<PAGE>
As filed with the Securities and Exchange Commission on November 2, 1995
1933 Act Registration No. 33-39659
1940 Act Registration No. 811-6292
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----
Pre-Effective Amendment No.______ [_____]
Post-Effective Amendment No. 12 [ X ]
---- -----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ X ]
-----
Amendment No. 13
----
(Check appropriate box or boxes.)
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ARTHUR J. BROWN, ESQ.
RICHARD C. MILLER, ESQ.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone (202) 778-9000
It is proposed that this filing will become effective:
_____ Immediately upon filing pursuant to Rule 485(b)
_____ On ___________________ pursuant to Rule 485(b)
__X__ 60 days after filing pursuant to Rule 485(a)(i)
_____ On ___________________ pursuant to Rule 485(a)(i)
_____ 75 days after filing pursuant to Rule 485(a)(ii)
_____ On ___________________ pursuant to Rule 485(a)(ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The notice required by such rule for the Registrant's
fiscal year ended August 31, 1994 was filed on October 30, 1995.
<PAGE>
PaineWebber Global Equity Fund
------------------------------
Contents of Registration Statement
----------------------------------
This registration statement consists of the following papers and documents:
. Cover Sheet
. Contents of Registration Statement
. Cross Reference Sheets
. PaineWebber Global Equity Fund - Class A, B and C Shares
--------------------------------------------------------
Part A - Prospectus
Part B - Statement of Additional Information
. Part C - Other Information
. Signature Page
. Exhibits
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
Class A, B and C Shares
Form N-lA Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
------------------------------- ----------------------------
<C> <S> <C>
1. Cover Page..................... Cover Page
2. Synopsis....................... Expense Table
3. Condensed Financial
Information.................... Financial Highlights; Past
Performance
4. General Description of
Registrant..................... The Fund at a Glance; Investment
Objective and Policies;
Investment Philosophy and
Process; The Fund's
Investments; General
Information
5. Management of the Fund......... Management; General
Information
6. Capital Stock and Other
Securities..................... Cover Page; Flexible
Pricing; Dividends and
Taxes; General Information
7. Purchase of Securities Being
Offered........................ How to Buy Shares; Other
Services; Determining the
Shares' Net Asset Value
8. Redemption or Repurchase....... Redemptions; Other Services
9. Pending Legal Proceedings...... Not Applicable
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
------------------------------- ----------------------------
<C> <S> <C>
10. Cover Page..................... Cover Page
11. Table of Contents.............. Table of Contents
12. General Information and
History........................ Other Information
13. Investment Objectives and
Policies....................... Investment Policies and
Restrictions; Hedging
Strategies; Portfolio
Transactions
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
14. Management of the Fund......... Trustees and Officers
15. Control Persons and Principal
Holders of Securities.......... Trustees and Officers
16. Investment Advisory and Other
Services....................... Investment Advisory and
Distribution Arrangements;
Other Information
17. Brokerage Allocation........... Portfolio Transactions
18. Capital Stock and Other
Securities..................... Conversion of Class B
Shares; Other Information
19. Purchase, Redemption and
Pricing of Securities Being
Offered........................ Reduced Sales Charges,
Additional Exchange and
Redemption Information and
Other Services; Valuation
of Shares
20. Tax Status..................... Taxes
21. Underwriters................... Investment Advisory and
Distribution Arrangements
22. Calculation of Performance
Data........................... Performance Information
23. Financial Statements........... Financial Statements
</TABLE>
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PAINEWEBBER
GLOBAL EQUITY FUND
1285 Avenue of the Americas, New York, NY 10019
PROSPECTUS
Date, 1995
----
PaineWebber Global Equity Fund is designed for investors who want to expand
their investment horizons by investing their assets internationally, as well as
in the United States. The Fund's investment objective is long-term growth of
capital, which the Fund attempts to achieve by investing principally in
global stocks.
This Prospectus concisely sets forth information that a prospective investor
should know about the Fund before investing. Please retain a copy of this
Prospectus for future reference.
A Statement of Additional Information dated [Date] has been filed with the
Securities and Exchange Commission and is legally part of this Prospectus. The
Statement of Additional Information can be obtained without charge, and further
inquiries can be made, by contacting the Fund, your PaineWebber investment
executive, PaineWebber's correspondent firms or by calling toll-free
1-800-647-1568.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
THE FUND AT A GLANCE
GOAL: The goal of PaineWebber Global Equity Fund ("Fund") is to increase the
value of your investment by investing in stocks of U.S. and foreign companies.
As with any mutual fund, there is no assurance that the Fund will achieve its
goal.
INVESTMENT OBJECTIVE: Long-term growth of capital.
RISKS: Stock prices rise and fall. Stocks of foreign companies may fluctuate
more than those of U.S. companies and are subject to changes in currency values.
Investors may lose money by investing in the Fund; the investment is not
guaranteed.
MANAGEMENT: Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"),
an asset management subsidiary of PaineWebber Incorporated, is the investment
adviser and administrator of the Fund. Mitchell Hutchins has appointed GE
Investment Management Incorporated ("GE Investment Management") as the
Fund's investment sub-adviser.
MINIMUM INVESTMENT: To open an account, investors need $1,000; to add to an
account, investors need only $100.
SIZE: On ____________, 1995, the Fund had over $______in assets.
WHO SHOULD INVEST
The Fund is for investors who want long-term growth of their investments.
The Fund seeks to achieve this by investing in stocks of U.S. and foreign
companies. Over time, foreign stocks have shown greater growth potential than
many other types of securities. However, because the value of foreign stocks
tends to fluctuate more than that of U.S. stocks, investors must be willing to
ride out day-to-day fluctuations in the value of the Fund's investments.
These fluctuations may be caused by events affecting the company's business,
as well as market conditions, currency fluctuations, interest rate changes,
liquidity concerns, and changes in economic, political and social conditions.
When selling shares, investors may get more or less for their shares than
they originally paid for them. Investors should use the Fund only as a part of
their entire investment portfolio. Some common reasons to invest in this Fund
are to finance a child's college education, plan for retirement or diversify a
portfolio.
TABLE OF CONTENTS
The Fund at a Glance page
---
Expense Table
---
Financial Highlights
---
Investment Objective & Policies
---
Investment Philosophy & Process
---
Performance
---
The Fund's Investments
---
Flexible Pricing SM
---
How to Buy Shares
---
Redemptions
---
Other Services
---
Management
---
Determining the Shares' Net Asset Value
---
Dividends & Taxes
---
General Information
---
..................................................
Prospectus page 2
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
How to Purchase Fund Shares
Investors may select among these classes of shares:
CLASS A SHARES
The price is the net asset value plus the initial sales charge (the maximum
is 4.5% of the public offering price) next calculated after PaineWebber's New
York City headquarters or the Transfer Agent receives the purchase order.
Although investors pay an initial sales charge when they buy Class A shares,
the ongoing expenses for this Class are lower than the ongoing expenses of
Class B and Class C shares.
CLASS B SHARES
The price is the net asset value next calculated after PaineWebber's New
York City headquarters or the Transfer Agent receives the purchase order.
Investors do not pay an initial sales charge when they buy Class B shares. 100%
of their purchase is immediately invested. Class B shares have higher ongoing
expenses than Class A shares.
Depending upon how long they own the shares, investors may have to pay a
sales charge when they sell Class B shares. This sales charge is called a
"contingent deferred sales charge" and applies when investors sell their shares
within six years.
After six years, Class B shares convert to Class A shares, which have lower
ongoing expenses and no contingent deferred sales charge.
CLASS C SHARES
The price is the net asset value next calculated after PaineWebber's New
York City headquarters or the Transfer Agent receives the purchase order.
Investors do not pay an initial sales charge when they buy Class C shares, but
the ongoing expenses they pay for Class C shares are higher than for Class A
shares. A contingent deferred sales charge of 1% is charged on shares sold
within one year of the purchase date. Class C shares never convert to any other
Class of shares.
THE PAINEWEBBER FAMILY OF FUNDS
The PaineWebber Family of Funds consists of six broad categories, which are
presented here. Generally, investors seeking to maximize return must assume
greater risk. PaineWebber Global Equity Fund is in the Global category.
. Money Market Funds for income and stability by investing in high-quality,
short term investments.
. Bond Funds for income by investing mainly in bonds.
. Municipal Bond Funds for income exempt from federal income taxes and, in some
cases, state and local income taxes, by investing in municipal bonds.
. Balanced Funds for long-term growth and income by investing in stock and
bonds.
. Growth Funds for long-term growth by investing mainly in stocks.
. Global Funds for long-term growth by investing mainly in foreign stocks or
high current income by investing in global bonds.
A complete listing of the PaineWebber Family of Funds is found on the back cover
of this prospectus.
..................................................
Prospectus page 3
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
The following tables are intended to assist investors in understanding the
expenses associated with investing in the Fund. Expenses shown below for Class
A and Class C shares represent those incurred for the fiscal year ended August
31, 1995. Expenses for Class B shares are based on estimates, as they commenced
operations on August 25, 1995.
EXPENSE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Class B Class C
<S> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a percentage of offering price) 4.50% None None
Sales Charge on Reinvested Dividends (as a percentage of offering price) None None None
Maximum Contingent Deferred Sales Charge (as a percentage of redemption proceeds) None 5% 1%
Exchange Fee None None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<S> <C> <C> <C>
Management Fees 0.85% 0.85% 0.85%
12b-1 Fees 0.25 1.00 1.00
Other Expenses 0.XX 0.XX 0.XX
---- ----- ----
Total Fund Operating Expenses X.XX% X.XX% X.XX%
==== ==== ====
</TABLE>
CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase
plan are available. Purchases of $1 million or more are not subject to a sales
charge. However, if such shares are sold within one year after purchase, a
contingent deferred sales charge of 1% is imposed on the sale.
CLASS B SHARES: Sales charge waivers are available. The maximum 5%
contingent deferred sales charge applies to sales of shares during the first
year after purchase. The charge generally declines by 1% annually, reaching
zero after six years.
CLASS C SHARES: A contingent deferred sales charge of 1% will be applied to
sales of shares within one year of purchase.
The management fee payable to Mitchell Hutchins is greater than those paid
by most funds. 12b-1 distribution fees are asset-based sales charges. Long-term
Class B and Class C shareholders may pay more in direct and indirect sales
charges (including distribution fees) than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
12b-1 service fees 0.25% 0.25% 0.25%
12b-1 distribution fees 0.00 0.75 0.75
</TABLE>
For more information, see "Management" and "Purchases."
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example should assist investors in understanding various costs
and expenses incurred as shareholders of the Fund. The assumed 5% annual return
shown in the example is required by regulations of the Securities and Exchange
Commission applicable to all mutual funds. The example should not be considered
to be a representation of past or future expenses. Actual expenses of the Fund
may be more or less than those shown. An investor would pay the following
expenses, directly or indirectly, on a $1,000 investment in the Fund, assuming
a 5% annual return.
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A $XX $XX $XXX $XXX
Class B (Assuming sale of all shares at end of period) $XX $XX $XXX $XXX
Class B (Assuming no sale of shares) $XX $XX $XXX $XXX
Class C (Assuming sale of all shares at end of period) $XX $XX $XXX $XXX
Class C (Assuming no sale of shares) $XX $XX $XXX $XXX
</TABLE>
Assumptions Made in the Example
. Class A shares: Deduction of the maximum 4.5% initial sales charge at
the time of purchase.
. Class B shares: Deduction of the maximum applicable contingent deferred
sales charge at the time of redemption, which declines over a period of
six years. Ten-year figures assume that Class B Shares convert to Class
A Shares at the end of the sixth year.
. Class C shares: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
..................................................
PROSPECTUS PAGE 4
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
FINANCIAL HIGHLIGHTS
The following tables provide investors with data and ratios for one Class A,
Class B and Class C share for each of the periods. The financial information
for the year ended August 31, 1995, has been audited by Ernst & Young LLP,
independent auditors. The financial information for the prior years was audited
by another independent accounting firm. This information is supplemented by the
financial statements for the fiscal year ended August 31, 1995 and the report
of independent auditors appearing in the Fund's Annual Report to Shareholders,
which may be obtained without charge by calling 1-800-647-1568. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which is incorporated by reference into the Statement of
Additional Information.
<TABLE>
<CAPTION>
Class A
For the period
For the Year Ended Aug. 31, Nov. 14, 1991+ to Aug. 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) 0.01 0.03 0.09
Net realized and unrealized gains (losses) from investment
and foreign currency activities 2.63 1.89 0.78
Total from investment operations 2.64 1.92 0.87
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (0.08) --
Net realized gain (loss) on investment transactions (0.21) (0.16) --
Total dividends and distributions (0.21) (0.24) --
Net asset value, end of period $16.98 $14.55 $12.87
Total investment return(1) 18.23% 15.24% 7.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $185,493 $156,451 $113,070
Ratios of expenses to average net assets 1.58% 1.53% 1.68%*
Ratio of net investment income (loss) to average net
assets 0.07% 0.22% 0.93%*
Portfolio turnover rate 50.73% 56.35% 30.32%
</TABLE>
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in
Fund shares on the first day of each period reported, reinvestment of
all dividends and capital gain distributions at net asset value on the
payable date, and a sale at net asset value on the last day of each
period reported. The figures do not include sales charges. The results
of Class A shares would be lower if sales charges were included. Total
investment returns for periods of less than one year have not been
annualized.
..................................................
PROSPECTUS PAGE 5
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class B
For the Period August 25, 1995+ to August 31,1995
<S> <C>
Net asset value, beginning of period $
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)
Net realized and unrealized gains (losses) from investment
and foreign currency activities
Total from investment operations
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --
Net realized gain (loss) on investment transactions --
Total distributions --
Net asset value, end of period $
Total investment return(1) %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $
Ratios of expenses to average net assets %*
Ratio of net investment income (loss)
to average net assets %*
PORTFOLIO TURNOVER RATE %
</TABLE>
<TABLE>
<CAPTION>
Class C
For the period
For the Years Ended Aug. 31, May 10, 1993+ to Aug. 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) (0.07) (0.02)
Net realized and unrealized gains (losses) from investment
and foreign currency activities 2.57 0.74
Total from investment operations 2.5 0.72
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gain (loss) on investment transactions (0.21) --
Total dividends and distributions (0.21) --
Net asset value, end of period $16.81 $14.52
Total investment return(1) 17.29% 5.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $31,837 $10,807
Ratios of expenses to average net assets 2.33% 2.28%*
Ratio of net investment income (loss) to average net assets (0.68)% (0.53)%
PORTFOLIO TURNOVER RATE 50.73% 56.35%
</TABLE>
* Annualized. + Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment in
Fund shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions at net asset value on the payable
date, and a sale at net asset value on the last day of each period reported.
Total investment returns for periods of less than one year have not been
annualized.
..................................................
PROSPECTUS PAGE 6
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
INVESTMENT OBJECTIVE
& POLICIES
PaineWebber Global Equity Fund's investment objective is long-term growth of
capital. The Fund attempts to achieve this goal by investing primarily in
stocks issued by companies in foreign countries, as well as in the United
States. As with any mutual fund, no assurance can be given that the Fund will
achieve its investment objective.
The International Equity Team at GE Investment Management selects stocks
issued by companies located in developed and developing countries throughout
the world. The Fund normally invests in at least three countries, one of which
is typically the United States. The Fund normally invests at least 65% of its
total assets in stocks of foreign and U.S. companies.
When the International Equity Team believes it is consistent with the Fund's
investment objective of long-term growth of capital, the Fund may invest up to
35% of its total assets in investment grade bonds issued by corporate or
governmental entities. The bonds in which the Fund invests have maturities no
longer than seven years.
Under normal circumstances, at least 80% of the Fund's total assets will be
invested in stocks or bonds of issuers in countries represented in the Morgan
Stanley Capital International World Index. This is a well-known index that
reflects developed and developing markets throughout the world.
When the International Equity Team considers market, economic, political or
currency conditions abroad to be unstable, the Fund may invest all or a
significant portion of its assets in securities of U.S. and Canadian issuers or
assume a temporary or defensive posture by holding cash or short-term money
market investments.
INVESTMENT PHILOSOPHY
& PROCESS
In selecting stocks for the Fund, the International Equity Team searches for
growth companies selling at reasonable prices, with an emphasis on undervalued
medium- to large-size growth companies and companies with a global presence.
The investment process employed by the International Equity Team involves
several steps. First, the International Equity Team carefully screens a
universe of thousands of global stocks by comparing each company's
price-to-earnings ratio with its long-term growth. This evaluation helps
eliminate companies whose stock prices are too expensive, typically resulting
in a list of several hundred stocks.
Next, this smaller group of stocks is rigorously analyzed by the
International Equity Team's experienced investment professionals. This step,
which is designed to determine whether a stock's price reflects its true value
and whether the market may eventually recognize the stock's value, reduces the
universe to fewer stocks.
Finally, the International Equity Team looks for a catalyst (such as new
management, new products or changing industry dynamics) that might cause the
market to realize that a stock is undervalued. This process typically results
in less than 100 stocks that the International Equity Team will buy for the
Fund's portfolio. The strength of the Team's conviction about each company is
part of what determines the size of each holding. The stock of a single company
will generally represent no more than three percent of the Fund's total
portfolio, but it could.
The International Equity Team regularly reviews the stocks held in the
Fund's portfolio to assess risks, such as stability in the political and
economic conditions of underlying countries, fluctuations in currency rates,
liquidity, changes in company earnings, and other relevant factors.
..................................................
PROSPECTUS PAGE 7
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
PERFORMANCE
Here are the total returns for the Fund. Class A shares commenced operations
on November 14, 1991, Class B shares on August 25, 1995 and Class C shares on
May 10, 1993.
PW GLOBAL EQUITY FUND
[GRAPHIC/CHART]
Sales charges have not been deducted from the results shown above. Returns would
be lower if sales charges were deducted. Past results are not a guarantee of
future results. The 1991 return for Class A shares represents the period from
November 14, 1991 through December 31, 1991. The 1993 return for Class C shares
represents the period from May 10, 1993 through December 31, 1993. The 1995
return represents the year-to-date period ended ___________.
AVERAGE ANNUAL RETURNS
As of ________________
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Inception Date 11/14/91 8/25/95 5/10/93
One Year
Without sales charges XX.XX% N/A XX.XX%
After deducting sales charges XX.XX% N/A XX.XX%
Life
Without sales charges XX.XX% XX.XX% XX.XX%
After deducting sales charges XX.XX% XX.XX% XX.XX%
</TABLE>
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for Class A
shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B and
Class C shares of the Fund reflects deduction of the applicable contingent
deferred sales charge imposed on a redemption of shares held for the period.
One-, five- and ten-year periods will be shown, unless the Class has been in
existence for a shorter period. Total return calculations assume reinvestment
of dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
Total return information reflects past performance and does not necessarily
indicate future results. The investment return and principal value of the Fund
shares will fluctuate. The amount investors receive when selling shares may be
more or less than they paid. Further information about the Fund's performance is
contained in the Fund's Annual Report, which may be obtained without charge by
contacting the Fund, your PaineWebber investment executive or PaineWebber's
correspondent firms or by calling toll-free 1-800-647-1568.
..................................................
PROSPECTUS PAGE 8
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
THE FUND'S INVESTMENTS
STOCKS include common stocks, preferred stocks and securities that are
convertible into them, including convertible debentures and notes, and common
stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. While past
performance does not guarantee future results, common stocks historically have
provided the greatest long-term growth potential in a company. However, their
prices generally fluctuate more than other securities, and reflect changes in a
company's financial condition and in overall market and economic conditions.
Preferred stock has certain fixed-income features, like a bond, but is
actually equity in a company, like common stock. Convertible securities may
include debentures, notes and preferred stocks, which are convertible into
common stock.
BONDS (including notes and debentures) are used by corporations and
governments to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest, and must repay the amount borrowed at
maturity. Bonds have varying degrees of investment risk and varying levels of
sensitivity to changes in interest rates.
RISKS
Stock and bond prices rise and fall; thus, an investment in the Fund is not
guaranteed. Common stocks generally represent the riskiest investment in a
company. It is possible that investors may lose their entire investment.
Investing outside the United States involves additional risks. Following is a
discussion of these and other risks.
FOREIGN SECURITIES. Investing in securities of foreign companies involves
more risks than investing in securities of U.S. companies. Their value is
subject to economic and political developments in the countries where the
companies operate and to changes in foreign currency values. Values may also be
affected by foreign tax laws, changes in foreign economic or monetary policies,
exchange control regulations and regulations involving prohibitions on the
repatriation of foreign currencies.
In general, less information may be available about foreign companies than
about U.S. companies, and foreign companies are generally not subject to the
same accounting, auditing and financial reporting standards as are U.S.
companies. Foreign securities markets may be less liquid and subject to less
regulation than the U.S. securities markets. The costs of foreign investing
frequently are higher than those in the United States. These costs include
relatively higher brokerage commissions and foreign custody expenses.
Normally, the Fund's portfolio will include securities issued by companies
located in many developed and developing foreign countries. However, the Fund
can invest in companies from as few as three countries, all of which may be
developing countries.
INVESTING IN DEVELOPING COUNTRIES. Investing in securities issued by
companies located in developing countries involves additional risks. These
countries typically have economic and political systems that are relatively
less mature, and can be expected to be less stable, than those of developed
countries. Developing countries may have policies that restrict investment by
foreigners in those countries, and there is a risk of government expropriation
or nationalization of private property. The possibility of low or nonexistent
trading volume in the securities of companies in developing countries may also
result in a lack of liquidity and in price volatility.
CURRENCY. Currency risk is the risk that changes in foreign exchange rates
may reduce the U.S. dollar value of the Fund's foreign investments. The Fund's
share value may change significantly when investments are denominated in
foreign currencies. Generally, currency exchange rates are determined by supply
and demand in the foreign exchange markets and the relative merits of
investments in different countries. Currency exchange rates can also be
affected by the intervention of the U.S. government, foreign governments or
central banks, the imposition of currency controls or other political
developments inside and outside the United States.
..................................................
PROSPECTUS PAGE 9
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
COUNTERPARTIES. The Fund may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, GE Investment
Management, subject to the supervision of the Board of Trustees, monitors and
evaluates the creditworthiness of the parties with which the Fund does business.
BOND RATINGS. The bonds in which the Fund may invest must be rated
investment grade. Investment grade quality means that the securities are rated
within the four highest categories by Standard & Poor's or Moody's Investors
Service, Inc. The fourth highest category (BBB by S&P or Baa by Moody's)
includes securities which have speculative features in the opinions of the
rating agencies. The Fund may invest in unrated securities if GE Investment
Management deems them to be of comparable quality.
Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the volatility of the security's value or its
liquidity. There is a risk that bonds will be downgraded by rating agencies.
The rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
INTEREST RATE AND CREDIT RISKS. Interest rate risk is the risk that interest
rates will rise and bond prices will fall, lowering the value of the Fund's
bond investments. Long-term bonds are generally more sensitive to interest rate
changes than short-term bonds. Adverse changes in economic conditions can
affect an issuer's ability to pay principal and interest.
INVESTMENT TECHNIQUES AND STRATEGIES
HEDGING STRATEGIES. The Fund may use certain strategies designed to adjust
the overall risk of its portfolio of investments. These "hedging" strategies
involve derivative contracts, including options (on securities, foreign
currencies, futures and stock indexes), futures contracts (on foreign
currencies, stock indexes and interest rates), and forward currency contracts.
In addition, new financial products and risk management techniques continue to
be developed and may be used if consistent with the Fund's investment objective
and policies. The Statement of Additional Information contains further
information on these strategies.
The Fund might not use any hedging strategies, and there can be no assurance
that any strategy used will succeed. If GE Investment Management is incorrect
in its judgment on market values, interest rates or other economic factors in
using a hedging strategy, the Fund may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:
. the fact that the skills needed to use hedging instruments are different
from those needed to select the Fund's securities,
. the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
or currencies being hedged,
. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities, and
. the possibility that the Fund is unable to close out or liquidate its
hedged position.
LENDING PORTFOLIO SECURITIES. The Fund may lend its securities to qualified
U.S. and foreign brokers, dealers and banks in an amount up to 30% of the
Fund's total assets taken at market value. The Fund's loans of securities will
be collateralized in an amount at least equal to the current market value of
the loaned securities. Lending securities enables the Fund to earn additional
income, but could result in a loss or delay in recovering these securities.
OTHER INFORMATION. The Fund may invest up to 10% of its net assets in illiquid
securities. Up to 5% of these securities may be securities whose sale is
restricted under the federal securities laws. The Fund may borrow up to 20% of
the value of its total assets from banks for temporary or emergency purposes.
The Fund may use repurchase agreements with respect to securities in which it is
authorized to invest. In a typical repurchase agreement, the Fund buys a
security and simultaneously agrees to sell it back at an agreed-upon price and
time, usually no more than seven days after purchase. The Fund may sell
securities short "against the box" to defer realization of gains or losses for
tax or other purposes. When a security is sold against the box, the seller owns
the security. Also, the Fund may purchase securities on a when-issued or
delayed-delivery basis to secure advantageous prices at a particular time.
..................................................
PROSPECTUS PAGE 10
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
FLEXIBLE PRICING SM
The Fund offers three Classes of shares that differ in terms of sales
charges and expenses. An investor can select the class that is best suited to
his or her investment needs, based upon holding period and the amount of
investment.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial
sales charge (the maximum is 4.5% of the public offering price) next calculated
after PaineWebber's New York City headquarters or the Transfer Agent receives
the purchase order. Although investors pay an initial sales charge when they
buy Class A shares, the ongoing expenses for this Class are lower than the
ongoing expenses of Class B and Class C shares. Class A shares sales charges
are calculated as follows:
<TABLE>
<CAPTION>
Discount to Selected
Sales Charge as a Percentage of: Dealers as Percentage
Amount of Investment Offering Price Net Amount Invested of Offering Price
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over/1/ Zero Zero 1.00/2/
</TABLE>
/1/ A contingent deferred sales charge of 1% of the shares' net asset value at
the time of their purchase or their sale, whichever is less, is charged on
redemptions made within one year of the purchase date. However, Class A shares
representing capital appreciation or reinvestment of any dividends or capital
gains will not be subject to the 1% charge. Withdrawals under the Systematic
Withdrawal Plan will not be subject to this charge. However, investors may not
withdraw annually more than 12% of the value of the Fund account under the Plan.
This charge does not apply to Class A shares bought before November 10, 1995.
/2/ Mitchell Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS
The Fund's sales charge may be reduced when investors add the amount they
are currently investing to the value of their account. To determine the sales
charge reduction, please refer to the chart above. Investors who buy Class A
shares in more than one PaineWebber fund may combine their purchases to get a
reduced sales charge. (They may also get a reduced sales charge by first
accumulating Class A shares worth a certain amount in one or more PaineWebber
funds and then buying a specific dollar amount of additional Class A shares.)
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
. their spouses, parents or minors under age 21;
. their Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. any company controlled by the investor;
. trusts created by the investor;
. Uniform Gift to Minors Act/Uniform Transfers to Minors Act accounts
created by the investor or group of individuals for the benefit of the
investors, their spouses, parents or children; or
. accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified
retirement plans may also qualify for a reduced sales charge.
The sales charge will not apply when the investor:
. is an employee, director, trustee, or officer of PaineWebber or its
affiliates;
. is the spouse, parent or child of any of the above, or advisory clients of
Mitchell Hutchins;
. buys these shares through a PaineWebber investment executive who was
formerly employed as a broker with a competing brokerage firm that was
registered as a broker-dealer with the Securities and Exchange Commission and
. the investor was the investment executive's client at the competing
brokerage firm;
. within 90 days of buying Class A shares in this Fund, the investor
sells shares of one or more mutual funds that (a) were principally
underwritten by the competing brokerage firm or its affiliates and
(b) the investor either paid a sales charge to buy those shares, paid
a contingent deferred sales charge when selling them or held those
shares until the contingent deferred sales charge was waived; and
. the amount the investor purchases does not exceed the total amount
of money the investor received from the sale of the other mutual
fund; or
. is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that
investment automatically invested in Class A shares.
For more information on how to take advantage of any reduced sales charge,
investors should contact a PaineWebber investment executive, a correspondent
firm or call 1-800-647-1568.
..................................................
PROSPECTUS PAGE 11
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated
after PaineWebber's New York City headquarters or the Transfer Agent receives
the purchase order. The ongoing expenses investors pay for Class B shares are
higher than those of Class A shares. Because investors do not pay an initial
sales charge when they buy Class B shares, 100% of their purchase is
immediately invested. Depending on how long they own their Fund investment,
investors may have to pay a sales charge when they sell their Fund shares. This
sales charge is called a "contingent deferred sales charge." The amount of the
charge depends on how long the investor owned the shares. The sales charge is
calculated by multiplying the net asset value of the shares at the time of
their sale or their purchase, whichever is less, by the percentage shown on the
table below. Investors who own shares for more than six years do not have to
pay a sales charge when selling those shares.
<TABLE>
<CAPTION>
Percentage by which the shares'
If the investor sells shares within: net asset value is multiplied:
<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A
shares of equal dollar value after the investor has owned them for 6 years.
Dividends and other distributions paid to the investor by the Fund in the form
of additional Class B shares will also convert to Class A shares on a pro-rata
basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares.
. If the investor has exchanged Class B shares between PaineWebber funds,
the Fund uses the purchase date at which the initial investment was made to
determine the conversion date.
. Investors who sell shares before owning them for six years do not have to
pay the sales charge if the shares sold represent capital appreciation of the
Fund's assets or reinvested dividends and/or capital gain distributions.
MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE
When investors sell Class B shares they have owned for less than six years,
the Fund automatically will minimize the sales charge by assuming the investors
are selling:
. First, Class B shares representing capital appreciation of the Fund's
assets;
. Second, Class B shares owned through reinvested dividends and capital gain
distributions; and
. Third, Class B shares held in the portfolio the longest.
If the investor acquired Class B shares of the Fund through an exchange from
a different PaineWebber mutual fund, the six-year period will be calculated
from the date the investor originally bought the Class B shares.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
. redemptions under the Fund's "Systematic Withdrawal Plan";
. a distribution from a self-employed individual retirement plan ("Keogh
Plan");
. a custodial account under Section 403(b) of the Internal Revenue Code
(after the investor reaches age 59 1/2);
. an IRA distribution or a tax-free return of an excess IRA contribution;
. a tax-qualified retirement plan distribution following retirement; or
. Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death individually or as a joint tenant with
the right of survivorship with his or her spouse.
An investor must provide satisfactory information to PaineWebber or the Fund
if the investor seeks any of these waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. Investors do not pay an initial sales
charge when they buy Class C shares, but the ongoing expenses of Class C shares
are higher than those of Class A shares. Class C shares never convert to any
other class of shares. A contingent deferred sales charge of 1% of the net
asset value of the shares at the time of purchase or sale, whichever is less,
is charged on redemptions made within one year of the purchase date. Class C
shares representing capital appreciation or reinvestment of any dividends or
capital gains will not be subject to the 1% charge. This charge does not apply
to Class C shares bought before November 10, 1995. Withdrawals under the
Systematic Withdrawal Plan also will not be subject to this charge. However,
investors may not withdraw annually more than 12% of the value of the Fund
account under the Plan.
..................................................
PROSPECTUS PAGE 12
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
HOW TO BUY SHARES
Prices are calculated for the Fund's Class A, B and C shares once each Business
Day, at the close of regular trading on the New York Stock Exchange (currently 4
p.m., Eastern time). A "Business Day" is any day, Monday through Friday, on
which the New York Stock Exchange is open for business. Shares are purchased at
the next share price calculated after the purchase order is received.
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's
New York City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or
with funds they have in their brokerage accounts at PaineWebber or its
correspondent firms. Payment is due on the third business day after
PaineWebber's New York City headquarters receives the purchase order.
Investors who are not PaineWebber clients may purchase Fund shares and set
up an account through the Transfer Agent by completing and signing the
application at the end of this Prospectus. The application and check must be
mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
DE 19899.
When placing an order to buy shares, investors should specify which Class of
shares they want to buy. If investors fail to specify the Class, they will
automatically receive Class A shares, which include an initial sales charge.
New investors to PaineWebber may complete and sign an account application
and mail it along with a check. Investors may also open an account in person or
by wire as described on Page XX.
Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:
. mail an application with a check; or
. open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional
investments in the Fund.
MINIMUM INVESTMENTS
To open an account: $1,000
To add to an account: $ 100
The Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts or the Fund's
automatic investment plan.
..................................................
PROSPECTUS PAGE 13
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Fund shares for
the same class of other PaineWebber fund shares. In classes of shares where no
initial sales charge is imposed, a contingent deferred sales charge may apply
if the investor sells the shares acquired through the exchange. Exchanges may
be subject to minimum investment requirements of the fund into which exchanges
are made.
. Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.
. Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to PFPC Inc., the Fund's transfer agent.
The letter of instruction must include:
. name and address;
. the Fund's name;
. Fund account number;
. the dollar amount or number of shares to be redeemed; and
. a guarantee of each registered owner's signature by an eligible
institution, such as a commercial bank, trust company or stock exchange
member.
The letter must be mailed to PFPC Inc.,
Attn: PaineWebber Mutual Funds,
P.O. Box 8950,
Wilmington, DE 19899.
Fund shares may be exchanged only after the settlement date has passed and
payment for the shares has been made. The exchange privilege is available only
in those jurisdictions where the sale of the fund shares to be acquired are
authorized. This exchange privilege may be modified or terminated at any time
and, when required by Securities and Exchange Commission rules, upon 60-day
notice. See the back cover of this prospectus for a listing of other
PaineWebber funds.
REDEMPTIONS
HOW TO SELL SHARES
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class as next calculated after the order is received and
accepted. Share prices are normally calculated at the close of regular trading
on the New York Stock Exchange (currently 4 p.m., Eastern time).
Investors who own more than one class of shares should specify which Class
they are selling. If they do not, the Fund will assume they are first selling
their Class C shares, then Class A, and last, Class B.
If a shareholder wants to sell shares which were purchased recently, the
Fund may delay payment until it verifies that good payment was received. In the
case of purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Fund's transfer agent, may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, it reserves the right to purchase back all Fund shares in any
shareholder account with a net asset value of less than $500. If the Fund
elects to do so, it will notify the shareholder of the opportunity to increase
the amount invested to $500 or more within 60 days of the notice. The Fund will
not purchase back accounts that fall below $500 solely due to a reduction in net
asset value per share.
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive at
PaineWebber or one of its correspondent firms at the time of purchase.
..................................................
PROSPECTUS PAGE 14
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
OTHER SERVICES
Consult a PaineWebber investment executive or correspondent firm to learn
more about the following services:
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan through which, for as little as
$50 a month, the Fund will deduct money from the investor's bank account to
invest directly in the Fund. In addition to providing a convenient and
disciplined manner of investing, participation in the automatic investment plan
enables the investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December) or semiannual (June and December)
withdrawals from their PaineWebber Mutual Fund account. Minimum balances and
withdrawals vary according to the Class of shares:
. CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000;
minimum withdrawals of $100.
. CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly and semiannual withdrawals of $200, $400 and $600, respectively.
Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. Investors may not withdraw annually more than
12% of the value of the Fund account when the investor signed up for the Plan.
Shareholders who elect to receive dividends or other distributions in cash may
not participate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
PaineWebber Mutual Funds are available for purchase in an IRA account. In
addition, a Self-Directed IRA is available through PaineWebber in which
purchases of PaineWebber funds and other investments may be made. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS
If shareholders holding shares of a Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be
moved to an account with the Transfer Agent.
..................................................
PROSPECTUS PAGE 15
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
ABOUT THE INVESTMENT MANAGER
GE Investments has been managing mutual fund assets since 1935 and has
roughly $10 billion in assets of mutual funds and over $50 billion in total
assets under management. The International Equity Team at GE Investments makes
investment decisions for the Fund in accordance with the Fund's investment
objective, policies and restrictions.
Ralph R. Layman is the head of the International Equity Team and serves as
portfolio manager of the Fund, primarily responsible for the day-to-day
management of the Fund's portfolio. Mr. Layman has served in this capacity
since the Fund's inception in 1991. He is a Chartered Financial Analyst and an
Executive Vice President and Senior Investment Manager of GE Investment
Management Incorporated. From 1989 to 1991, Mr. Layman served as Executive Vice
President, partner and portfolio manager of Northern Capital Management Co.
Prior to 1989 when he joined Northern, he was Vice President and portfolio
manager of Templeton Investment Counsel, Inc., and Vice President of the
Templeton Emerging Markets Fund.
Directly assisting Mr. Layman are Pamela J. Thomas, Vice President of Global
Equities at GE Investments, and the rest of the International Equity Team. Ms.
Thomas is a Chartered Financial Analyst and has been with GE Investments three
years. From 1987 to 1992, Ms. Thomas served as assistant portfolio manager at
the Bank of Bermuda. Earlier in her career, she was senior credit analyst at
the Bank of Butterfield. Ms. Thomas has nine years of investment experience.
The International Equity Team is comprised of ten analysts, eight of whom
manage portfolios.
MANAGEMENT
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders. The Board of Trustees oversees the
Fund's operations and has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority
of the Board of Trustees). Mitchell Hutchins has appointed the investment
sub-adviser, GE Investment Management, to be responsible for day-to-day
management of the Fund's investments.
GE Investment Management, located at 3003 Summer Street, Stamford, CT 06904, is
a subsidiary of General Electric Company and a part of the GE Investments Group.
Together with its affiliate, General Electric Investment Corporation, GE
Investment Management is one of the largest independent investment managers in
the United States. Collectively, they are referred to as GE Investments.
The Board of Trustees has determined that brokerage transactions for the
Fund may be conducted through PaineWebber or its affiliates. This will be the
case if, in the judgment of GE Investment Management, PaineWebber charges the
Fund fair and reasonable rates, and if it will likely result in a price and
execution at least as favorable to the Fund as would be obtainable through
other qualified broker-dealers.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, 1285 Avenue of the Americas, New York, New York, 10019,
is the asset management subsidiary of PaineWebber Incorporated, which is wholly
owned by Paine Webber Group Inc.("PaineWebber"), a publicly owned financial
services holding company. At _________ __, 1995, Mitchell Hutchins was adviser
or sub-adviser of __ investment companies with __ separate portfolios and
aggregate assets of approximately $__ billion.
..................................................
PROSPECTUS PAGE 16
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
MANAGEMENT FEES & OTHER EXPENSES
The Fund pays Mitchell Hutchins a monthly fee for its services. For the
fiscal year ended ____________, the Fund paid advisory fees at the effective
annual rate of ___% of its average daily net assets. In turn, Mitchell Hutchins
(not the Fund) pays GE Investment Management a monthly fee for its portfolio
management services. For the fiscal year ended _______, Mitchell Hutchins paid
sub-advisory fees at the effective annual rate of ___% of its average daily net
assets.
The management fees paid by the Fund are higher than those paid by most
investment companies to their advisers. However, Mitchell Hutchins believes the
fees are comparable to the management fees paid by other funds with similar
investment objectives and policies. Annually, the Trustees review the Fund's
contracts with Mitchell Hutchins and GE Investment Management.
The Fund incurs other expenses. For the fiscal year ended August 31, 1995, the
Fund's total expenses for its Class A, Class B and Class C shares, stated as a
percentage of net assets, were____%, ____% and ____%, respectively. This
percentage is annualized for Class B shares.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
distribution plans for Class A, Class B and Class C shares ("Class A Plan,"
"Class B Plan" and "Class C Plan," collectively, "Plans"), the Fund pays
Mitchell Hutchins:
. Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
. Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares.
Under all three Plans, Mitchell Hutchins primarily uses the service fees to
pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber then compensates its investment executives for shareholder
servicing that they perform and offsets its own expenses in servicing and
maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to:
. Offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class C shares, respectively.
. Offset the Fund's marketing costs attributable to such Classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and C shares are
sold, as well as on an ongoing basis. Mitchell Hutchins receives no special
compensation from the Fund or investors at the time of sale of Class B or C
shares.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related distribution contracts for each class of shares
("Distribution Contracts") specify that the Fund must pay service and
distribution fees to Mitchell Hutchins for its activities, not as reimbursement
for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses
exceed the service or distribution fees it receives, the Fund will not be
obligated to pay more than those fees. On the other hand, if Mitchell Hutchins'
expenses are less than such fees, it will retain its full fees and realize a
profit. Expenses in excess of service and distribution fees received or accrued
through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not of the Fund. Annually, the trustees will review the Plan
and Mitchell Hutchins' corresponding expenses for each class separately from
the Plans.
..................................................
PROSPECTUS PAGE 17
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
DETERMINING THE SHARES'
NET ASSET VALUE
The net asset value of the Fund's shares fluctuates and is determined separately
for each class as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund, plus any cash or other assets, minus all liabilities, by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's Board of Trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the Board of Trustees determines that this does not represent
fair value. Investments denominated in foreign currencies are valued daily in
U.S. dollars based on the then-prevailing exchange rates.
DIVIDENDS & TAXES
DIVIDENDS
The Fund pays an annual dividend from its net investment income and net
short-term capital gain, if any. The Fund distributes any net realized gain
from foreign currency transactions with this dividend. The Fund also
distributes annually substantially all of its net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any. The Fund
may make additional distributions if necessary to avoid a 4% excise tax on
certain undistributed income and capital gain.
Dividends and other distributions paid on each class of shares of the Fund
are calculated at the same time and in the same manner. Dividends on Class B
and Class C shares of the Fund are expected to be lower than those for its
Class A shares because Class B and Class C shares have higher expenses
resulting from their distribution fees. Dividends on each class might be
affected differently by the allocation of other class-specific expenses. See
"General Information."
The Fund's dividends and capital gain distributions are paid in additional
Fund shares of the same class at net asset value, unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and/or
capital gain distributions in cash, either mailed to the shareholder by check
or credited to the shareholder's PaineWebber account, should contact their
PaineWebber investment executives or correspondent firms or complete the
appropriate section of the application form.
TAXES
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will not have to
pay Federal income tax on the part of its investment company taxable income,
generally consisting of net investment income net short-term capital gain and
net gains from certain foreign currency transactions, and the net capital gain
that it distributes to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to shareholders as ordinary
income. Distributions of the Fund's net capital gain (whether paid in cash or
additional shares) are taxable to shareholders as a long-term capital gain,
regardless of how long they have held their Fund shares. Shareholders who are
not subject to tax on their income generally will not be required to pay tax on
distributions.
YEAR-END TAX REPORTING
Following the end of each calendar year, the Fund notifies its shareholders
of the dividends and capital gain distributions paid (or deemed paid), their
share of any foreign taxes paid by the Fund that year and any portion of those
dividends that qualify for special treatment.
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PROSPECTUS PAGE 18
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
WITHHOLDING REQUIREMENTS
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding from dividends and capital gain
distributions at that rate is also required for shareholders who otherwise are
subject to backup withholding.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
When shareholders sell (redeem) shares, it may result in a taxable gain or
loss. This depends upon whether the shareholders receive more or less than
their adjusted basis for the shares (which normally includes any initial sales
charge paid on Class A shares). An exchange of Fund shares for shares of
another PaineWebber fund generally will have similar tax consequences. In
addition, if Fund shares are bought within 30 days before or after selling
other Fund shares (regardless of class) at a loss, all or a portion of that
loss will not be deductible and will increase the basis of the newly purchased
shares.
SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of a
PaineWebber fund without paying a sales charge due to the 365-day reinstatement
privilege or the exchange privilege. In these cases, any gain on the sale or
exchange of the original Class A shares would be increased or, in the case of a
loss, decreased by the amount of the sales charge paid when those shares were
bought, and that amount will increase the basis of the PaineWebber fund shares
subsequently acquired.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Fund is a diversified series of Mitchell Hutchins/Kidder, Peabody Investment
Trust ("Trust"). The Trust was formed on March 28, 1991, as a business trust
pursuant to a Declaration of Trust, as amended from time to time
("Declaration"), under the laws of The Commonwealth of Massachusetts. The Trust
is registered with the Securities and Exchange Commission as an open-end
investment company. The Declaration authorizes the Trustees to create separate
series and, within each series, separate Classes of an unlimited number of
shares of beneficial interest, with a par value of $0.001 per share. As of the
date of this Prospectus, there is one other series representing interests in
another fund.
The shares of the Fund are divided into four classes, designated Class A
shares, Class B shares, Class C shares and Class Y shares. Each Class
represents an identical interest in the Fund's investment portfolio and has the
same rights, privileges and preferences. However, each class may differ with
respect to its designation, the effect of sales charges, if any, its
distribution and/or service fees, if any, the expenses allocable exclusively to
each class, voting rights on matters exclusively affecting that class, and its
exchange privilege.
The Trustees do not anticipate any conflicts among the interests of the
holders of the different Classes. The different sales charges and other
expenses applicable to the different classes of Fund shares may affect the
performance of those classes.
Each share of the Fund is entitled to participate equally in dividends,
other distributions and the proceeds of any liquidation. However, due to the
differing expenses of the classes, dividends and liquidation proceeds of Class
B and Class C shares are likely to be lower than for Class A shares and are
likely to be lower for Class Y shares than for any other Class of shares.
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PROSPECTUS PAGE 19
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
Class Y shares, which are offered only to limited groups of investors, are
subject to neither an initial or contingent deferred sales charge nor ongoing
service or distribution fees. More information concerning Class Y shares of the
Fund may be obtained from a PaineWebber investment executive or correspondent
firm or by calling 1-800-647-1568.
VOTING RIGHTS
Shareholders of the Trust are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of all the shares of
the Trust may elect all of the Trustees. Generally, shares of the Trust will be
voted on a Trust-wide basis on all matters except those affecting only the
interests of one series, such as advisory contracts. 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 a Plan as it relates to a
Class.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual meetings of shareholders to elect
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 to vote on the removal of a Trustee at the written request of holders
of 10% of the Trust's outstanding shares.
REPORTS TO SHAREHOLDERS
The Trust sends Fund shareholders audited annual and unaudited semi-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 & RECORDKEEPING AGENT;
TRANSFER & DIVIDEND AGENT
State Street Bank and Trust Company, located at One Monarch Drive, North Quincy,
Massachusetts 02171, serves as the Fund's custodian and recordkeeping agent and
employs foreign sub-custodians to provide custody of its foreign assets. PFPC
Inc., a subsidiary of PNC Bank, N.A. serves as the Fund's transfer and dividend
disbursing agent. It is located at 400 Bellevue Parkway, Wilmington, Delaware
19809.
..................................................
PROSPECTUS PAGE 20
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
..................................................
PROSPECTUS PAGE 21
<PAGE>
PAINEWEBBER FAMILY OF FUNDS
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection
with the offering made by this Prospectus. If given or made,
such information or representations must not be relied upon
as having been authorized by the Fund or its distributor.
This Prospectus does not constitute an offering by the
Fund or its distributor in any jurisdiction in which
such offering may not lawfully be made.
------------------------------
PAINEWEBBER MONEY MARKET FUND
PAINEWEBBER BOND FUNDS
Investment Grade Income Fund
High Income Fund
Low Duration U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund
PAINEWEBBER MUNICIPAL BOND FUNDS
National Tax-Free Income Fund
California Tax-Free Income Fund
New York Tax-Free Income Fund
Municipal High Income Fund
PAINEWEBBER BALANCED FUNDS
Balanced Fund
Tactical Allocation Fund
PAINEWEBBER GROWTH FUNDS
Capital Appreciation Fund
Growth Fund
Growth and Income Fund
Regional Financial Growth Fund
Small Cap Growth Fund
Small Cap Value Fund
Utility Income Fund
PAINEWEBBER GLOBAL FUNDS
Global Equity Fund
Global Income Fund
Emerging Markets Equity Fund
------------------------------
A prospectus containing more complete information for any of the above
funds, including charges and expenses, can be obtained from a
PaineWebber investment executive or correspondent firm.
Please read it carefully before investing. It is
important you have all the information you need
to make a sound investment decision.
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Global Equity Fund ("Fund") is a diversified series of Mitchell
Hutchins/Kidder Peabody Investment Trust ("Trust"), a professionally managed,
open-end investment company organized as a Massachusetts business trust. The
Fund seeks long-term capital appreciation; it invests primarily in equity
securities of foreign issuers. The Fund's investment adviser, administrator and
distributor is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"). GE
Investment Management Incorporated ("GE Investment Management"), a wholly owned
subsidiary of General Electric Company, serves as the Fund's investment sub-
adviser. As distributor for the Fund, Mitchell Hutchins has appointed
PaineWebber to serve as the exclusive dealer for the sale of Fund shares. This
Statement of Additional Information is not a prospectus and should be read only
in conjunction with the Fund's current Prospectus, dated __________, 1995. A
copy of the Prospectus may be obtained by calling any PaineWebber investment
executive or correspondent firm or by calling toll-free 1-800-647-1568. This
Statement of Additional Information is dated ____________, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus concerning
the Fund's investment policies and limitations.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's ("S&P") and other nationally recognized statistical rating
organizations ("NRSROs") are private services that provide ratings of the credit
quality of debt obligations. A description of the ratings assigned to corporate
debt obligations by Moody's and S&P is included in the Appendix to this
Statement of Additional Information. The Fund may use these ratings in
determining whether to purchase, sell or hold a security. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. To the extent that the
Fund invests in U.S. dollar-denominated securities of foreign issuers, these
securities may not be registered with the Securities and Exchange Commission
("SEC"), nor may the issuers thereof be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the Fund than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.
The Fund may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"). The Fund also may purchase securities of foreign issuers in
foreign markets and purchase European Depository Receipts ("EDRs") or other
securities convertible into securities of issuers based in foreign countries.
These securities
<PAGE>
may not necessarily be denominated in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets, while EDRs, in bearer form, may be denominated in other currencies and
are designed for use in European securities markets. ADRs are receipts typically
issued by a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement. For
purposes of the Fund's investment policies, ADRs and EDRs are deemed to have the
same classification as the underlying securities they represent. Thus, an ADR or
EDR representing ownership of common stock will be treated as common stock.
The Fund anticipates that its brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment, may expose the
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although the Fund will endeavor to achieve the best net results in
effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than in
the United States.
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
FOREIGN CURRENCY TRANSACTIONS. Although the Fund values its assets daily in U.S.
dollars, it does not intend to convert its holdings of foreign currencies to
U.S. dollars on a daily basis. The Fund's foreign currencies generally will be
held as "foreign currency call accounts" at foreign branches of foreign or
domestic banks. These accounts bear interest at negotiated rates and are payable
upon relatively short demand periods. If a bank became insolvent, the Fund could
suffer a loss of some or all of the amounts deposited. The Fund may convert
foreign currency to U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a stated commission or fee for conversion, the
prices posted generally include a "spread," which is the difference between the
prices at which the dealers are buying and selling foreign currencies.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in illiquid
securities, including investment of up to 5% of its net assets in restricted
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Fund has valued the securities. The
term "restricted securities" for this purpose means securities that are subject
to legal or contractual restrictions on resale. Illiquid securities include,
among other things, purchased over-the-counter ("OTC") options, repurchase
agreements maturing in more than seven days and restricted securities other than
those Mitchell Hutchins has determined are liquid pursuant to guidelines
established by the Trust's board of trustees. The assets used as cover for OTC
options written by the Fund will be considered illiquid unless the OTC options
are sold to qualified dealers who agree that the Fund may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Illiquid restricted securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the Securities Act of 1933 ("1933 Act"). However,
to the extent that securities are freely tradeable in the country in which they
are principally traded, they are not considered illiquid securities for purposes
of the 10% net asset limitation, even if they are not freely tradeable in
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<PAGE>
the United States. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4) the
number of other potential purchasers and (5) the nature of the security and how
trading is effected (e.g., the time needed to sell the security, how offers are
solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board.
GOVERNMENT SECURITIES AND BANK OBLIGATIONS. 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 NRSRO, or if unrated, deemed by GE Investment
Management 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 "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
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<PAGE>
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.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. The Fund maintains custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to is, in
effect, secured by such securities. If the value of these securities is less
than the repurchase price, plus any agreed-upon additional amount, the other
party to the agreement must provide additional collateral so that at all times
the collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the securities and the price that was paid by the Fund upon
acquisition is accrued as interest and included in its net investment income.
Repurchase agreements carry certain risks not associated with direct investments
in securities, including possible declines in the market value of the underlying
securities and delays and costs to the Fund if the other party to a repurchase
agreement becomes insolvent.
The Fund intends to enter into repurchase agreements only with banks and dealers
in transactions believed by GE Investment Management or Mitchell Hutchins to
present minimal credit risks in accordance with guidelines established by the
Trust's board of trustees. GE Investment Management or Mitchell Hutchins reviews
and monitors the creditworthiness of those institutions under the board's
general supervision.
LENDING OF PORTFOLIO SECURITIES. As indicated in the Prospectus, the Fund is
authorized to lend up to 30% of the total value of its portfolio securities to
broker-dealers or institutional investors that Mitchell Hutchins deems
qualified, but only when the borrower maintains with the Fund's custodian bank
collateral either in cash or money market instruments in an amount, marked to
market daily, at least equal to the market value of the securities loaned, plus
accrued interest and dividends. In determining whether to lend securities to a
particular broker-dealer or institutional investor, Mitchell Hutchins will
consider, and during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. The Fund will
retain authority to terminate any loans at any time. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will regain record ownership of loaned securities to
exercise beneficial rights, such as voting and subscription rights and rights to
dividends, interest or other distributions, when regaining such rights is
considered to be in the Fund's interest.
SHORT SALES "AGAINST THE BOX". The Fund may engage in short sales of securities
it owns or has the right to acquire at no added cost through conversion or
exchange of other securities it owns (short sales "against the box") to defer
realization of gains or losses for tax or other purposes. To make delivery to
the purchaser in a
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<PAGE>
short sale, the executing broker borrows the securities being sold short on
behalf of the Fund, and the Fund is obligated to replace the securities borrowed
at a date in the future. When the Fund sells short, it will establish a margin
account with the broker effecting the short sale, and will deposit collateral
with the broker. In addition, the Fund will maintain with its custodian, in a
segregated account, the securities that could be used to cover the short sale.
The Fund will incur transaction costs, including interest expense, in connection
with opening, maintaining and closing short sales against the box. The Fund
currently does not intend to have obligations under short-sales that at any time
during the coming year exceed 5% of the Fund's net assets.
The Fund might make a short sale "against the box" in order to hedge against
market risks when GE Investment Management believes that the price of a security
may decline, thereby causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for a security owned by the
Fund, or when GE Investment Management wants to sell a security that the Fund
owns at a current price, but also wishes to defer recognition of gain or loss
for federal income tax purposes. In such case, any loss in the Fund's long
position after the short sale should be reduced be a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which gains or losses in the long position are
reduced will depend upon the amount of the securities sold short relative to the
amount of the securities the Fund owns, either directly or indirectly, and in
the case where the Fund owns convertible securities, changes in the investment
values or conversion premiums of such securities.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions to make
future payments to third parties, it will maintain with an approved custodian in
a segregated account cash, Government Securities or other liquid high-grade debt
securities, marked to market daily, in an amount at least equal to the Fund's
obligation or commitment under such transactions. As described below under
"Hedging Strategies," segregated accounts may also be required in connection
with certain transactions involving options, futures contracts and foreign
currency contracts.
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.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Fund may invest certain of its
assets in the securities of other investment companies. To the extent the Fund
invests in other investment companies, the Fund's shareholders incur duplicative
fees and expenses, including investment advisory fees.
BORROWING. The Fund may borrow money from banks for temporary or emergency
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.
INVESTMENT LIMITATIONS OF THE FUND
- 5 -
<PAGE>
The Fund may not (1) 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) 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) 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 payment of
dividends and distributions that might otherwise require the untimely
disposition of securities, provided that such amounts shall not 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, and (b) whenever borrowings exceed 5% of the value of the
total asset of the Fund, the Fund will not make any additional investments; (4)
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) invest more than 25% of
the value of its total assets in securities of issuers in any one industry,
which term 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) purchase securities on margin, except that (a)
the Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities, and (b) 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) 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) 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) 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) invest in oil, gas
or other mineral leases or exploration or development programs; (11) 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 purpose of the 1933 Act; (12) 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) participate on a joint or joint-and
several basis in any securities trading account; or (14) make investments for
the purpose of exercising control of management.
The foregoing fundamental investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Fund or (b) 67% or more of the shares present at a shareholders' meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy. If a percentage restriction is adhered to at the time of an
investment or transaction, a later increase or decrease in percentage resulting
from a change in values of portfolio securities or amount of total assets will
not be considered a violation of any of the foregoing limitations.
The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: the Fund may not (1) 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 GE Investment Management or
Mitchell Hutchins individually owns more than 0.5% of the outstanding securities
of the company and together they own beneficially more than 5% of the
securities; (2) 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; (3) invest more than 5% of its net assets in
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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; (4) invest more than 10% of its net assets in illiquid securities, a
term which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities and includes, among other things, repurchase agreements
maturing in more than seven days; (5) 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; or (6) under normal
circumstances, invest more than 20% of its net assets in companies or
governments of countries not represented in the Morgan Stanley Capital
International World Index.
HEDGING STRATEGIES
HEDGING INSTRUMENTS. Mitchell Hutchins may use a variety of financial
instruments ("Hedging Instruments"), including certain options, futures
contracts (sometimes referred to as "futures") and options on futures contracts,
to attempt to hedge the Fund's portfolio. In particular, the Fund may use the
hedging instruments described below:
Options on Equity and Debt Securities and Foreign Currencies -- A call
option is a short-term contract pursuant to which the purchaser of the option,
in return for a premium, has the right to buy the security or currency
underlying the option at a specified price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to deliver the
underlying security or currency against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security or currency at a specified price
during the option term. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security or currency at the exercise price.
Options on Stock Indexes -- A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
Stock Index Futures Contracts -- A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
Interest Rate and Foreign Currency Futures Contracts -- Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
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<PAGE>
Options on Futures Contracts -- Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exercise
of the option, the delivery of the futures position to the holder of the option
will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future. The writer of an option, upon exercise, will assume a short
position in the case of a call and a long position in the case of a put.
Forward Currency Contracts -- A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be broadly
categorized as "short hedges" and "long hedges." A short hedge is a purchase or
sale of a Hedging Instrument intended to partially or fully offset potential
declines in the value of one or more investments held in the Fund's portfolio.
Thus, in a short hedge the Fund takes a position in a Hedging Instrument whose
price is expected to move in the opposite direction of the price of the
investment being hedged. For example, the Fund might purchase a put option on a
security to hedge against a potential decline in the value of that security. If
the price of the security declined below the exercise price of the put, the Fund
could exercise the put and thus limit its loss below the exercise price to the
premium paid plus transactions costs. In the alternative, because the value of
the put option can be expected to increase as the value of the underlying
security declines, the Fund might be able to close out the put option and
realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential increases in the acquisition cost of one
or more investments that the Fund intends to acquire. Thus, in a long hedge the
Fund takes a position in a Hedging Instrument whose price is expected to move in
the same direction as the price of the prospective investment being hedged. For
example, the Fund might purchase a call option on a security it intends to
purchase in order to hedge against an increase in the cost of the security. If
the price of the security increased above the exercise price of the call, the
Fund could exercise the call and thus limit its acquisition cost to the exercise
price plus the premium paid and transactions costs. Alternatively, the Fund
might be able to offset the price increase by closing out an appreciated call
option and realizing a gain.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast, generally
are used to hedge against price movements in broad equity market sectors in
which the Fund has invested or expects to invest. Hedging Instruments on debt
securities may be used to hedge either individual securities or broad fixed
income market sectors.
Because the Fund intends to use options and futures for hedging purposes, it may
enter into any futures contracts or options on futures contracts or forward
currency contracts as long as 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 does not exceed 50% of the market value of the total assets of the Fund.
Under normal circumstances, however, the value of the Fund's portfolio assets so
hedged generally will be a much smaller amount.
The use of Hedging Instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various
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state regulatory authorities. In addition, the Fund's ability to use Hedging
Instruments will be limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, GE Investment Management expects to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. These new opportunities may become available as GE Investment
Management develops new techniques, as regulatory authorities broaden the range
of permitted transactions and as new options, futures contracts, foreign
currency contracts or other techniques are developed. GE Investment Management
may utilize these opportunities to the extent that they are consistent with the
Fund's investment objective and permitted by the Fund's investment limitations
and applicable regulatory authorities. The Fund's Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the ability of GE
Investment Management to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. While GE Investment Management is
experienced in the use of Hedging Instruments, there can be no assurance that
any particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between price
movements of a Hedging Instrument and price movements of the investments being
hedged. For example, if the value of a Hedging Instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded.
The effectiveness of hedges using Hedging Instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because GE Investment Management projected a decline in the price of
a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If the Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
positions expired or matured. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to close out a
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position in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of a contra party to enter into a transaction closing
out the position. Therefore, there is no assurance that any hedging position can
be closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. The Fund will not use Hedging Instruments for
speculative purposes or for purposes of leverage. Transactions using Hedging
Instruments, other than purchased options, expose the Fund to an obligation to
another party. The Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, other options or
futures contracts or (2) cash and short-term liquid debt securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so require,
set aside cash, Government Securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell) covered
put or call options, on equity and debt securities and stock indices and foreign
currencies. The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the exercise
price of the call option, it can be expected that the option will be exercised
and the Fund will be obligated to sell the security at less than its market
value. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security at more than its market value. The securities or other
assets used as cover for OTC options written by the Fund would be considered
illiquid to the extent described under "Investment Policies and Restrictions-
Illiquid Securities."
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
The Fund may purchase and write both exchange-traded and OTC options. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options
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are contracts between the Fund and its contra party (usually a securities dealer
or a bank) with no clearing organization guarantee. Thus, when the Fund
purchases or writes an OTC option, it relies on the contra party to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the contra party to do so would result in the loss of any premium paid by the
Fund as well as the loss of any expected benefit of the transaction. The Fund
will enter into OTC option transactions only with contra parties that have a net
worth of at least $20 million.
Generally, the OTC debt options or foreign currency options used by the Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or call
option written by the Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
LIMITATIONS ON THE USE OF OPTIONS. The Fund's use of options is governed by the
following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
(1) The Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums on
all other options held by the Fund, does not exceed 5% of the Fund's total
assets.
(2) The aggregate value of underlying securities on which covered calls are
written will not exceed 5% of the Fund's total assets.
(3) To the extent cash or cash equivalents, including Government Securities, are
maintained in a segregated account to collateralize options written on
currencies, securities or stock indexes, the Fund will limit collateralization
to 50% of its net assets.
FUTURES. The Fund may purchase and sell stock index futures contracts, interest
rate futures contracts and foreign currency futures contracts. The Fund may also
purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered call
options on futures contracts can serve as a limited short hedge, and writing
covered put options on futures contracts can serve as a limited long hedge,
using a strategy similar to that used for writing covered options on securities
or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through
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whom the transaction was effected, "initial margin" consisting of cash,
Government Securities or other liquid, high-grade debt securities, in an amount
generally equal to 10% or less of the contract value. Margin must also be
deposited when writing a call option on a futures contract, in accordance with
applicable exchange rules. Unlike margin in securities transactions, initial
margin on futures contracts does not represent a borrowing, but rather is in the
nature of a performance bond or good-faith deposit that is returned to the Fund
at the termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of the Fund's obligations to or from a futures broker. When the
Fund purchases an option on a future, the premium paid plus transaction costs is
all that is at risk. In contrast, when the Fund purchases or sells a futures
contract or writes a call option thereon, it is subject to daily variation
margin calls that could be substantial in the event of adverse price movements.
If the Fund has insufficient cash to meet daily variation margin requirements,
it might need to sell securities at a time when such sales are disadvantageous.
Holders and writers of futures positions and options on futures can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, an instrument identical to the instrument
held or written. Positions in futures and options on futures may be closed only
on an exchange or board of trade that provides a secondary market. The Fund
intends to enter into futures transactions only on exchanges or boards of trade
where there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or related option can vary from the previous
day's settlement price; once that limit is reached, no trades may be made that
day at a price beyond the limit. Daily price limits do not limit potential
losses because prices could move to the daily limit for several consecutive days
with little or no trading, thereby preventing liquidation of unfavorable
positions.
If the Fund were unable to liquidate a futures or related options position due
to the absence of a liquid secondary market or the imposition of price limits,
it could incur substantial losses. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
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LIMITATIONS ON THE USE OF FUTURES. The Fund's use of futures is governed by the
following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
(1) To the extent the Fund enters into futures contracts and options on futures
positions that are not for bona fide hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums on those positions (excluding the
amount by which options are "in-the-money") may not exceed 5% of the Fund's net
assets.
(2) The Fund will not enter into any futures, options on futures or forward
contracts if the aggregate market value of outstanding futures and forwards and
currencies and futures subject to options written by the Fund exceeds 50% of the
market value of the Fund's total assets.
(3) The aggregate margin deposits on all futures contracts and options thereon
held at any time by the Fund will not exceed 5% of the Fund's total assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Fund may use
options and futures on foreign currencies, as described above, and forward
currency forward contracts, as described below, to hedge against movements in
the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security the Fund owns or intends to acquire that are attributable to changes in
the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are attributable
to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, the Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another currency or a
basket of currencies, the value of which Mitchell Hutchins or GE Investment
Management believes will have a positive correlation to the value of the
currency being hedged. The risk that movements in the price of the Hedging
Instrument will not correlate perfectly with movements in the price of the
currency being hedged is magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Hedging Instruments, the
Fund could be disadvantaged by having to deal in the odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global, round-the-
clock market. To the extent the U.S. options or futures markets are closed while
the markets for the underlying currencies remain open, significant price and
rate movements might take place in the underlying markets that cannot be
reflected in the markets for the Hedging Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
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FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency contracts
to purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. Such transactions may serve as long hedges--for
example, the Fund may purchase a forward currency contract to lock in the U.S.
dollar price of a security denominated in a foreign currency that the Fund
intends to acquire. Forward currency contract transactions may also serve as
short hedges--for example, the Fund may sell a forward currency contract to lock
in the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security denominated in a foreign currency.
As noted above, the Fund also may seek to hedge against changes in the value of
a particular currency by using forward contracts on another foreign currency or
a basket of currencies, the value of which GE Investment Management believes
will have a positive correlation to the values of the currency being hedged. In
addition, the Fund may use forward currency contracts to shift its exposure to
foreign currency fluctuations from one country to another. For example, if the
Fund owned securities denominated in a foreign currency and GE Investment
Management believed that currency would decline relative to another currency, it
might enter into a forward contract to sell an appropriate amount of the first
foreign currency, with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies the risk that movements
in the price of the Hedging Instrument will not correlate or will correlate
unfavorably with the foreign currency being hedged.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the contra
party to make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of any
expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward currency
contracts can enter into offsetting closing transactions, similar to closing
transactions on futures, by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Secondary markets generally do
not exist for forward currency contracts, with the result that closing
transactions generally can be made for forward currency contracts only by
negotiating directly with the contra party. Thus, there can be no assurance that
the Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to maintain cash or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Fund may enter into
forward currency contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate the Fund to deliver an
amount of foreign currency in excess of the value of the position being hedged
by such contracts or (2) the Fund segregates with its custodian cash, U.S.
government securities or other liquid, high-grade debt securities in an amount
not less than the value of its total assets committed to the consummation of the
contract and not covered as provided in (1) above, as marked to market daily.
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TRUSTEES AND OFFICERS; PRINCIPAL SHAREHOLDERS
The trustees and executive officers of the Trust, their ages, business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------- ----------------------------------------------------
<S> <C> <C>
David J. Beaubien; 60 Trustee Chairman of Yankee Environmental Systems,
Inc., manufacturer of Meteorological measuring
systems. Director if 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 Avenue 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.
</TABLE>
- 15 -
<PAGE>
<TABLE>
<S> <C> <C>
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., 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.
</TABLE>
- 16 -
<PAGE>
<TABLE>
<S> <C> <C>
Scott H. Griff; 29 Vice President Vice President and attorney of Mitchell Hutchins.
and Prior to January 1995, an associate at the law firm
Assistant of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff
Secretary is also a vice president and assistant secretary of
12 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Ralph R. Layman; 40 Chief Investment Executive Vice President of GE Investment
3003 Summer Street Officer Management and General Electric Investment
P.O. Box 7900 Corporation, a registered investment adviser
Stamford, CT 06904 ("GEIC"). From 1989 to July 1991, Executive
Vice President, partner and portfolio manager of
Northern Capital Management Co.
C. William Maher; 34 Vice President First Vice President and the senior manager of the
and Fund Administration Division of Mitchell
Assistant Hutchins. Mr. Maher is also a vice president and
Treasurer assistant treasurer of 38 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran; 38 Vice President Vice President of Mitchell Hutchins. Ms. Moran
and is also a vice president and assistant treasurer of
Assistant 38 other investment companies for which Mitchell
Treasurer Hutchins or PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 43 Vice President Senior Vice President and Deputy General
and Counsel of Mitchell Hutchins. Ms. O'Donnell is
Secretary also a vice president and secretary of 38 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 First Vice President of Mitchell Hutchins. From
and August 1992 to August 1994, a vice president at
Assistant BlackRock Financial Management, Inc. Prior to
Treasurer 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.
</TABLE>
- 17 -
<PAGE>
<TABLE>
<S> <C> <C>
Julian F. Sluyters; 35 Vice President Senior Vice President and the director of the
and mutual fund finance division of Mitchell Hutchins.
Treasurer 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 Vice President of Global Equities and International Equity
3003 Summer Street analyst for GEIC. Prior to May 1992, graduate student
P.O. Box 7900 at the Wharton School.
Stamford, CT 06904
Gregory K. Todd; 38 Vice President First Vice President and Associate General
and Counsel of Mitchell Hutchins. Prior to 1993, a
Assistant partner in the law firm of Shereff, Friedman,
Secretary 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.
</TABLE>
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mr. Minard is an "interested person" of the Trust as defined in the
Investment Company Act of 1940 ("1940 Act") by virtue of his positions with
PaineWebber and Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust $1,000
annually and $375 per meeting of the board or any committee thereof. Trustees
also are reimbursed for any expenses incurred in attending meetings. The
chairman of the board's audit committee receives an annual fee per fund of $250.
Trustees and officers of the Trust own in the aggregate less than 1% of the
shares of the Fund. Because Mitchell Hutchins and PaineWebber perform
substantially all of the services necessary for the operation of the Trust, the
Trust requires no employees. No officer, director or employee of Mitchell
Hutchins or PaineWebber presently receives any compensation from the Trust for
acting as a trustee or officer.
The table below includes certain information relating to the compensation of the
Trust's trustees who held office during the fiscal year ended August 31, 1995
and by all investment companies in the same complex during the calendar year
ended December 31, 1994.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as Estimated From the Trust
Aggregate Part Annual and the Fund
Compensation of a Fund's Benefits Upon Complex Paid to
Name of Person, Position From the Trust* Expenses Retirement Trustees**
- ------------------------ --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
David J. Beaubien, ____ ____ ____ ____
Trustee...................
</TABLE>
- 18 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
William W. Hewitt, Jr., ____ ____ ____ ____
Trustee...................
Thomas R. Jordan, ____ ____ ____ ____
Trustee...................
Frank P.L. Minard, ____ ____ ____ ____
Trustee...................
Carl W. Schafer, ____ ____ ____ ____
Trustee...................
</TABLE>
* Represents fees paid to each trustee during the fiscal year ended August
31, 1995.
** Represents total compensation paid to each trustee during the calendar
year ended December 31, 1994.
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 ___% of Class A's
shares of beneficial interest on _________, 1995.
The Fund is not aware as to whether or to what extent shares owned of record
also are owned beneficially.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract with the Trust
dated August 25, 1995 ("Advisory Contract"). Under the Advisory Contract, the
Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate of 0.85% of the value of the Fund's average daily net assets up to
and including $500 million, 0.83% of amounts over $500 million up to and
including $1 billion, and 0.805% of amounts over $1 billion. GE Investment
Management is the investment sub-adviser of the Fund pursuant to a contract with
Mitchell Hutchins dated August 25, 1995 ("Sub-Advisory Contract"). Under the
Sub-Advisory Contract, Mitchell Hutchins pays GE Investment Management a fee,
computed daily and paid monthly, at the annual rate of 0.31% of the value of its
average daily net assets up to and including $500 million, 0.29% of amounts over
$500 million up to and including $1 billion, and 0.265% of amounts over $1
billion.
For the fiscal year ended August 31, 1995, the Fund paid (or accrued) to
Mitchell Hutchins investment advisory and administration fees of $________. For
the fiscal years ended August 31, 1994 and August 31, 1993, the Fund paid
$2,339,156 and $1,284,039, respectively, to Kidder Peabody Asset Management,
Inc. ("KPAM"), the Fund's investment manager during those periods.
- 19 -
<PAGE>
Under the terms of the Advisory Contract, the Fund bears all expenses incurred
in its operation that are not specifically assumed by Mitchell Hutchins or GE
Investment Management. Expenses borne by the Fund include the following: (1) the
cost (including brokerage commissions) of securities purchased or sold by the
Fund and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of the Fund's shares under federal and state securities laws and
maintenance of such registrations and qualifications; (5) fees and salaries
payable to trustees and officers who are not interested persons (as defined in
the 1940 Act) of the Fund or Mitchell Hutchins; (6) all expenses incurred in
connection with the trustees' services, including travel expenses; (7) taxes
(including any income or franchise taxes) and governmental fees; (8) costs of
any liability, uncollectible items of deposit and other insurance or fidelity
bonds; (9) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Trust or Fund for violation of
any law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for the independent trustees; (11) charges of custodians,
transfer agents and other agents; (12) costs of preparing share certificates;
(13) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders, and costs of mailing such materials to shareholders; (14)
any extraordinary expenses (including fees and disbursements of counsel)
incurred by the Fund; (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (16)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the board and any committees thereof; (17) the cost of investment company
literature and other publications provided to trustees and officers; and (18)
costs of mailing, stationery and communications equipment.
As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees and
extraordinary items, are excluded from this limitation. For the fiscal years
ended August 31, 1995, August 31, 1994 and August 31, 1993, no reimbursements
were required pursuant to such limitation.
Under each of the Advisory Contract and Sub-Advisory Contract, Mitchell Hutchins
and GE Investment Management will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of the Contracts, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Mitchell Hutchins or GE Investment
Management in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the board of trustees or by vote of the holders of a majority of the Fund's
outstanding voting securities on 60 days' written notice to Mitchell Hutchins,
or by Mitchell Hutchins on 60 days' written notice to the Fund. The Sub-Advisory
Contract terminates automatically upon assignment and is terminable at any time
without penalty by Mitchell Hutchins on 60 days' written notice to GE Investment
Management, or by GE Investment Management on 60 days' written notice to
Mitchell Hutchins.
The following table shows the approximate net assets as of ____________, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
INVESTMENT CATEGORY NET ASSETS
--------------------------------------- -----------
($ mil)
- 20 -
<PAGE>
Domestic (excluding Money Market.......
Global.................................
Equity/Balanced........................
Fixed Income (excluding Money Market)..
Taxable Fixed Income...................
Tax-Free Fixed Income..................
Money Market Funds.....................
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and short-
term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber and other Mitchell
Hutchins advisory clients. GE Investment Management personnel may also invest in
securities for their own accounts pursuant to a comparable code of ethics.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class C shares under separate distribution contracts with
the Trust dated [ ] (collectively, "Distribution Contracts") that require
Mitchell Hutchins to use its best efforts, consistent with its other businesses,
to sell shares of the Fund. Shares of the Fund are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
dated [ ] relating to the Class A, Class B and Class C shares (collectively,
"Exclusive Dealer Agreements"), PaineWebber and its correspondent firms sell the
Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by the Trust in the manner prescribed under Rule 12b-1
under the 1940 Act ("Class A Plan," "Class B Plan" and "Class C Plan,"
collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily net
assets of each Class of shares. Under the Class B Plan and the Class C Plan, the
Fund pays Mitchell Hutchins a distribution fee, accrued daily and payable
monthly, at the annual rate of 0.75% of the average daily net assets of the
Class B shares and Class C shares, respectively.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit to
the Trust's board of trustees at least quarterly, and the trustees will review,
reports regarding all amounts expended under the Plan and the purposes for which
such expenditures were made, (2) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendment thereto is
approved, by the board of trustees, including those trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or any agreement related to the Plan,
acting in person at a meeting called for that purpose, (3) payments by the Fund
under the Plan shall not be materially increased without the affirmative vote of
the holders of a majority of the outstanding shares of the relevant class of the
Fund and (4) while the Plan remains in effect, the selection and nomination of
trustees who are not "interested persons" of the Trust shall be committed to the
discretion of the trustees who are not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell Hutchins
allocates expenses attributable to the sale of each Class of Fund shares to such
Class based on the ratio of sales of shares of such Class to the sales of all
three Classes of shares. The fees paid by one Class of Fund shares will not be
used to subsidize the sale of any other Class of Fund shares.
- 21 -
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Plans:
Class A.......................... $
Class B.......................... $
Class C.......................... $
Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Fund during the fiscal year ended August 31, 1995:
CLASS A
Marketing and advertising.................... $
Printing of prospectuses and statements of
additional information...................... $
Branch network costs allocated and interest
expense..................................... $
Service fees paid to PaineWebber
Investment Executives....................... $
CLASS B
Marketing and advertising.................... $
Amortization of commissions.................. $
Printing of prospectuses and statements of
additional information...................... $
Branch network costs allocated and interest
expense..................................... $
Service fees paid to PaineWebber
investment executives....................... $
CLASS C
Marketing and advertising.................... $
Amortization of commissions.................. $
Printing of prospectuses and statements of
additional information...................... $
Branch network costs allocated and interest
expense..................................... $
Service fees paid to PaineWebber
investment executives....................... $
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network costs
allocated and interest expense" consist of an allocated portion of the expenses
of various PaineWebber departments involved in the distribution of the Fund's
shares, including the PaineWebber retail branch system.
- 22 -
<PAGE>
In approving the Fund's overall Flexible Pricing SM system of distribution, the
Trust's board of trustees considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby encouraging
current shareholders to make additional investments in the Fund and attracting
new investors and assets to the Fund to the benefit of the Fund and its
shareholders, (2) facilitate distribution of the Fund's shares and (3) maintain
the competitive position of the Fund in relation to other funds that have
implemented or are seeking to implement similar distribution arrangements.
In approving the Class A Plan, the trustees considered all the features of the
distribution system, including (1) the conditions under which initial sales
charges would be imposed and the amount of such charges, (2) Mitchell Hutchins'
belief that the initial sales charge combined with a service fee would be
attractive to PaineWebber investment executives and correspondent firms,
resulting in greater growth of the Fund than might otherwise be the case, (3)
the advantages to the shareholders of economies of scale resulting from growth
in the Fund's assets and potential continued growth, (4) the services provided
to the Fund and its shareholders by Mitchell Hutchins, (5) the services provided
by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (6) Mitchell Hutchins' shareholder service-related expenses and costs.
In approving the Class B Plan, the trustees considered all the features of the
distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2) the
advantage to investors in having no initial sales charges deducted from the Fund
purchase payments and instead having the entire amount of their purchase
payments immediately invested in Fund shares, (3) Mitchell Hutchins' belief that
the ability of PaineWebber investment executives and correspondent firms to
receive sales commissions when Class B shares are sold and continuing service
fees thereafter while their customers invest their entire purchase payments
immediately in Class B shares would prove attractive to the investment
executives and correspondent firms, resulting in greater growth of the Fund than
might otherwise be the case, (4) the advantages to the shareholders of economies
of scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and its
investment executives, without the concomitant receipt by Mitchell Hutchins of
initial sales charges, was conditioned upon its expectation of being compensated
under the Class B Plan.
In approving the Class C Plan, the trustees considered all the features of the
distribution system, including (1) the advantage to investors in having no
initial sales charges deducted from the Fund's purchase payments and instead
having the entire amount of their purchase payments immediately invested in Fund
shares, (2) the advantage to investors in being free from contingent deferred
sales charges upon redemption for shares held more than one year and paying for
distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability
of PaineWebber investment executives and correspondent firms to receive sales
compensation for their sales of Class C shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class C shares and generally do not face contingent
deferred sales charges, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued growth,
(5) the services provided to the Fund and its shareholders by Mitchell Hutchins,
(6) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service-
and distribution-related expenses and costs. The trustees also recognized that
Mitchell Hutchins' willingness to compensate PaineWebber and its investment
executives without the concomitant receipt by Mitchell Hutchins of initial sales
charges or contingent deferred sales charges upon redemption, was conditioned
upon its expectation of being compensated under the Class C Plan.
- 23 -
<PAGE>
With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and advisory fees which are
calculated based upon a percentage of the average net assets of the Fund, which
fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.
Under the Distribution Contract for the Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell Hutchins
earned the following approximate amounts of sales charges and retained the
following approximate amounts, net of concessions to PaineWebber as exclusive
dealer.
<TABLE>
<CAPTION>
Fiscal Year Ended August 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earned . . . . . . . $ $ $
Retained . . . . . . $ $ $
</TABLE>
For the fiscal year ended August 31, 1995, Mitchell Hutchins earned and retained
$___________ in contingent deferred sales charges paid upon certain redemptions
of Class B shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's board of trustees, GE Investment
Management is responsible for the execution of the Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, GE Investment Management seeks to obtain the best net results for
the Fund, taking into account such factors as the price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved. Prices paid to
dealers in principal transactions, through which most debt securities and some
equity securities are traded, generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. The Fund may invest in securities traded
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. While GE Investment Management generally
seeks reasonably competitive commission rates and dealer spreads, payment of the
lowest commission or spread is not necessarily consistent with obtaining the
best net results. For the fiscal years ended August 31, 1995, August 31, 1994
and August 31, 1993, the Fund paid $________, $________ and $________,
respectively, in brokerage commissions.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. The Fund contemplates that, consistent with
the policy of obtaining the best net results, brokerage transactions may be
conducted through PaineWebber. The Trust's board of trustees has adopted
procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to PaineWebber are reasonable and fair. Specific
provisions in the Advisory Contract authorize PaineWebber to effect portfolio
transactions for the Fund on such exchange and to retain compensation in
connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the fiscal year ended August 31, 1995, the Fund paid $________ in brokerage
commissions to PaineWebber, which represented % of the total brokerage
commissions paid by the Fund and % of the total dollar amount of transactions
involving payment of commissions. For the fiscal years ended August 31, 1994
- 24 -
<PAGE>
and August 31, 1993, the Fund paid $________ and $________, respectively, in
brokerage commissions to _____________.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute its transactions in futures
contracts, including procedures permitting the use of PaineWebber are similar to
those in effect with respect to brokerage transactions in securities.
Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, GE Investment Management may cause the Fund to
purchase and sell portfolio securities from and to dealers or through brokers
who provide the Fund with research, analysis, advice and similar services. In
return for such services, the Fund may pay to those brokers a higher commission
than may be charged by other brokers, provided that GE Investment Management
determines in good faith that such commission is reasonable in terms either of
that particular transaction or of the overall responsibility of GE Investment
Management to the Fund and its other clients and that the total commissions paid
by the Fund will be reasonable in relation to the benefits to the Fund over the
long term.
For purchases or sales with broker-dealer firms which act as principal, GE
Investment Management seeks best execution. Although GE Investment Management
may receive certain research or execution services in connection with these
transactions, GE Investment Management will not purchase securities at a higher
price or sell securities at a lower price than would otherwise be paid if no
weight was attributed to the services provided by the executing dealer.
Moreover, GE Investment Management will not enter into any explicit soft dollar
arrangements relating to principal transactions and will not receive in
principal transactions the types of services which could be purchased for hard
dollars. GE Investment Management may engage in agency transactions in OTC
equity and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provide research
or execution services. These procedures include GE Investment Management
receiving multiple quotes from dealers before executing the transactions on an
agency basis.
Information and research services furnished by brokers or dealers through which
or with which the Fund effects securities transactions may be used by Mitchell
Hutchins or GE Investment Management in advising other funds or accounts and,
conversely, research services furnished to Mitchell Hutchins or GE Investment
Management by brokers or dealers in connection with other funds or accounts that
either of them advises may be used in advising the Fund. Information and
research received from brokers or dealers will be in addition to, and not in
lieu of, the services required to be performed by GE Investment Management under
the Sub-Advisory Contract.
Investment decisions for the Fund and for other investment accounts managed by
GE Investment Management are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may occasionally be made for the Fund and one or more of such accounts.
In such cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between the Fund and such other
account(s) as to amount according to a formula deemed equitable to the Fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Fund is concerned,
or upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in which
PaineWebber is a member of the underwriting or selling group, except pursuant to
procedures adopted by the Trust's board of trustees
- 25 -
<PAGE>
pursuant to Rule 10f-3 under the 1940 Act. Among other things, these procedures
require that the spread or commission paid in connection with such a purchase be
reasonable and fair, the purchase be at not more than the public offering price
prior to the end of the first business day after the date of the public offering
and that PaineWebber or any affiliate thereof not participate in or benefit from
the sale to the Fund.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may vary greatly
from year to year, but it will not be a limiting factor when management deems
portfolio changes appropriate. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended August
31, 1995 and August 31, 1994, the Fund's portfolio turnover rates were % and
%, respectively.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE-CLASS A SHARES. Investors and eligible groups of
related Fund investors may combine purchases of Class A shares of the Fund with
concurrent purchases of Class A shares of any other PaineWebber mutual fund and
thus take advantage of the reduced sales charges indicated in the table of sales
charges for Class A shares in the Prospectus. The sales charge payable on the
purchase of Class A shares of the Fund and Class A shares of such other funds
will be at the rates applicable to the total amount of the combined concurrent
purchases.
An "eligible group of related Fund investors" can consist of any combination of
the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company controlled
by the individual(s) (a person, entity or group that holds 25% or more of the
outstanding voting securities of a corporation will be deemed to control the
corporation, and a partnership will be deemed to be controlled by each of its
general partners);
(d) an individual (or eligible group of individuals) and one or more employee
benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust created by the
individual(s), the beneficiaries of which are the individual and/or the
individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to Minors
Act account created by the individual or the individual's spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that other employer); or
(h) an individual's accounts with the same investment adviser.
RIGHTS OF ACCUMULATION-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the
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<PAGE>
total of (1) the dollar amount then being purchased plus (2) an amount equal to
the then-current net asset value of the purchaser's combined holdings of Class A
Fund shares and Class A shares of any other PaineWebber mutual fund. The
purchaser must provide sufficient information to permit confirmation of his or
her holdings, and the acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.
WAIVERS OF SALES CHARGES-CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the individual shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death.
Certain PaineWebber mutual funds offered shares subject to contingent deferred
sales charges before the implementation of the Flexible Pricing System on July
1, 1991 ("CDSC Funds"). The contingent deferred sales charge is waived with
respect to redemptions of Class B shares of CDSC Funds purchased prior to July
1, 1991 by officers, directors (trustees) or employees of the CDSC Funds,
Mitchell Hutchins or their affiliates (or their spouses and children under age
21). In addition, the contingent deferred sales charge will be reduced by 50%
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 with a net asset value at the time of purchase of at least $1
million. If Class B shares of a CDSC Fund purchased prior to July 1, 1991 are
exchanged for Class B shares of the Fund, any waiver or reduction of the
contingent deferred sales charge that applied to the Class B Shares of the CDSC
Fund will apply to the Class B shares of the Fund acquired through the exchange.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the Prospectus,
eligible shares of the Fund may be exchanged for shares of the corresponding
Class of most other PaineWebber mutual funds. This exchange privilege is
available only in those jurisdictions where the sale of the PaineWebber fund
shares to be acquired through such exchange may be legally made. Shareholders
will receive at least 60 days' notice of any termination or material
modification of the exchange offer, except no notice need be given of an
amendment whose only material effect is to reduce the exchange fee and no notice
need be given if, under extraordinary circumstances, either redemptions are
suspended under the circumstances described below or the Fund temporarily delays
or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objective, policies and
restrictions.
If conditions exist that make cash payments undesirable, the Fund reserves the
right to honor any request for redemption by making payment in whole or in part
in securities chosen by the Fund and valued in the same way as they would be
valued for purposes of computing the Fund's net asset value. If payment is made
in securities, a shareholder may incur brokerage expenses in converting these
securities into cash. The Trust has elected, however, to be governed by Rule
18f-1 under the 1940 Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during any 90-day period for one shareholder. This election is irrevocable
unless the SEC permits its withdrawal.
The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the NYSE is closed or trading on the NYSE is
restricted as determined by the SEC, (2) when an emergency exists, as defined by
the SEC, that makes it not reasonably practicable for the Fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the SEC may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of the Fund's portfolio at the
time.
SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly plans
and on or about the 15th of the months selected for quarterly or semi-annual
plans, PaineWebber will arrange for redemption by the Fund of sufficient Fund
shares to provide the withdrawal payment specified by participants in the Fund's
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<PAGE>
systematic withdrawal plan. The payment generally is mailed approximately five
business days after the redemption date. Withdrawal payments should not be
considered dividends, but redemption proceeds, with the tax consequences
described under "Dividends and Taxes" in the Prospectus. If periodic withdrawals
continually exceed reinvested dividends, a shareholder's investment may be
correspondingly reduced. A shareholder may change the amount of the systematic
withdrawal or terminate participation in the systematic withdrawal plan at any
time without charge or penalty by written instructions with signatures
guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to
participate in the plan, change the withdrawal amount or terminate participation
in the plan will not be effective until five days after written instructions
with signatures guaranteed are received by the Transfer Agent. Shareholders may
request the forms needed to establish a systematic withdrawal plan from their
PaineWebber investment executives, correspondent firms or the Transfer Agent at
1-800-647-1568.
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, under the
circumstances and to the extent described in "Dividends and Taxes" in the
Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN SM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT (R)(RMA (R))
Shares of the PaineWebber mutual funds (each a "PW Fund" and, collectively, the
"PW Funds") are available for purchase through the RMA Resource Accumulation
Plan ("Plan") by customers of PaineWebber and its correspondent firms who
maintain Resource Management Accounts ("RMA accountholders"). The Plan allows an
RMA accountholder to continually invest in one or more of the PW Funds at
regular intervals, with payment for shares purchased automatically deducted from
the client's RMA account. The client may elect to invest at monthly or quarterly
intervals and may elect either to invest a fixed dollar amount (minimum $100 per
period) or to purchase a fixed number of shares. A client can elect to have Plan
purchases executed on the first or fifteenth day of the month. Settlement occurs
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must have
made an initial purchase of the shares of each PW Fund selected for investment
under the Plan (meeting applicable minimum investment requirements) and must
complete and submit the RMA Resource Accumulation Plan Client Agreement and
Instruction Form available from PaineWebber. The investor must have received a
current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
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<PAGE>
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 seven RMA money market funds-RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA Connecticut Municipal Money Fund, RMA New Jersey Municipal
Money Fund and RMA New York Municipal Money Fund. Each money market fund
attempts to maintain a stable price per share of $1.00, although there can
be no assurance that it will be able to do so. Investments in the money
market funds are not insured or guaranteed by the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can
code their checks to classify expenditures. All canceled checks are
returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
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<PAGE>
. expanded account protection to $25 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money
market funds or the PW Funds because those shares are held at the transfer
agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares, based
on the relative net asset values per share of the two Classes, as of the close
of business on the first Business Day (as defined under "Valuation of Shares")
of the month in which the sixth anniversary of the initial issuance of such
Class B shares of the Fund occurs. For the purpose of calculating the holding
period required for conversion of Class B shares, the date of initial issuance
shall mean (i) the date on which such Class B shares were issued, or (ii) for
Class B shares obtained through an exchange, or a series of exchanges, the date
on which the original Class B shares were issued. If the shareholder acquired
Class B shares of the Fund through an exchange of Class B shares of a CDSC Fund
that were acquired prior to July 1, 1991, the shareholder's holding period for
purposes of conversion will be determined based on the date the CDSC Fund shares
were initially issued. For purposes of conversion into Class A, Class B shares
purchased through the reinvestment of dividends and other distributions paid in
respect of Class B shares will be held in a separate sub-account. Each time any
Class B shares in the shareholder's regular account (other than those in the
sub-account) convert to Class A, a pro rata portion of the Class B shares in the
sub-account will also convert to Class A. The portion will be determined by the
ratio that the shareholder's Class B shares converting to Class A bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.
The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends and
other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.
VALUATION OF SHARES
The Fund determines the net asset value per share separately for each Class of
shares as of the close of regular trading (currently 4:00 p.m., eastern time) on
the NYSE on each Business Day, which is defined as each Monday through Friday
when the NYSE is open. Currently the NYSE is closed on the observance of the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. and foreign stock exchanges are valued at the
last sale price on the day the securities are valued or, lacking any sales on
such day, at the last available bid price. In cases where securities are traded
on more than one exchange, the securities are generally valued on the exchange
considered by GE Investment Management as the primary market. Securities traded
in the OTC market and listed on Nasdaq are
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<PAGE>
valued at the last trade price on Nasdaq at 4:00 p.m., eastern time; other OTC
securities are valued at the last bid price available prior to valuation.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Trust's board of trustees. In valuing lower rated corporate debt securities
it should be recognized that judgment often plays a greater role than is the
case with respect to securities for which a broader range of dealer quotations
and last-sale information is available. All investments of the Fund quoted in
foreign currency will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the time such valuation is
determined by the Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events would not be
reflected in a computation of the Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange rates
occur during such time period, the investments will be valued at their fair
value as determined in good faith by or under the direction of the Trust's board
of trustees. The foreign currency exchange transactions of the Fund conducted on
a spot (that is, cash) basis are valued at the spot rate for purchasing or
selling currency prevailing on the foreign exchange market. This rate under
normal market conditions differs from the prevailing exchange rate in an amount
generally less than one-tenth of one percent due to the costs of converting from
one currency to another.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated according
to the following formula:
P(1 + T) to the nth power = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
Under the foregoing formula, the time periods used in Performance Advertisements
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertisement for publication. Total
return, or "T" in the formula above, is computed by finding the average annual
change in the value of an initial $1,000 investment over the period. In
calculating the ending redeemable value, for Class A shares, the maximum 4.5%
sales charge is deducted from the initial $1,000 payment and, for Class B and
Class C shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B or Class C shares held for the period is deducted. All
dividends and other distributions are assumed to have been reinvested at net
asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund shares
and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by
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<PAGE>
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the initial value. Neither initial nor contingent
deferred sales charges are taken into account in calculating Non-Standardized
Return; the inclusion of those charges would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
The following table shows performance information for the Class A, Class B and
Class C shares of the Fund for the periods indicated. All returns for periods of
more than one year are expressed as an average return.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------- -------- --------
<S> <C> <C> <C>
Fiscal year ended August 31, 1995:
Standardized Return*............. % % %
Non-Standardized Return.......... % % %
Five years ended August 31, 1995:
Standardized Return*............. % NA NA
Non-Standardized Return.......... % NA NA
Ten years ended August 31, 1995 % NA NA
Inception** to August 31, 1995:
Standardized Return*............. % % %
Non-Standardized Return.......... % % %
</TABLE>
- -----------------------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B shares reflect deduction of the applicable contingent deferred
sales charges imposed on a redemption of shares held for the period. Class
C shares impose a contingent deferred sales charge only on redemptions made
within a year of purchase; therefore, for periods longer than one year,
Non-Standardized Return is identical to Standardized Return.
** The inception date for each Class of shares is as follows: Class A -
[date], Class B - [date], and Class C - [date].
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Companies Service ("Wiesenberger"), Investment
Company Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), with the
performance of recognized stock and other indices, including (but not limited
to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), the Dow
Jones Industrial Average, the Nasdaq Composite Index, the Russell 2000 Index,
the Wilshire 5000 Index, the Lehman Bond Index, 30-year and 10-year U.S.
Treasury bonds, the Morgan Stanley Capital International World Index and changes
in the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund also may refer in such materials to mutual fund performance rankings and
other data, such as comparative asset, expense and fee levels, published by
Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also
may refer to discussions of the Fund and comparative mutual fund data and
ratings reported in independent periodicals, including (but not limited to) THE
WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD,
BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON
- 32 -
<PAGE>
POST and THE KIPLINGER LETTERS. Comparisons in Performance Advertisements may be
in graphic form.
The Fund may include discussions or illustrations of the effects of compounding
in Performance Advertisements. "Compounding" refers to the fact that, if
dividends or other distributions on the Fund investment are reinvested in
additional Fund shares, any future income or capital appreciation of the Fund
would increase the value, not only of the original Fund investment, but also of
the additional Fund shares received through reinvestment. As a result, the value
of the Fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote(R) Money
Markets. In comparing the Fund's performance to CD performance, investors should
keep in mind that bank CDs are insured in whole or in part by an agency of the
U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares of the Fund
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. The securities held by the Fund generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.
The Fund may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
[GRAPHICS]
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1993, stocks beat all
other traditional asset classes. A $10 investment in the S&P 500 grew to $8,001,
significantly more than any other investment.
The chart shown is for illustrative purposes only and does not represent the
Fund's performance and should not be considered an indication or guarantee of
future results. Year-to-year fluctuations of the S&P 500 have been significant,
and total return for some periods has been negative. The S&P 500 includes
companies with larger market capitalizations than those in which the Fund
invests. Unlike investors in bonds and Treasury bills, common stock investors do
not receive fixed income payments and are not entitled to repayment of
principal. These differences contribute to investment risk. Returns shown for
long-term government bonds are based on Treasury bonds with 20-year maturities.
TAXES
In order to continue to qualify for treatment as a regulated investment company
("RIC") under the Internal Revenue Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following: (1) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months--
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<PAGE>
options, futures or forward contracts (other than those on foreign currencies),
or foreign currencies (or options, futures or forward contracts thereon) that
are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. government securities, securities of other RICs and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer.
Dividends and other distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in additional Fund shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, it will be eligible to, and may, file an election with
the Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Pursuant to the election, the Fund
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by him or her, his or her proportionate share of those taxes; (2) treat his or
her share of those taxes and of any dividend paid by the Fund that represents
income from foreign or U.S. possessions sources as his or her own income from
those sources; and (3) either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his or her federal
income tax. The Fund will report to its shareholders shortly after each
taxable year their respective shares of the income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this election.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the one-
year period ending on October 31 of that year, plus certain other amounts.
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<PAGE>
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs") if such stock is a permissible investment. A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, the Fund will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain from
disposition of such stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If the Fund invests
in a PFIC and elects to treat the PFIC as a "qualified electing fund," then in
lieu of the foregoing tax and interest obligation, the Fund will be required to
include in income each year its pro rata share of the qualified electing fund's
annual ordinary earnings and net capital gain (the excess of net long-term
capital gain over net short-term capital loss)-which would have to be
distributed to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax-even if those earnings and gain are not distributed to the Fund. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-to-
market," in this context, means recognizing as gain for each taxable year the
excess, as of the end of that year, of the fair market value of each such PFIC's
stock over the owner's adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
The use of hedging strategies, such as writing ("selling") and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from foreign currencies
(except certain gains therefrom that may be excluded by futures regulations),
and income from transactions in options, futures and forward currency contracts
derived by the Fund with respect to its business of investing in securities or
foreign currencies, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
contracts (other than those on foreign currencies) will be subject to the Short-
Short Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures and forward contracts on
foreign currencies, that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the Short-Short Limitation if they are held
for less than three months.
If the Fund satisfies certain requirements, any increase in value of a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the Short-
Short Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Fund will
consider whether it should seek to qualify for this treatment for its hedging
transactions. To the extent the Fund does not qualify for this treatment, it may
be forced to defer the closing out of certain options and futures beyond the
time when it otherwise would be advantageous to do so, in order for the Fund to
continue to qualify as a RIC.
OTHER INFORMATION
Effective August 25, 1995, the name of the Fund was changed from "Mitchell
Hutchins/Kidder, Peabody Global Equity Fund" to its current name. Prior to
September 10, 1995, the Fund's Class B shares were known as "Class E" shares and
its Class C shares were known as "Class B" shares.
- 35 -
<PAGE>
PaineWebber Global Equity Fund is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of the
Fund could, under certain circumstances, be held personally liable for the
obligations of the Trust or Fund. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust or the Fund and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the trustees or by any
officers or officer by or on behalf of the Trust or the Fund, the trustees or
any of them in connection with the Trust. The Declaration of Trust provides for
indemnification from the Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations, a possibility that Mitchell Hutchins believes is remote
and not material. Upon payment of any liability incurred by a shareholder solely
by reason of being or having been a shareholder, the shareholder paying such
liability will be entitled to reimbursement from the general assets of the Fund.
The trustees intend to conduct the operations of the Fund in such a way as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares bear higher transfer agency fees per shareholder account than those borne
by Class A or Class C shares. The higher fee is imposed due to the higher costs
incurred by the transfer agent in tracking shares subject to a contingent
deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the applicable
charge. Moreover, the tracking and calculations required by the automatic
conversion feature of the Class B shares will cause the transfer agent to incur
additional costs. Although the transfer agency fee will differ on a per account
basis as stated above, the specific extent to which the transfer agency fees
will differ between the Classes as a percentage of net assets is not certain,
because the fee as a percentage of net assets will be affected by the number of
shareholder accounts in each Class and the relative amounts of net assets in
each Class.
COUNSEL. The law firm of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, N.Y. 10022, counsel to the Fund, has passed upon the
legality of the shares offered by the Prospectus.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1995 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated herein by this
reference.
- 36 -
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC. ("MOODY'S") CORPORATE BOND
RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as a "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues; Aa. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; Baa. Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S ("S&P") CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the higher
rated issues only in small degree; A. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories; BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories; BB,
B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk
- 37 -
<PAGE>
exposures to adverse conditions; C1. The rating C1 is reserved for income bonds
on which no interest is being paid; D. Debt rated D is in default, and payment
of interest and/or repayment of principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
- 38 -
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or in this Statement of
Additional Information in connection with the offering made by the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund or its distributor. The Prospectus
and this Statement of Additional Information do not constitute an offering by
the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INVESTMENT POLICIES AND RESTRICTIONS....................... 1
HEDGING STRATEGIES......................................... 7
TRUSTEES AND OFFICERS; PRINCIPAL SHAREHOLDERS.............. 14
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS.......... 18
PORTFOLIO TRANSACTIONS..................................... 23
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES............................. 25
CONVERSION OF CLASS B SHARES............................... 28
VALUATION OF SHARES........................................ 29
PERFORMANCE INFORMATION.................................... 30
TAXES...................................................... 32
OTHER INFORMATION.......................................... 34
FINANCIAL STATEMENTS....................................... 35
APPENDIX................................................... 36
</TABLE>
(C) 1995 Paine Webber Incorporated
- 39 -
<PAGE>
PAINEWEBBER GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
November , 1995
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements (to be filed)
PaineWebber Global Equity Fund
-------------------------------
Included in Part A of the Registration Statement:
Financial Highlights for one Class A share of the Fund for each of
the three years in the period ended August 31, 1995 and for the
period November 14, 1991 (commencement of offering) to August 31,
1992.
Financial Highlights for one Class B share of the Fund for the
period August 25, 1995 (commencement of offering) to August 31,
1991.
Financial Highlights for one Class C share of the Fund for each of
the two years in the period ended August 31, 1995 and for the period
May 10, 1993 (commencement of offering) to August 31, 1993.
Included in Part B of the Registration Statement through incorporation by
reference from the Annual Report to Shareholders, previously filed with
the Securities and Exchange Commission through EDGAR on , 1995,
Accession No. :
Portfolio of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the year ended August 31, 1995
Statement of Changes in Net Assets for the two years in the period
ended August 31, 1995
Notes to Financial Statements
Financial Highlights for one Class A share of the Fund for each of
the three years in the period ended August 31, 1995 and for the
period November 14, 1991 (commencement of offering) to August 31,
1992
Financial Highlights for one Class B share of the Fund for the
period August 25, 1995 (commencement of offering) through August 31,
1995
C-1
<PAGE>
Financial Highlights for one Class C share of the Fund for each of
the two years in the period ended August 31, 1995 and for the period
May 10, 1993 (commencement of offering) through August 31, 1993
Report of Ernst & Young LLP, Independent Auditors, dated October
___, 1995
(b) Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
1(a) Declaration of Trust*
1(b) Amendment effective September 3, 1991 to Declaration of
Trust*
1(c) Amendment effective December 11, 1991 to Declaration of
Trust*
1(d) Amendment effective February 13, 1995 to Declaration of
Trust*
2(a) By-Laws of the Trust*
2(b) Amendment effective August 28, 1991 to By-laws*
3 Inapplicable
4 Instruments defining the rights of holders of the
Registrant's shares of beneficial interest*
5(a) Investment Advisory and Administration Contract*
5(b) Investment Sub-advisory Contract*
6(a) Distribution Contract Class A Shares*
6(b) Distribution Contract Class B Shares*
6(c) Distribution Contract Class C Shares*
6(d) Exclusive Dealer Agreement with respect to Class A Shares
6(e) Exclusive Dealer Agreement with respect to Class B Shares
7 Inapplicable
8 Form of Custody Contract with State Street Bank and Trust
Company*
9 Transfer Agency and Service Agreement*
10 Opinion of Willkie, Farr & Gallagher, including consent**
11 Consent of Ernst & Young LLP**
12 Inapplicable
13 Form of Purchase Agreement*
14 Inapplicable
15(a) Amended and Restated Shareholder Servicing and
Distribution Plan*
15(b) Shareholder Servicing Agreement*
15(c) Distribution Related Services Agreement*
16 Schedule for computation of performance quotations
provided in the
C-2
<PAGE>
Registration Statement in response
to Item 22*
17(a) Financial Data Schedule (Class A Shares)**
17(b) Financial Data Schedule (Class B Shares)**
17(c) Financial Data Schedule (Class C Shares)**
18 Plan pursuant to Rule 18f-3
27 Financial Data Schedule**
_______________________________
* Previously filed.
** To be provided by Amendment.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
See "Trustees and Officers; Principal Shareholders" in the Statement of
Additional Information.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record
Shareholders as of
Title of Class October 31, 1995
-------------- ------------------
Shares of Beneficial Interest,
par value $0.001 per share
------------------------------
Mitchell Hutchins/Kidder, Peabody Global
Equity Fund
Class A shares 33,267
Class B shares 17,374
Class C shares 8,011
Class Y shares 702
Item 27. Indemnification
---------------
Section 4.2 of Article IV of the Registrant's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its shareholders, or to any shareholder, Trustee,
officer, employee, or agent thereof for any action or failure to act
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his or her own bad
faith,
C-3
<PAGE>
willful misfeasance, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4.3(a) of Article IV of the Registrant's Declaration of Trust
provides that the appropriate series of the Registrant will indemnify its
Trustees and officers to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid by such
Trustees and officers in connection with any claim, action, suit or proceeding
in which such Trustee or officer becomes involved as a party or otherwise by
virtue of his or her being or having been a Trustee or officer and against
amounts paid or incurred by him or her in the settlement thereof.
Additionally, Section 4.3(b) of Article IV provides that no such person shall
be indemnified (i) where such person is liable to the Trust, a series thereof
or the shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office, (ii) where such person has been finally adjudicated not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Trust, or a series thereof, or (iii) in the event of a
settlement or other disposition not involving a final adjudication as provided
in (ii) above resulting in a payment by a Trustee or officer, unless there has
been a determination by the court of other body approving the settlement or
other disposition or based upon a review of readily available facts by vote of
a majority of the non-interested Trustees or written opinion of independent
legal counsel, that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Section 4.3(b) of Article IV
further provides that the rights of indemnification may be insured against by
policies maintained by the Trust. Section 4.4 of Article IV provides that no
Trustee shall be obligated to give any bond or other security for the
performance of any of his or her duties hereunder.
Section 4.6 of Article IV provides that each Trustee, officer or employee
of the Trust or a series thereof shall, in the performance of his or her
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or a series thereof, upon an opinion of
counsel, or upon reports made to the Trust or a series thereof by any of its
officers or employees or by the Investment Adviser, the Administrator, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
C-4
<PAGE>
Section 9 of the Investment Advisory and Administration Contract
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides
that Mitchell Hutchins shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any series of the Registrant in
connection with the matters to which the Contract relates, except for a loss
resulting from the willful misfeasance, bad faith, or gross negligence of
Mitchell Hutchins in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 13 of the
Contract provides that the Trustees shall not be liable for any obligations of
the Trust or any series under the Contract and that Mitchell Hutchins shall
look only to the assets and property of the Registrant in settlement of such
right or claim and not to the assets and property of the Trustees.
Section 9 of the Sub-Investment Advisory Agreement between Mitchell
Hutchins and GE Investment Management Incorporated ("GE Investment
Management") provides that GE Investment Management shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust
in connection with the matters to which the Agreement relates, except for a
loss resulting from the willful misfeasance, bad faith, or gross negligence of
GE Investment Management in the performance of its duties or from its reckless
disregard of its obligations and duties under the Agreement. Section 9 of the
Agreement also provides that the Trustees shall not be liable for any
obligations of the Trust under the Agreement and that Mitchell Hutchins and GE
Investment Management shall look only to the assets and property of the Trust
in settlement of such right or claim and not to the assets and property of the
Trustees.
Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling
persons against all liabilities arising from any alleged untrue statement of
material fact in the Registration Statement or from any alleged omission to
state in the Registration Statement a material fact required to be stated in
it or necessary to make the statements in it, in light of the circumstances
under which they were made, not misleading, except insofar as liability arises
from untrue statements or omissions made in reliance upon and in conformity
with information furnished by Mitchell Hutchins to the Trust for use in the
Registration Statement; and provided that this indemnity agreement shall not
protect any such persons against liabilities arising by reason of their bad
faith, gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public policy
as expressed in the Securities Act of 1933. Section 9 of each Distribution
Contract also provides that Mitchell Hutchins agrees to indemnify, defend and
hold the Trust, its officers and
C-5
<PAGE>
Trustees free and harmless of any claims arising out of any alleged untrue
statement or any alleged omission of material fact contained in information
furnished by Mitchell Hutchins for use in the Registration Statement or
arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with the Contract.
Section 10 of each Distribution Contract contains provisions similar
to Section 13 of the Investment Advisory and Administration Contract.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to Trustees, officers and
controlling persons of the Trust, pursuant to the foregoing provisions or
otherwise, the Trust has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Trust of expenses incurred or paid by a Trustee, officer or controlling
person of the Trust in connection with the successful defense of any action,
suit or proceeding or payment pursuant to any insurance policy) is asserted
against the Trust by such Trustee, officer or controlling person in connection
with the securities being registered, the Trust will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) Mitchell Hutchins Asset Management Inc.
----------------------------------------
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV filed
on February 22, 1995 with the Securities and Exchange Commission (registration
number 801-13219) and is incorporated herein by reference.
C-6
<PAGE>
(b) GE Investment Management Incorporated
-------------------------------------
GE Investment Management is a wholly owned subsidiary of General Electric
Company and serves as the investment sub-adviser to the Fund. Information as
to the officers and directors of GE Investment Management is included in its
Form ADV filed with the Securities and Exchange Commission (registration
number 801-31947) and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:
ALL-AMERICAN TERM TRUST INC.
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
MITCHELL HUTCHINS/KIDDER, PEABODY GOVERNMENT INCOME FUND, INC.
MITCHELL HUTCHINS/INSTITUTIONAL SERIES TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
PAINEWEBBER AMERICA FUND
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER PREMIER HIGH INCOME TRUST INC.
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
(b) Mitchell Hutchins is the Registrant's principal underwriter.
PaineWebber acts as exclusive dealer of the Registrant's shares. The
directors and officers of Mitchell Hutchins, their principal business
addresses, and their positions and offices with Mitchell Hutchins are
identified in its Form ADV filed February 22, 1995 with the Securities and
Exchange Commission (registration number 801-13219). The directors and
officers of PaineWebber, their principal business addresses, and their
positions and offices with PaineWebber are identified in its Form ADV filed
March 31, 1995 with the Securities and Exchange Commission (registration
number 801-7163). The foregoing information is hereby incorporated herein by
reference. The information set forth below
C-7
<PAGE>
is furnished for those directors and officers of Mitchell Hutchins or
PaineWebber who also serve as trustees or officers of the Registrant:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL OFFICES UNDERWRITER OR
BUSINESS ADDRESS WITH REGISTRANT EXCLUSIVE DEALER
------------------ --------------- ----------------
<S> <C> <C>
Frank P.L. Minard............ Trustee and Director and
1285 Avenue of the Americas President Chairman of
New York, NY 10019 Mitchell Hutchins
Margo N. Alexander........... President President and
1285 Avenue of the Americas Chief Executive
New York, NY 10019 Officer of
Mitchell Hutchins
Teresa M. Boyle.............. Vice President Vice President
1285 Avenue of the Americas and Manager-
New York, NY 10019 Advisory
Administration of
Mitchell Hutchins
Ann E. Moran................. Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, NY 10019 Treasurer
Dianne E. O'Donnell.......... Vice President Senior Vice
1285 Avenue of the Americas and Secretary President and
New York, NY 10019 Deputy General
Counsel of
Mitchell Hutchins
Victoria E. Schonfeld........ Vice President Managing Director
1285 Avenue of the Americas and General
New York, NY 10019 Counsel of
Mitchell Hutchins
Paul H. Schubert............. Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, NY 10019 Treasurer
Julian F. Sluyters........... Vice President Senior Vice
1285 Avenue of the Americas and Treasurer President and
New York, NY 10019 Director of the
Mutual Fund
Finance Division
of Mitchell
Hutchins
Gregory K. Todd.............. Vice President First Vice
1285 Avenue of the Americas and Assistant President and
New York, NY 10019 Secretary Associate General
Counsel of
Mitchell Hutchins
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL OFFICES UNDERWRITER OR
BUSINESS ADDRESS WITH REGISTRANT EXCLUSIVE DEALER
------------------ --------------- ----------------
<S> <C> <C>
Scott Griff.................. Vice President Vice President
1285 Avenue of the Americas and Assistant and Attorney of
New York, NY 10019 Secretary Mitchell Hutchins
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and (d)
of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser and administrator,
Mitchell Hutchins, 1285 Avenue of the Americas, New York, New York 10019. All
other accounts, books and documents required by Rule 31a-1 are maintained in
the physical possession of Registrant's transfer agent and custodians.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Registrant undertakes to call a meeting of its shareholders for the
purpose of voting upon the question of removal of a trustee or trustees of
Registrant when requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares and, in connection with the meeting, to
comply with the provisions of Section 16(c) of the 1940 Act relating to
communications with the shareholders of certain common-law trusts.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders upon request and without charge.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in this City of New York, and State
of New York, on the 2nd day of November, 1995.
MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST
By: /s/ Dianne E. O'Donnell
----------------------------------
DIANNE E. O'DONNELL,
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registrant's Registration Statement on Form
N-1A has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------- ----------------
<S> <C> <C>
/s/ Frank P.L. Minard/*/ Trustee and President November 2, 1995
- -------------------------------------- (Chief Executive Officer)
Frank P.L. Minard
/s/ Julian F. Sluyters Vice President and November 2, 1995
- -------------------------------------- Treasurer (Chief
Julian F. Sluyters Financial and Accounting
Officer)
/s/ David J. Beaubien/**/ Trustee November 2, 1995
- --------------------------------------
David J. Beaubien
/s/ William W. Hewitt, Jr./**/ Trustee November 2, 1995
- --------------------------------------
William W. Hewitt, Jr.
/s/ Thomas R. Jordan/**/ Trustee November 2, 1995
- --------------------------------------
Thomas R. Jordan
/s/ Carl W. Schafer/**/ Trustee November 2, 1995
- --------------------------------------
Carl W. Schafer
</TABLE>
______________
* Signature affixed by Dianne O'Donnell pursuant to power of attorney
dated May 18, 1995 and previously filed.
** Signature affixed by Dianne O'Donnell pursuant to power of attorney
dated March 8, 1995 and previously filed.
<PAGE>
EXHIBIT 6(D)
EXCLUSIVE DEALER AGREEMENT
CLASS A SHARES OF KIDDER, PEABODY
INVESTMENT TRUST
AGREEMENT made as of January 30, 1995, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Kidder, Peabody Investment Trust ("Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has five distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as the Kidder, Peabody Asset Allocation Fund, Kidder, Peabody
Adjustable Rate Government Fund, Kidder, Peabody Global Equity Fund, Kidder,
Peabody Intermediate Fixed Income Fund and Kidder, Peabody Global Fixed Income
Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class A
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class A Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class A Shares and to
perform such services on the terms and conditions hereinafter set forth;
<PAGE>
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class A Shares on
the terms and for the period set forth in this Agreement. Mitchell Hutchins
also appoints PaineWebber as its agent for the performance of certain other
services set forth herein which Mitchell Hutchins provides to the Fund under
the Distribution Contract. PaineWebber hereby accepts such appointments and
agrees to act hereunder. It is understood, however, that these appointments do
not preclude sales of Class A Shares directly through the Fund's transfer agent
in the manner set forth in the Registration Statement. As used in this
Agreement, the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services. Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the Class A Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial offering
of Class A Shares by a Series to the public, PaineWebber will hold itself
available to receive orders, satisfactory to PaineWebber and Mitchell Hutchins,
for the purchase of Class A Shares and will accept such orders on behalf of
Mitchell Hutchins and the Fund as of the time of receipt of such orders and will
promptly transmit such orders as are accepted to the Fund's transfer agent.
Purchase orders shall be deemed effective at the time and in the manner set
forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class A Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class A Shares of each Series shall be the
net asset value per Share as next determined by the Fund following receipt of
an order at PaineWebber's principal office, plus the applicable initial sales
charge, if any, as set forth in the Registration Statement. Mitchell Hutchins
shall promptly furnish or arrange for the furnishing to
- 2 -
<PAGE>
PaineWebber of a statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders directly
or through dealers, PaineWebber is authorized but not required on behalf of
Mitchell Hutchins and the Fund to repurchase Class A Shares presented to it by
shareholders, its correspondent firms and other dealers at the price determined
in accordance with, and in the manner set forth in, the Registration Statement.
Such price shall reflect the subtraction of the applicable contingent deferred
sales charge, if any, computed in accordance with and in the manner set forth in
the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
(h) PaineWebber represents and warrants that: (i) it is a member in good
standing of the NASD and agrees to abide by the Rules of Fair Practice of the
NASD; (ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class A Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class A Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or sell
Class A Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class A Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or
- 3 -
<PAGE>
sell the Class A Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. Compensation.
------------
(a) As compensation for its service activities under this Agreement with
respect to the Class A Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class A Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in
such amounts as Mitchell Hutchins and PaineWebber may from time to time agree
upon.
(b) As compensation for its activities under this Agreement with respect
to the distribution of the Class A Shares, PaineWebber shall retain that portion
of the offering price constituting the Discount to Selected Dealers
("Discount"), if any, set forth in the Registration Statement for Class A shares
sold with an initial sales charge under this Agreement. PaineWebber is
authorized to collect the gross proceeds derived from the sale of such Class A
Shares; remit the net asset value thereof to the Fund's Transfer Agent; remit to
Mitchell Hutchins the difference between the offering price of the Class A
Shares and the applicable Discount; and retain said Discount. Whether the
offering price of the Class A Shares includes any initial sales charge out of
which a Discount may be retained by PaineWebber shall be determined in
accordance with the Registration Statement.
(c) Mitchell Hutchins shall pay to PaineWebber such commissions and
other compensation for sales of the Class A Shares by PaineWebber employees,
correspondent firms and other dealers as Mitchell Hutchins and PaineWebber may
from time to time agree upon.
(d) Mitchell Hutchins' obligation to pay compensation to PaineWebber as
agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation
- 4 -
<PAGE>
to be paid by Mitchell Hutchins to PaineWebber at their first regular
meeting held after such agreement but shall not be required to obtain prior
approval for such agreements from the Board.
(e) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class A Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class A
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class A Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class A Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales and
-----------
advertising materials relating to the Class A Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class A Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory
approvals of such materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and
sale of the Class A Shares. Mitchell Hutchins and its representatives shall
have access to such records during normal business hours for review or copying.
- 5 -
<PAGE>
8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses
-----------------------
of (i) preparing, printing, and distributing any materials not prepared by the
Fund or Mitchell Hutchins and other materials used by PaineWebber in connection
with its offering of Class A Shares for sale to the public; (ii) any expenses
of advertising incurred by PaineWebber in connection with such offering; (iii)
the expenses of registration or qualification of PaineWebber as a dealer or
broker under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to PaineWebber's
Investment Executives or other employees and others for selling Class A Shares,
and all expenses of PaineWebber, its Investment Executives and employees and
others who engage in or support the sale of Class A Shares as may be incurred
in connection with their sales efforts. PaineWebber shall bear such additional
costs and expenses as it and Mitchell Hutchins may agree upon, such agreement
to be evidenced in a writing signed by both parties. Mitchell Hutchins shall
advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber,
its officers and directors, and any person who controls PaineWebber within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class A Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as
to protect PaineWebber against any liability to Mitchell Hutchins or the Fund
or to the shareholders of any Series to which PaineWebber
- 6 -
<PAGE>
would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell Hutchins
and its officers and directors, the Fund, its officers and trustees, and any
person who controls Mitchell Hutchins or the Fund within the meaning of Section
15 of the 1933 Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. Duration and Termination.
------------------------
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related thereto (all such
trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class A Shares of such Series.
- 7 -
<PAGE>
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Class A Shares of such Series on 30 days'
written notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series shall
in no way affect the continued validity of this Agreement or the performance
thereunder with respect to any other Series. This Agreement will automatically
terminate in the event of its assignment or in the event that the Distribution
Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate this
Agreement without penalty, such termination to be effective upon the giving of
written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or
in the event that the Registration Statement is amended so as to reduce the
amount of compensation payable to Mitchell Hutchins under the Distribution
Contract, provided that Mitchell Hutchins gives notice of termination pursuant
to this provision within 90 days of such amendment or termination of the Plan
or amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by
Mitchell Hutchins in connection with its duties as distributor of the Class A
Shares, but only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
- 8 -
<PAGE>
14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: /s/ Jennifer Farrell By: /s/ Dianne E. O'Donnell
------------------------------ --------------------------------
PAINEWEBBER INCORPORATED
Attest: /s/ Jennifer Farrell By: /s/ Thomas Eggers
------------------------------ --------------------------------
- 9 -
<PAGE>
EXHIBIT 6(E)
EXCLUSIVE DEALER AGREEMENT
CLASS B SHARES OF KIDDER, PEABODY
INVESTMENT TRUST
AGREEMENT made as of January 30, 1995, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Kidder, Peabody Investment Trust ("Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has five distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as the Kidder, Peabody Asset Allocation Fund, Kidder, Peabody
Adjustable Rate Government Fund, Kidder, Peabody Global Equity Fund, Kidder,
Peabody Intermediate Fixed Income Fund and Kidder, Peabody Global Fixed Income
Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class B shares ("Class B Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class B
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class B Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class B Shares and to
perform such services on the terms and conditions hereinafter set forth;
<PAGE>
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class B Shares on
the terms and for the period set forth in this Agreement. Mitchell Hutchins
also appoints PaineWebber as its agent for the performance of certain other
services set forth herein which Mitchell Hutchins provides to the Fund under
the Distribution Contract. PaineWebber hereby accepts such appointments and
agrees to act hereunder. It is understood, however, that these appointments do
not preclude sales of Class B Shares directly through the Fund's transfer agent
in the manner set forth in the Registration Statement. As used in this
Agreement, the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the Class B Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial offering
of Class B Shares by a Series to the public, PaineWebber will hold itself
available to receive orders, satisfactory to PaineWebber and Mitchell Hutchins,
for the purchase of Class B Shares and will accept such orders on behalf of
Mitchell Hutchins and the Fund as of the time of receipt of such orders and will
promptly transmit such orders as are accepted to the Fund's transfer agent.
Purchase orders shall be deemed effective at the time and in the manner set
forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class B Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class B Shares of each Series shall be the
net asset value per Share as next determined by the Fund following receipt of
an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
- 2 -
<PAGE>
(e) PaineWebber shall not be obligated to sell any certain number of
Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders directly
or through dealers, PaineWebber is authorized but not required on behalf of
Mitchell Hutchins and the Fund to repurchase Class B Shares presented to it by
shareholders, its correspondent firms and other dealers at the price determined
in accordance with, and in the manner set forth in, the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
(h) PaineWebber represents and warrants that: (i) it is a member in good
standing of the NASD and agrees to abide by the Rules of Fair Practice of the
NASD; (ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class B Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class B Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or sell
Class B Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class B Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class B Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber hereunder
----------------------
are not to be deemed exclusive and PaineWebber shall be free to furnish similar
services to others
- 3 -
<PAGE>
so long as its services under this Agreement are not impaired thereby.
Nothing in this Agreement shall limit or restrict the right of any director,
officer or employee of PaineWebber who may also be a director, trustee, officer
or employee of Mitchell Hutchins or the Fund, to engage in any other business
or to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
4. Compensation.
------------
(a) As compensation for its service activities under this Agreement with
respect to the Class B Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class B Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in
such amounts as Mitchell Hutchins and PaineWebber may from time to time agree
upon.
(b) As compensation for its activities under this Agreement with respect
to the distribution of the Class B Shares, Mitchell Hutchins shall pay to
PaineWebber such commissions for sales of the Class B shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber as
agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class B Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in
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<PAGE>
connection with the distribution of Class B Shares, including, without
limitation, certified copies of any financial statements prepared for the Fund
by its independent public accountant and such reasonable number of copies of
the most current prospectus, statement of additional information, and annual
and interim reports of any Series as PaineWebber may request, and Mitchell
Hutchins shall cooperate fully in the efforts of PaineWebber to sell and
arrange for the sale of the Class B Shares and in the performance of
PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class B Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales and
-----------
advertising materials relating to the Class B Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class B Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory
approvals of such materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and
sale of the Class B Shares. Mitchell Hutchins and its representatives shall
have access to such records during normal business hours for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses
-----------------------
of (i) preparing, printing, and distributing any materials not prepared by the
Fund or Mitchell Hutchins and other materials used by PaineWebber in connection
with its offering of Class B Shares for sale to the public; (ii) any expenses
of advertising incurred by PaineWebber in connection with such offering; (iii)
the expenses of registration or qualification of PaineWebber as a dealer or
broker under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to PaineWebber's
Investment Executives or other employees and others for selling Class B Shares,
and all expenses of PaineWebber, its Investment Executives and employees and
others who engage in or support the sale of Class B Shares as may be incurred
in connection with their sales efforts. PaineWebber shall bear such additional
costs and expenses as it and Mitchell Hutchins may agree upon, such agreement
to be evidenced in a writing signed by both parties. Mitchell Hutchins shall
advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such
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<PAGE>
agreement but shall not be required to obtain prior approval for such
agreements from the Board.
9. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber,
its officers and directors, and any person who controls PaineWebber within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class B Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as
to protect PaineWebber against any liability to Mitchell Hutchins or the Fund
or to the shareholders of any Series to which PaineWebber would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell Hutchins
and its officers and directors, the Fund, its officers and trustees, and any
person who controls Mitchell Hutchins or the Fund within the meaning of Section
15 of the 1933 Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state
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<PAGE>
a material fact in connection with such information required to be stated in
the Registration Statement or necessary to make such information not
misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. Duration and Termination.
------------------------
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related thereto (all such
trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class B Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Class B Shares of such Series on 30 days'
written notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series shall
in no way affect the continued validity of this Agreement or the performance
thereunder with respect to any other Series. This Agreement will automatically
terminate in the event of its assignment or in the event that the Distribution
Contract is terminated.
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<PAGE>
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate this
Agreement without penalty, such termination to be effective upon the giving of
written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or
in the event that the Registration Statement is amended so as to reduce the
amount of compensation payable to Mitchell Hutchins under the Distribution
Contract, provided that Mitchell Hutchins gives notice of termination pursuant
to this provision within 90 days of such amendment or termination of the Plan
or amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by
Mitchell Hutchins in connection with its duties as distributor of the Class B
Shares, but only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
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<PAGE>
successors. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: /s/ Jennifer Farrell By: /s/ Dianne E. O'Donnell
------------------------------ --------------------------------
PAINEWEBBER INCORPORATED
Attest: /s/ Jennifer Farrell By: /s/ Thomas Eggers
------------------------------ --------------------------------
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<PAGE>
EXHIBIT 18
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
Mitchell Hutchins/Kidder, Peabody Investment Trust (the "Trust"), and its
operating series: Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government
Fund ("ARGF"), Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund ("AAF"),
Mitchell Hutchins/Kidder, Peabody Global Equity Fund ("GEF"), Mitchell
Hutchins/Kidder, Peabody Global Fixed Income Fund ("GFIF") and Mitchell
Hutchins/Kidder, Peabody Intermediate Fixed Income Fund ("IFIF") (referred to
hereinafter collectively as the "Funds" and individually as a "Fund"), hereby
adopt this Multiple Class Plan (the "Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended (the "1940 Act").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. CLASS A SHARES. Class A shares of each Fund are sold to the general
public subject to an initial sales charge. The initial sales charge for each
Fund is waived for certain eligible purchasers and reduced or waived for certain
large volume purchases.
The maximum sales charge is 4.5% of the public offering price for Class A
shares of AAF and GEF.
The maximum sales charge is 2.25% of the public offering price for Class A
shares of ARGF, GFIF and IFIF.
Class A shares of each Fund are subject to an annual service fee of .25% of
the average daily assets of the Class A shares of each Fund paid pursuant to a
plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class A shares of each Fund issued on or after November __, 1995 will be
subject to a contingent deferred sales charge ("CDSC") on redemptions of shares
(i) purchased without an initial sales charge due to sales charge waiver for
purchases of $1 million or more and (ii) held less than one year. The Class A
CDSC is equal to 1% of the lower of: (i) the net asset value of the shares at
the time of purchase or (ii) the net asset value of the shares at the time of
redemption. Class A shares of each Fund held one year or longer and Class A
shares of each Fund acquired through reinvestment of dividends or capital gains
distributions on shares otherwise subject to a Class A CDSC are not subject to
the CDSC. The CDSC for Class A shares of each Fund will be waived under certain
circumstances.
2. CLASS B SHARES. Class B shares of each Fund are sold to the general
public without imposition of a sales charge.
<PAGE>
Class B shares of AAF and GEF are subject to an annual service fee of .25%
of average daily net assets and a distribution fee of .75% of average daily net
assets of Class B shares of each Fund, each pursuant to a plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of ARGF, GFIF and IFIF are subject to an annual service fee
of .25% of average daily net assets and a distribution fee of .50% of average
daily net assets of Class B shares of each Fund, each pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of each Fund issued on or after November__, 1995 will be
subject to a CDSC on redemptions of Class B shares held less than one year equal
to 1% of the lower of: (i) the net asset value of the shares at the time of
purchase or (ii) the net asset value of the shares at the time or redemption.
Class B shares of each Fund held one year or longer and Class B shares of each
Fund acquired through reinvestment of dividends or capital gains distributions
are not subject to the CDSC. The CDSC for Class B shares of each Fund will be
waived under certain circumstances.
3. CLASS C SHARES. Class C shares are sold without imposition of an
initial sales charge or CDSC and are not subject to any service or distribution
fees.
Class C shares of each Fund are available for purchase only by (i) employee
benefit and retirement plans, other than individual retirement accounts and
self-employed retirement plans, of Paine Webber Group Inc. and its affiliates;
(ii) certain unit investment trusts sponsored by PaineWebber Incorporated; and
(iii) participants in certain wrap fee investment advisory programs that are
currently or in the future sponsored by PaineWebber Incorporated and that may
invest in PaineWebber proprietary funds, provided that shares are purchased
through or in connection with those programs.
4. CLASS E SHARES. Class E shares of each Fund are sold to the general
public subject to a CDSC, but without imposition of an initial sales charge.
The maximum CDSC for Class E shares of each Fund is equal to 5% of the
lower of: (i) the net asset value of the shares at the time of purchase or (ii)
the net asset value of the shares at the time of redemption.
Class E shares of each Fund held six years or longer and Class E shares of
each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC.
Class E shares of each Fund are subject to an annual service fee of .25% of
average daily net assets and a distribution fee of .75% of average daily net
assets of the Class E shares of each Fund, each paid pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
<PAGE>
Class E shares of each Fund convert to Class A shares approximately six
years after issuance at relative net asset value.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of shares of
each Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) printing and postage expenses related to a preparing and distributing
materials such as shareholder reports, prospectuses, and proxies to
current shareholders of a specific Class;
(2) Blue Sky registration fees incurred by a specific Class of shares;
(3) SEC registration fees incurred by a specific Class of shares;
(4) expenses of administrative personnel and services required to support
the shareholders of a specific Class of shares;
(5) Trustees' fees incurred as a result of issues relating to a specific
Class of shares;
(6) litigation expenses or other legal expenses relating to a specific
Class of shares; and
(7) transfer agent fees identified as being attributable to a specific
Class.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Class B and Class E shares of each Fund may be exchanged for
shares of the corresponding Class of other Mitchell Hutchins/Kidder, Peabody
("MH/KP") mutual funds and PaineWebber mutual funds, or may be acquired through
an exchange of shares of the corresponding Class of those funds. Class C shares
of the Funds are not exchangeable.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
<PAGE>
D. CLASS DESIGNATION
-----------------
Subject to approval by the Board of Trustees of Mitchell Hutchins/Kidder,
Peabody Investment Trust, a Fund may alter the nomenclature for the designations
of one or more of its classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for the applicable Classes; provided, however, that
none of the terms set forth in any such prospectus shall be inconsistent with
the terms of the Classes contained in this Plan. The prospectus for each Fund
contains additional information about the Classes and each Fund's multiple class
structure.
F. DATE OF EFFECTIVENESS:
---------------------
This multiple Class Plan is effective as of the date hereof, provided that
the CDSC imposed on the Class A shares and Class B shares of each Fund shall
apply only to Class A shares and Class B shares issued on or after November__,
1995, and further provided that this Plan shall not become effective with
respect to any Fund unless such action has first been approved by the vote of a
majority of the Board and by vote of a majority of those trustees who are not
interested persons of the Trust.
July__, 1995
