable state laws for certain expenses that are described
in the Statement of Additional Information.
PURCHASE OF SHARES
GENERAL INFORMATION
Class A shares of the Fund are sold to investors subject to an initial sales
charge. Class E shares of the Fund are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A shares and a contingent
deferred sales charge payable upon certain redemptions. Class E shares
automatically convert to Class A shares approximately six years after issuance.
Class B shares are sold without an initial or a contingent deferred sales charge
but are subject to higher ongoing expenses than Class A shares and do not
convert into another Class. Class C shares are available only to limited
categories of investors.
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Transfer
Agent. Investors may contact a local PaineWebber office to open an account. The
minimum initial investment for the Fund is $1,000, and the minimum for
additional purchases is $50. 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 'Determination of Net Asset Value') 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 Trust and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.
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 a purchase application 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.
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Under the Flexible Pricing System, the Fund presently offers four methods
of purchasing shares, enabling investors to choose the Class that best suits
their needs, given the amount of purchase and intended length of investment.
PaineWebber investment executives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. Investors should understand that distribution fees
and initial and contingent deferred sales charges all are intended to compensate
Mitchell Hutchins for distribution services.
When purchasing shares of the Fund, investors must specify whether the
purchase is for Class A shares, Class B shares, Class C shares or Class E
shares, as described below. All share purchase orders that fail to specify a
Class will automatically be invested in Class A shares.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per Class A
share next determined after a purchase order is received plus a sales charge, if
applicable. Class A shares are subject to a service fee at the annual rate of
.25% of the value of the Fund's average daily net assets attributable to this
Class. See 'Distributor.' The sales charge payable upon the purchase of Class A
shares will vary with the amount of purchase as set forth below:
INITIAL SALES CHARGE SCHEDULE --
CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE
AS A DISCOUNT TO
PERCENTAGE OF SELECTED
---------------------- DEALERS
NET AMOUNT AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
----------------------- -------- ---------- -----------
<S> <C> <C> <C>
Less than $50,000............................................ 4.50% 4.71% 4.25%
$50,000 to $99,999............................................ 4.00 4.17 3.75
$100,000 to $249,999............................................ 3.50 3.55 3.25
$250,000 to $499,999............................................ 2.50 2.56 2.25
$500,000 to $999,999............................................ 1.75 1.78 1.50
$1,000,000 and over(1)........................................... None None 1.00
</TABLE>
------------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own resources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an 'underwriter' under the 1933 Act.
SALES CHARGE WAIVERS -- CLASS A SHARES. Class A shares are available
without a sales charge through exchanges of Class A Shares of most other
PaineWebber and MH/KP mutual funds. See 'Exchange Privilege.' Class A shares may
be purchased without a sales charge by employees,
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directors and officers of PaineWebber or its affiliates, directors or trustees
and officers of any PaineWebber mutual funds, their spouses, parents and
children and advisory clients of Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the purchase
is made through a PaineWebber investment executive who formerly was employed as
a broker with another firm registered as a broker-dealer with the 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 and MH/KP 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 of the Fund without regard to minimum
investment requirements and without sales charges by electing to have dividends
and other distributions from their UIT investment automatically invested in
Class A shares.
Class A shares of the Fund may be acquired without a sales charge if issued
by the Fund in connection with a reorganization pursuant to which the Fund
acquires substantially all of the assets and liabilities of another investment
company in exchange solely for Class A shares of the Fund.
REDUCED SALES CHARGE PLANS -- CLASS A SHARES. Reduced sales charges are
available through volume discounts and a right of accumulation. If an investor
or eligible group of related Fund investors, as defined below, purchases Class A
shares of a Fund concurrently with Class A shares of other PaineWebber or MH/KP
mutual funds, the purchases may be combined to take advantage of the reduced
sales charges applicable to larger purchases. The right of accumulation permits
a Fund investor or eligible group of related Fund investors, as defined below,
to pay the lower sales charge applicable to larger purchases by basing the sales
charge on (1) the dollar amount of Class A shares then being purchased plus (2)
an amount equal to the then-current net asset value of the investor's or group's
combined holdings of Class A Fund shares and Class A shares of any other
PaineWebber or MH/KP 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 that confirmation. This right of accumulation
may be amended or terminated at any time.
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An 'eligible group of related Fund investors' can consist of any
combination of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account
('IRA');
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust
created by the individual(s), the beneficiaries of which are the individual
and/or the individual's spouse, parents or children;
(f) an individual and an 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).
REINSTATEMENT PRIVILEGE. Shareholders who have redeemed Class A shares may
reinstate their Fund account without a sales charge up to the dollar amount
redeemed by purchasing Class A shares within 365 days after the redemption. To
take advantage of this reinstatement privilege, shareholders must notify their
investment executive at the time the privilege is exercised.
CLASS B SHARES
The public offering price of Class B shares is the net asset value per share
next determined after a purchase order is received without imposition of any
sales charge. Class B shares are subject to a service fee at the annual rate of
.25%, and a distribution fee at the annual rate of .75%, of the value of the
Fund's average daily net assets attributable to this Class. See 'Distributor.'
CLASS C SHARES
The public offering price of Class C shares is the net asset value per share
next determined after a purchase order is received without imposition of any
sales charge. Class C shares, which are not subject to any service fee or
distribution fee, are available exclusively to (1) employee benefit and
retirement plans, other than individual retirement accounts and self-employed
retirement plans,
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of PW Group and its affiliates; (2) certain unit investment trusts sponsored by
PaineWebber; and (3) participants in certain wrap fee investment advisory
programs, such as the INSIGHT program, that are currently or in the future
sponsored by PaineWebber and that may invest in PaineWebber proprietary funds,
provided that shares are purchased through or in connection with those programs.
Investors eligible to purchase Class C shares may not purchase any other Class
of shares.
INSIGHT. An investor purchasing $50,000 or more of shares of mutual funds
that are available to INSIGHT participants (which include the MH/KP funds and
certain specified other mutual funds) may participate in INSIGHT and receive
Class C Shares. INSIGHT offers comprehensive investment services, including a
personalized asset allocation investment strategy using an appropriate
combination of funds, monitoring of investment performance and comprehensive
quarterly reports that cover market trends, portfolio summaries and personalized
account information. Participation in INSIGHT is subject to payment of an
advisory fee to PaineWebber at the maximum annual rate of 1.5% of assets held
through the program (generally charged quarterly in advance), which covers all
INSIGHT investment advisory services and program administration fees. Employees
of PaineWebber and its affiliates are entitled to a 50% reduction in the fee
otherwise payable for participation in INSIGHT. INSIGHT clients may elect to
have their INSIGHT fees charged to their accounts (by the automatic redemption
of money market fund shares) or, if a qualified plan, billed separately.
PAINEWEBBER SAVINGS INVESTMENT PLAN. Class C shares are offered for sale to
the trustee of the PW SIP, a defined contribution plan sponsored by PW Group.
Such shares may be purchased or redeemed only by such trustee on behalf of the
PW SIP at net asset value without any sales or redemption charge.
The trustee of the PW SIP purchases and redeems Fund 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
THE '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 Department,
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 shares of a Fund are purchased or redeemed by the trustee of the PW SIP
for the accounts of individual participants might be more or less than the net
asset value per share prevailing at the time that such participants made their
investment choices or made their contributions to the PW SIP. Purchase and
redemption orders by the trustee of the PW SIP for shares of a Fund will be
effected at the net asset value per share next computed (see 'Determination of
Net Asset Value') after the order is received by the Transfer Agent.
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CLASS E SHARES
The public offering price of Class E shares of the Fund is the net asset value
per share next determined after a purchase order is received without imposition
of an initial sales charge. By purchasing Class E shares the purchaser agrees to
be subject to the contingent deferred sales charge. Class E shares are subject
to a service fee at the annual rate of .25%, and a distribution fee at the
annual rate of .75%, of the value of the Fund's average daily net assets
attributable to this Class. See 'Distributor.'
Class E shares of the Fund that are redeemed will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (1) capital appreciation of Fund assets, (2) reinvestment of
dividends or capital gain distributions or (3) shares redeemed more than six
years after their purchase. Otherwise, redemptions of Class E shares will be
subject to a contingent deferred sales charge. The amount of any applicable
contingent deferred sales charge will be calculated by multiplying the net asset
value of such shares at the time of redemption by the applicable percentage
shown in the table below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
ASSET VALUE AT
REDEMPTION DURING REDEMPTION
---------------------------------------------------------------------------------- -------------------
<S> <C>
1st Year Since Purchase........................................................... 5%
2nd Year Since Purchase........................................................... 4
3nd Year Since Purchase........................................................... 3
4th Year Since Purchase........................................................... 2
5th Year Since Purchase........................................................... 2
6th Year Since Purchase........................................................... 1
7th Year Since Purchase........................................................... None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class E shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class E
shares of the Fund acquired through an exchange with another PaineWebber or
MH/KP mutual fund will be calculated from the date that the Class E shares were
initially acquired in one of the other PaineWebber or MH/KP funds, and Class E
shares being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. This will result in any contingent deferred sales charge being
imposed at the lowest possible rate. For federal income tax purposes, the amount
of the contingent deferred sales charge will reduce the gain or increase the
loss, as the case may be, on the amount realized on redemption. The amount of
any contingent deferred sales charge will be deducted on behalf of the
shareholder from the redemption proceeds and paid to Mitchell Hutchins.
SALES CHARGE WAIVERS -- CLASS E SHARES. The contingent deferred sales
charge will be waived for exchanges, as described below, and for redemptions in
connection with the Fund's
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systematic withdrawal plan. In addition, the contingent deferred sales charge
will be waived for a total or partial redemption made within one year of the
death of the shareholder. The contingent deferred sales charge waiver is
available where the decedent is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with right of survivorship. This waiver
applies only to redemption of shares held at the time of death. The contingent
deferred sales charge will also be waived in connection with a lump-sum or other
distribution in the case of an IRA, a self-employed individual retirement plan
(so-called 'Keogh Plan') or a custodial account under Section 403(b) of the
Internal Revenue Code following attainment of age 59 1/2; a total or partial
redemption resulting from any distribution following retirement in the case of a
tax-qualified retirement plan; and a redemption resulting from a tax-free return
of an excess contribution to an IRA.
Contingent deferred sales 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.
CONVERSION OF CLASS E SHARES. A shareholder's Class E shares will
automatically convert to Class A shares in the Fund approximately six years
after the date of issuance, together with a pro rata portion of all Class E
shares representing dividends and other distributions paid in additional Class E
shares. The Class E shares so converted will no longer be subject to the higher
expenses borne by Class E 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 E
shares occurs. If a shareholder effects one or more exchanges among Class E
shares of the PaineWebber or MH/KP mutual funds during the six-year period, the
holding periods for the shares so exchanged will be counted toward the six-year
period. Because the per share net asset value of the Class A shares may be
higher than that of the Class E shares at the time of conversion, a shareholder
may receive fewer Class A shares than the number of Class E shares converted,
although the dollar value will be the same. See 'Determination of Net Asset
Value.'
REDEMPTION OF SHARES
A shareholder may redeem Fund shares on any day that the Fund's net asset values
are determined by following the procedures described below.
REDEMPTION THROUGH PAINEWEBBER
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within three Business Days of the receipt of a redemption
request. PaineWebber clients may redeem non-certificated shares through
PaineWebber or its correspondent firms; all other shareholders must redeem
through the Transfer Agent. If a redeeming shareholder owns shares of more than
one Class, the shares will be redeemed in the following order unless the
shareholder specifically requests otherwise: Class B shares, Class A shares,
Class E shares and finally Class C shares.
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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,
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 who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares though 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 next asset value next computed after it is received in 'good
order.' 'Good order' means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to the Fund account be redeemed), signed by all registered owners of
the shares in the exact names in which they are registered, (2) a guarantee of
the signature of each registered owner by an eligible institution acceptable to
the Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partnerships
and corporations and (4) duly endorsed share certificates, if any. Shareholders
are responsible for ensuring that a request for redemption is received in 'good
order.'
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds
non-certificated Fund shares may have redemption proceeds of $1 million or more
wired to the shareholder's PaineWebber brokerage account or a commercial bank
account designated by the shareholder. Questions about this option, or
redemption requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm, or to the Transfer Agent
if the shares are not held in a PaineWebber brokerage account. If a shareholder
requests redemption of shares which were purchased recently, the Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days from the date of purchase.
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.
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With respect to shareholder holdings that are reduced by redemptions, and
not by reason of market fluctuations, to a value of $500 or less, for which
involuntary redemptions by the Trust may be made, the shareholder notice
provision is modified to increase the time period to 60 days in which
shareholders will be given the opportunity to increase the account balance to
more than $500.
DISTRIBUTIONS IN KIND
If the Trustees determine that it would be detrimental to the best interests of
the Fund's shareholders to make a redemption payment wholly in cash, the Fund
may pay, in accordance with rules adopted by the SEC, any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by
a distribution in kind of readily marketable portfolio securities in lieu of
cash. Redemptions failing to meet this threshold must be made in cash.
Shareholders receiving distributions in kind of portfolio securities may incur
brokerage commissions when subsequently disposing of those securities.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who own non-certificated Class A or Class B shares of the Fund with
a value of $5,000 or more or Class E 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. No contingent deferred sales
charge will be imposed on such withdrawals for Class E shares. The minimum
amount for all withdrawals of Class A or Class B shares is $100, and minimum
monthly, quarterly and semi-annual withdrawal amounts for Class E shares are
$200, $400 and $600, respectively. Quarterly withdrawals are made in March,
June, September and December, and semi-annual withdrawals are made in June and
December. A Class E shareholder of the Fund may not withdraw an amount exceeding
12% annually of his or her 'Initial Account Balance,' a term that means the
value of the Fund account at the time the shareholder elects to participate in
the systematic withdrawal plan. A Class E shareholder's participation in the
systematic withdrawal plan will terminate automatically if the Initial Account
Balance (plus the net asset value on the date of purchase of Fund shares
acquired after the election to participate in the systematic withdrawal plan),
less aggregate redemptions made other than pursuant to the systematic withdrawal
plan, is less than $20,000. Shareholders who receive dividends or other
distributions in cash may not participate in the systematic withdrawal plan.
Purchases of additional shares of the Fund concurrently with withdrawals are
ordinarily disadvantageous to shareholders because of tax liabilities and any
sales charges.
DETERMINATION OF NET ASSET VALUE
Each Class' net asset value per share is calculated by State Street Bank and
Trust Company ('State Street'), the Fund's custodian, on each day, Monday
through Friday, except that net asset value is not computed on a day in which no
orders to purchase, sell, exchange or redeem Fund shares have been received, any
day on which there is not sufficient trading in the Fund's
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portfolio securities that the Fund's net asset values per share might be
materially affected by changes in the value of such portfolio securities or on
days on which the NYSE is not open for trading. The NYSE is currently scheduled
to be closed on the observance of New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE, and is computed by dividing the value of the Fund's
net assets attributable to that Class by the total number of shares outstanding
of that Class. Generally, the Fund's investments are valued at market value or,
in the absence of a market value, at fair value as determined by or under the
direction of the Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued for purposes of calculating each Class' net asset value at the preceding
closing values of the securities on their respective exchanges, except that,
when an occurrence subsequent to the time a value was so established is likely
to have changed that value, the fair market value of those securities will be
determined by consideration of other factors by or under the direction of the
Trustees. A security that is primarily traded on a domestic or foreign stock
exchange is valued at the last sale price on that exchange or, if no sales
occurred during the day, at the current quoted bid price. Short-term investments
that mature in 60 days or less are valued on the basis of amortized cost (which
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) when the
Trustees have determined that amortized cost represents fair value. An option
that is written by the Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last offer price. An option that is
purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract is equal to the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes a limit move with respect to a particular
futures contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price cannot be used, futures contracts are valued at their
fair market value as determined by or under the direction of the Trustees.
For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Board of Trustees. In carrying out the Board's valuation policies, State
Street may consult with an independent pricing service retained by the Trust.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
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EXCHANGE PRIVILEGE
Fund shares are exchangeable with the corresponding class of MH/KP mutual funds
and PaineWebber mutual funds offered under the PaineWebber Flexible PricingSM
System (Class A shares for Class A shares of PaineWebber funds, Class B shares
for Class D shares of PaineWebber funds and Class E shares for Class B shares of
PaineWebber funds). No initial sales charge is imposed on the shares being
acquired, and no contingent deferred sales charge is imposed on the shares being
disposed of, through an exchange. However, contingent deferred sales charges may
apply to redemptions of Class B shares of PaineWebber mutual funds acquired
through an exchange. Class B shares of MH/KP mutual funds differ from Class B
shares of PaineWebber mutual funds. Class B shares of MH/KP mutual funds are
equivalent to Class D shares of PaineWebber mutual funds. Class E shares of
MH/KP mutual funds are equivalent to Class B shares of PaineWebber mutual funds.
Thus, contingent deferred sales charges are not applicable to redemptions of
Class B shares of MH/KP mutual funds but are applicable to certain redemptions
of Class E shares of MH/KP mutual funds.
The other PaineWebber and MH/KP funds with which Fund shares may be
exchanged include:
INCOME FUNDS
MH/KP Adjustable Rate Government Fund
MH/KP Global Fixed Income Fund
MH/KP Government Income Fund
MH/KP Intermediate Fixed Income Fund
PW Global Income Fund
PW High Income Fund
PW Investment Grade Income Fund
PW Short-Term U.S. Government Income Fund
PW Strategic Income Fund
PW U.S. Government Income Fund
TAX-FREE INCOME FUNDS
MH/KP Municipal Bond Fund
PW California Tax-Free Income Fund
PW Municipal High Income Fund
PW National Tax-Free Income Fund
PW New York Tax-Free Income Fund
GROWTH FUNDS
MH/KP Emerging Markets Equity Fund
MH/KP Small Cap Growth Fund
PW Capital Appreciation Fund
PW Growth Fund
PW Regional Financial Growth Fund
PW Small Cap Value Fund
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GROWTH AND INCOME FUNDS
MH/KP Asset Allocation Fund
MH/KP Equity Income Fund
PW Balanced Fund
PW Global Energy Fund
PW Growth and Income Fund
PW 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.
Although the Fund currently imposes no limit on the number of times the
Exchange Privilege may be exercised by any shareholder, the Fund may impose such
limits in the future, in accordance with applicable provisions of the 1940 Act
and rules thereunder. In addition, the Exchange Privilege may be terminated or
revised at any time upon 60 days' prior written notice to Fund shareholders, and
is available only to residents of states in which exchanges are permitted under
state law. The exchange of shares of one fund for shares of another is treated
for federal income tax purposes as a sale of the shares given in exchange by the
shareholder, so that a shareholder may recognize a taxable gain or loss on an
exchange.
The proceeds of a redemption of Fund shares made to facilitate the exchange
of those shares for shares of another fund must be equal to at least (1) the
minimum initial investment requirement imposed by the fund into which the
exchange is being sought if the shareholder seeking the exchange has not
previously invested in that fund or (2) the minimum subsequent investment
requirement imposed by the fund into which the exchange is being sought if the
shareholder has previously made an investment in that fund.
A shareholder of the Fund wishing to exercise the Exchange Privilege should
obtain from PaineWebber a copy of the current prospectus of the fund into which
an exchange is being sought and review that prospectus carefully before making
the exchange. PaineWebber reserves the right to reject any exchange request at
any time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund and distributions of net
realized capital gains of the Fund, if any, are distributed annually after the
close of the fiscal year in which they are earned. Unless a shareholder
instructs the Fund that dividends and capital gains distributions on shares of
any Class should be paid in cash and credited to the shareholder's account,
dividends
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and capital gains distributions are reinvested automatically at net asset value
in additional shares of the same Class. The Fund is subject to a 4%
nondeductible excise tax measured with respect to certain undistributed amounts
of net investment income and capital gains. If necessary to avoid the imposition
of this tax, and if in the best interests of its shareholders, the Fund will
declare and pay dividends of its net investment income and distributions of its
net capital gains more frequently than stated above. The per share dividends and
distributions on Class C shares will be higher than those on Class A shares,
which in turn will be higher than those on Class B and Class E shares, as a
result of the different service, distribution and transfer agency fees
applicable to the Classes. See 'Fee Table,' 'Purchase of Shares,' 'Distributor'
and 'General Information.'
TAXES
The Fund has qualified for the fiscal year ended August 31, 1994 to be treated
as a regulated investment company within the meaning of the Code and intends to
qualify for this treatment in each year. To qualify as a regulated investment
company for federal income tax purposes, the Fund limits its income and
investments so that (1) less than 30% of its gross income is derived from the
sale or disposition of stocks, other securities and certain financial
instruments (including certain forward contracts) that were held for less than
three months and (2) at the close of each quarter of the taxable year (a) not
more than 25% of the market value of the Fund's total assets is invested in the
securities (other than Government Securities) of a single issuer or of two or
more issuers controlled by the Fund that are engaged in the same or similar
trades or businesses or in related trades or businesses and (b) at least 50% of
the market value of the Fund's total assets is represented by (i) cash and cash
items, (ii) Government Securities and (iii) other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the market value
of the Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer. The requirements for qualification may cause the Fund
to restrict the degree to which it sells or otherwise disposes of stocks, other
securities and certain financial instruments held for less than three months. If
the Fund qualifies as a regulated investment company and meets certain
distribution requirements, the Fund will not be subject to federal income tax on
its net investment income and net realized capital gains that it distributes to
its shareholders.
Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Dividends and distributions paid by the Fund
generally do not qualify for the federal dividends received deduction for
corporate shareholders.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes
reduces the amount of dividends and distributions paid to the Fund's
shareholders. So long as the Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the value
of the Fund's total assets at the close of any taxable year consists of stocks
or securities of foreign corporations, the Fund may elect, for federal income
tax purposes, to treat
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certain foreign income taxes it pays as having been paid by its shareholders. If
the Fund makes the election, the amount of foreign income taxes paid by the Fund
would be included in the income of its shareholders and the shareholders would
be entitled either to credit their portions of these amounts against their
federal income tax due, if any, or to deduct these portions from their federal
taxable income, if any. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. In addition, certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
DISTRIBUTOR
Mitchell Hutchins serves as the distributor of the Fund's shares and is paid
monthly fees by the Fund in connection with (1) the servicing of shareholder
accounts in Class A, Class B and Class E shares and (2) providing distribution
related services in respect of Class B and Class E shares. A monthly service
fee, authorized pursuant to a Shareholder Servicing and Distribution Plan (the
'Plan') adopted by the Trust with respect to the Fund pursuant to Rule 12b-1
under the 1940 Act, is calculated at the annual rate of .25% of the value of the
average daily net assets of the Fund attributable to each of Class A, Class B
and Class E shares and is used by Mitchell Hutchins to provide compensation to
PaineWebber for ongoing servicing and/or maintenance of shareholder accounts and
an allocation of overhead and other PaineWebber branch office expenses related
to servicing shareholder accounts. Compensation is paid by Mitchell Hutchins to
persons, including PaineWebber employees, who respond to inquiries of
shareholders of the Fund regarding their ownership of shares or their accounts
with the Fund or who provide other similar services not otherwise required to be
provided by the Fund's investment adviser and administrator or transfer agent.
In addition, pursuant to the Plan, the Fund pays to Mitchell Hutchins a
monthly distribution fee at the annual rate of .75% of the Fund's average daily
net assets attributable to Class B and Class E shares. The distribution fee is
used by Mitchell Hutchins to pay PaineWebber to provide initial and ongoing
sales compensation to PaineWebber investment executives in respect of sales of
Class B and Class E shares; costs of printing and distributing the Fund's
Prospectus, Statement of Additional Information and sales literature to
prospective investors in Class B and Class E shares; costs associated with any
advertising relating to Class B and Class E shares; an allocation of overhead
and other PaineWebber branch office expenses related to distribution of Class B
and Class E shares; and payments to, and expenses of, persons who provide
support services in connection with the distribution of Class B and Class E
shares.
Payments under the Plan are not tied exclusively to the shareholder
servicing and/or distribution expenses actually incurred by Mitchell Hutchins
and PaineWebber, and the
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payments may exceed expenses actually incurred by Mitchell Hutchins and
PaineWebber. The Trustees evaluate the appropriateness of the Plan and its
payment terms on a continuing basis and in doing so will consider all relevant
factors, including expenses borne by Mitchell Hutchins and PaineWebber and
amounts Mitchell Hutchins receives under the Plan. With respect to Class A
shares, for the fiscal years ended August 31, 1994 and August 31, 1993 and for
the period November 14, 1991 (commencement of operations of the Fund's then sole
outstanding class of shares) to August 31, 1992, Kidder, Peabody, the Fund's
predecessor distributor, incurred servicing expenses under the Plan of
$1,153,310, $321,567 and $1,279,934, respectively, and recovered $418,200,
$321,567 and $214,557, respectively, in the form of payments made by the Fund to
Kidder, Peabody at the rate provided in the Plan. With respect to Class B
shares, for the fiscal year ended August 31, 1994 and for the period May 10,
1993 (commencement of Class B shares) to August 31, 1993, Kidder, Peabody
incurred servicing and distribution expenses under the Plan of $298,867 and
$15,422, respectively, and recovered $227,554 and $15,422, respectively, in the
form of payments made by the Fund to Kidder, Peabody at the rate provided in the
Plan. No Class E shares were outstanding during any of the foregoing periods.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the Fund's 'average annual total
return' over various periods of time for each Class. Total return figures, which
are based on historical earnings and are not intended to indicate future
performance, show the average percentage change in value of an investment in the
Class from the beginning date of a measuring period to the end of that period.
These figures reflect changes in the price of shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the same Class. Total return figures will be given
for the most recent one-and five-year periods, or for the life of the Class to
the extent that it has not been in existence for the full length of those
periods, and may be given for other periods as well, such as on a year-by-year
basis. The average annual total return for any one year in a period longer than
one year might be greater or less than the average for the entire period.
The Trust may quote 'aggregate total return' figures with respect to the
Fund for various periods, representing the cumulative change in value of an
investment for the specific period and reflecting changes in share prices and
assuming reinvestment of dividends and distributions. Aggregate total return may
be calculated either with or without the effect of the sales charges to which
Class A shares and Class E shares are subject and may be shown by means of
schedules, charts or graphs, and may indicate subtotals of the various
components of total return (that is, changes in value of initial investment,
income dividends and capital gains distributions). Reflecting compounding over a
longer period of time, aggregate total return data generally will be higher than
average annual total return data.
The Trust may, in addition to quoting the Classes' average annual and
aggregate total returns, advertise the actual annual and annualized total return
performance data for various periods of time. Actual annual and annualized total
returns may be calculated either with or without the effect of the sales charges
to which Class A shares and Class E shares are subject and may be shown by means
of schedules, charts or graphs. Actual annual or annualized total return
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data generally will be lower than average annual total return data, which
reflects compounding of return.
In reports or other communications to Fund shareholders and in advertising
material, the Trust may compare the Classes' performance with (1) the
performance of other mutual funds (or classes thereof) as listed in rankings
prepared by Lipper Analytical Services Inc., CDA Investment Technologies, Inc.
or similar investment services that monitor the performance of mutual funds or
as set out in the nationally recognized publications listed below, (2) the
Morgan Stanley Capital International EAFE Index, the Salomon Russell Global
Equity Index, the FT-Actuaries World Indices, the Standard & Poor's Index of 500
Stocks, and the Dow Jones Industrial Average, each of which is an unmanaged
index of common stocks or (3) other appropriate indexes of investment securities
or with data developed by GEIM or Mitchell Hutchins derived from those indexes.
The Trust may also include in communications to Fund shareholders evaluations of
the Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Forbes, Institutional Investor, Investor's Daily, Kiplinger's Personal Finance
Magazine, Money, Morningstar Mutual Fund Values, The New York Times, USA Today
and The Wall Street Journal. Any given performance comparison should not be
considered as representative of the Fund's performance for any future period.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Trust was formed as a business trust pursuant to a Declaration of Trust, as
amended from time to time (the 'Declaration'), under the laws of The
Commonwealth of Massachusetts on March 28, 1991. The Fund commenced operations
on November 14, 1991. The Declaration authorizes the Trustees to create separate
series, and within each series separate Classes, of an unlimited number of
shares of beneficial interest, par value $.001 per share. As of the date of this
Prospectus, the Trustees have established several such series, representing
interests in the Fund as described in this Prospectus and in several other
series.
When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights
except as authorized by the Trustees. Each Class represents an identical
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (1) the
designation of each Class; ( 2) the effect of the respective sales charges, if
any, for each Class; (3) the distribution and/or service fees, if any, borne by
each Class; (4) the expenses allocable exclusively to each Class; ( 5) voting
rights on matters exclusively affecting a single Class; and (6) the exchange
privilege of each Class. The Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the different
Classes. The Trustees, on an ongoing basis, will consider whether any conflict
exists and, if so, take appropriate action. Certain aspects of the shares may be
changed, upon notice to Fund shareholders, to satisfy certain tax regulatory
requirements, if the change is deemed necessary by the Trustees.
Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Fund may elect all of the Trustees. Generally shares
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of the Trust will be voted on a Trust-wide basis on all matters except those
affecting only the interests of one series, such as the Fund's investment
advisory agreement. In turn, shares of the Fund will be voted on a Fund-wide
basis on all matters except those affecting only the interests of one Class,
such as the terms of the Plan as it relates to a Class.
The Trust intends to hold no annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's outstanding shares. Shareholders of the
Fund who satisfy certain criteria will be assisted by the Trust in communicating
with other shareholders in seeking the holding of the meeting.
REPORTS TO SHAREHOLDERS
The Trust sends Fund shareholders audited semi-annual and annual reports, each
of which includes a list of the investment securities held by the Fund as of the
end of the period covered by the report.
CUSTODIAN AND RECORDKEEPING AGENT;
TRANSFER AND DIVIDEND AGENT
State Street, located at One Monarch Drive, North Quincy, Massachusetts 02171,
serves as the Fund's custodian and recordkeeping agent. PFPC Inc., a subsidiary
of PNC Bank, National Association, whose principal address is 400 Bellevue
Parkway, Wilmington, Delaware 19809, serves as the Fund's transfer and dividend
agent.
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No person has been authorized to give any informa-
tion or to make any representations not contained in this
Prospectus, or in the Statement of Additional Information
incorporated into this Prospectus by reference, in connection with
the offering made by this Prospectus and, if given or made, any such
information or representations must not be relied upon as having
been authorized by the Fund or its distributor. This Prospectus does
not constitute an offering by the Fund or by its distributor in any
jurisdiction in which the offering may not lawfully be made.
<TABLE>
<S> <C>
--------------------------------------------------------
Contents
--------------------------------------------------------
Fee Table 2
--------------------------------------------------------
Highlights 3
--------------------------------------------------------
Financial Highlights 7
--------------------------------------------------------
Design of the Fund 10
--------------------------------------------------------
Investment Objective and Policies 11
--------------------------------------------------------
Management of the Fund 22
--------------------------------------------------------
Purchase of Shares 25
--------------------------------------------------------
Redemption of Shares 31
--------------------------------------------------------
Determination of Net Asset Value 33
--------------------------------------------------------
Exchange Privilege 35
--------------------------------------------------------
Dividends, Distributions and Taxes 36
--------------------------------------------------------
Distributor 38
--------------------------------------------------------
Performance Information 39
--------------------------------------------------------
General Information 40
--------------------------------------------------------
Custodian and Recordkeeping Agent; Transfer
and Dividend Agent 41
--------------------------------------------------------
</TABLE>
<PAGE>
PaineWebber
Global
Equity
Fund
Prospectus
August 24, 1995
<PAGE>
Statement of Additional Information August 24, 1995
--------------------------------------------------------------------------------
PaineWebber Global Equity Fund
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (800) 647-1568
This Statement of Additional Information supplements the information contained
in the Prospectus dated August 24, 1995, of PaineWebber Global Equity Fund (the
'Fund'), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust (the
'Trust'), and should be read together with the Prospectus. The Prospectus may be
obtained without charge by writing or calling the Trust at the address or the
telephone number listed above. This Statement of Additional Information,
although not a prospectus, is incorporated in its entirety by reference into the
Prospectus.
For ease of reference, the section headings used in this Statement of Additional
Information are identical to those used in the Prospectus except as noted in
parentheses in the Table of Contents.
--------------------------------------------------------------------------------
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
INVESTMENT SUB-ADVISER
GE Investment Management Incorporated
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<PAGE>
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INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the investment objective of the Fund and the policies
to be employed to achieve that objective. Supplemental information is set out
below concerning certain of the securities and other instruments in which the
Fund may invest, the investment techniques and strategies that the Fund may
utilize and certain risks involved with those investments, techniques and
strategies.
RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the Securities
Act of 1933, as amended (the '1933 Act'), but that can be sold to 'qualified
institutional buyers' in accordance with Rule 144A under the 1933 Act ('Rule
144A Securities'). Particular Rule 144A Securities are considered illiquid and,
therefore, subject to the Fund's limitation on the purchase of illiquid
securities, unless the Trustees determine on an ongoing basis that an adequate
trading market exists for the Rule 144A Securities. The Fund's purchasing Rule
144A Securities could have the effect of increasing the level of illiquidity in
the Fund to the extent that qualified institutional buyers become uninterested
for a time in purchasing Rule 144A Securities. The Board of Trustees may adopt
guidelines and delegate to Mitchell Hutchins Asset Management Inc. ('Mitchell
Hutchins'), the Fund's investment adviser and administrator, or to GE Investment
Management Incorporated ('GEIM'), the Fund's sub-investment adviser, the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board of Trustees will retain ultimate responsibility for any
determination regarding liquidity. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and neither
Mitchell Hutchins nor GEIM can predict how this market will develop. The Board
of Trustees will carefully monitor any investments by the Fund in Rule 144A
Securities.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities ('Government Securities') in which the Fund may
invest include debt obligations of varying maturities issued by the United
States Treasury or issued or guaranteed by an agency or instrumentality of the
United States Government, including the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance. Because the United States Government is not obligated by law to
provide support to an instrumentality that it sponsors, the Fund invests in
obligations issued by an instrumentality of the United States Government only if
Mitchell Hutchins or GEIM determines that the instrumentality's credit risk does
not make its securities unsuitable for investment by the Fund.
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INVESTMENT TECHNIQUES AND STRATEGIES
FORWARD CURRENCY TRANSACTIONS. At or before the maturity of a forward currency
contract, the Fund may either sell a portfolio security and make delivery of the
currency, or retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to which the Fund
will obtain, on the same maturity date, the same amount of the currency that it
is obligated to deliver. If the Fund retains the portfolio security and engages
in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward currency contract prices. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a currency and the date it enters into an offsetting contract for the
purchase of the currency, the Fund will realize a gain to the extent that the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent that the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. The use of forward currency contracts does
not eliminate fluctuations in the underlying prices of the securities, but it
does establish a rate of exchange that can be achieved in the future. In
addition, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might result should the value of the currency increase.
If a devaluation is generally anticipated, the Fund may not be able to
contract to sell currency at a price above the devaluation level it anticipates.
The Fund will not enter into a currency transaction if, as a result, it will
fail to qualify as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the 'Code'), for a given year. See 'Taxes -- Tax
Status of the Fund and its Shareholders.'
OPTIONS ON FOREIGN CURRENCIES. To protect against diminutions in the value
of securities held by the Fund in a particular foreign currency, the Fund may
purchase put options on the foreign currency. In such a case, if the value of
the currency declined, the Fund would have the right to sell the currency for a
fixed amount in U.S. dollars, which would offset, in whole or in part, the
adverse effect on the Fund's portfolio that otherwise would have resulted. When
an increase in the U.S. dollar value of a currency in which securities to be
acquired by the Fund are denominated is projected, thereby increasing the cost
of the securities, the Fund conversely may purchase call options on the
currency. The purchase of the options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction, or to the extent, anticipated, the Fund could sustain losses
on transactions in foreign currency options that would require it to forgo a
portion, or all, of the benefits of advantageous changes in the rates. The
premiums paid by the Fund in purchasing options on foreign currencies, options
on securities and options on stock indexes are limited to not more than 20% of
the Fund's net assets.
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When GEIM anticipates a decline in the U.S. dollar value of foreign
currency-denominated securities due to adverse fluctuations in exchange rates,
the Fund could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option would most likely
not be exercised, and the diminution in value of portfolio securities would be
offset by the amount of the premium received. Instead of purchasing a call
option to hedge against an anticipated increase in the U.S. dollar cost of
securities to be acquired, the Fund could write a put option on the relevant
currency that, if rates moved in the manner projected, would expire unexercised
and allow the Fund to hedge the increased cost up to the amount of the premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss that may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund may
also be required to forgo all, or a portion, of the benefits that might
otherwise have been obtained from favorable movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written by the Fund on a foreign currency is deemed 'covered' (1) if the
Fund owns the foreign currency underlying the call or has an absolute and
immediate right to acquire the foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Fund's custodian or by a designated sub-custodian) upon conversion or
exchange of other foreign currency held by the Fund; (2) if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written when the exercise price of the call held (i) is equal to or less than
the exercise price of the call written or (ii) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
Government Securities and other high-grade liquid debt securities in a
segregated account with the Fund's custodian or with a designated sub-custodian;
or (3) if the Fund would collateralize the option by maintaining in a segregated
account with its custodian, or with a designated sub-custodian, cash or
Government Securities in an amount not less than the fluctuating market value of
the optioned securities. To the extent that cash or cash equivalents, including
Government Securities, are maintained by the Fund in a segregated account with
the Fund's custodian or with a designated sub-custodian to collateralize the
Fund's writing of options on foreign currencies, options on securities and
options on stock indexes, the Fund will limit the collateralization to not more
than 50% of its net assets.
STOCK OPTIONS. To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options on securities. Should these state laws change or
should the Fund obtain a waiver of their application, the Fund may commit more
than 5% of its assets to premiums when purchasing call and put options on
securities. In addition, should the Trust determine that a commitment is no
longer in the best interests of the Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of the Fund's shares in the state
involved.
FUTURES CONTRACTS. The Fund may trade stock index, currency and interest
rate futures contracts to the extent permitted under rules and interpretations
adopted by the Commodity Futures Trading Commission (the 'CFTC'). U.S. futures
contracts have been designed by exchanges that have been designated as 'contract
markets' by the CFTC, and must be executed
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through a futures commission merchant, or brokerage firm, that is a member of
the relevant contract market. Futures contracts trade on a number of contract
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, the Fund will be required to deposit in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money market
instruments equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded and brokers
may charge a higher amount). This amount is known as 'initial margin' and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming that all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as 'variation margin,' to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as 'marking-to-market.'
At any time prior to the expiration of a futures contract, the Fund may elect to
close a position by taking an opposite position, which will operate to terminate
the Fund's existing position in the contract.
Positions in futures contracts may be closed out only on the exchange on
which they were undertaken (or through a linked exchange). No secondary market
for futures contracts currently exists, and although the Fund intends to trade
futures contracts only if an active market for them exists, no assurance can be
given that an active market will exist for the contracts at any particular time.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made on that day at a price
beyond that limit. Prices for futures contracts may move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting the Fund to substantial
losses. In that case, and in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the Fund's securities
being hedged, if any, may partially or completely offset losses on the futures
contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write put and call
options on stock index, currency and interest rate futures contracts that are
traded on a U.S. exchange or board of trade or a foreign exchange, to the extent
permitted under rules and interpretations of the CFTC, as a hedge against
changes in market conditions and interest rates, and may enter into closing
transactions with respect to those options to terminate existing positions. No
assurance can be given that the closing transactions can be effected.
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LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the value of the Fund's total
assets. The Fund's loans of securities will be collateralized by cash, letters
of credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities will be maintained at all times in a segregated
account with the Fund's custodian, or with a designated sub-custodian, in an
amount at least equal to the current market value of the loaned securities. From
time to time, the Fund may pay a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party that is unaffiliated with the Fund and is acting as a 'finder.' The Fund
will comply with the following conditions whenever it loans securities: (1) the
Fund must receive at least 100% cash collateral or equivalent securities from
the borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 14 below have been adopted by the
Trust as fundamental policies with respect to the Fund. Under the Investment
Company Act of 1940, as amended (the '1940 Act'), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. Investment restrictions numbered 15
through 17 may be changed by a vote of a majority of the Trust's Board of
Trustees at any time.
Under the investment restrictions adopted by the Trust with respect to the
Fund:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, or more than 10% of the securities of any class of any
one issuer, except that this limitation is not applicable to the Fund's
investments in Government Securities, and up to 25% of the Fund's assets
may be invested without regard to these 10% limitations.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's
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total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made. Whenever borrowings exceed 5% of the value of the total assets of
the Fund, the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government and (b) any supranational organization.
6. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts or options on futures contracts will not be deemed to be
a purchase of securities on margin.
7. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the Fund
owns an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short.
8. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.
9. The Fund will not purchase or sell commodities or commodity
contracts (except currencies, stock index, currency and interest rate
futures contracts and related options, forward foreign currency contracts
and other similar contracts).
10. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
11. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the 1933 Act.
12. The Fund will not purchase any security, other than a security
acquired pursuant to a plan of reorganization or an offer of exchange, if
as a result of the purchase (a) the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or (b) more than 5% of the value
of the Fund's total assets would be invested in securities of any one or
more closed-end investment companies.
13. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.
14. The Fund will not make investments for the purpose of exercising
control of management.
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15. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets
invested in securities of companies (including predecessors) that have been
in continuous operation for fewer than three years.
16. The Fund will not purchase or retain securities of any company if,
to the knowledge of the Fund, any of the Trust's Trustees or officers or
any officer or director of GEIM or Mitchell Hutchins individually owns more
than .5% of the outstanding securities of the company and together they own
beneficially more than 5% of the securities.
17. The Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets of which not
more than 2% of the Fund's net assets may be invested in warrants not
listed on a recognized foreign or domestic stock exchange.
The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchases of securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Certain transactions involving futures contracts, options on foreign currencies
and forward currency contracts are not traded on contract markets regulated by
the CFTC; forward currency contracts also are not regulated by the Securities
and Exchange Commission (the 'SEC'). Instead, forward currency contracts are
traded through financial institutions acting as market-makers. Foreign currency
options are traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In the forward currency market, no daily price fluctuation
limits are applicable, and adverse market movements could, therefore, continue
to an unlimited extent over a period of time. Moreover, a trader of forward
currency contracts could lose amounts substantially in excess of its initial
investments, due to the collateral requirements associated with those positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the protections provided to traders on organized
exchanges are available with respect to those transactions. In particular, all
foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (the 'OCC'),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may exist,
potentially permitting the Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market, as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency
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options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, if
it determines that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing members, the OCC may impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
Futures contracts, options on futures contracts, forward currency contracts
and options on foreign currencies may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions also could be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
the Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for the Fund are made by GEIM, subject to
review by Mitchell Hutchins and the Trustees. Transactions on domestic stock
exchanges and some foreign stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. On most foreign
exchanges, commissions are generally fixed. No stated commission is generally
applicable to securities traded in U.S. over-the-counter markets, but the prices
of those securities include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. Government Securities generally
are purchased from underwriters or dealers, although certain newly issued
Government Securities may be purchased directly from the United States Treasury
or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities transactions on
behalf of the Fund, GEIM seeks the best overall terms available. In assessing
the best overall terms available for any transaction, GEIM considers factors
that it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, the sub-investment
advisory agreement among the Trust, Mitchell Hutchins and GEIM relating to the
Fund authorizes GEIM, on behalf of the Fund, in selecting brokers or dealers to
execute a particular transaction, and in evaluating the best overall terms
available, to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which GEIM or its affiliates exercise investment
discretion. The fees under the sub-investment advisory agreement are not reduced
by reason of the Fund's receiving brokerage and research services. The Trustees
periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in
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relation to the benefits inuring to the Fund. Over-the-counter purchases and
sales by the Fund are transacted directly with principal market makers except in
those cases in which better prices and executions may be obtained elsewhere. The
Fund does not purchase any security, including Government Securities, during the
existence of any underwriting or selling group relating to the security of which
PaineWebber Incorporated ('PaineWebber') is a member, except to the extent
permitted under rules, interpretations or exemptions of the SEC. For the fiscal
years ended August 31, 1994 and August 31, 1993 and for the period November 14,
1991 (commencement of operations) through August 31, 1992, the Fund paid
$801,045, $572,495 and $515,412, respectively, in commissions with respect to
securities transactions. None of the commissions were paid to Kidder, Peabody &
Co. Incorporated ('Kidder, Peabody'), a broker-dealer affiliated with the Trust
during those periods. For the fiscal years ended August 31, 1994 and August 31,
1993 and for the period November 14, 1991 (commencement of operations) through
August 31, 1992, the Fund did not pay any commissions with respect to futures
transactions.
The Fund does not consider portfolio turnover rate a limiting factor in
making investment decisions. The Fund's turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of portfolio securities. Securities with remaining
maturities of one year or less on the date of acquisition are excluded from the
calculation.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The names of Trustees and officers of the Trust, together with information as to
their principal business occupations during the last five years, are shown
below. An asterisk appears before the name of each Trustee who is an 'interested
person' of the Trust, as defined in the 1940 Act.
David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring systems. Director of IEC, Inc.,
manufacturer of electronic assemblies, Belfort Instruments, Inc., manufacturer
of environmental instruments, and Oriel Corp., manufacturer of optical
instruments. Prior to January 1991, Senior Vice President of EG&G, Inc., a
company that makes and provides a variety of scientific and technically oriented
products and services. Mr. Beaubien is a director or trustee of 13 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Cash Management
Trust, The Guardian Park Ave. Fund, The Guardian Stock Fund, Inc. and The
Guardian U.S. Government Trust. Mr. Hewitt is a director or trustee of 13 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 12 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
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*Frank P.L. Minard, 49, Trustee. Chairman of Mitchell Hutchins, chairman of
the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 27 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd. and Hidden Lake Gold
Mines Ltd., gold mining companies, Electronic Clearing House, Inc., a financial
transactions processing company, Wainoco Oil Corporation and Bio Techniques
Laboratories Inc., an agricultural biotechnology company. Prior to January 1993,
chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of one other
investment company and president of 38 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Teresa M. Boyle, 36, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 38 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 12 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
C. William Maher, 34, Vice President and Assistant Treasurer. First vice
president and the senior manager of the Fund Administration Division of Mitchell
Hutchins. Mr. Maher is also a vice president and assistant treasurer of 38 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Ralph R. Layman, 40, Chief Investment Officer and Executive Vice President.
Executive Vice President of GEIM and General Electric Investment Corporation, a
registered investment adviser ('GEIC'). From 1989 to July 1991, Executive Vice
President, partner and portfolio manager of Northern Capital Management Co.
Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
38 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 38
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other investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld, 44, Vice President. 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. Schonfeld is also a vice president of 38
other investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president of Mitchell Hutchins. From August 1992 to August 1994, a vice
president at BlackRock Financial Management, Inc. Prior to August 1992, an audit
manager with Ernst & Young LLP. Mr. Schubert is also a vice president and
assistant treasurer of 38 other investment companies for which Mitchell Hutchins
or PaineWebber serves as investment adviser.
Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 38 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Pamela J. Thomas, 31, Investment Officer. International equity analyst for
GEIC. Prior to May 1992, graduate student at the Wharton School.
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner in the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 38 other investment companies
for which Mitchell Hutchins or PaineWebber serves as investment adviser.
Certain of the Trustees and officers of the Trust are directors, trustees
and/or officers of other mutual funds managed by Mitchell Hutchins. The
addresses of the non-interested Trustees are as follows: Mr. Beaubein, Montague
Industrial Park, 101 Industrial Road, Box 746, Turners Falls, Massachusetts
01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey 08543-2359; Mr. Jordan,
200 Park Avenue, New York, New York 10166; and Mr. Schafer, P.O. Box 1164,
Princeton, New Jersey 08542. The address of each of Mr. Minard and the officers
listed above, other than Mr. Layman and Ms. Thomas, is 1285 Avenue of the
Americas, New York, New York, 10019. The address of Mr. Layman and Ms. Thomas is
3003 Summer Street, Stamford, Connecticut 06094.
By virtue of the responsibilities assumed by Mitchell Hutchins under its
Investment Advisory and Administration Agreement with the Trust, and by GEIM
under its sub-investment advisory agreement with Mitchell Hutchins and the
Trust, the Fund requires no executive employees other than officers of the
Trust, none of whom devotes full time to the affairs of the Fund. Trustees and
officers of the Trust, as a group, owned less than 1% of each of the outstanding
Class A shares, Class B shares and Class C shares as of August 1, 1995. No Class
E shares were outstanding on that date.
The Trust pays each Trustee who is not an officer, director or employee of
Mitchell Hutchins, GEIM, or any of their affiliates, an annual retainer, per
fund, of $1,000, and $375 for each board of trustees meeting attended, and
reimburses the Trustee for out-of-pocket expenses associated with attendance at
board meetings. The chairman of the board's audit committee receives an annual
fee, per fund, of $250. No officer, director or employee of Mitchell Hutchins,
GEIM, or any of their affiliates, receives any compensation from the Trust for
serving as an
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officer or Trustee of the Trust. For the fiscal year ended August 31, 1994, the
Trust paid $57,907 in Trustees' fees and out-of-pocket expenses, of which
$10,391 was allocated to the Fund.
The following table shows the total compensation paid by the Trust for the
fiscal year ended August 31, 1994 and by all investment companies in the same
complex during the calendar year ended December 31, 1994 to Trustees that are
not 'interested persons' of the Trust.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
MITCHELL RETIREMENT FROM FUNDS
HUTCHINS/ BENEFITS IN THE
KIDDER, ACCRUED AS ESTIMATED COMPLEX
PEABODY PART OF A ANNUAL PAID TO
INVESTMENT FUND'S BENEFITS UPON INDEPENDENT
NAME OF BOARD MEMBER TRUST EXPENSES RETIREMENT MEMBER
------------------------------------------------------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
David J. Beaubein...................................... $ 18,000 -- -- $ 80,700
William W. Hewitt, Jr.................................. 17,250 -- -- 74,425
Thomas R. Jordan....................................... 18,000 -- -- 83,125
Frank P.L. Minard...................................... -- -- -- --
Carl W. Schafer........................................ 19,250 -- -- 84,575
</TABLE>
MANAGEMENT
The Fund bears all expenses incurred in its operation that are not specifically
assumed by Mitchell Hutchins or GEIM. General expenses of the Trust not readily
identifiable as belonging to the Fund are allocated among the Fund or the
Trust's other series by or under the direction of the Board of Trustees in such
manner as the board deems to be fair and equitable. Expenses borne by the Fund
include the following (or the Fund's share of the following): (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith, (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins, (3) organizational
expenses, (4) filing fees and expenses relating to the registration and
qualification of the Fund's shares and the Trust under federal and state
securities laws and maintenance of such registrations and qualifications, (5)
fees and salaries payable to Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust or Mitchell Hutchins, (6) all expenses incurred in
connection with the Trustees' services, including travel expenses, (7) taxes
(including any income or franchise taxes) and governmental fees, (8) costs of
any liability, uncollectable items of deposit and other insurance or fidelity
bonds, (9) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Trust or the Fund for violation
of any law, (10) legal, accounting and auditing expenses, including legal fees
of special counsel for the independent Trustees, (11) charges of custodians,
transfer agents and other agents, (12) costs of preparing share certificates,
(13) expenses of setting in type and printing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials for existing shareholders, and costs of mailing such
materials to existing shareholders, (14) any extraordinary expenses (including
fees and disbursements of counsel) incurred by the Trust or the Fund, (15) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations, (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the Board and any committees
thereof, (17) the cost of investment company
13
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literature and other publications provided to Trustees and officers and (18)
costs of mailing, stationery and communications equipment.
For the fiscal years ended August 31, 1994 and August 31, 1993 and for the
period November 14, 1991 (commencement of operations) through August 31, 1992,
the Trust paid fees with respect to the Fund of $2,339,156, $1,284,039 and
$763,896, respectively, to Kidder Peabody Asset Management, Inc. ('KPAM'), the
Trust's investment manager during those periods.
For the fiscal years ended August 31, 1994 and August 31, 1993 and for the
period November 14, 1991 (commencement of operations) through August 31, 1992,
KPAM paid fees of $1,637,409, $936,271 and $534,727, respectively, to GEIM with
respect to the Fund.
Mitchell Hutchins has agreed that, if in any fiscal year of the Fund, the
aggregate expenses of the Fund (including management fees, but excluding
interest, taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Trust, Mitchell Hutchins
will reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of Mitchell Hutchins' fees under its
agreement with the Trust in respect of the Fund. Any expense reimbursement will
be estimated, reconciled and paid on a monthly basis. As of the date of this
Statement of Additional Information, the most restrictive state expense
limitation applicable to the Fund requires reimbursement of expenses in any year
that the Fund's expenses subject to the limitation exceed 2 1/2% of the first
$30 million of the average daily value of the Fund's net assets, 2% of the next
$70 million of the average daily value of the Fund's net assets and 1 1/2% of
the remaining average daily value of the Fund's net assets. For the fiscal year
ended August 31, 1994, the Fund's expenses did not exceed such limitations.
Under their respective agreements with the Trust in respect of the Fund,
each of Mitchell Hutchins and GEIM will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust with respect to the Fund
in connection with the matters to which the agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under the agreement.
DISTRIBUTOR
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York
10019, serves as the distributor of the Fund's shares on a best efforts basis.
Under Shareholder Servicing and Distribution Plans (the 'Plan') adopted by the
Trust with respect to the Fund pursuant to Rule 12b-1 under the 1940 Act, the
Trust pays Mitchell Hutchins monthly fees calculated at the aggregate annual
rates of .25%, and 1.00%, of the value of the Fund's average daily net assets
attributed to Class A shares, and Class B and Class E shares, respectively.
Under their terms, the Plans continue from year to year, so long as their
continuance is approved annually by vote of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plans (the 'Independent Trustees'). The Plans may not be amended to increase
materially the amount to be spent for the services provided by Mitchell Hutchins
without Fund shareholder approval, and all material amendments of the Plans also
must be approved by the Trustees in the manner described above. The Plans may be
terminated with respect to a Class at any time, without penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
14
<PAGE>
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outstanding voting securities (as defined in the 1940 Act) represented by the
Class on not more than 30 days' written notice to Mitchell Hutchins.
Pursuant to the Plans, Mitchell Hutchins provides the Trust's Board of
Trustees with periodic reports of amounts expended under the Plans and the
purpose for which the expenditures were made. The Trustees believe that the
Fund's expenditures under the Plans benefit the Fund and its shareholders by
providing better shareholder services and by facilitating the distribution of
shares. With respect to Class A shares, for the fiscal year ended August 31,
1994, Kidder, Peabody, then the Trust's distributor, received $418,200 from the
Fund, of which it is estimated that $213,663 was spent on commission credits to
branch offices for payments of shareholder servicing compensation to investment
executives and $204,537 was spent on overhead and other branch office
shareholder servicing-related expenses. With respect to Class B shares, for the
fiscal year ended August 31, 1994, Kidder, Peabody received $227,554 from the
Fund, of which it is estimated that $995 was spent on advertising, $2,217 was
spent on printing and mailing of prospectuses to other than current
shareholders, $118,333 was spent on commission credits to branch offices for
payments of commissions and shareholder servicing compensation to investment
executives and $106,009 was spent on overhead and other branch office
distribution or shareholder servicing-related expenses. No Class E shares were
outstanding during that year. The term 'overhead and other branch office
distribution or shareholder servicing-related expenses' represented (1) the
expenses of operating Kidder, Peabody branch offices in connection with the sale
of Fund shares or servicing of shareholder accounts, including lease costs, the
salaries and employee benefits of operations and sales and servicing support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (2) the costs of client sales seminars, (3) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (4) other
incidental expenses relating to branch promotion or servicing of Fund sales.
CUSTODIAN AND RECORDKEEPING AGENT
State Street Bank and Trust Company ('State Street'), located at One Monarch
Drive, North Quincy, Massachusetts 02171, serves as the Fund's custodian and
recordkeeping agent. In those capacities, State Street maintains custody of the
Fund's portfolio securities, calculates each Class' net asset value per share
and maintains certain accounting and financial records of the Fund. Under its
custodial agreement with the Trust, State Street is authorized to appoint one or
more banking institutions as sub-custodians of assets owned by the Fund.
TRANSFER AND DIVIDEND AGENT
PFPC Inc. a subsidiary of PNC Bank, National Association, whose principal
address is 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as the
Fund's transfer and dividend agent. As transfer agent, it maintains the Trust's
official record of Fund shareholders, and as dividend agent, it is responsible
for crediting dividends to the accounts of Fund shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, located at 787 Seventh Avenue New York, New York 10019,
serves as independent auditors for the Trust. In that capacity, Ernst & Young
LLP audits the Trust's financial statements.
15
<PAGE>
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COUNSEL
Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, serves as counsel to the Trust.
PRINCIPAL SHAREHOLDERS
With respect to the Fund, to the knowledge of the Trust, First Agricultural
Bank, Customers Security Account, c/o Mitchell Hutchins Asset Management Inc.,
1285 Avenue of the Americas, New York, New York 10019, owned 6.38% of Class A's
shares of beneficial interest on August 22, 1995.
With respect to the Fund, to the knowledge of the Trust, the following
persons owned of record 5% or more of Class C's shares of beneficial interest on
August 22, 1995:
Subaru of New England, Global Account, c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, New York 10019,
owned 39.33% of the Class' outstanding shares.
Ernest J. Boch, Global Account, c/o Mitchell Hutchins Asset Management
Inc., 1285 Avenue of the Americas, New York, New York 10019, owned 7.71% of
the Class' outstanding shares.
The Fund is not aware as to whether or to what extent shares owned of
record also are owned beneficially.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Detailed information on how to redeem shares of the Fund is included in the
Prospectus. The right of redemption of shares of the Fund may be suspended or
the date of payment postponed (1) for any periods during which the New York
Stock Exchange (the 'NYSE') is closed (other than for customary weekend and
holiday closings), (2) when trading in the markets the Fund normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the SEC,
exists, making disposal of the Fund's investments or determination of net asset
value not reasonably practicable or (3) for such other periods as the SEC by
order may permit for the protection of the Fund's shareholders.
SYSTEMATIC WITHDRAWAL PLAN
On or about the 15th of each month for monthly plans and on or about the 15th of
the months selected for quarterly or semiannual 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 three 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
16
<PAGE>
--------------------------------------------------------------------------------
instructions with signatures guaranteed are received by the Transfer Agent.
Shareholders may request the forms needed to establish a systematic withdrawal
plan from their PaineWebber investment executives, correspondent firms or the
Transfer Agent at 1-800-647-1568.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES
As described in the Prospectus, shareholders who have redeemed their Class A
shares may reinstate their account in the Fund without a sales charge.
Shareholders may exercise the reinstatement privilege by notifying the Transfer
Agent of such desire and forwarding a check for the amount to be purchased
within 365 days after the date of redemption. The reinstatement will be made at
the net asset value per share next computed after the notice of reinstatement
and check are received. The amount of a purchase under this reinstatement
privilege cannot exceed the amount of the redemption proceeds. Gain on a
redemption is taxable regardless of whether the reinstatement privilege is
exercised; however, a loss arising out of a redemption will not be deductible to
the extent the reinstatement privilege is exercised within 30 days after
redemption, and an adjustment will be made to the shareholder's tax 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.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN'sm';
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT'R' (RMA'R')
Shares of the PaineWebber and MH/KP 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 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.
17
<PAGE>
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The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING
Periodic investing in the PW Funds or other mutual funds, whether through the
Plan or otherwise, helps investors establish and maintain a disciplined approach
to accumulating assets over time, de-emphasizing the importance of timing the
market's highs and lows. Periodic investing also permits an investor to take
advantage of 'dollar cost averaging.' By investing a fixed amount in mutual fund
shares at established intervals, an investor purchases more shares when the
price is lower and fewer shares when the price is higher, thereby increasing his
or her earning potential. Of course, dollar cost averaging does not guarantee a
profit or protect against a loss in a declining market, and an investor should
consider his or her financial ability to continue investing through periods of
low share prices. However, over time, dollar cost averaging generally results in
a lower average original investment cost than if an investor invested a larger
dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT
In order to enroll in the Plan, an investor must have opened an RMA account with
PaineWebber or one of its correspondent firms. The RMA account is 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 five RMA money market funds -- RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund and RMA New York Municipal Money Fund. Each money market fund
attempts to maintain a stable price per share of $1.00, although there can
be no assurance that it will be able to do so. Investments in the money
market funds are not insured or guaranteed by the U.S. government;
check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders
can code their checks to classify expenditures. All canceled checks are
returned each month;
Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
18
<PAGE>
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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 E SHARES
Class E shares of the Fund will automatically convert to Class A shares, based
on the relative net asset values per share of each of the two Classes, as of the
close of business on the first business day of the month in which the sixth
anniversary of the initial issuance of such Class E shares of the Fund occurs.
For the purpose of calculating the holding period required for conversion of
Class E shares, the date of initial issuance shall mean (1) the date on which
such Class E shares were issued or (2) for Class E shares obtained through an
exchange, or a series of exchanges, the date on which the original Class E
shares were issued. If the shareholder acquired Class E shares of the Fund
through an exchange of Class E shares of a CDSC Fund (defined as PaineWebber
mutual funds that offered shares subject to contingent deferred sales charges
before the implementation of the Flexible Pricing System on July 1, 1991) 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 E shares
purchased through the reinvestment of dividends and other distributions paid in
respect of Class E shares will be held in a separate sub-account. Each time any
Class E 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 E shares in the
sub-account will also convert to Class A. The portion will be determined by the
ratio that the shareholder's Class E shares converting to Class A bears to the
shareholder's total Class E 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 E 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 E shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class E 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.
EXCHANGE PRIVILEGE
The exchange privilege described in the Prospectus may be suspended or postponed
if (1) redemption of Fund shares is suspended under Section 22(e) of the 1940
Act or (2) the Trust temporarily delays or ceases the sale of the Fund's shares
because the Fund is unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
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DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, net asset value is not calculated on certain
holidays. On those days, securities held by the Fund may nevertheless be
actively traded, and the value of the Fund's shares could be significantly
affected.
The Fund invests principally in foreign securities and, as a result, the
calculation of each Class' net asset value may not take place contemporaneously
with the determination of the prices of certain of the portfolio securities used
in the calculation. A security that is listed or traded on more than one
exchange is valued for purposes of calculating each Class' net asset value at
the quotation on the exchange determined to be the primary market for the
security. All assets and liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Trust's Board of Trustees.
In carrying out the Board's valuation policies, State Street may consult with an
independent pricing service retained by the Trust.
TAXES
Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.
TAX STATUS OF THE FUND AND ITS SHAREHOLDERS
The Fund is treated as a separate entity for federal income tax purposes. The
Fund's net investment income, capital gains and distributions will be determined
separately from any other series that the Trust may designate.
The Fund has qualified for the fiscal year ended August 31, 1994 to be
treated as a 'regulated investment company' under the Code and intends to
continue to qualify for this treatment for each year. If the Fund (1) is a
regulated investment company and (2) distributes to its shareholders at least
90% of its net investment income (including for this purpose its net realized
short-term capital gains), the Fund will not be liable for federal income taxes
to the extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
The Fund's transactions in foreign currencies, forward currency contracts,
options and futures contracts (including options and futures on foreign
currencies) are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules (1) could
affect the character, amount and timing of distributions to shareholders of the
Fund, (2) will require the Fund to 'mark to market' certain types of the
positions in its portfolio (that is, treat them as if they were closed out), and
(3) may cause the Fund to recognize income without receiving cash with which to
make distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes described above and in the Prospectus. The
Fund seeks to monitor its transactions, seeks to make the appropriate tax
elections and seeks to make the appropriate entries in its books and records
when it acquires any foreign currency, forward
20
<PAGE>
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currency contract, option, futures contract or hedged investment, to mitigate
the effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long-term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short-term capital gain or
loss if the shareholder has held the shares for one year or less.
The Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, are taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Fund shares, and are designated as capital gain
dividends in a written notice mailed by the Trust to the shareholders of the
Fund after the close of the Fund's prior taxable year. If a shareholder receives
a capital gain dividend with respect to any Fund share, and if the share is sold
before it has been held by the shareholder for more than six months, then any
loss on the sale or exchange of the share, to the extent of the capital gain
dividend, will be treated as a long-term capital loss.
Investors considering buying Fund shares on or just prior to the record
date for a taxable dividend or capital gain distribution should be aware that
the amount of the forthcoming dividend or distribution payment will be a taxable
dividend or distribution payment.
Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of a PaineWebber or MH/KP fund
on which a sales charge normally is imposed without paying a sales charge in
accordance with the exchange privilege described in the Prospectus. In these
cases, any gain on the disposition of the Fund shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the adjusted basis of the fund shares subsequently
acquired. In addition, if shares of the Fund are purchased within 30 days of
redeeming shares at a loss, the loss will not be deductible and instead will
increase the basis of the newly purchased shares.
If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to 'backup withholding,' then the
shareholder may be subject to a 31% 'backup withholding' tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular federal income
tax liability.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign entities classified under the
Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.
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The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund. If the Fund is not able
to make the foregoing election, it may be able to avoid the interest charge (but
not the ordinary income treatment) on disposition of the stock by electing,
under proposed regulations, each year to mark-to-market the stock (that is,
treat it as if it were sold for fair market value). Such an election could also
result in acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
As noted in the Prospectus, the Trust, from time to time, may quote the Fund's
performance, in terms of the Classes' total returns, in reports or other
communications to shareholders or in advertising material. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of any Class, it will also disclose this information for the other
Classes.
A Class' average annualized total return figures described in the
Prospectus are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1 + T)'pp'n = ERV
<TABLE>
<S> <C>
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
'pp'n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-
or 10-year period at the end of a 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
Set forth below is the average annual total return information for the
periods indicated expressed as a percentage:
<TABLE>
<CAPTION>
CLASS A SHARES
--------------------
MAXIMUM SALES
CHARGE**
--------------------
INCLUDED EXCLUDED CLASS B SHARES* CLASS C SHARES*
-------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
1 year ended August 31, 1994.................. 11.41% 18.23% 17.29% 18.49%
Inception (November 14, 1991) to August 31,
1994........................................ 12.13 14.52
May 10, 1993 to August 31, 1994............... 17.43 18.59
</TABLE>
------------
* Prior to May 10, 1993 no Class B or C shares were publicly issued and, as of
the date of this Statement of Additional Information, no Class E shares are
outstanding.
** Reflects 5.75% maximum sales charge in effect during such periods. Effective
July 3, 1995, the maximum sales charge is 4.50%.
22
<PAGE>
Each Class' performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Class' performance for any specified period in the future.
In addition, because a Class' performance will fluctuate, it may not provide a
basis for comparing an investment in a Class with certain bank deposits or other
investments that pay a fixed yield for a stated period of time.
GENERAL INFORMATION
The Trust was organized as an unincorporated business trust under the laws of
The Commonwealth of Massachusetts pursuant to a Declaration of Trust dated March
28, 1991, as amended from time to time (the 'Declaration'). In the interest of
economy and convenience, certificates representing shares in the Trust are not
physically issued. PFPC Inc. maintains a record of each shareholder's ownership
of Fund shares.
Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust. Thus, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
Prior to August 25, 1995, the name of the Fund was 'Mitchell
Hutchins/Kidder, Peabody Global Equity Fund.' Prior to February 13, 1995, the
name of the Fund was 'Kidder, Peabody Global Equity Fund.'
23
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995
--------------------------------------------------------------------------------
COMMON STOCKS -- 90.67%
----------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------- -----------
<S> <C> <C>
UNITED STATES -- 24.05%
----------------------------------------------------------
AUTOMOTIVE -- 2.04%
94,134 Chrysler Corp. ......... $ 4,094,829
-----------
BANKING -- 1.23%
38,380 J.P. Morgan & Co.,
Inc. ................... 2,475,510
-----------
COMMERCIAL SERVICES -- 1.89%
69,081 Ecolab, Inc. ........... 1,597,498
31,795 First Financial
Management Corp. ....... 2,197,829
-----------
3,795,327
-----------
COMPUTER SYSTEMS -- 2.04%
40,723 International Business
Machines Corp. ......... 3,064,406
28,350 Zebra Technologies Corp.
Class A................. 1,031,231
-----------
4,095,637
-----------
CONGLOMERATES -- DIVERSIFIED -- 2.36%
124,654 Allied Signal, Inc. .... 4,736,852
-----------
CONSUMER PRODUCTS -- 4.42%
49,114 Colgate-Palmolive
Co. .................... 3,167,853
129,615 Fruit of the Loom, Inc.
Class A................. 3,029,751
95,581 Toys 'R' Us Inc.*....... 2,664,320
-----------
8,861,924
-----------
DRUGS & MEDICAL PRODUCTS -- 2.30%
133,462 Sunrise Medical,
Inc.*................... 4,604,439
-----------
ELECTRONICS & ELECTRICAL
EQUIPMENT -- 1.38%
34,661 Intel Corp. ............ 2,764,215
-----------
ENVIRONMENTAL SERVICES -- 1.56%
227,941 Wheelabrator
Technologies, Inc. ..... 3,134,189
-----------
FINANCIAL SERVICES -- 3.07%
246,786 Countrywide Credit
Industries, Inc. ....... 4,010,272
55,108 Travelers, Inc. ........ 2,142,324
-----------
6,152,596
-----------
FOREST PRODUCTS & PAPER -- 1.76%
46,333 International Paper
Co. .................... 3,538,683
-----------
Total United States Common Stocks....... 48,254,201
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------- -----------
<S> <C> <C>
ARGENTINA -- 0.45%
----------------------------------------------------------
OIL & GAS -- 0.03%
7,703 Transportadora de Gas del
Sur S.A. ADR.............. $ 66,438
-----------
TELECOMMUNICATIONS -- 0.42%
23,279 Telecom Argentina
STET -- France Telecom
S.A. ADR.................. 832,224
-----------
Total Argentina Common Stocks............. 898,662
-----------
AUSTRALIA -- 2.68%
----------------------------------------------------------
FOODS -- 1.27%
1,063,724 Burns, Philip & Co.,
Ltd. ..................... 2,552,498
-----------
TRANSPORTATION -- 1.41%
298,683 Brambles Industries
Ltd. ..................... 2,831,578
-----------
Total Australia Common Stocks............. 5,384,076
-----------
AUSTRIA -- 1.60%
----------------------------------------------------------
ENGINEERING & CONTSRUCTION -- 1.07%
19,928 VA Technologie AG*........ 2,142,088
-----------
OIL & GAS -- 0.53%
11,079 OMV AG.................... 1,074,712
-----------
Total Austria Common Stocks............... 3,216,800
-----------
DENMARK -- 2.08%
----------------------------------------------------------
BANKING -- 0.82%
28,752 Den Danske Bank A/S....... 1,657,405
-----------
COMMERCIAL SERVICES -- 1.26%
81,660 ISS International Service
System A/S 'B'............ 2,522,763
-----------
Total Denmark Common Stocks............... 4,180,168
-----------
FRANCE -- 9.84%
----------------------------------------------------------
AUTOMOTIVE -- 2.23%
93,612 Valeo SA.................. 4,481,183
-----------
BANKING -- 1.36%
61,435 Banque Nationale de
Paris..................... 2,725,253
-----------
OIL & GAS -- 4.42%
175,249 Coflexip SA ADR........... 4,425,037
80,302 Compagnie Francaise de
Petroleum Total Class B... 4,442,172
-----------
8,867,209
-----------
RETAIL/GROCERY -- 1.83%
8,966 Carrefour SA.............. 3,662,625
-----------
Total France Common Stocks................ 19,736,270
-----------
</TABLE>
24
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCKS -- (continued)
----------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------- -----------
<S> <C> <C>
GERMANY -- 4.92%
----------------------------------------------------------
DRUGS & MEDICAL PRODUCES -- 1.09%
5,592 Gehe AG................... $ 2,182,965
-----------
RETAIL -- 1.25%
7,523 AVA Aligemeine
Handelsgesellschaft der
Verbraucher AG............ 2,505,428
-----------
UTILITY -- 2.58%
14,396 Veba AG................... 5,179,911
-----------
Total Germany Common Stocks............... 9,868,304
-----------
HONG KONG -- 5.92%
----------------------------------------------------------
BROADCAST -- 1.36%
723,600 Television Broadcasts
Ltd. ..................... 2,723,503
-----------
CONGLOMERATES -- DIVERSIFIED -- 1.58%
748,800 Hutchinson Whampoa
Ltd. ..................... 3,176,698
-----------
INSURANCE -- 0.49%
1,514,000 National Mutual Asia
Ltd. ..................... 979,111
-----------
RETAIL -- 2.49%
8,088,000 Giordano Holdings Ltd. ... 4,995,176
-----------
Total Hong Kong Common Stocks............. 11,874,488
-----------
INDONESIA -- 0.48%
----------------------------------------------------------
AUTOMOTIVE -- 0.48%
572,000 P.T. Astra
International............. 967,742
-----------
ITALY -- 2.07%
----------------------------------------------------------
BANKING -- 0.46%
44,785 Istituto Mobiliare
Italiano SPA.............. 244,404
40,047 Istituto Mobiliare
Italiano SPA ADR.......... 675,793
-----------
920,197
-----------
TELECOMMUNICATIONS -- 1.61%
804,600 Stet-Societa Finanziaria
Telefonica SPA............ 2,236,474
430,422 Stet-Societa Financiaria
Telefonica SPA
(non-convertible savings
shares)................... 989,906
-----------
3,226,380
-----------
Total Italy Common Stocks................. 4,146,577
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------- -----------
<S> <C> <C>
JAPAN -- 10.56%
----------------------------------------------------------
AUTOMOTIVE -- 1.82%
388,000 Suzuki Motor Co., Ltd. ... $ 3,656,397
-----------
ELECTRONICS & ELECTRICAL
EQUIPMENT -- 4.95%
168,000 Canon Inc. ............... 2,505,256
91,000 Hoshiden Corp. ........... 1,460,674
42,000 Murata Manufacturing Co.,
Ltd. ..................... 1,387,459
62,000 Omron Corp. .............. 969,502
68,000 Secom Co., Ltd. .......... 3,605,447
-----------
9,928,338
-----------
TELECOMMUNICATIONS -- 1.74%
470 DDI Corp. ................ 3,489,774
-----------
TRUCK & LEASING -- 2.05%
462,000 Nippon Express Co.,
Ltd. ..................... 4,114,534
-----------
Total Japan Common Stocks................. 21,189,043
-----------
MALAYSIA -- 2.29%
----------------------------------------------------------
BANKING -- 1.05%
228,000 AMMB Holdings Berhad...... 2,116,983
-----------
TELECOMMUNICATIONS -- 1.24%
354,000 Telekom Malaysia Berhad... 2,482,507
-----------
Total Malaysia Common Stocks.............. 4,599,490
-----------
MEXICO -- 1.72%
----------------------------------------------------------
FINANCIAL SERVICES -- 0.23%
129,654 Grupo Financiero Bancomer,
S.A. de C.V. ADR'D'....... 453,789
-----------
HOLDING COMPANY -- 0.11%
30,533 Grupo Carso, S.A. de C.V.
ADR*'D'................... 213,731
-----------
IRON/STEEL -- 0.06%
32,580 Grupo Simec, S.A. de C.V.
ADR*...................... 130,320
-----------
TELECOMMUNICATIONS -- 1.32%
716,030 Telefonos de Mexico S.A.,
Class L................... 985,812
60,262 Telefonos de Mexico S.A.,
Class L ADR............... 1,664,738
-----------
2,650,550
-----------
Total Mexico Common Stocks................ 3,448,390
-----------
</TABLE>
25
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCKS -- (continued)
----------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------- -----------
<S> <C> <C>
NEW ZEALAND -- 0.52%
----------------------------------------------------------
HOUSEHOLD APPLIANCES -- 0.52%
408,248 Fisher & Paykel Industries
Ltd. ..................... $ 1,047,851
-----------
NORWAY -- 2.31%
----------------------------------------------------------
COMMERCIAL SERVICES -- 2.31%
207,232 Petroleum Geo-Services*... 4,627,221
-----------
SOUTH AFRICA -- 1.05%
----------------------------------------------------------
IRON/STEEL -- 1.05%
1,967,683 Iscor Ltd. ............... 2,083,134
149,400 Iscor Ltd. Rights......... 16,007
-----------
Total South Africa Common Stocks.......... 2,099,141
-----------
SWEDEN -- 2.98%
----------------------------------------------------------
DRUGS & MEDICAL PRODUCTS -- 2.38%
82,205 Apo AB.................... 1,435,876
135,045 Astra AB 'B'.............. 3,344,751
-----------
4,780,627
-----------
TRANSPORTATION -- 0.60%
76,644 Laebuss AB 'A' Free....... 1,208,005
-----------
Total Sweden Common Stocks................ 5,988,632
-----------
SWITZERLAND -- 8.28%
----------------------------------------------------------
DRUGS & MEDICAL PRODUCTS -- 2.64%
956 Roche Holding AG.......... 5,307,234
-----------
ELECTRONIC & ELECTRICAL
EQUIPMENT -- 2.47%
5,676 BBC Brown Boveri Ltd. .... 4,957,869
-----------
FOODS -- 1.97%
4,083 Nestle SA-Registered...... 3,953,854
-----------
TRANSPORTATION -- 1.20%
2,631 Danzas Holding AG......... 2,400,547
-----------
Total Switzerland Common Stocks........... 16,619,504
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------- -----------
<S> <C> <C>
THAILAND -- 0.90%
----------------------------------------------------------
BANKING -- 0.89%
215,230 Thai Farmers Bank, Ltd. .. $ 1,777,762
-----------
CONSUMER PRODUCTS -- 0.01%
950 International Cosmetics
Ltd. ..................... 13,332
-----------
Total Thailand Common Stocks.............. 1,791,094
-----------
UNITED KINGDOM -- 5.97%
----------------------------------------------------------
BUILDING MATERIALS -- 1.42%
614,965 BPB Industries PLC........ 2,858,151
-----------
DRUGS & MEDICAL PRODUCTS -- 1.49%
1,063,421 Medeva PLC................ 2,980,610
-----------
ENVIRONMENTAL SERVICES -- 1.33%
354,175 Waste Management
International PLC......... 1,794,711
83,562 Waste Management
International PLC, ADR.... 877,401
-----------
2,672,112
-----------
HEALTHCARE -- 1.19%
803,327 Takare PLC................ 2,391,536
-----------
LEISURE -- 0.54%
164,441 Airtours PLC.............. 1,089,763
-----------
Total United Kingdom Common Stocks........ 11,992,172
-----------
Total Common Stocks
(cost -- $163,386,850).................. 181,929,826
-----------
PREFERRED STOCKS -- 3.34%
----------------------------------------------------------
AUSTRIA -- 1.06%
----------------------------------------------------------
BANKING -- 1.06%
35,083 Creditanstalt-Bankverein... 2,129,133
-----------
GERMANY -- 2.28%
----------------------------------------------------------
COMPUTER SYSTEMS -- 2.28%
5,540 SAP AG.................... 4,584,014
-----------
Total Preferred Stocks
(cost -- $3,052,852).................... 6,713,147
-----------
</TABLE>
26
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S GOVERNMENT OBLIGATIONS -- 9.86%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
------------- -------- -------- ------------
<S> <C> <C> <C> <C>
$ 8,600 Federal Farm Credit Bank Discount Notes................... 03/14/95 5.890% $ 8,581,708
1,800 Federal Home Loan Mortgage Corp. Discount Notes........... 03/01/95 5.950 1,800,000
1,800 Federal Home Loan Mortgage Corp. Discount Notes........... 03/02/95 5.780 1,799,711
7,600 Federal National Mortgage Association Discount Notes...... 03/07/95 5.860 7,592,578
------------
Total U.S. Government Obligations (cost -- $19,773,997)................ 19,773,997
------------
</TABLE>
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.87%
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
5,750 Repurchase Agreement dated 2/28/95, with State Street
Bank and Trust Company, collateralized by $5,505,000
U.S. Treasury Notes, 8.875% due 2/15/99;
proceeds: $5,750,958...................................... 03/01/95 6.00% 5,750,000
------------
Total Repurchase Agreements (cost -- $5,750,000)......................... 5,750,000
------------
TOTAL INVESTMENTS (cost -- $191,963,699) -- 106.74%...................... 214,166,970
Liabilities in excess of other assets -- (6.74%)......................... (13,532,351)
------------
NET ASSETS -- 100.00%.................................................... $200,634,619
------------
------------
</TABLE>
------------------
* Non-income producing security.
'D' Security restricted as to resale.
ADR -- American Depository Receipts
--------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
TO MATURITY APPRECIATION
DELIVER IN EXCHANGE FOR DATES (DEPRECIATION)
----------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Dollars.................. 850,726 ATS8,798,206 03/06/95 $ 3,593
U.S. Dollars.................. 198,755 ATS2,033,461 03/06/95 (1,302)
Hong Kong Dollars............. 85,380 US$ 11,042 03/01/95 (1)
New Zealand Dollars........... 50,285 US$ 31,755 03/01/95 (114)
New Zealand Dollars........... 77,639 US$ 49,037 03/02/95 (167)
New Zealand Dollars........... 460,809 US$ 291,830 03/03/95 (209)
-------
$ 1,800
-------
-------
</TABLE>
------------------
CURRENCY TYPE ABBREVIATIONS:
<TABLE>
<S> <C> <C> <C>
ATS -- Austrian Schillings CHF -- Swiss Francs HKD -- Hong Kong Dollars NZD -- New Zealand Dollars
</Table
See accompanying notes to financial statements.
27
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 28, 1995
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost -- $191,963,699)..................................... $214,166,970
Cash denominated in foreign currencies, at value (cost -- $708,496)............................ 698,024
Receivable for investments sold................................................................ 1,157,375
Dividends and interest receivable (cost -- $340,862)........................................... 353,552
Receivable for shares of beneficial interest sold.............................................. 220,371
Receivable from transfer agent................................................................. 188,130
Unrealized appreciation on forward foreign currency contracts.................................. 2,291
Other assets................................................................................... 137,850
------------
Total assets............................................................................... 216,924,563
------------
LIABILITIES:
Payable to custodian........................................................................... 11,625,034
Payable for investments purchased.............................................................. 2,306,528
Payable for shares of beneficial interest repurchased.......................................... 1,948,094
Unrealized depreciation on forward foreign currency contracts.................................. 491
Payable to affiliates.......................................................................... 209,767
Accrued expenses and other liabilities......................................................... 200,030
------------
Total liabilities.......................................................................... 16,289,944
------------
NET ASSETS:
Beneficial interest shares of $0.001 par value outstanding (unlimited amount authorized)....... 179,169,400
Accumulated undistributed net investment income................................................ 25,316
Accumulated net realized losses from investment and foreign currency activities................ (773,514)
Net unrealized appreciation of investments, other assets, liabilities, and forward contracts
denominated in foreign currencies............................................................. 22,213,417
------------
Net assets................................................................................. $200,634,619
------------
------------
CLASS A:
Net assets..................................................................................... $145,103,774
------------
Shares outstanding............................................................................. 10,173,570
------------
Net asset value and redemption value per share................................................. $14.26
------
------
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering
price)........................................................................................ $15.13
------
------
CLASS B:
Net assets..................................................................................... $ 27,483,775
------------
Shares outstanding............................................................................. 1,955,883
------------
Net asset value, offering price and redemption value per share................................. $14.05
------
------
CLASS C:
Net assets..................................................................................... $ 28,047,070
------------
Shares outstanding............................................................................. 1,956,969
------------
Net asset value, offering price and redemption value per share................................. $14.33
------
------
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended February 28, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes).................................................... $ 1,296,296
Interest and discounts earned................................................................... 242,208
------------
1,538,504
------------
EXPENSES:
Investment advisory............................................................................. 1,128,151
Distribution fees -- Class B.................................................................... 101,036
Service fees -- Class A......................................................................... 208,129
Service fees -- Class B......................................................................... 49,764
Custody and accounting fees..................................................................... 158,630
Transfer agency fees............................................................................ 74,643
Reports and notices to shareholders............................................................. 40,925
Amortization of organizational expenses......................................................... 30,262
Federal and state registration fees............................................................. 16,486
Legal and audit fees............................................................................ 13,536
Trustees' fees and expenses..................................................................... 4,989
------------
1,826,551
------------
NET INVESTMENT LOSS................................................................................. (288,047)
------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT AND FOREIGN CURRENCY ACTIVITIES:
Net realized gains (losses) from:
Investment activities....................................................................... (3,655,729)
Foreign currency activities................................................................. 2,622,172
Net change in unrealized appreciation (depreciation) of:
Investments................................................................................. (19,872,401)
Other assets, liabilities and forward contracts denominated in foreign currencies........... 3,757
------------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT AND FOREIGN CURRENCY ACTIVITIES.................. (20,902,201)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ $(21,190,248)
------------
------------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1995 AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............................................. $ (288,047) $ 33,457
Net realized gains (losses) from investment activities................... (3,655,729) 19,733,100
Net realized gains (losses) from foreign currency activities............. 2,622,172 (22,678)
Net changes in unrealized appreciation (depreciation) of investments,
other assets, liabilities and forward contracts denominated in foreign
currencies............................................................. (19,868,644) 17,509,713
----------------- ---------------
Net increase (decrease) in net assets resulting from operations.......... (21,190,248) 37,253,592
----------------- ---------------
Net investment income included in prices of shares sold and redeemed..... -- 1,018
----------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized short-term gains from investment activities -- Class A...... (2,549,751) (1,858,584)
Net realized short-term gains from investment activities -- Class B...... (475,944) (230,113)
Net realized short-term gains from investment activities -- Class C...... (487,977) (260,619)
Net realized long-term gains from investment activities -- Class A....... (10,332,659) (580,807)
Net realized long-term gains from investment activities -- Class B....... (1,928,726) (71,910)
Net realized long-term gains from investment activities -- Class C....... (1,977,490) (81,444)
----------------- ---------------
(17,752,547) (3,083,477)
----------------- ---------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares..................................... 24,460,567 78,480,740
Cost of shares repurchased............................................... (48,085,104) (56,319,218)
Proceeds from dividends reinvested....................................... 17,482,084 3,031,120
----------------- ---------------
Net increase (decrease) in net assets derived from beneficial interest
transactions........................................................... (6,142,453) 25,192,642
----------------- ---------------
Net increase (decrease) in net assets.................................... (45,085,248) 59,363,775
NET ASSETS:
Beginning of period...................................................... 245,719,867 186,356,092
----------------- ---------------
End of period (including undistributed net investment income of $25,316
and $422,782, respectively)............................................ $ 200,634,619 $ 245,719,867
----------------- ---------------
----------------- ---------------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Global Equity Fund (formerly Kidder,
Peabody Global Equity Fund) (the 'Fund') is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as an
open-end, diversified investment company.
Organizational Matters -- On May 10, 1993, the Fund adopted the Choice
Pricing System'sm'. Prior to May 10, 1993, the Fund issued only Class A shares;
subsequent to that date the Fund issued Class A, Class B and Class C shares.
Each class represents interests in the same assets of the Fund and the classes
are identical except for differences in the sales charge structure and ongoing
service and distribution charges. All classes of shares have equal rights as to
voting privileges, except that each class has exclusive voting rights with
respect to its distribution plan.
Organization costs are being amortized evenly over a sixty-month period.
Prepaid registration fees are charged to income as the related shares are
issued.
Valuation of Investments -- Securities listed on national securities
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued, or lacking any sales, at the mean between
closing bid and asked prices. Over-the-counter securities are valued on the
basis of the last sale, if available, or on the basis of the bid price at the
close of business on each day, or, if market quotations for those securities are
not readily available, at fair value, as determined in good faith by the Fund's
Trustees. Short-term obligations with maturities of 60 days or less are valued
at amortized cost.
Investment Transactions and Investment Income -- Investment transactions
are recorded as of the trade date. Realized gains and losses on sales of
investments and foreign exchange transactions are calculated using the
identified cost method. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis. Discounts are accreted and
premiums are amortized on a straight-line basis as adjustments to interest
income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
Foreign Currency Translation -- The Fund's financial statements are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) Market value of investment securities, other assets and
liabilities -- at the closing rate of exchange.
31
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
--------------------------------------------------------------------------------
(2) Purchases and sales of investment securities, income and
expenses -- at the rate of exchange prevailing on the respective dates of
such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates from the fluctuations
arising from changes in the market prices of securities held at fiscal year end.
However, the Fund does isolate the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the fiscal year.
Realized currency gain/loss on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities. sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency-denominated assets and liabilities at
year-end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with domestic transactions as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
Forward Foreign Currency Contracts -- The Fund is authorized to enter into
forward foreign currency exchange contracts in connection with planned purchases
or sales of securities or to hedge the U.S. dollar value of portfolio securities
denominated in a particular currency.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. Generally, the Fund
will enter into such forward contracts on the transaction's trade date with a
contracted date coinciding with the settlement date of the underlying security.
Certain risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar. During the period between the forward currency contract's trade date and
settlement date movements in the value of foreign currencies relative to the
U.S. dollar are recognized as unrealized gains or losses. On a daily basis, the
Fund records an unrealized gain or loss to recognize the U.S. dollar value of
the foreign currency contract at the end of each day's trading. Should the
underlying security fail to settle within the contracted period, the forward
currency contract is renegotiated at a new exchange rate. The gain or loss
resulting from the difference between the original and renegotiated settlement
values is recognized and included in realized transaction gain/loss.
32
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
--------------------------------------------------------------------------------
Repurchase Agreements -- The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The value of the collateral must
be a minimum of 100% of the market value of the securities being loaned,
allowing for minor variations arising from marking to market of such collateral.
If the issuer defaults or if bankruptcy or regulatory proceedings are commenced
with respect to the issuer, the realization of the proceeds may be delayed or
limited.
Federal Tax Status -- The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions -- Dividends and distributions to shareholders
are recorded on ex-dividend date. The Fund declares dividends from net
investment income annually. Net capital gains, if any, will be distributed at
least annually, but the Fund may make more frequent distributions of such gains,
if necessary, to avoid income or excise taxes.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an Investment Advisory and Administration
Contract with Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
wholly owned subsidiary of PaineWebber Incorporated. Mitchell Hutchins serves as
the Fund's investment adviser and administrator and receives a fee, accrued
daily and paid monthly, at the annual rate of 1.00% of the Fund's average daily
net assets. Mitchell Hutchins in turn employs GE Investment Management
Incorporated ('GEIM'), a wholly owned subsidiary of General Electric Company
('GE'), as the Fund's sub-adviser, in which capacity GEIM receives from Mitchell
Hutchins (not the Fund) a fee, paid monthly, calculated and accrued daily at the
annual rate of .70% of the Fund's average daily net assets. At February 28,
1995, the Fund owed Kidder Peabody Asset Management, Inc. ('KPAM'), the Fund's
predecessor investment adviser and administrator, $67,344 in investment advisory
and administration fees.
At a special meeting of shareholders that took place on April 13, 1995,
Mitchell Hutchins was appointed as investment adviser and administrator of the
Fund and GEIM was appointed as the Fund's sub-adviser. The Fund pays the same
fee for investment advisory and administration services to Mitchell Hutchins as
previously paid to KPAM, as described in the Fund's prospectus.
33
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Notes to Financial Statements -- (continued)
--------------------------------------------------------------------------------
Mitchell Hutchins and GEIM continue to manage the Fund in accordance with the
Fund's investment objective, policies and restrictions as stated in the Fund's
prospectus.
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc., its parent, GE, and Paine
Webber Group Inc. ('PW Group'). That period began on February 13, 1995 and ended
on April 13, 1995.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest, brokerage fees, distribution fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitations applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. No expense reimbursement
was required for the six months ended February 28, 1995.
DISTRIBUTION PLANS
Effective February 13, 1995, Mitchell Hutchins serves as the exclusive
distributor of the Fund's shares. Under separate plans of distribution, Class A
shares are sold subject to a front-end sales load and bear a service fee of
0.25% per annum of average class net assets. Class B shares are sold at net
asset value without a sales load and bear a distribution fee of 0.75% per annum
and a service fee of 0.25% per annum of average class net assets. The Fund pays
Mitchell Hutchins the service and distribution fees monthly. For these services
for the period ended February 13, 1995, Kidder, Peabody & Co. Incorporated, the
Fund's predecessor distributor, earned $330,637 in fees. At February 28. 1995,
$28,292 was payable to Mitchell Hutchins for the period from February 13 to
February 28, 1995. Mitchell Hutchins also receives the proceeds of any front-end
sales loads with respect to the purchase of Class A shares.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February
28, 1995 was substantially the same as the cost of securities for financial
statement purposes.
34
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Notes to Financial Statements -- (concluded)
--------------------------------------------------------------------------------
At February 28, 1995, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost).... $40,109,125
Gross depreciation (investments having an excess of cost over value).... (17,905,854)
-----------
Net unrealized appreciation of investments.............................. $22,203,271
-----------
-----------
</TABLE>
For the six months ended February 28, 1995, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases............................................................... $37,941,577
Sales................................................................... $69,993,499
</TABLE>
BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest, par value $.001 per share. Transactions in
shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------- ------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended February 28, 1995:
Shares sold.................... 785,130 $ 12,750,893 232,017 $ 3,741,367 482,574 $ 7,968,307
Dividends and distributions
reinvested in additional Fund
shares....................... 884,650 12,668,188 168,250 2,377,378 169,482 2,436,518
Shares repurchased............. (2,421,673) (37,397,415) (338,660) (5,145,444) (361,856) (5,542,245)
---------- ------------ --------- ----------- -------- -----------
Net increase (decrease)........ (751,893) $(11,978,334) 61,607 $ 973,301 290,200 $ 4,862,580
---------- ------------ --------- ----------- -------- -----------
---------- ------------ --------- ----------- -------- -----------
Year ended August 31, 1994:
Shares sold.................... 2,764,374 $ 43,492,060 1,520,043 $23,745,336 707,025 $11,244,362
Dividends and distributions
reinvested in additional Fund
shares....................... 149,182 2,394,380 18,552 296,272 21,173 340,468
Shares repurchased................. (2,738,250) (44,032,678) (388,843) (6,218,957) (372,775) (6,067,583)
---------- ------------ --------- ----------- -------- -----------
Net increase....................... 175,306 $ 1,853,762 1,149,752 $17,822,651 355,423 $ 5,517,247
---------- ------------ --------- ----------- -------- -----------
---------- ------------ --------- ----------- -------- -----------
</TABLE>
35
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout
each period is presented below:
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
For the Period
For the Six For the Years Ended November 14,
Months Ended August 31, 1991'D'
February 28, -------------------- to August 31,
1995 1994 1993 1992
------------ -------- -------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 16.98 14.55 $ 12.87 $ 12.00
------------ -------- -------- ----------
Income (loss) from investment operations:
Net investment income (loss)......................... (0.02) 0.01 0.03 0.09
Net realized and unrealized gains (losses) from
investment and foreign currency activities......... (1.44) 2.63 1.89 0.78
------------ -------- -------- ----------
Total income (loss) from investment operations........... (1.46) 2.64 1.92 0.87
------------ -------- -------- ----------
Dividends and distributions:
Dividends from net investment income................. -- -- (0.08) --
Distributions from net realized gains................ (1.26) (0.21) (0.16) --
------------ -------- -------- ----------
Total dividends and distributions........................ (1.26) (0.21) (0.24) --
------------ -------- -------- ----------
Net asset value, end of period........................... $ 14.26 $ 16.98 $ 14.55 $ 12.87
------------ -------- -------- ----------
------------ -------- -------- ----------
Total return (1)......................................... (8.67)% 18.23% 15.24% 7.25%
------------ -------- -------- ----------
------------ -------- -------- ----------
Ratios/Supplemental data:
Net assets, end of period (000's).................... $145,104 $185,493 $156,451 $113,070
Ratios of expenses to average net assets............. 1.65%* 1.58% 1.53% 1.68%*
Ratio of net investment income (loss) to average net
assets............................................. (0.28)%* 0.07% 0.22% 0.93%*
Portfolio turnover................................... 32.45% 50.73% 56.35% 30.32%
</TABLE>
------------
* Annualized
'D' Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net 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 would be lower if sales charges
were included. Total returns for periods less than one year are not
annualized.
36
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Financial Highlights -- (continued)
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout
each period is presented below:
<TABLE>
<CAPTION>
Class B
--------------------------------------------
For the Period
For the Six For the May 10,
Months Ended Year Ended 1993'D'
February 28, August 31, to August 31,
1995 1994 1993
------------ ---------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period.................................... $ 16.81 $ 14.52 $ 13.80
Income (loss) from investment operations:
Net investment income (loss)........................................ 0.04 (0.07) (0.02)
Net realized and unrealized gains (losses) from investment and foreign
currency activities................................................... (1.55) 2.57 0.74
------------ ---------- --------------
Total income (loss) from investment operations.......................... (1.51) 2.50 0.72
------------ ---------- --------------
Dividends and distributions:
Dividends from net investment income................................ -- -- --
Distributions from net realized gains............................... (1.25) (0.21) --
------------ ---------- --------------
Total dividends and distributions....................................... (1.25) (0.21) --
------------ ---------- --------------
Net asset value, end of period.......................................... $ 14.05 $ 16.81 $ 14.52
------------ ---------- --------------
Total return (1)........................................................ (9.01)% 17.29% 5.22%
------------ ---------- --------------
------------ ---------- --------------
Ratios/Supplemental data:
Net assets, end of period (000's)................................... $ 27,484 $ 31,837 $ 10,807
Ratios of expenses to average net assets............................ 2.40%* 2.33% 2.28%*
Ratio of net investment income (loss) to average net assets......... (1.03)%* (0.68)% (0.53)%*
Portfolio turnover.................................................. 32.45% 50.73% 56.35%
</TABLE>
------------
* Annualized
'D' Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. Total returns for
periods less than one year are not annualized.
37
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Financial Highlights -- (concluded)
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout
each period is presented below:
<TABLE>
<CAPTION>
Class C
--------------------------------------------
For the Period
For the Six For the May 10,
Months Ended Year Ended 1993'D'
February 28, August 31, to August 31,
1995 1994 1993
------------ ---------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period.................................... $ 17.03 $ 14.56 $ 13.80
Income (loss) from investment operations:
Net investment income (loss)........................................ 0.00 0.05 0.02
Net realized and unrealized gains (losses) from investment and
foreign currency activities....................................... (1.45) 2.63 0.74
------------ ---------- --------------
Total income (loss) from investment operations.......................... (1.45) 2.68 0.76
------------ ---------- --------------
Dividends and distributions:
Dividends from net investment income................................ -- -- --
Distributions from net realized gains............................... (1.25) (0.21) --
------------ ---------- --------------
Total distributions..................................................... (1.25) (0.21) --
------------ ---------- --------------
Net asset value, end of period.......................................... $ 14.33 $ 17.03 $ 14.56
------------ ---------- --------------
------------ ---------- --------------
Total return (1)........................................................ (8.52)% 18.49% 5.51%
------------ ---------- --------------
------------ ---------- --------------
Ratios/Supplemental data:
Net assets, end of period (000's)................................... $ 28,047 $ 28,390 $ 19,098
Ratios of expenses to average net assets............................ 1.40%* 1.33% 1.28%*
Ratio of net investment income (loss) to average net assets......... (0.03)%* 0.32% 0.47%*
Portfolio turnover.................................................. 32.45% 50.73% 56.35%
</TABLE>
------------
* Annualized
'D' Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. Total returns for
periods less than one year are not annualized.
38
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
--------------------------------------------------------------------------------
Report of Independent Auditors
--------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Mitchell Hutchins/Kidder, Peabody Global Equity Fund
(one of the portfolios constituting the Mitchell Hutchins/
Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Mitchell Hutchins/Kidder, Peabody
Global Equity Fund as of February 28, 1995, and the related statements of
operations and of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
February 28, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly in all material respects, the financial position of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund as of February 28, 1995, the results
of its operations, the changes in its net assets and the financial highlights
for each of the periods presented in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
NEW YORK, NEW YORK
APRIL 21, 1995
39
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Schedule of Investments as of August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
ARGENTINA
Telecom Argentina(28).......................................... 43,492 $ 2,256,277 $ 3,174,916 1.3%
Telefonica de Argentina 1 (ADR)(28)............................ 57,869 2,265,967 4,217,203 1.7
Transportadora de Gas Del Sur.(31)............................. 138,900 1,875,150 1,916,820 0.8
------------ ------------ -----
Total Investments in Argentina....................... 6,397,394 9,308,939 3.8
--------------------------------------------------------------------------------------------------------------------------
AUSTRIA
Creditanstalt Bank(2).......................................... 37,178 2,332,516 2,289,319 0.9
--------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
Brambles Industries Ltd.(7).................................... 368,745 3,728,734 4,106,928 1.7
Burns, Philp & Company Ltd.(31)................................ 1,274,675 3,735,826 3,644,098 1.5
Pacific Dunlop Ltd.(9)......................................... 760,608 2,760,954 2,576,509 1.0
------------ ------------ -----
Total Investments in Australia....................... 10,225,514 10,327,535 4.2
--------------------------------------------------------------------------------------------------------------------------
DENMARK
Den Danske Bank Aktieselskab(2)................................ 35,497 2,100,883 1,816,854 0.7
ISS International Service System A/S(6)........................ 100,814 3,163,967 2,846,894 1.2
------------ ------------ -----
Total Investments in Denmark......................... 5,264,850 4,663,748 1.9
--------------------------------------------------------------------------------------------------------------------------
FRANCE
Banque Nationale de Paris(2)................................... 67,475 3,218,731 3,128,816 1.3
Carrefour SA(15)............................................... 7,458 1,822,691 3,006,835 1.2
Cie Generale des Eaux(26)...................................... 23,153 2,311,679 2,400,074 1.0
Coflexip(19)................................................... 175,249 2,976,297 3,811,666 1.6
Total(23)...................................................... 95,359 4,716,463 5,692,732 2.3
Valeo(1)....................................................... 103,538 3,509,263 5,481,446 2.2
------------ ------------ -----
Total Investments in France.......................... 18,555,124 23,521,569 9.6
--------------------------------------------------------------------------------------------------------------------------
GERMANY
Ava Allegmeine Handelsgesellschaft der Verbraucher AG (27)..... 9,288 4,309,717 3,616,868 1.5
Gehe AG(16).................................................... 9,340 2,029,507 3,353,245 1.4
SAP AG(8)...................................................... 8,740 1,385,657 3,967,948 1.6
Veba AG(22).................................................... 16,695 4,431,211 5,894,467 2.4
------------ ------------ -----
Total Investments in Germany......................... 12,156,092 16,832,528 6.9
--------------------------------------------------------------------------------------------------------------------------
HONG KONG
Giordano Holdings Ltd.(27)..................................... 9,220,000 4,802,559 5,034,926 2.0
Hutchison Whampoa Ltd.(9)...................................... 1,079,000 2,168,294 5,403,587 2.3
Television Broadcasts Ltd.(4).................................. 739,000 1,583,633 3,490,495 1.4
Varitronix International Ltd.(12).............................. 1,072,000 1,439,548 1,609,172 0.6
------------ ------------ -----
Total Investments in Hong Kong....................... 9,994,034 15,538,180 6.3
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Schedule of Investments as of August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ITALY
IMI(2)......................................................... 49,761 $ 394,324 $ 338,308 0.1%
Istituto Mobiliare Italian(2).................................. 44,497 899,028 889,940 0.4
Stet(28)....................................................... 894,000 1,481,790 2,872,207 1.2
Stet Saving (Non Convertible)(28).............................. 478,247 924,515 1,255,206 0.5
------------ ------------ -----
Total Investments in Italy........................... 3,699,657 5,355,661 2.2
--------------------------------------------------------------------------------------------------------------------------
JAPAN
Canon, Inc.(25)................................................ 266,000 3,736,070 4,649,189 1.9
DDI Corp.(28).................................................. 491 3,325,248 5,050,986 2.0
Hoshiden Corp.(12)............................................. 101,000 2,432,497 2,370,537 1.0
Murata Manufacturing Company, Ltd.(12)......................... 43,000 1,512,301 1,863,870 0.8
Nintendo Company, Ltd.(30)..................................... 42,000 3,585,793 2,642,697 1.1
Nippon Express Company, Ltd.(31)............................... 569,000 5,252,830 6,080,699 2.4
Secom Company, Ltd.(7)......................................... 81,000 4,193,629 5,395,955 2.2
Suzuki Motor Corp.(1).......................................... 297,000 3,674,844 3,618,876 1.5
------------ ------------ -----
Total Investments in Japan........................... 27,713,212 31,672,809 12.9
--------------------------------------------------------------------------------------------------------------------------
MALAYSIA
AMMB Holding BHD(2)............................................ 473,000 1,928,215 5,175,459 2.1
Telekom Malaysia Berhad(28).................................... 393,000 2,409,946 3,286,518 1.3
------------ ------------ -----
Total Investments in Malaysia........................ 4,338,161 8,461,977 3.4
--------------------------------------------------------------------------------------------------------------------------
MEXICO
Grupo Financiero Bancomer (ADR)(2)............................. 144,060 4,285,998 3,911,906 1.6
Telefonos De Mexico(28)........................................ 884,478 2,180,905 2,819,469 1.1
Telefonos De Mexico S.A.(28)................................... 52,534 2,976,956 3,296,509 1.3
------------ ------------ -----
Total Investments in Mexico.......................... 9,443,859 10,027,884 4.0
--------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND
Fisher & Paykel(17)............................................ 711,190 1,799,987 1,807,529 0.7
--------------------------------------------------------------------------------------------------------------------------
NORWAY
Petroleum Geo Serv.(23)........................................ 292,680 3,110,818 5,622,202 2.3
--------------------------------------------------------------------------------------------------------------------------
SPAIN
Argentaria(2).................................................. 71,956 3,312,346 3,018,787 1.2
Corporacion Bancaria de Espana(2).............................. 18,547 408,776 389,487 0.2
------------ ------------ -----
Total Investments in Spain........................... 3,721,122 3,408,274 1.4
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Schedule of Investments as of August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SWEDEN
Arjo AB(16).................................................... 82,205 $ 1,127,671 $ 1,277,302 0.5%
Astra AB(16)................................................... 300,858 5,867,615 6,817,318 2.9
Linjebuss AB(31)............................................... 76,644 1,239,118 1,260,364 0.5
------------ ------------ -----
Total Investments in Sweden.......................... 8,234,404 9,354,984 3.9
--------------------------------------------------------------------------------------------------------------------------
SWITZERLAND
BBC Brown Boveri Ltd.(11)...................................... 4,005 2,116,838 3,629,155 1.5
Danzas Holdings(31)............................................ 2,823 1,668,882 3,560,541 1.4
Merkur Hldgs AG(27)............................................ 7,374 1,590,546 2,031,725 0.8
Nestle SA (Registered)(15)..................................... 2,085 1,302,447 1,920,642 0.8
Roche Hldgs AG(16)............................................. 864 2,298,489 3,956,757 1.6
------------ ------------ -----
Total Investments in Switzerland..................... 8,977,202 15,098,820 6.1
--------------------------------------------------------------------------------------------------------------------------
THAILAND
International Cosmetics Ltd.(10)............................... 8,650 305,902 193,450 0.1
MDX Public Company Ltd.(13).................................... 184,170 1,109,284 956,154 0.4
Thai Farmers Bank(2)........................................... 323,020 634,177 2,605,832 1.0
------------ ------------ -----
Total Investments in Thailand........................ 2,049,363 3,755,436 1.5
--------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
Airtours PLC(31)............................................... 182,712 1,340,308 1,276,823 0.5
BPB Industries PLC(5).......................................... 484,341 1,903,304 2,395,297 1.0
Medeva PLC(16)................................................. 1,172,628 2,539,788 2,340,213 1.0
Takare PLC(16)................................................. 892,586 3,048,691 2,837,741 1.2
Waste Management PLC(6)........................................ 393,528 3,394,512 3,807,751 1.5
Waste Management International PLC(6).......................... 80,585 1,353,486 1,581,481 0.6
------------ ------------ -----
Total Investments in United Kingdom.................. 13,580,089 14,239,306 5.8
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Schedule of Investments as of August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNITED STATES
Allied Signal, Inc.(9)......................................... 153,894 $ 4,362,699 $ 5,751,788 2.4%
Chrysler Corp.(1).............................................. 91,492 5,037,115 4,403,053 1.8
Colgate Palmolive Co.(18)...................................... 48,991 2,668,219 2,804,735 1.2
Countrywide Credit Industries, Inc.(14)........................ 304,675 5,710,172 4,532,041 1.8
First Financial Management Corp.(8)............................ 35,328 1,366,387 2,146,176 0.9
Fruit Of The Loom, Inc.(29).................................... 144,017 4,475,143 3,798,448 1.5
Hayes Wheels Int'l., Inc.(1)................................... 79,925 2,026,045 1,958,163 0.8
Intel Corp.(12)................................................ 42,791 1,694,290 2,813,508 1.1
International Business Machines, Inc.(8)....................... 47,810 2,747,147 3,280,961 1.3
International Paper Co.(24).................................... 84,715 5,832,177 6,533,644 2.6
Morgan J.P.& Co., Inc.(2)...................................... 42,645 2,520,920 2,809,239 1.2
Sunrise Med., Inc.(20)......................................... 104,697 2,584,281 2,656,686 1.1
Toys-R-Us, Inc.(30)............................................ 102,247 3,459,601 3,770,358 1.5
Wheelabrator Technologies, Inc.(26)............................ 253,268 4,734,415 4,337,215 1.8
Zebra Technologies Corp., Cl. A(21)............................ 31,500 1,231,409 1,236,375 0.5
------------ ------------ -----
Total Investments in United States................... 50,450,020 52,832,390 21.5
------------ ------------ -----
Total Common Stocks.................................. 202,043,418 244,119,090 99.3
------------ ------------ -----
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION
Federal Home Loan Mortgage Corp.
Discount Notes 4.70%, 09/01/94............................... $ 200,000 200,000 200,000 0.1
------------ ------------ -----
TOTAL INVESTMENTS.............................................. $202,243,418 244,319,090 99.4
------------
------------
OTHER ASSETS LESS LIABILITIES.................................. 1,400,777 0.6
------------ -----
NET ASSETS..................................................... $245,719,867 100.0%
------------ -----
------------ -----
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Forward Foreign Exchange Contracts as of August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY SELL CONTRACTS (PAYABLE) VALUE (DEPRECIATION)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------
Australian Dollar, expiring 9/1/94................................................. $ 1,278 $ 1,282 $ (4)
Swiss Francs, expiring 9/1/94...................................................... 49,904 49,941 (37)
German Deutsche Marks, expiring 9/1/94............................................. 91,341 91,497 (156)
Danish Krone, expiring 9/1/94...................................................... 89 89 --
Spanish Pesetas, expiring 9/1/94................................................... 119,754 120,569 (815)
British Pounds, expiring 9/1/94.................................................... 42,449 42,515 (66)
Italian Lira, expiring 9/1/94...................................................... 32,010 32,229 (219)
Japanese Yen, expiring 9/1/94...................................................... 99,843 99,918 (75)
New Zealand Dollar, expiring 9/1/94................................................ 42,401 42,497 (96)
Hong Kong Dollar, expiring 9/1/94.................................................. 78,147 78,155 (8)
Malaysian Ringgit, expiring 9/1/94................................................. 5,328 5,330 (2)
Philippine Peso, expiring 9/1/94................................................... 2,483 2,516 (33)
Thailand Baht, expiring 9/1/94..................................................... 25,990 26,021 (31)
--------- -------- --------------
$ 591,017 $592,559 $ (1,542)
--------- -------- --------------
--------- -------- --------------
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Industry Diversification as of August 31, 1994
--------------------------------------------------------------------------------
Percent of Net Assets
<TABLE>
<S> <C>
1. Automobiles................................. 6.3%
2. Banks....................................... 10.7
3. Beverages................................... 0.0
4. Broadcast -- Media.......................... 1.4
5. Building Materials.......................... 1.0
6. Commercial Services......................... 3.4
7. Communication Equipment..................... 3.9
8. Computers................................... 3.8
9. Conglomerates............................... 5.6
10. Cosmetics................................... 0.1
11. Electrical Equipment........................ 1.5
12. Electronics................................. 3.5
13. Engineering & Construction.................. 0.4
14. Finance..................................... 1.8
15. Foods....................................... 2.0
16. Healthcare.................................. 8.4
17. Home Furniture & Appliances................. 0.7
18. Household Products.......................... 1.1
19. Machinery................................... 1.6
20. Medical Products & Supplies................. 1.1
21. Office Equipment & Supplies................. 0.5
22. Oil & Gas Drilling.......................... 2.4
23. Oil Well Equipment & Services............... 4.6
24. Paper & Forest Products..................... 2.7
25. Photography................................. 1.9
26. Pollution Control........................... 2.7
27. Retail...................................... 4.3
28. Telecommunications.......................... 10.6
29. Textile..................................... 1.5
30. Toys........................................ 2.6
31. Transportation.............................. 7.2
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
45
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (identified cost-$202,243,418) (Note 1a)............................ $244,319,090
Foreign cash, at value (identified cost-$777,604) (Note 1b)............................... 778,112
Cash...................................................................................... 8,580
Receivables:
Shares sold.......................................................................... $2,059,479
Dividends............................................................................ 151,715
Tax reclaim.......................................................................... 444,067
----------
2,655,261
Prepaid expenses (Note 1f)................................................................ 170,707
------------
TOTAL ASSETS.................................................... 247,931,750
------------
LIABILITIES
Payables:
Shares redeemed...................................................................... 1,698,167
Securities purchased................................................................. 27,294
Investment advisory fees (Note 2).................................................... 206,174
Service fees (Note 2)................................................................ 45,458
Distribution fees (Note 2)........................................................... 19,974
Net unrealized loss on forward currency contracts (Note 1c).......................... 1,542 1,998,609
----------
Accrued expenses.......................................................................... 213,274
------------
TOTAL LIABILITIES............................................... 2,211,883
------------
NET ASSETS
At value.................................................................................. $245,719,867
------------
------------
Net assets were comprised of:
Aggregate paid-in-capital............................................................ $185,311,853
Undistributed net investment income.................................................. 422,782
Undistributed net realized capital gains from investments and foreign currency
transactions........................................................................ 17,903,171
Net unrealized appreciation on investments and translation of foreign denominated
assets and liabilities (Note 3)..................................................... 42,082,061
------------
Net assets................................................................................ $245,719,867
------------
------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
------------ ----------- -----------
Net assets.............................................................. $185,493,225 $31,837,013 $28,389,629
Outstanding shares of beneficial interest ($.001 par value)............. 10,925,463 1,894,276 1,666,769
Net asset values per share.............................................. $16.98 $16.81 $17.03
Maximum offering price per share for Class A ($16.98[div].9425)......... $18.02 N/A N/A
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Statement of Operations for the Year Ended August 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Interest and discounts earned (net of $1,296, amortization of premiums)...... $ 214,406
Dividends (net of $336,279 foreign tax withheld at source)................... 3,640,789
-----------
TOTAL INCOME....................................... $ 3,855,195
EXPENSES
Investment advisory (Note 2)................................................. 2,339,156
Distribution -- Class B (Note 2)............................................. 190,640
Servicing (Note 2):
Class A................................................................. $457,000
Class B................................................................. 63,546 520,546
--------
Custodian.................................................................... 285,200
Transfer agent............................................................... 132,000
Prospectus and shareholders' reports......................................... 80,596
Amortization of organization costs (Note 1e)................................. 62,627
Professional................................................................. 49,300
Pricing...................................................................... 47,998
Federal and state registration............................................... 34,422
Trustees' fees and expenses (Note 2)......................................... 9,890
Miscellaneous................................................................ 69,363
-----------
TOTAL EXPENSES..................................... 3,821,738
-----------
NET INVESTMENT INCOME........................................................ 33,457
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS (NOTE 3)
Realized gain from investment transactions (excluding short-term
investments):
Proceeds from sales..................................................... 115,986,245
Cost of investments sold................................................ (96,253,145)
-----------
NET REALIZED GAIN ON INVESTMENT TRANSACTIONS................................. 19,733,100
NET REALIZED CURRENCY LOSS ON INVESTMENT TRANSACTIONS (NOTE 1B).............. (22,678)
Change in unrealized appreciation:
Change in unrealized appreciation on investments and forward foreign
exchange contracts.................................................... 17,518,715
Change in unrealized appreciation due to translation of foreign
denominated assets and liabilities.................................... (9,002)
-----------
NET CHANGE IN UNREALIZED APPRECIATION........................................ 17,509,713
-----------
NET INCREASE IN NET ASSETS
Resulting from operations.................................................... $37,253,592
-----------
-----------
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1993 AUGUST 31, 1994
<S> <C> <C>
----------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income..................................................................... $ 356,691 $ 33,457
Net realized gain on investment transactions.............................................. 1,752,144 19,733,100
Net realized currency loss on investment transactions..................................... (821,600) (22,678)
Net change in unrealized appreciation..................................................... 19,701,077 17,509,713
----------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 20,988,312 37,253,592
----------------------------------
NET INVESTMENT INCOME INCLUDED IN PRICES OF SHARES SOLD AND REDEEMED (NOTE
1h)........................................................................... 10,888 1,018
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A................................................................................... (775,332) --
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED SHORT-TERM CAPITAL GAINS
Class A................................................................................... (1,549,170) (1,858,584)
Class B................................................................................... -- (230,113)
Class C................................................................................... -- (260,619)
----------------------------------
TOTAL DISTRIBUTIONS FROM NET REALIZED SHORT-TERM CAPITAL GAINS.................. (1,549,170) (2,349,316)
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED LONG-TERM CAPITAL GAINS
Class A................................................................................... -- (580,807)
Class B................................................................................... -- (71,910)
Class C................................................................................... -- (81,444)
----------------------------------
TOTAL DISTRIBUTIONS FROM NET REALIZED LONG-TERM CAPITAL GAINS................... -- (734,161)
----------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares.......................................................... 83,189,473 78,480,740
Net asset value of shares issued to shareholders in connection with the reinvestment of
dividends and distributions............................................................. 2,284,191 3,031,120
Cost of shares redeemed................................................................... (30,862,339) (56,319,218)
----------------------------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS.............. 54,611,325 25,192,642
----------------------------------
TOTAL INCREASE IN NET ASSETS.................................................... 73,286,023 59,363,775
NET ASSETS
Beginning of year......................................................................... 113,070,069 186,356,092
----------------------------------
End of year............................................................................... $ 186,356,092 $ 245,719,867
----------------------------------
----------------------------------
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------
PERIOD PERIOD YEAR
ENDED ENDED ENDED
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31, AUGUST 31,
------------------------------------------------------------
1992'D' 1993 1994 1993'D''D' 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $12.00 $12.87 $14.55 $13.80 $14.52
------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income/(loss)... 0.09 0.03 0.01 (0.02) (0.07)
Net realized and
unrealized gains
on
investments..... 0.78 1.89 2.63 0.74 2.57
------------------------------------------------------------
Total from
investment
operations...... 0.87 1.92 2.64 0.72 2.50
------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM (NOTE 1i)
Net investment
income.......... -- (0.08) -- -- --
Net realized
capital gains... -- (0.16) (0.21) -- (0.21)
------------------------------------------------------------
Total
distributions... -- (0.24) (0.21) -- (0.21)
------------------------------------------------------------
Net asset value,
end of period... $12.87 $14.55 $16.98 $14.52 $16.81
------------------------------------------------------------
------------------------------------------------------------
Total return#..... 7.25% 15.24% 18.23% 5.22% 17.29%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (in
thousands)...... $ 113,070 $ 156,451 $ 185,493 $ 10,807 $ 31,837
RATIOS TO AVERAGE
NET ASSETS
Expenses,
excluding
distribution and
service fees.... 1.43%* 1.28% 1.33% 1.28%* 1.33%
Expenses,
including
distribution and
service fees.... 1.68%* 1.53% 1.58% 2.28%* 2.33%
Net investment
income.......... 0.93%* 0.22% 0.07% (0.53)%* (0.68)%
PORTFOLIO TURNOVER
RATE............ 30.32% 56.35% 50.73% 56.35% 50.73%
<CAPTION>
CLASS C
-------------------------
PERIOD YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
-------------------------
1993'D''D' 1994
-------------------------
<S> <C> <C>
Net asset value,
beginning of
period.......... $13.80 $14.56
-------------------------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income/(loss)... 0.02 0.05
Net realized and
unrealized gains
on
investments..... 0.74 2.63
-------------------------
Total from
investment
operations...... 0.76 2.68
-------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM (NOTE 1i)
Net investment
income.......... -- --
Net realized
capital gains... -- (0.21)
-------------------------
Total
distributions... -- (0.21)
-------------------------
Net asset value,
end of period... $14.56 $17.03
-------------------------
-------------------------
Total return#..... 5.51% 18.49%
RATIOS/SUPPLEMENTA
DATA
Net assets, end of
period (in
thousands)...... $ 19,098 $ 28,390
RATIOS TO AVERAGE
NET ASSETS
Expenses,
excluding
distribution and
service fees.... 1.28%* 1.33%
Expenses,
including
distribution and
service fees.... 1.28%* 1.33%
Net investment
income.......... 0.47%* 0.32%
PORTFOLIO TURNOVER
RATE............ 56.35% 50.73%
</TABLE>
'D' From November 14, 1991 (Commencement of Operations), to August 31, 1992.
'D''D' From May 10, 1993 (Commencement of Class Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales charge, and is
calculated by giving effect to the reinvestment of dividends on the dividend
payment date.
* Annualized.
See Notes to Financial Statements.
49
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
1. The Fund is a series of Kidder, Peabody Investment Trust, which is registered
under the Investment Company Act of 1940 as a diversified, open-end investment
management company. The Fund commenced operation on November 14, 1991. The
following is a summary of significant accounting policies consistently followed
by the Fund.
On May 10, 1993 the Fund adopted the Choice Pricing Systemsm. The System
offers three classes of shares having identical voting, dividend liquidation and
other rights. Class A Shares are sold subject to a front-end sales load and a
service fee of .25% per annum of average class net assets. Class B shares bear a
service fee of .25% per annum and a distribution fee of .75% per annum of
average class net assets. Class C shares, which are available exclusively to
employees of Kidder, Peabody, employee benefit plans of Kidder, Peabody and
participants of the Insight Investment Advisory Program, are sold at net asset
value without a sales load and bear no such distribution or service fees.
Classes A and B have exclusive voting rights as to matters relating to the 12b-1
Distribution Plan.
On May 10, 1993 all pre-existing shares of the Fund converted to class A
shares at net asset value, with the exception of shares eligible for Class C.
(a) Securities listed on national securities exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued or, lacking any sales, the last available bid price. Securities trade in
the over-the-counter market are valued on the basis of bid prices at the close
of trading on such a day by dealers that make markets in such securities.
Portfolio securities which are traded in both the over-the-counter market and on
a stock exchange are valued on the exchange designated by or under the authority
of the Trustees as the primary market. Short-term securities which mature in
more than 60 days are valued at current market quotations. Short-term securities
which mature in less than 60 days are valued at amortized cost which
approximates market. Options which are traded on exchanges are valued at their
last sale price as of the close of such exchanges or, lacking any sales, at the
last available bid price. Securities for which market quotations are not readily
available are determined in good faith by or under the direction of the Fund's
Trustees.
(b) The Fund's financial statements are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) Market value of investment securities, other assets and liabilities -- at
the closing rate of exchange.
(ii) Purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of securities held at fiscal year end. However, the
Fund does isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of portfolio securities
sold during the fiscal year.
Realized currency gain/loss on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency denominated assets and liabilities at
year end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with those of domestic origin as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
(c) The Fund is authorized to enter into forward currency contracts as a
hedge to fluctuations in foreign currency exchange rates on unsettled portfolio
transactions.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. Generally, the Fund
will enter into such forward contracts on the transaction's trade date with a
contracted date coinciding with the settlement date of the underlying security.
Should the underlying security fail to settle within the contracted period the
forward currency contract is renegotiated at a new exchange rate. The
50
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
gain or loss resulting from the difference between the original and renegotiated
settlement values is recognized and included in realized transaction gain/loss.
Premiums and/or discounts incurred in connection with the establishment of
such contracts are amortized over the lives of the contracts.
(d) It is the Fund's policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders. The
method of such distribution for purposes of maintaining regulated investment
company status is made on a fund level rather than a class level. Therefore, no
Federal income tax provision is required. Under the applicable foreign tax law,
a withholding tax may be imposed on interest, dividends and capital gains at
various rates. Such withholding taxes are netted against income and recorded as
a receivable when reclaim is deemed probable.
(e) Security transactions are recorded on the trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is earned from
settlement date and is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Organization costs are being amortized evenly over a sixty-month period.
Prepaid registration fees are charged to income as the related shares are
issued.
(g) Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
(h) The Fund utilizes an accounting method known as income equalization,
whereby a portion of proceeds from sales and costs of redemptions of capital
shares, equivalent to the amount of distributable net investment income on the
date of transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
redemptions of shares.
(i) Income and Fund level expenses are allocated to each class on a pro-rata
basis based upon each class' daily net assets. Class specific expenses are
charged directly to each class. Dividends from net investment income are
calculated by deducting class specific and allocated fund level expenses from
the gross dividend rate, which is equal to total income divided by total shares
outstanding of the Fund. Distributions from net realized gains are allocated
based upon the outstanding shares of each class.
The Fund's policy is to distribute substantially all of its net investment
income. Net realized capital gains, if any, will be distributed once a year.
2. The Fund has entered into a management agreement with Kidder Peabody Asset
Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co.
Incorporated ('KP'). General Electric Capital Services, Inc., a wholly-owned
subsidiary of General Electric Company ('GE'), has a 100% interest in Kidder,
Peabody Group Inc., the parent company of KP. KPAM serves as the Fund's manager
and receives a fee, accrued daily and paid monthly at the annual rate of 1.00%
of the Fund's average daily net assets. KPAM in turn employs GE Investment
Management Incorporated ('GEIM'), a wholly owned subsidiary of GE, as the Fund's
investment adviser, in which capacity GEIM receives from KPAM a fee, paid
monthly, calculated and accrued daily at the annual rate of .70% of the Fund's
average daily net assets. As the Fund's manager, KPAM is generally responsible
for furnishing, or causing to be furnished to the Fund, investment management
and administrative services.
As the Fund's investment adviser, GEIM manages the Fund's portfolio, makes
decisions for the Fund, and places purchase and sale orders for the Fund's
portfolio transactions. GEIM also pays the salaries of all officers and
employees who are employed by both GEIM and the Fund, provides the Fund with
investment officers, and employs a professional staff of portfolio managers who
draw upon a variety of sources for research information for the Fund.
Total annual expenses of the Fund, exclusive of taxes, interest, all
brokers' commission and other normal charges incidental to the purchase and sale
of portfolio securities, but including fees paid to KPAM, are not expected to
exceed the limits prescribed by any state in which the Fund's shares are offered
for sale. KPAM will reimburse the Fund for any expenses in excess of such
limits. No expense reimbursement was required for the year ended August 31,
1994.
KP is the exclusive distributor of the Fund's shares. Its services include
payment of sale commissions to registered representatives and various other
promotional and sale-related expenses. KP receives monthly, from the Fund, the
distribution and service fees which are calculated and accrued daily. KP also
receives the proceeds of any front-
51
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
end sales load with respect to the purchase of shares of Class A.
Certain officers and/or Trustees of the Fund are officers and/or directors
of KPAM and/or GEIM. Each Trustee who is not an 'affiliated person' of either
KPAM or GEIM receives an annual fee of $1,000 and an attendance fee of $375 per
meeting.
3. Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1994, were $147,039,111 and $115,986,245, respectively.
As of August 31, 1994, net unrealized appreciation on investments and
foreign cash, for Federal income tax purposes, aggregated $42,076,180 of which
$49,288,985 related to appreciated securities and $7,212,805 related to
depreciated securities. The aggregate cost of investments at August 31, 1994,
for book and Federal income tax purposes was $202,243,418.
4. The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. Transactions totaling
$78,481,758 from net proceeds from sale of shares and $56,319,218, representing
cost of shares redeemed and $3,031,120 representing reinvestment of dividends
for the year ended August 31, 1994 were as follows for each class:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------
Year Ended August 31, 1994:
Shares sold..................... 2,764,374 $43,492,060
Shares issued in reinvestment of
dividends and distributions... 149,182 2,394,380
Shares redeemed................. (2,738,250) (44,032,678)
--------------------------
NET INCREASE............... 175,306 $ 1,853,762
--------------------------
--------------------------
Year Ended August 31, 1993:
Shares sold..................... 4,102,023 $54,283,811
Shares issued in reinvestment of
dividends and distributions... 183,387 2,284,191
Shares redeemed................. (2,317,779) (30,547,445)
--------------------------
NET INCREASE............... 1,967,631 $26,020,557
--------------------------
--------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------
Year Ended August 31, 1994:
Shares sold..................... 1,520,043 $23,745,336
Shares issued in reinvestment of
dividends and distributions... 18,552 296,272
Shares redeemed................. (388,843) (6,218,957)
--------------------------
NET INCREASE............... 1,149,752 $17,822,651
--------------------------
--------------------------
May 10, 1993 to August 31, 1993:
Shares sold..................... 760,799 $10,520,920
Shares issued in reinvestment of
dividends and distributions... -- --
Shares redeemed................. (16,274) (229,347)
--------------------------
NET INCREASE............... 744,525 $10,291,573
--------------------------
--------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------
Year Ended August 31, 1994:
Shares sold..................... 707,025 $11,244,362
Shares issued in reinvestment of
dividends and distributions... 21,173 340,468
Shares redeemed................. (372,775) (6,067,583)
--------------------------
NET INCREASE............... 355,423 $ 5,517,247
--------------------------
--------------------------
May 10, 1993 to August 31, 1993:
Shares sold..................... 1,317,517 $18,395,630
Shares issued in reinvestment of
dividends and distributions... -- --
Shares redeemed................. (6,171) (85,547)
--------------------------
NET INCREASE............... 1,311,346 $18,310,083
--------------------------
--------------------------
</TABLE>
52
<PAGE>
Kidder, Peabody Global Equity Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
5. The Fund takes possession of securities under repurchase agreements before
releasing any money to the counterparty under such agreement. Eligible
collateral for repurchase agreement transactions are the instruments that the
Fund is allowed to reinvest in, as stated in the Prospectus. The Fund attempts
to attain a short maturity (2 years or less), although that is not always
available. The value of the collateral must be a minimum of 102% of the market
value of the securities being loaned, allowing for minor variations arising from
marking to market of such collateral. If the issuer defaults or if bankruptcy or
regulatory proceeding are commenced with respect to the issuer, the realization
of the proceeds may be delayed or limited.
--------------------------------------------------------------------------------
Report of Independent Auditors
--------------------------------------------------------------------------------
The Trustees and Shareholders,
Kidder, Peabody Global Equity Fund
(one of the portfolios constituting the
Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kidder, Peabody Global Equity Fund as of August
31, 1994, the related statements of operations for the year then ended and of
changes in net assets and the financial highlights for each of the periods
presented. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and the financial highlights present
fairly in all material respects, the financial position of Kidder, Peabody
Global Equity Fund as of August 31, 1994, the results of its operations, the
changes in its net assets and the financial highlights for each of the
respectively stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
October 14, 1994
53
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<TABLE>
<S> <C>
--------------------------------------------------------
Contents
--------------------------------------------------------
Investment Objective and Policies 2
--------------------------------------------------------
Management of the Fund 10
--------------------------------------------------------
Principal Shareholders 16
--------------------------------------------------------
Purchase, Redemption and Exchange of Shares
(See in the Prospectus 'Purchase of
Shares,' 'Redemption of Shares' and
'Exchange Privilege') 16
--------------------------------------------------------
Determination of Net Asset Value 20
--------------------------------------------------------
Taxes (See in the Prospectus 'Dividends,
Distributions and Taxes') 20
--------------------------------------------------------
Determination of Performance (See in the
Prospectus 'Performance Information') 22
--------------------------------------------------------
General Information 23
--------------------------------------------------------
Financial Statements 24
--------------------------------------------------------
</TABLE>
PaineWebber
Global
Equity
Fund
Statement of
Additional
Information
August 24, 1995
STATEMENT OF DIFFERENCES
<TABLE>
<S> <C>
The service mark symbol shall be expressed as..................................... 'sm'
The registered trademark symbol shall be expressed as............................. 'R'
The dagger footnote symbol shall be expressed as.................................. 'D'
The double dagger footnote symbol shall be expressed as........................... 'D''D'
Mathematical powers, normally expressed as superscript, shall be preceded by..... 'pp'
</TABLE>
