<PAGE>
As filed with the Securities and Exchange Commission on May 16, 1995
Registration No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___ [ ]
Post-Effective Amendment No.___ [ ]
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)
(212) 713-2000
(Registrant's Area Code and Telephone Number)
DIANNE E. O'DONNELL, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and Address of Agent for Service)
Copies to:
JON S. RAND, ESQ. ARTHUR J. BROWN, ESQ.
Willkie Farr & Gallagher BRIAN F. MCNALLY, ESQ.
One Citicorp Center Kirkpatrick & Lockhart LLP
153 East 53rd Street 1800 M Street, N.W.
New York, New York 10022-4669 Washington, D.C. 20036-5891
Telephone: (212) 821-8000 Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite
amount of securities pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended. Accordingly, no filing fee is payable herewith. The
Registrant filed on October 28, 1994, the notice required by Rule 24f-2 for its
fiscal year ended August 31, 1994.
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE
<PAGE>
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, BY
ACTION PURSUANT TO SECTION 8(A), MAY DETERMINE.
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Letters to Shareholders
Notices of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Pages
Exhibits
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
--------------- -----------------
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
3. Synopsis Information and Synopsis; Comparison of
Risk Factors Principal Risk Factors
4. Information About the Synopsis; The Proposed
Transaction Transactions
5. Information About the Synopsis; Comparison of
Registrant Principal Risk Factors;
Additional Information
About Mitchell
Hutchins/Kidder, Peabody
Global Equity Fund;
Miscellaneous; Prospectus
of Mitchell
Hutchins/Kidder, Peabody
Global Equity Fund
6. Information About the Synopsis; Comparison of
Company Being Acquired Principal Risk Factors;
Miscellaneous; Prospectuses
of PaineWebber Atlas Global
Growth Fund, PaineWebber
Europe Growth Fund and
PaineWebber Global Growth
and Income Fund
7. Voting Information Voting Information
8. Interest of Certain Persons Not Applicable
and Experts
9. Additional Information Not Applicable
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
Part B Item No. Prospectus/Proxy
and Caption Statement Caption
--------------- -----------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About Management of the Fund;
the Registrant Redemption of Shares;
Exchange Privilege;
Statement of Additional
Information of Mitchell
Hutchins/Kidder, Peabody
Global Equity Fund
13. Additional Information About Statements of Additional
the Company Being Acquired Information of PaineWebber
Atlas Global Growth Fund,
PaineWebber Europe Growth
Fund and PaineWebber Global
Growth and Income Fund
14. Financial Statements Annual Reports of Mitchell
Hutchins/Kidder, Peabody
Global Equity Fund, for
Fiscal Year Ended August
31, 1994; PaineWebber Atlas
Global Growth Fund for
Fiscal Year Ended August
31, 1994; and PaineWebber
Europe Growth Fund and
PaineWebber Global Growth
and Income Fund for Fiscal
Year Ended October 31, 1994
Semi-Annual Reports of
Mitchell Hutchins/Kidder,
Peabody Global Equity Fund
and PaineWebber Atlas
Global Growth Fund, each
for Six Months Ended
February 28, 1995
Pro Forma financial
statements for the twelve months
ended February 28, 1995
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 ATLAS GLOBAL GROWTH FUND
(a series of PaineWebber Atlas Fund)
June __, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that PaineWebber Atlas
Global Growth Fund ("Atlas Global Growth Fund") reorganize and become part of
Mitchell Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global Equity
Fund"). If the proposal is approved and implemented, each shareholder of Atlas
Global Growth Fund automatically would become a shareholder of MH/KP Global
Equity Fund. Atlas Global Growth Fund is a series of PaineWebber Atlas Fund.
MH/KP Global Equity Fund is a series of Mitchell Hutchins/Kidder, Peabody
Investment Trust, an open-end management investment company organized as a
Massachusetts business trust.
YOUR BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE REORGANIZATION PROPOSAL.
The board believes that combining the two Funds will benefit Atlas Global Growth
Fund's shareholders by providing them with a portfolio that has an investment
objective similar to the investment objective of Atlas Global Growth Fund and
that will have lower or comparable operating expenses as a percentage of net
assets. The attached materials provide more information about the proposed
reorganization and the two Funds.
In addition, the attached proxy materials describe a proposal to approve a
new sub-advisory agreement ("Sub-Advisory Agreement") for Atlas Global Growth
Fund. Your board of trustees recommends that the Fund's shareholders approve
the proposed Sub-Advisory Agreement, as the current interim sub-advisory
agreement will terminate on July 22, 1995.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
---------------------------------------------------------
shares early will permit the Atlas Global Growth Fund to avoid costly follow-up
mail and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, PaineWebber Atlas Fund
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
(a series of PaineWebber Investment Series)
June __, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that PaineWebber Europe
Growth Fund ("Europe Growth Fund") reorganize and become part of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global Equity Fund"). If
the proposal is approved and implemented, each shareholder of Europe Growth Fund
automatically would become a shareholder of MH/KP Global Equity Fund. Europe
Growth Fund is a series of PaineWebber Investment Series. MH/KP Global Equity
Fund is a series of Mitchell Hutchins/Kidder, Peabody Investment Trust, an open-
end management investment company organized as a Massachusetts business trust.
YOUR BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE REORGANIZATION PROPOSAL.
The board believes that combining the two Funds will benefit Europe Growth
Fund's shareholders by providing them with a portfolio that has an investment
objective similar to the investment objective of Europe Growth Fund and that
will have lower operating expenses as a percentage of net assets. The attached
materials provide more information about the proposed reorganization and the two
Funds.
In addition, the attached proxy materials describe a proposal to approve a
new sub-advisory agreement ("Sub-Advisory Agreement") for Europe Growth Fund.
Your board of trustees recommends that the Fund's shareholders approve the
proposed Sub-Advisory Agreement, as the current interim sub-advisory agreement
will terminate on July 22, 1995.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
---------------------------------------------------------
shares early will permit Europe Growth Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, PaineWebber Investment Series
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
(a series of PaineWebber Investment Series)
June __, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that PaineWebber Global
Growth and Income Fund ("Global Growth and Income Fund") reorganize and become
part of Mitchell Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global
Equity Fund"). If the proposal is approved and implemented, each shareholder of
Global Growth and Income Fund automatically would become a shareholder of MH/KP
Global Equity Fund. Global Growth and Income Fund is a series of PaineWebber
Investment Series. MH/KP Global Equity Fund is a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust, an open-end management investment
company organized as a Massachusetts business trust.
YOUR BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE REORGANIZATION PROPOSAL.
The board believes that combining the two Funds will benefit Global Growth and
Income Fund's shareholders by providing them with a portfolio that has an
investment objective similar to the investment objective of Global Growth and
Income Fund and that will have lower operating expenses as a percentage of net
assets. The attached materials provide more information about the proposed
reorganization and the two Funds.
In addition, the attached proxy materials describe a proposal to approve a
new sub-advisory agreement ("Sub-Advisory Agreement") for Global Growth and
Income Fund. Your board of trustees recommends that the Fund's shareholders
approve the proposed Sub-Advisory Agreement, as the current interim sub-advisory
agreement will terminate on July 22, 1995.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
---------------------------------------------------------
shares early will permit Global Growth and Income Fund to avoid costly follow-up
mail and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, PaineWebber Investment Series
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
(a series of PaineWebber Atlas Fund)
____________________
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
July 14, 1995
____________________
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber Atlas Global
Growth Fund ("Atlas Global Growth Fund"), a series of PaineWebber Atlas Fund,
will be held on July 14, 1995, at [10:00 a.m.] eastern time, at 1285 Avenue of
the Americas, 38th Floor, Room [ ], New York, New York 10019, for the following
purposes:
(1) To consider an Agreement and Plan of Reorganization and Termination under
which Mitchell Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global Equity
Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust, would
acquire the assets of Atlas Global Growth Fund in exchange solely for shares of
beneficial interest in MH/KP Global Equity Fund and the assumption by MH/KP
Global Equity Fund of Atlas Global Growth Fund's liabilities, followed by the
distribution of those shares to the shareholders of Atlas Global Growth Fund,
all as described in the accompanying prospectus/proxy statement;
(2) To consider a Sub-Advisory Agreement between Mitchell Hutchins Asset
Management Inc. and GE Investment Management Incorporated; and
(3) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of Atlas Global Growth Fund at the close of business on [May 24,
1995]. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the board of trustees,
DIANNE E. O'DONNELL
Secretary
June __, 1995
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, date and
sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expense to
Atlas Global Growth Fund of further solicitation, we ask your cooperation in
mailing in your proxy card promptly. Unless proxy cards submitted by
corporations and partnerships are signed by the appropriate persons as indicated
in the voting instructions on the proxy card, they will not be voted.
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
(a series of PaineWebber Investment Series)
____________________
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
July 14, 1995
____________________
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber Europe Growth
Fund ("Europe Growth Fund"), a series of PaineWebber Investment Series, will be
held on July 14, 1995, at [10:00 a.m.] eastern time, at 1285 Avenue of the
Americas, 38th Floor, Room [ ], New York, New York 10019, for the following
purposes:
(1) To consider an Agreement and Plan of Reorganization and Termination under
which Mitchell Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global Equity
Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust, would
acquire the assets of Europe Growth Fund in exchange solely for shares of
beneficial interest in MH/KP Global Equity Fund and the assumption by MH/KP
Global Equity Fund of Europe Growth Fund's liabilities, followed by the
distribution of those shares to the shareholders of Europe Growth Fund, all as
described in the accompanying prospectus/proxy statement;
(2) To consider a Sub-Advisory Agreement between Mitchell Hutchins Asset
Management Inc. and GE Investment Management Incorporated; and
(3) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of Europe Growth Fund at the close of business on [May 24, 1995].
IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU DO NOT
EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the board of trustees,
DIANNE E. O'DONNELL
Secretary
June __, 1995
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, date and
sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expense to
Europe Growth Fund of further solicitation, we ask your cooperation in mailing
in your proxy card promptly. Unless proxy cards submitted by corporations and
partnerships are signed by the appropriate persons as indicated in the voting
instructions on the proxy card, they will not be voted.
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
(a series of PaineWebber Investment Series)
____________________
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
July 14, 1995
____________________
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber Global Growth and
Income Fund ("Global Growth and Income Fund"), a series of PaineWebber
Investment Series, will be held on July 14, 1995, at [10:00 a.m.] eastern time,
at 1285 Avenue of the Americas, 38th Floor, Room [ ], New York, New York 10019,
for the following purposes:
(1) To consider an Agreement and Plan of Reorganization and Termination under
which Mitchell Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global Equity
Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust would
acquire the assets of Global Growth and Income Fund in exchange solely for
shares of beneficial interest in MH/KP Global Equity Fund and the assumption by
MH/KP Global Equity Fund of Global Growth and Income Fund's liabilities,
followed by the distribution of those shares to the shareholders of Global
Growth and Income Fund, all as described in the accompanying prospectus/proxy
statement;
(2) To consider a Sub-Advisory Agreement between Mitchell Hutchins Asset
Management Inc. and GE Investment Management Incorporated; and
(3) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of Global Growth and Income Fund at the close of business on [May
24, 1995]. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF
YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the board of trustees,
DIANNE E. O'DONNELL
Secretary
June __, 1995
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, date and
sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expense to
Global Growth and Income Fund of further solicitation, we ask your cooperation
in mailing in your proxy card promptly. Unless proxy cards submitted by
corporations and partnerships are signed by the appropriate persons as indicated
in the voting instructions on the proxy card, they will not be voted.
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
GLOBAL EQUITY FUND
(a series of Mitchell Hutchins/Kidder, Peabody Investment Trust)
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
(a series of PaineWebber Atlas Fund)
PAINEWEBBER EUROPE GROWTH FUND
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
(each a series of PaineWebber Investment Series)
1285 Avenue of the Americas
New York, New York 10019
(Toll-Free) [1-800-647-1568]
_____________________
PROSPECTUS/PROXY STATEMENT
June __, 1995
_____________________
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of PaineWebber Atlas Global Growth Fund ("Atlas Global Growth
Fund"), a series of PaineWebber Atlas Fund ("Atlas Trust"), PaineWebber Europe
Growth Fund ("Europe Growth Fund"), a series of PaineWebber Investment Series
("Investment Series"), and PaineWebber Global Growth and Income Fund ("Global
Growth and Income Fund"), also a series of Investment Series (each an "Acquired
Fund" and collectively, the "Acquired Funds"), in connection with the
solicitation of proxies by Atlas Trust's and Investment Series' boards of
trustees for use at a combined special meeting of shareholders of the Acquired
Funds, to be held on July 14, 1995, at [10:00 a.m.], eastern time, and at any
adjournment thereof ("Meeting").
As more fully described in the Proxy Statement, the primary purpose of the
Meeting is to vote on three proposed reorganizations (each a "Reorganization"
and collectively, the "Reorganizations"). Under each Reorganization, Mitchell
Hutchins/Kidder, Peabody Global Equity Fund ("MH/KP Global Equity Fund"), a
series of Mitchell Hutchins/Kidder, Peabody Investment Trust ("MH/KP Investment
Trust"), would acquire the assets of an Acquired Fund, in exchange solely for
shares of beneficial interest in MH/KP Global Equity Fund and the assumption by
MH/KP Global Equity Fund of that Acquired Fund's liabilities. Those MH/KP
Global Equity Fund shares then would be distributed to that Acquired Fund's
shareholders, by class, so that each such shareholder would receive a number of
full and fractional shares of the class of MH/KP Global Equity Fund having an
aggregate value that, on the effective date of the Reorganization, is equal to
the aggregate net asset value of the shareholder's shares of the corresponding
class in the Acquired Fund. Following those distributions, each Acquired Fund
will be terminated as soon as practicable. In addition, the name of MH/KP
Global Equity Fund will be changed to "PaineWebber Global Equity Fund."
MH/KP Global Equity Fund is a diversified series of MH/KP Investment Trust,
which is an open-end management investment company comprised of five outstanding
series. MH/KP Global Equity Fund's investment objective is long-term growth of
capital, which it seeks to achieve by investing principally in foreign equity
securities.
At the Meeting, the shareholders of the Acquired Funds also will be asked to
approve proposed sub-advisory agreements between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), the investment adviser of each Acquired
Fund, and GE Investment Management Incorporated ("GEIM"), a wholly owned
subsidiary of General Electric Company, pursuant to which GEIM would continue to
serve as investment sub-adviser to each Acquired Fund. GEIM is currently
serving as investment sub-adviser to each Acquired Fund pursuant to interim sub-
advisory agreements with Mitchell Hutchins. If the Reorganization proposal and
the proposed sub-advisory agreement are both approved with respect to an
Acquired Fund, the Sub-Advisory Agreement with respect to that Acquired Fund
would remain in effect until the Reorganization is implemented. If the
Reorganization proposal is not approved but the proposed sub-advisory agreement
<PAGE>
is approved with respect to an Acquired Fund, the proposed sub-advisory
agreement will remain in effect for two years after its effective date.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the proposed transactions and MH/KP Global
Equity Fund that a shareholder should know before voting. This Proxy Statement
is accompanied by the Prospectus of MH/KP Global Equity Fund, dated December 29,
1994, and by its Annual Report to shareholders for the fiscal year ended August
31, 1994, which are incorporated by reference into this Proxy Statement. A
Statement of Additional Information dated June __, 1995, including historical
financial statements, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by this reference. Prospectuses of Atlas
Global Growth Fund, dated January 1, 1995, and Europe Growth Fund and Global
Growth and Income Fund, each dated March 1, 1995, and Statements of Additional
Information of MH/KP Global Equity Fund, dated December 29, 1994, Atlas Global
Growth Fund, dated January 1, 1995, and Europe Growth Fund and Global Growth and
Income Fund, each dated March 1, 1995, have been filed with the SEC and are
incorporated herein by this reference. Copies of these documents, as well as
each Acquired Fund's annual report, or semi-annual report, if applicable, may be
obtained without charge and further inquiries may be made by contacting your
PaineWebber Incorporated ("PaineWebber") investment executive or PaineWebber's
correspondent firms or by calling toll-free [1-800-647-1568].
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
VOTING INFORMATION.......................................................... 1
PROPOSAL 1. APPROVAL OF THE REORGANIZATIONS................................. 3
SYNOPSIS.................................................................... 3
COMPARISON OF PRINCIPAL RISK FACTORS........................................ 16
THE PROPOSED TRANSACTIONS................................................... 18
ADDITIONAL INFORMATION ABOUT MH/KP GLOBAL EQUITY FUND....................... 27
PROPOSAL 2. APPROVAL OF THE SUB-ADVISORY AGREEMENTS......................... 29
MISCELLANEOUS............................................................... 34
APPENDIX A -- FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION.. A-1
APPENDIX B -- FORM OF SUB-ADVISORY AGREEMENT................................ B-1
</TABLE>
1
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
(a series of PaineWebber Atlas Fund)
PAINEWEBBER EUROPE GROWTH FUND
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
(each a series of PaineWebber Investment Series)
______________
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JULY 14, 1995
______________
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of PaineWebber Atlas Global Growth Fund ("Atlas Global Growth
Fund"), a series of PaineWebber Atlas Fund ("Atlas Trust"), PaineWebber Europe
Growth Fund ("Europe Growth Fund"), a series of PaineWebber Investment Series
("Investment Series"), and PaineWebber Global Growth and Income Fund ("Global
Growth and Income Fund"), a series of Investment Series (each an "Acquired Fund"
and collectively, the "Acquired Funds"), in connection with the solicitation of
proxies by Atlas Trust's and Investment Series' boards of trustees for use at a
combined special meeting of shareholders of the Acquired Funds to be held on
July 14, 1995, and any adjournment thereof ("Meeting"). This Proxy Statement
will first be mailed to shareholders on or about June __, 1995.
A majority of shares of an Acquired Fund outstanding on May 24, 1995,
represented in person or by proxy, must be present for the transaction of
business by that Acquired Fund at the Meeting. If, with respect to any Acquired
Fund, a quorum is not present at the Meeting or a quorum is present but
sufficient votes to approve the proposal are not received, the persons named as
proxies may propose one or more adjournments of the Meeting with respect to that
Acquired Fund to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares of the Acquired
Fund represented at the Meeting in person or by proxy. The persons named as
proxies will vote those proxies that they are entitled to vote FOR any such
proposal in favor of such an adjournment and will vote those proxies required to
be voted AGAINST any such proposal against such adjournment. A shareholder vote
may be taken on one or more of the proposals in this Proxy Statement prior to
any such adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker indicates
that instructions have not been received from the beneficial owners or other
persons entitled to vote and the broker does not have discretionary voting
authority. Abstentions and broker non-votes will be counted as shares present
for purposes of determining whether a quorum is present but will not be voted
for or against any adjournment or proposal. Accordingly, abstentions and broker
non-votes effectively will be a vote against adjournment or against any proposal
where the required vote is a percentage of the shares present. Abstentions and
broker non-votes will not be counted, however, as votes cast for purposes of
determining whether sufficient votes have been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your direction as indicated thereon if your proxy card is
received properly executed by you or by your duly appointed agent or attorney-
in-fact. If you sign, date and return the proxy card, but give no voting
instructions, your shares will be voted in favor of approval of the Agreement
and Plan of Reorganization and Termination, dated as of May 12, 1995
("Reorganization Plan") that involves your Acquired Fund. A form of the
Reorganization Plan is attached to this Proxy Statement as Appendix A. Under
each Reorganization Plan, Mitchell Hutchins/Kidder, Peabody Global Equity Fund
("MH/KP Global Equity Fund"), a series of Mitchell Hutchins/Kidder, Peabody
Investment Trust ("MH/KP Investment Trust"), would acquire the assets of an
Acquired Fund in exchange solely for shares of beneficial interest in MH/KP
Global Equity Fund and the assumption by MH/KP Global Equity Fund of that
Acquired Fund's liabilities; those shares then would be distributed to that
Acquired Fund's shareholders. (Each of these transactions is referred to herein
as a "Reorganization.") After completion of a Reorganization, the participating
Acquired Fund will be terminated.
<PAGE>
In addition, if you sign, date and return the enclosed voting card, but give
no voting instructions, the duly appointed proxies will vote your shares in
favor of the applicable sub-advisory agreement between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins") and GE Investment Management Incorporated
("GEIM"), and they may, in their discretion, vote upon such other matters as may
come before the Meetings or any adjournments thereof. The proxy card may be
revoked by giving another proxy or by letter or telegram revoking such proxy.
To be effective, such revocation must be received by Atlas Trust or Investment
Series, as applicable, prior to the Meeting and must indicate your name and
account number. In addition, if you attend the Meeting in person you may, if
you wish, vote by ballot at the Meeting thereby canceling any proxy previously
given.
As of the record date, May 24, 1995 ("Record Date"), Atlas Global Growth Fund
had __________ shares of beneficial interest outstanding, consisting of
__________ Class A shares, _________ Class B shares, _________ Class C shares
and _________ Class D shares; Europe Growth Fund had _________ shares of
beneficial interest outstanding, consisting of _________ Class A shares,
_________ Class B shares and _______ Class D shares; and Global Growth and
Income Fund had _________ shares of beneficial interest outstanding, consisting
of _________ Class A shares, _________ Class B shares and _______ Class D
shares. The solicitation of proxies, the cost of which will be borne by MH/KP
Global Equity Fund, Atlas Global Growth Fund, Europe Growth Fund and Global
Growth and Income Fund (each a "Fund," and collectively, the "Funds") in
proportion to their respective net assets, will be made primarily by mail but
also may include telephone or oral communications by representatives of Mitchell
Hutchins, who will not receive any compensation therefor from the Funds, or by
[Shareholder Communications Corporation], professional proxy solicitors retained
by the Acquired Funds, who will be paid fees and expenses of up to approximately
$75,000 for soliciting services. [Management does not know of any person who
owns beneficially 5% or more of the shares of any Acquired Fund. Trustees and
officers of Atlas Trust and Investment Series own in the aggregate less than 1%
of the shares of their respective Funds.]
Summarized below are the proposals the shareholders of each Acquired Fund are
being asked to consider:
<TABLE>
<CAPTION>
Fund Proposal
---- --------
<S> <C> <C>
Atlas Global Growth 1. To approve a Reorganization Plan.
2. To approve a Sub-Advisory Agreement between
Mitchell Hutchins and GEIM.
Europe Growth 1. To approve a Reorganization Plan.
2. To approve a Sub-Advisory Agreement between
Mitchell Hutchins and GEIM.
Global Growth and Income 1. To approve a Reorganization Plan.
2. To approve a Sub-Advisory Agreement between
Mitchell Hutchins and GEIM.
</TABLE>
For voting purposes, the shareholders of each Acquired Fund will vote only on
the Reorganization Plan applicable to it and on the Sub-Advisory Agreement
applicable to it. Approval of a proposal and consummation of the transactions
contemplated thereby for one Acquired Fund do not depend on the approval of the
corresponding proposal and consummation of the transactions contemplated thereby
by either of the other Acquired Funds' shareholders. However, consummation of
such transactions for each Acquired Fund is contingent upon the approval by [the
board of trustees of MH/KP Investment Trust, on behalf of MH/KP Global Equity
Fund, and by] MH/KP Global Equity Fund's shareholders of the proposed changes in
the management and sub-advisory fees. See the introductory paragraph to
"Comparative Fee Tables," page [5].
Approval of a Reorganization Plan or a Sub-Advisory Agreement requires the
affirmative vote of a "majority of the outstanding voting securities" of the
applicable Acquired Fund. As defined in the Investment Company Act of 1940
("1940 Act"), "majority of the outstanding voting securities" means the lesser
of (1) 67% of an Acquired Fund's shares present at a meeting of shareholders if
the owners of more than 50% of that Acquired Fund's shares then outstanding are
present in person or by proxy, or (2) more than 50% of the Acquired Fund's
outstanding shares. Each full outstanding share of
2
<PAGE>
each Acquired Fund is entitled to one vote, and each outstanding fractional
share of each Acquired Fund is entitled to a proportionate fractional share of
one vote.
PROPOSAL 1. APPROVAL OF THE REORGANIZATIONS
SYNOPSIS
The following is a summary of certain information contained elsewhere in this
Proxy Statement, the prospectuses of each Fund, which are incorporated herein by
reference, and the Reorganization Plans. Shareholders should read the Proxy
Statement and the Prospectus of MH/KP Global Equity Fund carefully. As
discussed more fully below, the boards of trustees of Atlas Trust and Investment
Series believe that the proposed Reorganizations will benefit the Acquired
Funds' shareholders. MH/KP Global Equity Fund has an investment objective
similar to the investment objective of each Acquired Fund, although its
investment strategy may differ from the investment strategies of the Acquired
Funds in some respects. It is anticipated that, following the Reorganizations,
the shareholders of the Acquired Funds will, as shareholders of MH/KP Global
Equity Fund, be subject to lower total operating expenses as a percentage of net
assets (with the exception of Class A shareholders of Atlas Global Growth Fund,
who, if only Atlas Global Growth Fund participates in the Reorganizations, would
be subject to comparable total operating expenses).
THE PROPOSED REORGANIZATIONS
The board of trustees of each of Atlas Trust and Investment Series has
approved a Reorganization Plan with respect to its Acquired Fund at a combined
meeting held on April 28, 1995. Each Reorganization Plan provides for the
acquisition by MH/KP Global Equity Fund of the assets of an Acquired Fund in
exchange solely for shares of MH/KP Global Equity Fund and the assumption by
MH/KP Global Equity Fund of the liabilities of the Acquired Fund. Each Acquired
Fund then will distribute the MH/KP Global Equity Fund shares to its
shareholders, by class, so that each shareholder will receive the number of full
and fractional shares of the class of MH/KP Global Equity Fund that corresponds
most closely in terms of fees and other characteristics ("Corresponding Class")
and that is equal in value to such shareholder's holdings in the Acquired Fund
as of the Closing Date (defined below). Each Acquired Fund then will be
terminated as soon as practicable thereafter.
The exchange of each Acquired Fund's assets for MH/KP Global Equity Fund
shares and MH/KP Global Equity Fund's assumption of its liabilities will occur
at or as of 4:00 p.m., eastern time, on [August 11,] 1995, or such later date as
the conditions to any such closing are satisfied ("Closing Date").
MH/KP Global Equity Fund currently offers for sale three classes of shares
(each a "Class" and collectively, "Classes"), designated as Class A, Class B and
Class C shares. In connection with the Reorganizations, MH/KP Global Equity
Fund will issue Class E shares. Atlas Global Growth Fund has four classes of
shares, designated as Class A, Class B, Class C and Class D shares. Europe
Growth Fund and Global Growth and Income Fund each has three classes of shares,
designated as Class A, Class B and Class D shares. In connection with the
Reorganization involving Atlas Global Growth Fund, shareholders of its Class A,
Class B, Class C and Class D shares will receive Class A, Class E, Class C and
Class B shares, respectively, of MH/KP Global Equity Fund. In connection with
the Reorganizations involving Europe Growth Fund and Global Growth and Income
Fund, shareholders of their Class A, Class B, and Class D shares will receive
Class A, Class E, and Class B shares, respectively, of MH/KP Global Equity Fund.
The following table shows which class of shares of MH/KP Global Equity Fund will
be received by each class of shares of an Acquired Fund:
Atlas Global Growth Fund MH/KP Global Equity Fund
------------------------ ------------------------
Class A Class A
Class B Class E
Class C Class C
Class D Class B
3
<PAGE>
Europe Growth Fund MH/KP Global Equity Fund
------------------ ------------------------
Class A Class A
Class B Class E
Class D Class B
Global Growth and Income Fund MH/KP Global Equity Fund
----------------------------- ------------------------
Class A Class A
Class B Class E
Class D Class B
For the reasons set forth below under "The Proposed Transactions -- Reasons
for the Reorganizations," the boards of trustees of each of Atlas Trust and
Investment Series, including the trustees who are not "interested persons"
thereof as that term is defined in the 1940 Act ("Independent Trustees"), have
concluded, in each instance, that the Reorganization is in the best interests of
the participating Acquired Fund, that the terms of the Reorganization are fair
and reasonable and that the interests of such Acquired Fund's shareholders will
not be diluted as a result of the Reorganization. Accordingly, the boards of
trustees of Atlas Trust and Investment Series recommend approval of the
transactions. In addition, the trustees of MH/KP Investment Trust, including
its Independent Trustees, have concluded that the Reorganizations are in the
best interests of MH/KP Global Equity Fund, that the terms of the
Reorganizations are fair and reasonable and that the interests of MH/KP Global
Equity Fund's shareholders will not be diluted as a result of the
Reorganizations.
4
<PAGE>
COMPARATIVE FEE TABLES
Certain fees and expenses of MH/KP Global Equity Fund will change in
connection with the Reorganizations. Mitchell Hutchins, the investment manager
of the Fund, is currently paid a management fee that is accrued daily and paid
monthly at the annual rate of 1.00% of the average daily net assets of the Fund.
Following the Reorganizations, MH/KP Global Equity Fund, subject to the approval
of [the board of trustees of MH/KP Investment Trust, on behalf of MH/KP Global
Equity Fund, and by] MH/KP Global Equity Fund's shareholders, will pay Mitchell
Hutchins a management fee of 0.85% of average daily net assets of the Fund up to
$500 million, 0.83% of average daily net assets in excess of $500 million and up
to $1 billion, and 0.805% of average daily net assets in excess of $1 billion.
The rate of the advisory fee paid by Mitchell Hutchins (not MH/KP Global Equity
Fund) to GEIM for its services as sub-adviser is currently 0.70% of the Fund's
average daily net assets up to $200 million and 0.50% of average daily net
assets equal to or in excess of $200 million. Following the Reorganizations,
Mitchell Hutchins, subject to the approval of [the board of trustees of MH/KP
Investment Trust, on behalf of MH/KP Global Equity Fund, and by] MH/KP Global
Equity Fund's shareholders, will pay GEIM an advisory fee of 0.31% of average
daily net assets up to $500 million, 0.29% of average daily net assets in excess
of $500 million, and 0.265% of average daily net assets in excess of $1 billion.
In addition, certain expenses paid by Atlas Global Growth Fund, Europe Growth
Fund and Global Growth and Income Fund or their shareholders will not be paid by
MH/KP Global Equity Fund or its shareholders following the Reorganizations.
Atlas Global Growth Fund, Europe Growth Fund and Global Growth and Income Fund
currently pay to PaineWebber Incorporated ("PaineWebber") an annual fee of $4.00
per active shareholder account for certain services not provided by each Fund's
transfer agent. This fee is not, and will not be, charged to shareholders of
MH/KP Global Equity Fund. Shareholders of Atlas Global Growth Fund, Europe
Growth Fund and Global Growth and Income Fund currently pay a $5.00 fee for each
exchange of shares for shares of a corresponding class of other PaineWebber or
Mitchell Hutchins/Kidder, Peabody mutual funds. This fee will be waived on
exchanges of shares of an Acquired Fund for shares of any other PaineWebber or
Mitchell Hutchins/Kidder, Peabody ("MH/KP") mutual fund after [May __, 1995].
Finally, Atlas Global Growth Fund Class A shareholders currently pay a 12b-1
service fee of [0.20%] of the Fund's average daily net assets, which reflects a
blended annual rate of the Fund's average daily net assets of 0.25% with respect
to shares sold on or after December 2, 1988 and 0.15% with respect to shares
sold prior to that date. Atlas Global Growth Fund Class A shareholders will pay
a slightly higher 12b-1 service fee of 0.25% of MH/KP Global Equity Fund's
average daily net assets.
REORGANIZATION OF ATLAS GLOBAL GROWTH FUND INTO MH/KP GLOBAL EQUITY FUND. The
following tables show (i) shareholder transaction expenses currently incurred by
the Class A, Class B, Class C, and Class D shares of Atlas Global Growth Fund,
and shareholder transaction expenses that each such class will incur after
giving effect to the Reorganization, and (ii) the current fees and expenses
incurred for the fiscal year ended August 31, 1994 by the Class A, Class B,
Class C and Class D shares of Atlas Global Growth Fund, the current fees and
expenses incurred for the fiscal year ended August 31, 1994 by the Class A,
Class B, and Class C shares of MH/KP Global Equity Fund and pro forma fees for
MH/KP Global Equity Fund's Class A, Class E, Class C and Class B shares after
giving effect to the Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ATLAS GLOBAL GROWTH FUND COMBINED FUND
--------------------------------------------------- ----------------------------------------
Class A Class B/(1)/ Class C Class D/(2)/ Class A Class E Class C Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge
(as a percentage of
public offering price) 4.5% NONE NONE NONE 5.75% NONE NONE NONE
Exchange fee $5.00 $5.00 $5.00 $5.00 NONE NONE NONE NONE
Maximum contingent deferred
sales charge (as a percentage
of redemption proceeds) NONE 5% NONE NONE NONE 5% NONE NONE
</TABLE>
5
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
ATLAS GLOBAL GROWTH FUND MH/KP GLOBAL EQUITY FUND
(FISCAL YEAR ENDED 8/31/94) (FISCAL YEAR ENDED 8/31/94) COMBINED FUND (ESTIMATED)
-------------------------------- --------------------------- --------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B/(1)/ C D/(2)/ A B C A E C B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75% 0.75% 1.00% 1.00% 1.00% 0.85% 0.85% 0.85% 0.85%
12b-1 Fees 0.20% 1.00% 0.00% 1.00% 0.25% 1.00% 0.00% 0.25% 1.00% 0.00% 1.00%
Other
Expenses 0.44% 0.44% 0.38% 0.45% 0.33% 0.33% 0.33% 0.34% 0.36% 0.29% 0.38%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating
Expenses/(3)/ 1.39% 2.19% 1.13% 2.20% 1.58% 2.33% 1.33% 1.44% 2.21% 1.14% 2.23%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
/(1)/ Class B shares of Atlas Global Growth Fund will be exchanged for Class E
shares of MH/KP Global Equity Fund.
/(2)/ Class D shares of Atlas Global Growth Fund will be exchanged for Class B
shares of MH/KP Global Equity Fund.
/(3)/ For the twelve months ended February 28, 1995, the ratios of total
operating expenses as a percentage of average net assets for Atlas
Growth Fund were 1.44%, 2.25%, 1.15% and 2.25% for Class A, B, C and D
shares, respectively, and for MH/KP Global Equity Fund were 1.57%, 2.34%
and 1.26% for Class A, B and C shares, respectively.
EXAMPLE OF EFFECT ON FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and the expenses stated above, assuming a 5%
annual return. The fees shown below reflect a maximum initial sales charge of
up to 5.75% of the public offering price that is charged in connection with
the sale of MH/KP Global Equity Fund's Class A shares and a maximum initial
sales charge of 4.5% of the public offering price that is charged in
connection with the sale of Atlas Global Growth Fund's Class A shares. No
initial sales charge will be charged in connection with Class A Shares of
MH/KP Global Equity Fund distributed to Class A shareholders of the Acquired
Funds as part of the Reorganizations.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
ATLAS GLOBAL GROWTH FUND
Class A shares............... $59 $ 87 $118 $204
Class B shares:
Assuming complete redemp-
tion at end of period..... $72 $ 99 $137 $214
Assuming no redemption..... $22 $ 69 $117 $214
Class C shares............... $12 $ 36 $ 62 $137
Class D shares............... $22 $ 69 $118 $253
MH/KP GLOBAL EQUITY FUND
Class A shares............... $73 $105 $139 $235
Class B shares............... $24 $ 73 $125 $267
Class C shares............... $29 $ 88 $149 $316
COMBINED FUND
Class A shares............... $72 $100 $132 $220
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class E shares:
Assuming complete redemp-
tion at end of period...... $73 $101 $139 $218
Assuming no redemption..... $23 $ 71 $119 $218
Class C shares............... $12 $ 36 $ 63 $139
Class B shares............... $22 $ 69 $118 $254
</TABLE>
----------
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the Securities and Exchange Commission ("SEC"); the assumed 5% annual return
is not a prediction of, and does not represent, the projected or actual
performance of any class of the Funds' shares.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each class of a Fund's shares will depend
upon, among other things, the level of average net assets, and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
REORGANIZATION OF EUROPE GROWTH FUND INTO MH/KP GLOBAL EQUITY FUND. The
following tables show (i) shareholder transaction expenses currently incurred
by the Class A, Class B, and Class D shares of Europe Growth Fund, and
shareholder transaction expenses that each class will incur after giving
effect to the Reorganization, and (ii) the current fees and expenses incurred
for the fiscal year ended October 31, 1994 by the Class A, Class B, and Class
D shares of Europe Growth Fund, the current fees and expenses incurred for the
fiscal year ended August 31, 1994 by the Class A, Class B, and Class C shares
of MH/KP Global Equity Fund, and pro forma fees for MH/KP Global Equity Fund's
Class A, Class E, Class C, and Class B shares after giving effect to the
Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
EUROPE GROWTH FUND COMBINED FUND
------------------------------------- --------------------------
Class A Class B/(1)/ Class D/(2)/ Class A Class E Class C Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (as a 4.5% NONE NONE 5.75% NONE NONE NONE
percentage of public offering price)
Exchange fee $5.00 $5.00 $5.00 NONE NONE NONE NONE
Maximum contingent deferred sales NONE 5% NONE NONE 5% NONE NONE
charge (as a percentage of
redemption proceeds)
</TABLE>
7
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
EUROPE GROWTH FUND MH/KP GLOBAL EQUITY FUND COMBINED FUND (ESTIMATED)
(FISCAL YEAR ENDED 10/31/94) (FISCAL YEAR ENDED 8/31/94) ----------------------------
----------------------------- -------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B/(1)/ D/(2)/ A B C A E C B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manage- 0.85% 0.85% 0.85% 1.00% 1.00% 1.00% 0.85% 0.85% 0.85% 0.85%
ment Fees
12b-1 Fees 0.25% 1.00% 1.00% 0.25% 1.00% 0.00% 0.25% 1.00% 0.00% 1.00%
Other 0.55% 0.55% 0.54% 0.33% 0.33% 0.33% 0.34% 0.35% 0.30% 0.39%
Expenses ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund 1.65% 2.40% 2.39% 1.58% 2.33% 1.33% 1.44% 2.20% 1.15% 2.24%
Operating ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Expenses/(3)/
</TABLE>
__________________________________
/(1)/ Class B shares of Europe Growth Fund will be exchanged for Class E
shares of MH/KP Global Equity Fund.
/(2)/ Class D shares of Europe Growth Fund will be exchanged for Class B
shares of MH/KP Global Equity Fund.
/(3)/ For the twelve months ended February 28, 1995, the ratios of total
operating expenses as a percentage of average net assets for Europe
Growth Fund were 1.72%, 2.45% and 2.47% for Class A, B and D shares,
respectively, and for MH/KP Global Equity Fund were 1.57%, 2.34% and
1.26% for Class A, B and C shares, respectively.
EXAMPLE OF EFFECT ON FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and the expenses stated above, assuming a 5%
annual return. The fees shown below reflect a maximum initial sales charge of
5.75% of the public offering price that is charged in connection with the sale
of MH/KP Global Equity Fund's Class A shares and a maximum initial sales
charge of 4.5% of the public offering price that is charged in connection with
the sale of Europe Growth Fund's Class A shares. No initial sales charge will
be charged in connection with Class A Shares of MH/KP Global Equity Fund
distributed to Class A shareholders of the Acquired Funds as part of the
Reorganizations.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
EUROPE GROWTH FUND
Class A shares............... $61 $ 95 $131 $232
Class B shares:
Assuming complete redemp-
tion at end of period..... $74 $105 $148 $238
Assuming no redemption..... $24 $ 75 $128 $238
Class D shares............... $24 $ 75 $128 $273
MH/KP GLOBAL EQUITY FUND
Class A shares............... $73 $105 $139 $235
Class B shares............... $24 $ 73 $125 $267
Class C shares............... $29 $ 88 $149 $316
COMBINED FUND
Class A shares............... $71 $100 $132 $220
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class E shares:..............
Assuming complete redemp-
tion at end of period...... $73 $100 $140 $219
Assuming no redemption..... $23 $ 70 $120 $219
Class C shares............... $12 $ 37 $ 63 $140
Class B shares............... $22 $ 69 $118 $253
--- ---- ---- ----
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the SEC; the assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of any class of the Funds'
shares.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each class of a Fund's shares will depend
upon, among other things, the level of average net assets, and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
REORGANIZATION OF GLOBAL GROWTH AND INCOME FUND INTO MH/KP GLOBAL EQUITY FUND.
The following tables show (i) shareholder transaction expenses currently
incurred by the Class A, Class B, and Class D shares of Global Growth and
Income Fund, and shareholder transaction expenses that each such class will
incur after giving effect to the Reorganization, and (ii) the current fees and
expenses incurred for the fiscal year ended October 31, 1994 by the Class A,
Class B, and Class D shares of Global Growth and Income Fund, the current
fees and expenses incurred for the fiscal year ended August 31, 1994 by the
Class A, Class B, and Class C shares of MH/KP Global Equity Fund, and pro
forma fees for MH/KP Global Equity Fund's Class A, Class E, Class C and Class
B shares after giving effect to the Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
GLOBAL GROWTH AND INCOME FUND COMBINED FUND
------------------------------------- ------------------------------------
Class A Class B/(1)/ Class D/(2)/ Class A Class E Class C Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (as a percentage
of public offering price) 4.5% NONE NONE 5.75% NONE NONE NONE
Exchange fee $5.00 $5.00 $5.00 NONE NONE NONE NONE
Maximum contingent deferred sales
charge (as a percentage of redemption
proceeds) NONE 5% NONE NONE 5% NONE NONE
</TABLE>
9
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
GLOBAL GROWTH AND MH/KP GLOBAL EQUITY FUND COMBINED FUND (ESTIMATED)
INCOME FUND (FISCAL YEAR ----------------------------- ----------------------------
ENDED 10/31/94) (FISCAL YEAR ENDED 8/31/94)
---------------------------- -----------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B/(1)/ D/(2)/ A B C A E C B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manage- 0.90% 0.90% 0.90% 1.00% 1.00% 1.00% 0.85% 0.85% 0.85% 0.85%
ment Fees
12b-1 Fees 0.25% 1.00% 1.00% 0.25% 1.00% 0.00% 0.25% 1.00% 0.00% 1.00%
Other 0.61% 0.64% 0.65% 0.33% 0.33% 0.33% 0.33% 0.35% 0.30% 0.38%
Expenses ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund
Operating
Expenses/(3)/ 1.76% 2.54% 2.55% 1.58% 2.33% 1.33% 1.43% 2.20% 1.15% 2.23%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ----------
/(1)/ Class B shares of Global Growth and Income Fund will be exchanged for
Class E shares of MH/KP Global Equity Fund.
/(2)/ Class D shares of Global Growth and Income Fund will be exchanged for
Class B shares of MH/KP Global Equity Fund.
/(3)/ For the twelve months ended February 28, 1995, the ratios of total
operating expenses as a percentage of average net assets for the Global
Growth and Income Fund were 1.82%, 2.57% and 2.59% for Class A, B and D
shares, respectively, and for MH/KP Global Equity were 1.57%, 2.34% and
1.26% for Class A, B and C shares, respectively.
EXAMPLE OF EFFECT ON FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and the expenses stated above, assuming a 5%
annual return. The fees shown below reflect a maximum initial sales charge of
5.75% of the public offering price that is charged in connection with the sale
of MH/KP Global Equity Fund's Class A shares and a maximum initial sales
charge of 4.5% of the public offering price that is charged in connection with
the sale of Global Growth and Income Fund's Class A shares. No initial sales
charge will be charged in connection with Class A Shares of MH/KP Global
Equity Fund distributed to Class A shareholders of the Acquired Funds as part
of the Reorganizations.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
GLOBAL GROWTH AND INCOME FUND
Class A shares............... $62 $ 98 $136 $243
Class B shares:
Assuming complete redemp-
tion at end of period..... $76 $109 $155 $251
Assuming no redemption..... $26 $ 79 $135 $251
Class D shares............... $26 $ 79 $136 $289
MH/KP GLOBAL EQUITY FUND
Class A shares............... $73 $105 $139 $235
Class B shares............... $24 $ 73 $125 $267
Class C shares............... $29 $ 88 $149 $316
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
COMBINED FUND
Class A shares............... $71 $100 $131 $219
Class E shares:..............
Assuming complete redemp-
tion at end of period...... $73 $100 $139 $218
Assuming no redemption..... $23 $ 70 $119 $218
Class C shares............... $12 $ 37 $ 63 $140
Class B shares............... $22 $ 69 $118 $253
--- ---- ---- ----
</TABLE>
----------
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the SEC; the assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of any class of the Funds'
shares.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each class of a Fund's shares will depend
upon, among other things, the level of average net assets, and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
IF ALL ACQUIRED FUNDS PARTICIPATE IN THE REORGANIZATIONS
The following table shows the pro forma fees for MH/KP Global Equity
Fund's Class A, Class E, Class C and Class B shares after giving effect to the
Reorganizations.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
COMBINED FUND (ESTIMATED)
------------------------------
CLASS CLASS CLASS CLASS
A E C B
<S> <C> <C> <C> <C>
Management Fees 0.85% 0.85% 0.85% 0.85%
12b-1 Fees 0.25% 1.00% 0.00% 1.00%
Other Expenses 0.26% 0.30% 0.21% 0.28%
---- ---- ---- ----
Total Fund 1.36% 2.15% 1.06% 2.13%
Operating Expenses ==== ==== ==== ====
</TABLE>
EXAMPLE OF EFFECT ON FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and the expenses stated above, assuming a 5%
annual return. The fees shown below reflect a maximum initial sales charge of
5.75% of the public offering price that is charged in connection with the sale
of MH/KP Global Equity Fund's Class A shares and a maximum initial sales
charge of 4.5% of the public offering price that is charged in connection with
the sale of Class A shares of Atlas Global Growth Fund, Europe Growth Fund and
Global Growth and Income Fund. No initial sales charge will be charged in
connection with Class A Shares of MH/KP Global Equity Fund distributed to
Class A shareholders of the Acquired Funds as part of the Reorganizations.
11
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
ATLAS GLOBAL GROWTH FUND
<S> <C> <C> <C> <C>
Class A shares............... $59 $ 87 $118 $204
Class B shares:
Assuming complete redemp-
tion at end of period..... $72 $ 99 $137 $214
Assuming no redemption..... $22 $ 69 $117 $214
Class C shares............... $12 $ 36 $ 62 $137
Class D shares............... $22 $ 69 $118 $253
EUROPE GROWTH FUND
Class A shares............... $61 $ 95 $131 $232
Class B shares: $74 $105 $148 $238
Assuming complete redemp-
tion at end of period.....
Assuming no redemption....... $24 $ 75 $128 $238
Class D shares............... $24 $ 75 $128 $273
GLOBAL GROWTH AND INCOME FUND
Class A shares............... $62 $ 98 $136 $243
Class B shares:
Assuming complete redemp-
tion at end of period...... $76 $109 $155 $251
Assuming no redemption..... $26 $ 79 $135 $251
Class D shares............... $26 $ 79 $136 $289
MH/KP GLOBAL EQUITY FUND
Class A shares............... $73 $105 $139 $235
Class B shares............... $24 $ 73 $125 $267
Class C shares............... $29 $ 88 $149 $316
COMBINED FUND
Class A shares............... $71 $ 98 $128 $212
Class E shares:..............
Assuming complete redemp-
tion at end of period...... $72 $ 97 $134 $208
Assuming no redemption..... $22 $ 67 $114 $208
Class C shares............... $11 $ 34 $ 58 $129
Class B shares............... $22 $ 67 $115 $248
</TABLE>
These Examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the SEC; the assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of any class of the Funds'
shares.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses attributable to each class of a Fund's shares will
depend upon, among other things, the level of average net assets, and the
extent to which a Fund incurs variable expenses, such as transfer agency
costs.
The above examples and tables assume all three of the Acquired Funds will
participate in the Reorganizations. If at least one, but not all, of the
Acquired Funds participate in the Reorganizations, the estimated annual fund
operating expense ratios for any such combination will not differ
significantly from those set forth in the above examples and tables.
12
<PAGE>
FORMS OF ORGANIZATION
MH/KP Investment Trust, Atlas Trust and Investment Series (each a "Trust"
and collectively, the "Trusts") are open-end management investment companies
organized as Massachusetts business trusts. Each Trust's Declaration of Trust
authorizes its trustees to create separate series, and within each series
separate classes, of an unlimited number of shares of beneficial interest, par
value $.001 per share. The Trusts do not issue share certificates. The
Trusts are also not required to (and do not) hold annual shareholder meetings.
MH/KP Global Equity Fund, a diversified series of MH/KP Investment Trust,
commenced operations on November 14, 1991. Atlas Global Growth Fund, a
diversified series of Atlas Trust, commenced operations on December 30, 1983.
Europe Growth Fund, a diversified series of Investment Series, commenced
operations on February 7, 1990. Global Growth and Income Fund, a non-
diversified series of Investment Series, commenced operations on June 9, 1989.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust of each Trust expressly disclaims, and provides
indemnification against, such liability. Accordingly, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which Mitchell Hutchins, the investment manager or
investment adviser of each Fund, believes is remote and, thus, does not pose a
material risk.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are set forth below.
There can be no assurance that any Fund will achieve its investment objective,
and each Fund's net asset value fluctuates based upon changes in the value of
its portfolio securities.
MH/KP GLOBAL EQUITY FUND. The investment objective of MH/KP Global
Equity Fund is long-term growth of capital. The Fund seeks to achieve its
objective by investing principally in foreign equity securities. Under normal
circumstances, it invests at least 65% of its total assets in no fewer than
three different countries and at least 80% of its total assets in countries or
governments represented in the Morgan Stanley Capital International Index.
MH/KP Global Equity Fund may also invest up to 35% of its assets in debt
securities rated within the four highest rating categories established by
Standard & Poor's Ratings Group ("S & P") or Moody's Investors Service, Inc.
("Moody's"), that mature in seven years or less.
ATLAS GLOBAL GROWTH FUND. The investment objective of Atlas Global
Growth Fund is to provide long-term capital appreciation. The Fund seeks to
achieve its objective by investing primarily in common stocks of issuers based
in the United States, Europe, Japan and the Pacific Basin. Normally, at least
80% of the Fund's assets are invested in common stocks and securities
convertible into common stocks. The Fund may invest up to 20% of its assets
in non-convertible debt securities of both domestic and foreign issuers, as
well as in obligations issued or guaranteed by the United States or foreign
governments, their agencies or instrumentalities. The Fund is not subject to
limits on the maturities of such debt securities, and may invest up to 5% of
its total assets in non-investment grade debt securities.
EUROPE GROWTH FUND. The investment objective of Europe Growth Fund is
long-term capital appreciation. The Fund seeks to achieve its objective by
investing principally in equity securities of issuers based in Europe.
Normally, at least 65% of the Fund's assets are invested in equity securities
of issuers based in Europe, including Eastern Europe. Up to 35% of its assets
may be invested in equity securities of issuers located in countries outside
of Europe, including the United States. The Fund may also invest up to 20% of
its assets in investment grade non-convertible debt securities of both
domestic and foreign issuers, as well as in obligations issued or guaranteed
by the United States or foreign governments, their agencies or
instrumentalities. The Fund is not subject to limits on the maturities of
such debt securities.
GLOBAL GROWTH AND INCOME FUND. The investment objective of Global Growth
and Income Fund is high total return. The Fund invests in equity, debt and
money market securities of issuers based primarily in the United States,
Europe, Japan and the Pacific Basin. There is no limit on the portion of the
Fund's assets that may be
13
<PAGE>
invested in securities of issuers based in any one country, and there are no
prescribed limits on the allocation of the Fund's investments among equity,
debt and money market securities. Under normal circumstances, the Fund
invests in securities of issuers based in at least three countries, including
the United States. The Fund may also invest in precious metal-related
securities, real-estate related securities and "zero-coupon" U.S. Treasury
securities, and up to 10% of its assets in mortgage-backed securities of
private issuers. The Fund has no limit on the amount of its assets that it
may invest in debt securities, and it may invest up to 35% of its total assets
in non-investment grade debt securities. Unlike the other Funds, which are
diversified, Global Growth and Income Fund is a non-diversified fund.
OTHER POLICIES OF THE FUNDS. Each Fund is authorized to use certain
options, futures contracts and forward currency contracts. MH/KP Global
Equity Fund, Atlas Global Growth and Europe Growth Fund employ these
instruments for hedging purposes only. Global Growth and Income employs them
for hedging purposes and may use options and futures contracts to attempt to
enhance income.
OPERATIONS OF MH/KP GLOBAL EQUITY FUND FOLLOWING THE REORGANIZATIONS
There are differences in the investment objective and policies of the
Funds. It is not expected, however, that MH/KP Global Equity Fund will revise
its investment objective or policies following the Reorganizations to reflect
those of any of the Acquired Funds. Since the investment objective and
policies of MH/KP Global Equity Fund differ in some respects from those of the
Acquired Funds, certain of the securities currently held by the Acquired Funds
may need to be sold rather than transferred. If the Reorganizations are
implemented, the Acquired Funds will sell any assets that are inconsistent
with the investment objective and policies of MH/KP Global Equity Fund prior
to the effective time of the Reorganizations, and the proceeds thereof will be
held in temporary investments or reinvested in assets that qualify to be held
by MH/KP Global Equity Fund. The necessity for the Acquired Funds to dispose
of assets prior to the effective time of the Reorganizations may result in
selling securities at a disadvantageous time and could result in the Acquired
Funds realizing losses that would not otherwise have been realized.
Following the Reorganizations, MH/KP Global Equity Fund will change its
name to "PaineWebber Global Equity Fund." The trustees and officers of MH/KP
Investment Trust, and MH/KP Global Equity Fund's investment manager, sub-
adviser, distributor and other outside agents, will continue to serve the Fund
in their current capacities after the Reorganizations. Ralph R. Layman, who
is currently the portfolio manager for the Funds, except with respect to the
debt and money market investments of Global Growth and Income Fund, and who
has been primarily responsible for the day-to-day portfolio management of the
MH/KP Global Equity Fund since July 1991, would continue as the portfolio
manager of PaineWebber Global Equity Fund following the Reorganizations. Mr.
Layman is an Executive Vice President of GEIM and has been employed by GEIM as
the Chief Investment Officer of MH/KP Global Equity Fund since July 1991.
Prior to July 1991, Mr. Layman served as Executive Vice President, partner and
portfolio manager of Northern Capital Management Co.
PURCHASES AND REDEMPTIONS
Shares of each Fund are available through PaineWebber and its
correspondent firms or, for investors who are not clients of PaineWebber,
through each Fund's transfer agent, PFPC Inc. ("Transfer Agent"). The minimum
initial investment in MH/KP Global Equity Fund is $1,000; each additional
investment must be $50 or more, except that for individual retirement accounts
("IRAs"), other tax-qualified retirement plans and accounts established
pursuant to the Uniform Gift/Transfer to Minors Act, the minimum initial
investment is $250 and the minimum subsequent investment is $1.00. The
minimum initial investment for each Acquired Fund is also $1,000; each
subsequent investment must be $100 or more. The minimums may be waived or
reduced for investments by employees of PaineWebber or its affiliates, certain
pension plans and retirement accounts and participants in a Fund's automatic
investment plan.
The Class A shares of each Fund are all sold subject to an initial sales
charge that varies with the size of the purchase. The maximum initial sales
charge for Class A shares of MH/KP Global Equity Fund is 5.75% of the public
offering price, while the maximum initial sales charge for each Acquired Fund
is 4.5% of the public offering price. The Class A shares of MH/KP Global
Equity Fund that would be distributed to Class A shareholders of the Acquired
Funds in connection with the Reorganizations would not be subject to an
initial sales charge.
14
<PAGE>
The Class B shares of each Acquired Fund are sold subject to a maximum
contingent deferred sales charge ("CDSC") of 5% of redemption proceeds, which
declines to zero after six years, when such Class B shares automatically
convert into Class A shares of those respective Funds. Class E shares of
MH/KP Global Equity Fund, to be issued as part of the Reorganizations, will be
subject to a CDSC identical to that imposed on Class B shares of the Acquired
Funds and will convert into Class A shares of that Fund after six years.
Accordingly, following the Reorganizations, the former Class B shareholders of
the Acquired Funds would remain subject to the maximum 5% CDSC and six-year
schedule of reducing CDSCs in effect prior to the Reorganizations with respect
to the Class E shares distributed to them in the Reorganizations. All Class B
shareholders of the Acquired Funds will be credited for the period of time
from the original date of purchase of their shares for purposes of determining
the amount of their CDSC, if any, payable with respect to redemptions of their
new Class E shares. As is currently the case for the Acquired Funds, no CDSC
will be applied to redemptions that represent reinvested dividends or capital
gain distributions, nor will Class A shares so acquired be subject to any
initial sales charge.
The Class D shares of each Acquired Fund, which will be exchanged for
Class B shares of MH/KP Global Equity Fund in the Reorganizations, are sold
without initial sales charges or CDSCs. Class B and Class C shares of MH/KP
Global Equity Fund, and Class C shares of Atlas Global Growth Fund, are sold
without initial sales charges or CDSC's.
Shares of each class of each Fund may be redeemed at their particular net
asset value (subject to any applicable CDSC), and redemption proceeds will be
paid within seven days of the receipt of a redemption request. Clients of
PaineWebber or its correspondent firms may redeem shares held in non-
certificate form through PaineWebber or its correspondent firms; all other
shareholders must redeem through the Transfer Agent.
If a Reorganization is approved with respect to an Acquired Fund,
purchases of all classes of its shares will cease on [July 15, 1995], so that
its shares will no longer be available for purchase or exchange starting on
that date through the Closing Date. If the Meeting with respect to an
Acquired Fund is adjourned and the Reorganization involving it is approved on
a later date, shares will no longer be available for purchase or exchange on
the business day following the date on which the Reorganization is approved
and all contingencies have been met. Redemptions of the Acquired Fund's
shares and exchanges of such shares for shares of any other PaineWebber fund
may be effected through the Closing Date.
EXCHANGES
Shares of each Fund may be exchanged for shares of the corresponding
class of other PaineWebber and MH/KP funds, and shares of each Fund may be
acquired through an exchange of shares of the corresponding Class of other
PaineWebber and MH/KP funds, as provided in the prospectus of each Fund. No
initial sales charge is imposed on the shares being acquired, and no CDSC is
imposed on the shares being disposed of, through an exchange. However, a CDSC
may apply to redemptions of Class B or Class E shares acquired through an
exchange. Exchanges may be subject to minimum investment and other
requirements of the fund into which exchanges are made. As noted above, the
$5.00 service fee currently imposed on each exchange of shares of the Acquired
Funds for shares of any other PaineWebber or MH/KP fund will not be imposed
after [May __, 1995] with respect to exchanges by former shareholders of an
Acquired Fund of MH/KP Global Equity Fund shares with shares of another
PaineWebber or MH/KP fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from each Fund's net investment income, if any, are distributed
annually. Any net capital gain (the excess of net long-term capital gain over
net short-term capital loss) and net short-term capital gain realized from the
sale of portfolio securities, and any net realized gains from foreign currency
transactions, are also distributed annually. Shareholders of each Fund may
reinvest dividends and other distributions in additional shares on the payment
date at those shares' net asset value that day or receive them in cash. Each
Fund may make additional distributions if necessary to avoid a 4% excise tax
on certain undistributed ordinary income and capital gain. On or before the
Closing Date, each Acquired Fund will declare as a dividend substantially all
of its net investment income, net capital gain, net short-term capital gain
and net foreign currency gains in order to maintain its tax status as a
regulated investment company.
15
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
Atlas Trust and Investment Series each has received an opinion of
Kirkpatrick & Lockhart LLP, its counsel, and MH/KP Investment Trust has
received an opinion of Willkie Farr & Gallagher, its counsel, to the effect
that each Reorganization will constitute a tax-free reorganization within the
meaning of section 368(a)(1)(C) (section 368(a)(1)(D), in the case of the
Reorganization involving Atlas Global Growth Fund) of the Internal Revenue
Code of 1986, as amended ("Code"). Accordingly, no gain or loss will be
recognized to any of the Funds or their shareholders as a result of the
Reorganizations. See "The Proposed Transactions--Federal Income Tax
Considerations," page [21]. In addition, each Fund has received an opinion of
Willkie Farr & Gallagher to the effect that the creation of Class E shares of
MH/KP Global Equity Fund, which are to be issued to Class B shareholders of
each Acquired Fund, will not affect the classification of MH/KP Global Equity
Fund as a regulated investment company and that distributions thereon will not
be considered "preferential dividends" for federal income tax purposes.
COMPARISON OF PRINCIPAL RISK FACTORS
Because MH/KP Global Equity Fund's investment objective and policies are
generally similar to those of the Acquired Funds, the investment risks are
generally similar. Such risks are generally those typically associated with
investing in a global equity fund. See the prospectus of MH/KP Global Equity
Fund, which accompanies this proxy statement, for a more detailed discussion
of such risks.
FOREIGN SECURITIES. Each Fund may invest in foreign securities.
Investing in foreign securities involves special risks, which include possible
adverse political and economic developments abroad, differing regulatory
systems and differing characteristics of foreign economies and markets, as
well as the fact that there is often less information publicly available about
foreign issuers.
The foreign securities in which the Funds may invest include securities
of issuers located in emerging market countries. The risks of investing in
foreign securities may be greater with respect to securities of issuers in, or
denominated in the currencies of, emerging market countries. The securities
markets of emerging markets countries are substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
U.S. and other developed countries. Disclosure and regulatory standards in
many respects are less stringent in emerging market countries than in the U.S.
and other major markets. Investing in local markets, particularly in emerging
market countries, may require the Funds to adopt special procedures, seek
local government approvals or take other actions, each of which may involve
additional costs to the Funds. Certain emerging market countries may also
restrict investment opportunities in issuers in industries deemed important to
national interests.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in
foreign currency exchange rates may affect each Fund's net asset value, the
value of dividends and interest earned, gains and losses realized on the sale
of securities and net investment income and capital gains, if any, to be
distributed to shareholders by a Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of Fund assets denominated in that
currency will increase; correspondingly, if the value of a foreign currency
declines against the U.S. dollar, the value of Fund assets denominated in that
currency will decrease. The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in the currency exchange
markets, international balances of payments, speculation and other economic
and political conditions. In addition, some foreign currency values may be
volatile and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets. Any of these
factors could adversely affect a Fund.
DEBT SECURITIES. Each Fund is permitted to purchase investment grade
debt securities. Securities rated BBB by S&P or Baa by Moody's are investment
grade, but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity for such securities to make
principal and interest payments than is the case for higher-rated securities.
Global Growth and Income Fund may invest up to 35% of its net assets in debt
securities rated below investment grade but not lower than B- by S&P, B by
Moody's or comparably rated by another nationally recognized statistical
rating organization ("NRSRO") and Atlas Growth Fund may invest up to 5% of its
total assets in debt securities rated as low as B+ by S&P, B1 by Moody's or
comparably rated by another NRSRO. These securities are deemed by those
NRSROs to be predominantly speculative with respect to the issuer's capacity
to pay
16
<PAGE>
interest and repay principal and may involve major risk exposure to adverse
conditions. Such securities are commonly referred to as "junk bonds." Each
Fund is also permitted to purchase debt securities that are not rated by a
NRSRO but which GEIM determines to be of comparable quality to rated
securities in which the Fund may invest. Such securities are included in the
computation of any percentage limitations applicable to the comparably-rated
securities.
The market value of debt securities generally varies inversely with
interest rate changes. Ratings of debt securities represent the NRSROs'
opinions regarding their quality, are not a guarantee of quality and may be
lowered after a Fund has acquired the security. GEIM would consider such an
event in determining whether the Fund should continue to hold the security,
but is not required to dispose of it. However, in the event that, due to a
downgrade of one or more debt securities, an amount in excess of 35% of Global
Growth and Income Fund's net assets is held in securities rated below
investment grade and comparable unrated securities, GEIM will engage in an
orderly disposition of such securities to the extent necessary to ensure that
the Fund's holdings of such securities do not exceed 35% of the Fund's net
assets.
Lower-rated debt securities generally offer a higher current yield than
that available for higher grade issues, but they involve higher risks, in that
they are especially subject to adverse changes in general economic conditions
and in the industries in which the issuers are engaged, to changes in the
financial condition of the issuers and to price fluctuations in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress,
which could adversely affect their ability to make payments of interest and
principal and increase the possibility of default. In addition, such issuers
may not have more traditional methods of financing available to them, and may
be unable to repay debt at maturity by refinancing. The risk of loss due to
default by such issuers is significantly greater because such securities
frequently are unsecured and subordinated to the prior payment of senior
indebtedness.
The market for lower-rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower-rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated debt securities rose
dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk
that holders of such securities could lose a substantial portion of their
value as a result of the issuers' financial restructuring or default. There
can be no assurance that such declines will not recur. The market for lower-
rated debt securities generally is thinner and less active than that for
higher-quality securities, which may limit a Fund's ability to sell such
securities at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of lower-
rated securities, especially in a thinly traded market.
ADDITIONAL RISKS ASSOCIATED WITH GLOBAL GROWTH AND INCOME FUND. The
Global Growth and Income Fund may invest in mortgage-related securities of
private U.S. and foreign issuers, precious metal-related securities, and real-
estate related securities. Such securities subject Global Growth and Income
Fund to certain additional risks.
While MH/KP Global Equity Fund, Atlas Global Growth Fund and Europe
Growth Fund are "diversified" as that term is defined in the 1940 Act, Global
Growth and Income Fund is "non-diversified" (as defined in the 1940 Act). To
the extent that Global Growth and Income Fund's portfolio at times may include
the securities of a smaller number of issuers than if it were "diversified,"
the Fund will at such times be subject to greater risk with respect to its
portfolio securities than an investment company that invests in a broader
range of securities, in that changes in the financial condition or market
assessment of a single issuer may cause greater fluctuation in the Fund's
total return and the price of Fund shares.
HEDGING STRATEGIES. Each Fund may use options, futures contracts and
forward currency contracts. There can be no assurance, however, that any
strategy utilizing these instruments will succeed. If GEIM incorrectly
forecasts interest rates, market values or other economic factors utilizing a
strategy for a Fund, the Fund might have been in a better position had the
Fund not hedged at all. The use of these instruments involve certain special
risks, including (1) the fact that skills needed to use hedging instruments
are different from those needed to select the Funds' securities, (2) possible
imperfect correlation, or even no correlation, between price movements of
hedging instruments and price movements of the investments being hedged, (3)
the fact that, while hedging strategies can
17
<PAGE>
reduce the risk of loss, they can also reduce the opportunity for gain, or
even result in losses, by offsetting favorable price movements in hedged
investments, and (4) the possible inability of a Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do
so, or a possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions and the possible
inability of a Fund to close out or to liquidate its hedged position.
THE PROPOSED TRANSACTIONS
REORGANIZATION PLANS
The terms and conditions under which the proposed transactions may be
consummated are set forth in the Reorganization Plans. Significant provisions
of the Reorganization Plans are summarized below; however, this summary is
qualified in its entirety by reference to the form of the Reorganization Plans
which is attached as Appendix A to this Proxy Statement.
Each Reorganization Plan contemplates (a) MH/KP Global Equity Fund
acquiring on the Closing Date the assets of an Acquired Fund in exchange
solely for its shares and its assumption of the Acquired Fund's liabilities
and (b) the constructive distribution of such shares to the shareholders of
the Acquired Fund.
The assets of each Acquired Fund to be acquired by MH/KP Global Equity
Fund include all cash, cash equivalents, securities, receivables and other
property owned by the Acquired Fund. MH/KP Global Equity Fund will assume
from each Acquired Fund all debts, liabilities, obligations and duties of such
Fund of whatever kind or nature; provided, however, that each Acquired Fund
will use its best efforts, to the extent practicable, to discharge all of its
known debts, liabilities, obligations and duties prior to the Closing Date.
MH/KP Global Equity Fund also will deliver its shares to each Acquired Fund,
which then will be constructively distributed to the Acquired Fund's
shareholders.
The value of an Acquired Fund's assets to be acquired, and the amount of
the Acquired Fund's liabilities to be assumed, by MH/KP Global Equity Fund and
the net asset value of Class A, Class B, Class C and Class E share of MH/KP
Global Equity Fund will be determined as of the close of regular trading on
the New York Stock Exchange, Inc. ("NYSE") on the Closing Date. Where market
quotations are readily available, portfolio securities will be valued based
upon such market quotations, provided such quotations adequately reflect, in
Mitchell Hutchins' or GEIM's judgment, fair value of the security. Where such
market quotations are not readily available, such securities will be valued
based upon appraisals received from a pricing service using a computerized
matrix system, or based upon appraisals derived from information concerning
the security or similar securities received from recognized dealers in those
securities. The amortized cost method of valuation generally will be used to
value debt instruments with 60 days or less remaining to maturity, unless
MH/KP Investment Trust's board of trustees (with respect to MH/KP Global
Equity Fund), Atlas Trust's board of trustees (with respect to Atlas Global
Growth Fund), or Investment Series' board of trustees (with respect to Europe
Growth Fund and Global Growth and Income Fund) determines that this does not
represent fair value. All other securities and assets will be valued at fair
value as determined in good faith by or under the direction of each Trust's
board of trustees, as applicable. All investments quoted in foreign currencies
will be valued in U.S. dollars on the basis of the foreign currency exchange
rates prevailing at the time such valuation is determined by each Fund's
custodian.
On, or as soon as practicable after, the Closing Date, each Acquired Fund
will distribute to its shareholders of record the shares of MH/KP Global
Equity Fund it received, by class, so that each Acquired Fund shareholder will
receive a number of full and fractional shares of the Corresponding Class of
MH/KP Global Equity Fund shares equal in value to the shareholder's holdings
in the Acquired Fund; each Acquired Fund will be terminated as soon as
practicable thereafter. Such distribution will be accomplished by opening
accounts on the books of MH/KP Global Equity Fund in the names of Acquired
Fund shareholders and by transferring thereto the shares of each Class
previously credited to the account of each Acquired Fund on those books.
Fractional shares in each Corresponding Class of shares of MH/KP Global Equity
Fund will be rounded to the third decimal place.
Accordingly, immediately after each Reorganization, each former
shareholder of the participating Acquired Fund will own shares of the
Corresponding Class of MH/KP Global Equity Fund equal to the value of that
18
<PAGE>
shareholder's shares of the Acquired Fund immediately prior to the
Reorganization. Moreover, because shares of each Corresponding Class of MH/KP
Global Equity Fund will be issued at net asset value in exchange for the net
assets applicable to the Class of each Acquired Fund, the aggregate value of
each Corresponding Class of MH/KP Global Equity Fund shares so issued will
equal the aggregate value of the class of the Acquired Fund shares. The net
asset value per share of MH/KP Global Equity Fund will be unchanged by the
transaction. Thus, the Reorganizations will not result in a dilution of any
shareholder interest.
Any transfer taxes payable upon issuance of shares of MH/KP Global Equity
Fund in a name other than that of the registered holder of the shares on the
books of an Acquired Fund shall be paid by the person to whom such shares are
to be issued as a condition of such transfer. Any reporting responsibility of
an Acquired Fund will continue to be its responsibility up to and including
the Closing Date and such later date on which such Fund is terminated.
The cost of the Reorganizations, including professional fees and the cost
of soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation,
will be borne by the Funds in proportion to their respective net assets.
Mitchell Hutchins recommended this method of expense allocation to the
trustees of the Trusts. Mitchell Hutchins based its recommendations on its
belief that the method is fair because, for the reasons discussed under
"Reasons for the Reorganizations," the transactions have the potential to
benefit all Funds. The trustees of each Trust considered the expense
allocation method in approving the Reorganizations and in finding that the
Reorganizations are in the best interests of each Fund.
The consummation of each Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived
by each Trust. In addition, each Reorganization will not be consummated
unless [the board of trustees of MH/KP Investment Trust, on behalf of MH/KP
Global Equity Fund, and] MH/KP Global Equity Fund's shareholders approve of
the decrease in the rate of the investment advisory fee and the sub-advisory
fee paid to GEIM by Mitchell Hutchins. Each Reorganization Plan may be
amended in any mutually agreeable manner, except that no amendment may be made
subsequent to the Meeting that has a material adverse effect on the
shareholders' interests.
REASONS FOR THE REORGANIZATIONS
The board of trustees of each of Atlas Trust and Investment Series,
including a majority of the Independent Trustees thereof, has concluded, in
each instance, that the Reorganization is in the best interest of the
participating Acquired Fund, that the terms of the Reorganization are fair and
reasonable and that the interests of such Acquired Fund's shareholders will
not be diluted as a result of the Reorganization. The board of trustees of
MH/KP Investment Trust, including a majority of its Independent Trustees, has
concluded that each Reorganization is in the best interest of MH/KP Global
Equity Fund, that the terms of the Reorganization are fair and reasonable and
that the interests of MH/KP Global Equity Fund's shareholders will not be
diluted as a result of the Reorganization.
In considering the Reorganizations, the boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the investment performance of the Funds;
(3) the effect of the Reorganizations on the expense ratio of MH/KP
Global Equity Fund relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganizations;
(5) the tax consequences of the Reorganizations;
(6) possible alternatives to the Reorganizations, including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganizations to other persons,
especially Mitchell Hutchins and PaineWebber.
The Reorganizations were recommended by Mitchell Hutchins to the board of
trustees of MH/KP Investment Trust at a meeting of that board held on April
26, 1995 and to the boards of trustees of Atlas Trust and
19
<PAGE>
Investment Series at a combined meeting of those boards held on April 28,
1995. The trustees were advised by Mitchell Hutchins that the Funds have
similar investment objectives and generally similar investment policies, with
the material differences noted. In approving the proposed transactions, the
trustees took account of Mitchell Hutchins' opinion that MH/KP Global Equity
Fund's objective of long-term growth of capital by investing principally in
foreign equity securities remains an appropriate one to offer to investors as
part of an overall investment strategy. Mitchell Hutchins further advised the
trustees that, while past performance is no guarantee of future results, MH/KP
Global Equity Fund had experienced better investment performance than each
Acquired Fund during the recent time period. Mitchell Hutchins further noted
that the investment policies of MH/KP Global Equity Fund differ from those of
Europe Growth Fund in that MH/KP Equity Fund does not invest primarily in
Europe and further that, unlike Global Growth and Income Fund, MH/KP Global
Equity Fund may not invest without limitation in debt and money market
securities.
In considering the proposed transactions, the trustees were advised by
Mitchell Hutchins that combining the Funds would result in lower expenses
borne by the shareholders of each Acquired Fund as a percentage of net assets
(with the exception of Class A shareholders of Atlas Global Growth Fund, who,
if only Atlas Global Growth participates in the Reorganizations, would be
subject to comparable total operating expenses). The trustees were further
advised that the expenses of MH/KP Global Equity Fund would be likely to
decrease as a result of the Reorganizations because of the increased size of
the combined Fund. In recommending the Reorganizations, Mitchell Hutchins
advised the boards of trustees that the proposed investment advisory fee
following the Reorganizations, subject to approval by [the board of trustees
of MH/KP Investment Trust, on behalf of MH/KP Global Equity Fund, and by]
MH/KP Global Equity Fund's shareholders, would be lower than that currently in
effect for MH/KP Global Equity Fund and Global Growth and Income Fund, the
same as that currently in effect for Europe Growth Fund and higher than that
currently in effect for Atlas Global Growth Fund. In considering the fee
increase for Atlas Global Growth Fund, Mitchell Hutchins advised the board of
Atlas Trust that since the adoption of Atlas Global Growth Fund's current fee
structure nearly twelve years ago, the cost and complexity of managing global
funds have increased in the face of a rapidly changing world economy. Because
of international currency changes and the volatility of global markets,
integrating tax, pricing and accounting functions of global funds has become
more complex and time-consuming. These changes necessitate increases in
staffing, the addition of more sophisticated equipment and technology, and
higher travel costs.
In addition, the boards of trustees were advised that Atlas Global Growth
Fund Class A shareholders will pay a slightly higher 12b-1 service fee, equal
to 0.25% of MH/KP Global Equity Fund's average daily net assets, following the
Reorganizations. Those shareholders currently pay a 12b-1 service fee of
0.20% of Atlas Global Growth Fund's average daily net assets attributable to
Class A, which reflects a blended annual rate of 0.25% and 0.15% of those
assets with respect to shares sold on or after December 2, 1988 and shares
sold prior to that date, respectively. In considering the slightly higher
12b-1 service fee assessed on Class A shares, Mitchell Hutchins noted that the
12b-1 service fee currently assessed is expected to increase over time, absent
any Reorganizations, and further noted the overall lower or comparable expense
ratio expected to result from the Reorganizations.
THE BOARDS OF TRUSTEES RECOMMEND THAT THE
SHAREHOLDERS OF THE ACQUIRED FUNDS VOTE "FOR" THE
THE PROPOSED REORGANIZATIONS
DESCRIPTION OF SECURITIES TO BE ISSUED
MH/KP Investment Trust is registered with the SEC as an open-end management
investment company. Its trustees are authorized to issue an unlimited number of
shares of beneficial interest of separate series (par value $.001 per share).
The trustees have established MH/KP Global Equity Fund as one of MH/KP
Investment Trust's five series and have authorized the public offering of four
Classes of shares of MH/KP Global Equity Fund. Class E shares were created for
the purpose of facilitating the Reorganizations. Each share in a class
represents an equal proportionate interest in MH/KP Global Equity Fund with each
other share in that class. Shares of MH/KP Global Equity Growth Fund entitle
their holders to one vote per full share and fractional votes for fractional
shares held, except that each class of shares has exclusive voting rights on
matters pertaining to the plan of distribution.
On the Closing Date, MH/KP Global Equity Fund will have outstanding four
classes of shares, designated Class A, Class B, Class C and Class E shares.
Each Class represents interests in the same assets of the Fund. The
20
<PAGE>
Classes differ as follows: (1) each Class has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class A shares are subject to an
initial sales charge; (3) Class B shares bear ongoing distribution expenses; (4)
Class C shares have no initial sales charge, bear no distribution fees, but may
be purchased only by certain categories of purchasers; (5) Class E shares bear
ongoing distribution fees, are subject to a CDSC upon certain redemptions and
automatically convert to Class A shares approximately six years after issuance;
and (6) each class may bear differing amounts of certain class-specific
expenses. Each share of each class of MH/KP Global Equity Fund is entitled to
participate equally in dividends and other distributions and the proceeds of any
liquidation, except that because of the higher expenses resulting from the
distribution fees borne by the Class B and Class E shares, dividends on those
shares are expected to be lower than those on Class A and Class C shares of the
Fund. Dividends on each class also might be affected differently by the
allocation of other class-specific expenses. Class C shares, which may be
offered only to a limited class of investors, are subject to neither an initial
or contingent deferred sales charge nor ongoing service or distribution fees.
However, Class C shareholders who are participants in the INSIGHT program pay an
advisory fee to Mitchell Hutchins at the maximum annual rate of 1.50% of average
daily value of assets held through the program.
MH/KP Investment Trust does not hold annual meetings of shareholders. There
will normally be no meetings of shareholders for the purpose of electing
trustees unless fewer than a majority of the trustees holding office has been
elected by shareholders, at which time the trustees then in office will call a
shareholders' meeting for the election of trustees. Under the 1940 Act,
shareholders of record of at least two-thirds of the outstanding shares of an
investment company may remove a trustee by votes cast in person or by proxy at a
meeting called for that purpose. The trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the shareholders of record holding
at least 10% of the Trust's outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of an Acquired Fund's assets for shares of MH/KP Global Equity
Fund and MH/KP Global Equity Fund's assumption of that Acquired Fund's
liabilities is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a)(1)(C) (section 368(a)(1)(D), in the case of
the Reorganization involving Atlas Global Growth Fund) of the Code. With respect
to each Reorganization, Atlas Trust or Investment Series, as applicable, has
received an opinion of Kirkpatrick & Lockhart LLP, its counsel, and MH/KP
Investment Trust has received an opinion of Willkie Farr & Gallagher, its
counsel, each substantially to the effect that --
(i) MH/KP Global Equity Fund's acquisition of the Acquired Fund's assets
in exchange solely for MH/KP Global Equity Fund shares and MH/KP Global
Equity Fund's assumption of the Acquired Fund's liabilities, followed by
the Acquired Fund's distribution of those shares to its shareholders
constructively in exchange for their Acquired Fund shares, will
constitute a "reorganization" within the meaning of section 368(a)(1)(C)
[or, if applicable, section 368(a)(1)(D)] of the Code, and each Fund will
be "a party to a reorganization" within the meaning of section 368(b) of
the Code;
(ii) No gain or loss will be recognized to the Acquired Fund on the
transfer to MH/KP Global Equity Fund of its assets in exchange solely for
MH/KP Global Equity Fund shares and MH/KP Global Equity Fund's assumption
of the Acquired Fund's liabilities or on the subsequent distribution of
those shares to the Acquired Fund's shareholders in constructive exchange
for their Acquired Fund shares;
(iii) No gain or loss will be recognized to MH/KP Global Equity Fund on
its receipt of the assets in exchange solely for MH/KP Global Equity Fund
shares and its assumption of the Acquired Fund's liabilities;
(iv) MH/KP Global Equity Fund's basis for the transferred assets will be
the same as the basis thereof in the Acquired Fund's hands immediately
prior to the Reorganization, and MH/KP Global Equity Fund's holding
period for those assets will include the Acquired Fund's holding period
therefor;
(v) An Acquired Fund shareholder will recognize no gain or loss on the
constructive exchange of all its Acquired Fund shares solely for MH/KP
Global Equity Fund shares pursuant to the Reorganization; and
21
<PAGE>
(vi) An Acquired Fund shareholder's basis for the MH/KP Global Equity
Fund shares to be received by it in the Reorganization will be the same
as the basis for its Acquired Fund shares to be constructively
surrendered in exchange for those MH/KP Global Equity Fund shares, and
its holding period for those MH/KP Global Equity Fund shares will include
its holding period for those Acquired Fund shares, provided they are held
as capital assets by the shareholder on the Closing Date.
Each such opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder (regarding the recognition
of gain or loss and/or the determination of the basis or holding period) or
with respect to any asset (including certain options, futures and forward
contracts) as to which any unrealized gain or loss is required to be
recognized for federal income tax purposes at the end of a taxable year (or on
the termination or transfer thereof) under a mark-to-market system of
accounting.
Utilization by MH/KP Global Equity Fund after the Reorganizations of pre-
Reorganization capital losses realized by an Acquired Fund could be subject to
limitation in future years under the Code.
Shareholders of an Acquired Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganizations in light of
their individual circumstances. Because the foregoing discussion only relates
to the federal income tax consequences of the Reorganizations, those
shareholders also should consult their tax advisers as to state and local tax
consequences, if any, of the Reorganizations.
22
<PAGE>
CAPITALIZATION
The following tables show the capitalization of the Funds as of February
28, 1995 and on a pro forma combined basis (unaudited) giving effect to the
Reorganizations, and assuming that the Acquired Funds indicated participate in
the Reorganizations.
If only Atlas Global Growth Fund participates in a Reorganization:
<TABLE>
<CAPTION>
MH/KP GLOBAL ATLAS GLOBAL PRO FORMA
EQUITY GROWTH FUND COMBINED
FUND ------------ ------------
-------------------
<S> <C> <C> <C>
Net Assets
Class A........... $145,103,774 $155,965,070 $301,068,844
Class B/(1)/...... $ 27,483,775 $119,843,249 $ 80,787,291
Class C........... $ 28,047,070 $ 32,992,059 $ 61,039,129
Class D/(2)/...... --- $ 53,303,516 ---
Class E........... --- --- $119,843,249
NAV Per Share
Class A........... $ 14.26 $ 13.24 $ 14.26
Class B/(1)/...... $ 14.05 $ 12.92 $ 14.05
Class C........... $ 14.33 $ 13.34 $ 14.33
Class D/(2)/...... --- $ 13.00 ---
Class E........... --- --- $ 14.05
Shares Outstanding
Class A........... 10,173,570 11,780,515 21,111,439
Class B/(1)/...... 1,955,883 9,276,567 5,750,220
Class C........... 1,956,969 2,474,091 4,260,135
Class D/(2)/...... --- 4,100,803 ---
Class E........... --- --- 8,530,480
------------ ------------ ------------
</TABLE>
/(1)/ Class B shares of Atlas Global Growth Fund will be exchanged for Class E
shares of MH/KP Global Equity Fund.
/(2)/ Class D shares of Atlas Global Growth Fund will be exchanged for Class B
shares of MH/KP Global Equity Fund.
23
<PAGE>
If only Europe Growth Fund participates in a Reorganization:
<TABLE>
<CAPTION>
MH/KP GLOBAL EUROPE PRO FORMA
EQUITY FUND GROWTH FUND COMBINED
------------ ----------- ------------
<S> <C> <C> <C>
Net Assets
Class A........... $145,103,774 $64,289,551 $209,393,325
Class B/(1)/...... $ 27,483,775 $30,787,402 $ 37,908,739
Class C........... $ 28,047,070 --- $ 28,047,070
Class D/(2)/...... --- $10,424,964 ---
Class E........... --- --- $ 30,787,402
NAV Per Share
Class A........... $ 14.26 $ 8.78 $ 14.26
Class B/(1)/...... $ 14.05 $ 8.58 $ 14.05
Class C........... $ 14.33 --- $ 14.33
Class D/(2)/...... --- $ 8.63 ---
Class E........... --- --- $ 14.05
Shares Outstanding
Class A........... 10,173,570 7,323,860 14,682,931
Class B/(1)/...... 1,955,883 3,589,075 2,698,010
Class C........... 1,956,969 -- 1,956,969
Class D/(2)/...... --- 1,208,214 ---
Class E........... --- --- 2,191,763
------------ ----------- ------------
</TABLE>
/(1)/ Class B shares of Europe Growth Fund will be exchanged for Class E
shares of MH/KP Global Equity Fund.
/(2)/ Class D shares of Europe Growth Fund will be exchanged for Class B
shares of MH/KP Global Equity Fund.
24
<PAGE>
If only Global Growth and Income Fund participates in a Reorganization:
<TABLE>
<CAPTION>
MH/KP GLOBAL GLOBAL GROWTH AND PRO FORMA
EQUITY FUND INCOME FUND COMBINED
------------ ----------------- ---------
<S> <C> <C> <C>
Net Assets
Class A........... $145,103,774 $47,193,793 $192,297,567
Class B/(1)/...... $ 27,483,775 $26,834,856 $ 35,982,264
Class C........... $ 28,047,070 -- $ 28,047,070
Class D/(2)/...... -- $ 8,498,489 ---
Class E........... -- -- $ 26,834,856
NAV Per Share
Class A........... $ 14.26 $ 9.62 $ 14.26
Class B/(1)/...... $ 14.05 $ 9.44 $ 14.05
Class C........... $ 14.33 -- $ 14.33
Class D/(2)/...... -- $ 9.45 --
Class E........... -- -- $ 14.05
Shares Outstanding
Class A........... $ 10,173,570 4,907,103 13,483,972
Class B/(1)/...... 1,955,883 2,842,894 2,560,764
Class C........... 1,956,969 -- 1,956,969
Class D/(2)/...... -- 899,321 ---
Class E........... -- -- 1,910,101
------------ ----------- ------------
</TABLE>
- ----------
/(1)/ Class B shares of Global Growth and Income Fund will be exchanged for
Class E shares of MH/KP Global Equity Fund.
/(2)/ Class D shares of Global Growth and Income Fund will be exchanged for
Class B shares of MH/KP Global Equity Fund.
25
<PAGE>
If all Acquired Funds participate in the Reorganizations:
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
------------
Net Assets
<S> <C>
Class A........... $412,552,188
Class B/(1)/...... $ 99,710,744
Class C........... $ 61,039,129
Class D/(2)/...... ---
Class E........... $177,465,507
NAV Per Share
Class A........... $ 14.26
Class B/(1)/...... $ 14.05
Class C........... $ 14.33
Class D/(2)/...... ---
Class E........... $ 14.05
Shares Outstanding
Class A........... 28,931,202
Class B/(1)/...... 7,097,228
Class C........... 4,260,135
Class D/(2)/...... ---
Class E........... 12,632,344
</TABLE>
_________________________________________
/(1)/ Class B shares of Atlas Global Growth Fund, Europe Growth Fund and
Global Growth and Income Fund will be exchanged for Class E shares of
MH/KP Global Equity Fund.
/(2)/ Class D shares of Atlas Global Growth Fund, Europe Growth Fund and
Global Growth and Income Fund will be exchanged for Class B shares of
MH/KP Global Equity Fund.
26
<PAGE>
ADDITIONAL INFORMATION ABOUT MH/KP GLOBAL EQUITY FUND
FINANCIAL HIGHLIGHTS
The financial statements and notes and the financial information in the
tables below have been audited in conjunction with the annual audits of the
financial statements of MH/KP Global Equity Fund, and the semi-annual report
to shareholders for the six-month period ended February 28, 1995 with respect
to the Fund, by Deloitte & Touche LLP. Financial statements for the fiscal
year ended August 31, 1994 and the report of independent auditors are included
in the Statement of Additional Information.
Selected data for a share of beneficial interest outstanding throughout
each period is presented below:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
FOR THE SIX FOR THE YEARS ENDED FOR THE PERIOD
MONTHS ENDED AUGUST 31, NOVEMBER 14, 1991+
FEBRUARY 28, 1995 1994 1993 TO AUGUST 31, 1992
----------------- ---- ---- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 16.98 $ 14.55 $ 12.87 $ 12.00
Income (loss) from investment operations:
Net investment income (loss)....................... (0.02) 0.01 0.03 0.09
Net realized and unrealized gains (losses) (1.44) 2.63 1.89 0.78
from investment and foreign currency --------- -------- -------- --------
activities........................................
Total income (loss) from investment operations........ (1.46) 2.64 1.92 0.87
--------- -------- -------- --------
Dividends and distributions:
Dividends from net investment income............... -- -- (0.08) --
Distributions from net realized gains.............. (1.26) (0.21) (0.16) --
--------- -------- -------- --------
Total dividends and distributions.................. (1.26) (0.21) (0.24) --
--------- -------- -------- --------
Net asset value, end of period........................ $ 14.26 $ 16.98 $ 14.55 $ 12.87
========= ======== ======== ========
Total return (1)...................................... (8.67)% 18.23% 15.24% 7.25%
========= ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period (000's)..................... $ 145,104 $185,493 $156,451 $113,070
Ratio of expenses to average net assets............... 1.65%* 1.58% 1.53% 1.68%*
Ratio of net investment income (loss) to average net (0.28)%* 0.07% 0.22% 0.93%*
assets...............................................
Portfolio turnover.................................... 32.45% 50.73% 56.35% 30.32%
</TABLE>
________________________
* Annualized
+Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results of Class A would be lower if
sales charges were included. Total returns for periods less than one year
are not annualized.
27
<PAGE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------
FOR THE SIX FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED MAY 10, 1993+ TO
FEBRUARY 28, 1995 AUGUST 31, 1994 AUGUST 31, 1993
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 16.81 $ 14.52 $ 13.80
Income (loss) from investment operations:
Net investment income (loss)....................... 0.04 (0.07) (0.02)
Net realized and unrealized gains (losses) (1.55) 2.57 0.74
from investment and foreign currency --------- ------- ---------
activities........................................
Total income (loss) from investment operations........ (1.51) 2.50 0.72
--------- ------- ---------
Dividends and distributions:
Dividends from net investment income............... -- -- --
Distributions from net realized gains.............. (1.25) (0.21) --
--------- ------- ---------
Total dividends and distributions.................. (1.25) (0.21) --
--------- ------- ---------
Net asset value, end of period........................ $ 14.05 $ 16.81 $ 14.52
========= ======= =========
Total return (1)...................................... (9.01)% 17.29% 5.22%
========= ======= =========
Ratios/Supplemental data:
Net assets, end of period (000's)..................... $ 27,484 $31,837 $ 10,807
Ratio of expenses to average net assets............... 2.40%* 2.33% 2.28%*
Ratio of net investment income (loss) to average net (1.03)%* (0.68)% (0.53)%*
assets...............................................
Portfolio turnover.................................... 32.45% 50.73% 56.35%
</TABLE>
________________________
* Annualized
+Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results of Class A would be lower if
sales charges were included. Total returns for periods less than one year
are not annualized.
28
<PAGE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------
FOR THE SIX FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED MAY 10, 1993+ TO
FEBRUARY 28, 1995 AUGUST 31, 1994 AUGUST 31, 1993
------------------ ---------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 17.03 $ 14.56 $ 13.80
Income (loss) from investment operations:
Net investment income (loss)....................... -- 0.05 0.02
Net realized and unrealized gains (losses) from (1.45) 2.63 0.74
investment and foreign currency activities........ --------- ------- -------
Total income (loss) from investment operations........ (1.45) 2.68 0.76
--------- ------- -------
Dividends and distributions:
Dividends from net investment income............... -- -- --
Distributions from net realized gains.............. (1.25) (0.21) --
--------- ------- -------
Total dividends and distributions.................. (1.25) (0.21) --
--------- ------- -------
Net asset value, end of period........................ $ 14.33 $ 17.03 $ 14.56
========= ======= =======
Total return (1)...................................... (8.52)% 18.49% 5.51%
========= ======= =======
Ratios/Supplemental data:
Net assets, end of period (000's)..................... $ 28,047 $28,390 $19,098
Ratio of expenses to average net assets............... 1.40%* 1.33% 1.28%*
Ratio of net investment income (loss) to average net (0.03)%* 0.32% 0.47%*
assets...............................................
Portfolio turnover.................................... 32.45% 50.73% 56.35%
--------- ------- -------
</TABLE>
* Annualized
+Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results of Class A would be lower if
sales charges were included. Total returns for periods less than one year
are not annualized.
PROPOSAL 2. APPROVAL OF THE PROPOSED SUB-ADVISORY AGREEMENTS
Proposal 2 relates to the approval of proposed sub-advisory agreements
("Sub-Advisory Agreement" and collectively, "Sub-Advisory Agreements")
pursuant to which GEIM would continue to serve as sub-adviser to the Acquired
Funds. If Proposal 1 (relating to the proposed Reorganizations) as well as
Proposal 2 are approved with respect to an Acquired Fund, the Sub-Advisory
Agreement with respect to that Fund would remain in effect until the Closing
Date. If Proposal 1 is not approved with respect to an Acquired Fund but
Proposal 2 is approved, the Sub-Advisory Agreement with respect to that Fund
will remain in effect for two years after its effective date and thereafter
will continue from year to year, provided that such continuance is approved
annually (i) by the vote of a majority of the Independent Trustees and (ii) by
the applicable board of trustees or the vote of the holders of a majority of
the outstanding shares of the Acquired Fund.
BACKGROUND
Mitchell Hutchins is the administrator and investment adviser of the
Acquired Funds, pursuant to contracts with Atlas Trust, dated March 1, 1989
(with respect to Atlas Global Growth Fund), and Investment Series, dated
29
<PAGE>
April 21, 1988 (with respect to Europe Growth Fund and Global Growth and
Income Fund), as supplemented by Fee Agreements, dated January 29, 1990, for
Europe Growth Fund, and dated May 19, 1989, for Global Growth and Income Fund
(each an "Advisory Agreement" and collectively, the "Advisory Agreements").
The Advisory Agreement with respect to Atlas Global Growth Fund was
approved by shareholders on February 23, 1989, and its continuance was most
recently approved by the board of trustees of Atlas Trust on November 9, 1994.
Under that Advisory Agreement, Mitchell Hutchins receives a fee, computed
daily and paid monthly, at the annual rate of 0.75% of Atlas Global Growth
Fund's average daily net assets. For the fiscal year ended August 31, 1994,
Atlas Global Growth Fund paid fees under the Advisory Agreement to Mitchell
Hutchins of approximately $3,143,778.
The Advisory Agreement with respect to Europe Growth Fund was approved by
shareholders on May 24, 1990, and its continuance was most recently approved
by the board of trustees of Investment Series on February 15, 1995. Under
that Advisory Agreement, Mitchell Hutchins receives a fee, computed daily and
paid monthly, at the annual rate of 0.90% of Europe Growth Fund's average
daily net assets up to $50 million, 0.85% of average daily net assets in
excess of $50 million and up to $100 million, 0.80% of average daily net
assets in excess of $100 million and up to $150 million, 0.75% of average
daily net assets in excess of $150 million and up to $200 million, and 0.70%
in excess of $200 million. For the fiscal year ended October 31, 1994, Europe
Growth Fund paid fees under the Advisory Agreement to Mitchell Hutchins of
approximately $1,281,874.
The Advisory Agreement with respect to Global Growth and Income Fund was
approved by shareholders of Investment Series on May 24, 1990, and its
continuance was most recently approved by the board of trustees of Investment
Series on February 15, 1995. Under that Advisory Agreement, Mitchell Hutchins
receives a monthly fee at the annual rate of 0.90% of Global Growth and Income
Fund's average daily net assets up to $500 million, 0.875% of average daily
net assets in excess of $500 million and up to $1 billion, 0.850% of average
daily net assets in excess of $1 billion and up to $1.5 billion, 0.825% of
average daily net assets in excess of $1.5 billion and up to $2 billion, and
0.80% in excess of $2 billion. For the fiscal year ended October 31, 1994,
Global Growth and Income Fund paid fees under the Advisory Agreement to
Mitchell Hutchins of approximately $986,716. The Advisory Agreement for each
Acquired Fund permits Mitchell Hutchins to delegate all or part of its
investment advisory responsibility to a sub-advisor.
At a meeting held on March 22, 1995, the boards of trustees of Atlas Fund
and Investment Series (the "Boards"), including a majority of the Independent
Trustees, considered recommendations by Mitchell Hutchins that GEIM be
appointed as investment sub-adviser for Atlas Global Growth Fund and Europe
Growth Fund with respect to all of the Funds' investments, and that GEIM be
appointed as investment sub-adviser for Global Growth and Income Fund with
respect to that Fund's equity investments. After considering Mitchell
Hutchins' recommendation and other information, the Boards approved interim
sub-advisory agreements (each an "Interim Agreement" and collectively, the
"Interim Agreements") with GEIM, pursuant to which GEIM currently acts as Sub-
Adviser to each Acquired Fund with respect to the investments noted. At the
meeting held on April 28, 1995, the Boards approved the submission of the
proposed Sub-Advisory Agreements (which are substantially identical to the
Interim Agreements) to the shareholders of each Acquired Fund at the Meeting,
and determined to recommend that the shareholders of each Acquired Fund
approve the proposed Sub-Advisory Agreements.
Mitchell Hutchins' recommendation to the Boards that GEIM be retained as
Sub-Adviser to each Acquired Fund stemmed from a number of factors. First, in
the months prior to the meetings of the Boards, Mitchell Hutchins had been
engaged in an extensive review of the long-term needs of its clients, and of
its own structure and deployment of resources. As a result of this review,
Mitchell Hutchins determined to concentrate its equity management resources on
domestic equity securities and to rely on independent management firms with
extensive experience in global and international securities for the day-to-day
portfolio management of the global equity funds managed by Mitchell Hutchins.
During this same period, Mitchell Hutchins became familiar with the abilities
and expertise of GEIM. GEIM serves as the sub-adviser for certain funds
formerly advised by Kidder Peabody Asset Management Inc. Mitchell Hutchins
has been managing those funds since February 13, 1995, in connection with an
Asset Purchase Agreement among Paine Webber Group Inc., Kidder, Peabody & Co.
Inc. and General Electric Company ("GE"). After consideration, Mitchell
Hutchins determined that it would be in the best interest of the Acquired
Funds and certain other global equity funds advised by Mitchell Hutchins to
recommend to the boards of
30
<PAGE>
trustees/directors (including the Boards) that they approve sub-advisory
agreements with GEIM and authorize the submission of the sub-advisory
agreements to the shareholders of the global equity funds for approval.
The Interim Agreements each provide that GEIM, subject to the supervision
of Mitchell Hutchins and the applicable board of trustees, shall provide a
continuous investment program and strategy with respect to the investments of
the Acquired Funds, including investment research and management, and will
make decisions with respect to and place orders for all purchases and sales of
portfolio securities. For Global Growth and Income Fund, GEIM's services are
provided only with respect to that Fund's investments in equity securities.
Under the Interim Agreements for Atlas Global Growth Fund and Europe Growth
Fund, Mitchell Hutchins (not the Fund) pays GEIM a monthly fee for its
investment advisory services at an annual rate of 0.31% of each Fund's average
daily net assets up to $500 million, 0.29% of average daily net assets in
excess of $500 million, and 0.265% of average daily net assets in excess of $1
billion. As of February 28, 1995, Atlas Global Growth Fund and Europe Growth
Fund had net assets of approximately $362,103,894 and $105,501,917,
respectively. Under the Interim Agreement with respect to Global Growth and
Income Fund, Mitchell Hutchins (not the Fund) pays GEIM a monthly fee for its
investment advisory services at an annual rate of 0.29% of Global Growth and
Income Fund's average daily net assets attributable to the Fund's equity
portfolio. As of February 28, 1995, Global Growth and Income Fund had net
assets of approximately $79,558,579, of which approximately $55,532,575 were
attributable to equity securities.
Because the Interim Agreement for each Acquired Fund became effective on
March 23, 1995, Mitchell Hutchins paid no sub-advisory fees to GEIM during the
1994 fiscal year with respect to any Acquired Fund.
--MARK--
GEIM also acts as the investment adviser to the MH/KP Global Equity Fund,
as investment sub-adviser to Mitchell Hutchins/Kidder, Peabody Intermediate
Fixed Income Fund, and as investment adviser and administrator of the GE Funds
and the Variable Investment Trust, open-end management investment companies,
each with multiple investment portfolios, and as investment adviser to other
accounts. In addition, GEIM's principal officers and directors serve in
similar capacities with respect to General Electric Investment Corporation
("GEIC"), which, like GEIM, is a wholly owned subsidiary of GE, and which
currently serves as the investment adviser to the Elfun group of funds and
other GE pension and benefit plan accounts. Since March 23, 1995, GEIM has
also served as investment sub-adviser to Global Small Cap Fund Inc. and to
Global Growth Portfolio (a series of PaineWebber Series Trust) pursuant to
interim agreements. The table below sets forth certain information with
respect to such investment portfolios that have investment objectives similar
to that of the Funds:
<TABLE>
<CAPTION>
Approximate Annual Rate of Investment
Name of Portfolio Net Assets as of Advisory Fee as a
- ----------------------------- March 31, 1995 Percentage of Net Assets
---------------- -------------------------
<S> <C> <C>
Mitchell Hutchins/Kidder, $200,600,000 .70% of average daily net
Peabody Global Equity Fund assets up to $200 million;
.50% over $200 million*
GE Global Equity Fund (a $ 31,500,000 .75%**
series of GE Funds)
Global Growth Portfolio $ 35,400,000 .29%*
Global Small Cap Fund Inc. $ 42,196,969 .50% of average
weekly net assets*
</TABLE>
* Fee to GEIM for investment sub-advisory services only.
** Fee to GEIM includes investment advisory and administration services.
31
<PAGE>
DESCRIPTION OF THE PROPOSED SUB-ADVISORY AGREEMENTS
The terms and conditions of the proposed Sub-Advisory Agreements provide
for the same sub-advisory fees as currently in effect for the Interim
Agreements and are identical to those of the Interim Agreements except for
different effective and termination dates and an increase from 60 to 120 days
in the amount of written notice Mitchell Hutchins or GEIM must give in order
to terminate the Sub-Advisory Agreements. Approval of the Proposed Sub-
Advisory Agreements by the shareholders at the Meeting will also serve to
ratify the Interim Agreements.
The Sub-Advisory Agreements automatically terminate upon their assignment
and are terminable at any time without penalty, by the respective boards of
trustees or by the holders of a majority of the outstanding shares of an
Acquired Fund on 60 days' written notice. Either Mitchell Hutchins or GEIM
may terminate a Sub-Advisory Agreement on 120 days' written notice without
penalty. Mitchell Hutchins may also terminate a Sub-Advisory Agreement (i)
upon material breach by GEIM of certain of its representations under the Sub-
Advisory Agreement or (ii) in the event that GEIM is unable to discharge its
duties under the Sub-Advisory Agreement.
Like the Interim Agreements, the Sub-Advisory Agreements provide that GEIM
will pay for all expenses incurred by it in connection with its investment
advisory services under the Sub-Advisory Agreements. The Sub-Advisory
Agreements also provide that GEIM, subject to the supervision of Mitchell
Hutchins and the respective boards of trustees, shall provide a continuous
investment program and strategy for the investments of Atlas Global Growth
Fund and Europe Growth Fund, and for the equity investments of Global Growth
and Income Fund, including investment research and management with respect to
all such securities and investments, and make decisions with respect to, and
place orders for, all purchases and sales of such portfolio securities. The
Sub-Advisory Agreements provide for fee rates identical to those in the
Interim Agreements.
The Sub-Advisory Agreements provide that GEIM will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Acquired
Funds in connection with the performance of the agreements, except a loss
resulting from willful misfeasance, bad faith, or gross negligence on the part
of GEIM in the performance of its duties or from reckless disregard of its
obligations and duties under the Sub-Advisory Agreements.
GEIM makes various representations and warranties in the Sub-Advisory
Agreements, including (i) that it has adopted a written code of ethics which
complies with Rule 17j-1 under the 1940 Act and will certify its compliance
with such code of ethics to Mitchell Hutchins on an annual basis, and (ii)
that it is in compliance with various federal and state laws, including the
Investment Advisers Act of 1940 ("Advisers Act"), as amended.
A form of the proposed Sub-Advisory Agreement is attached to this Proxy
Statement as Appendix B.
INFORMATION ABOUT GEIM
GEIM is a wholly owned subsidiary of GE and a registered investment adviser
under the Advisers Act. GEIM, located at 3003 Summer Street, P.O. Box 7900,
Stamford, Connecticut 06904, was formed under the laws of Delaware in 1988.
GE is located at 3135 Easton Turnpike, Fairfield, Connecticut 06431. As noted
above, GEIM's principal officers serve in similar capacities with respect to
GEIC, which is also a registered investment adviser principally located at the
same address. GEIM and GEIC together provide investment management services
to various institutional accounts with total assets, as of March 31, 1995, in
excess of $47 billion. The chief executive officers and directors of GEIM are
identified in the table below:
CHIEF EXECUTIVE OFFICER AND DIRECTORS OF GEIM
---------------------------------------------
<TABLE>
<CAPTION>
Name Principal Occupation Address
- --------------------- -------------------- ---------------------
<S> <C> <C>
Dale F. Frey Chairman, President 3003 Summer Street
and Chief Executive Stamford, Connecticut
Officer of GEIM 06905
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation Address
- --------------------- -------------------- ---------------------
<S> <C> <C>
Eugene K. Bolton Director and 3003 Summer Street
Executive Vice Stamford,
President of GEIM Connecticut
06905
Michael J. Cosgrove Director and 3003 Summer Street
Executive Vice Stamford,
President of GEIM Connecticut
06905
Ralph R. Layman Director and 3003 Summer Street
Executive Vice Stamford,
President of GEIM Connecticut
06905
Alan M. Lewis Director, Executive 3003 Summer Street
Vice President, Stamford,
General Counsel and Connecticut
Secretary of GEIM 06905
John H. Myers Director and 3003 Summer Street
Executive Vice Stamford,
President of GEIM Connecticut
06905
Geoffrey R. Norman Director and 3003 Summer Street
Executive Vice Stamford,
President of GEIM Connecticut
06905
Donald W. Torey Director, Executive 3003 Summer Street
Vice President and Stamford,
Chief Financial Connecticut
Officer of GEIM 06905
</TABLE>
TRUSTEES' CONSIDERATIONS AND RECOMMENDATIONS
At the meetings held on March 22 and April 28, 1995, the Boards, including
the Independent Trustees, after a full evaluation of the matters described
above and with the advice and assistance of counsel to the Independent
Trustees, approved the Interim Agreements and the proposed Sub-Advisory
Agreements with respect to each Acquired Fund. During their deliberations,
the Boards also reviewed information provided by Mitchell Hutchins and GEIM
relating to the structure and organization of GEIM. The Boards considered the
quality of the investment sub-advisory services that had been provided by GEIM
to other funds, and also considered the Funds' performance in relation to a
selected group of other funds with similar investment objectives. The Boards
noted, in particular, that the advisory fees paid by the Funds would remain
the same as before, and determined that the terms of the Sub-Advisory
Agreements and the sub-advisory fees were fair.
The Boards also considered the fact that, consistent with the interests of
the Funds and subject to their review, the Sub-Adviser may cause the Funds to
purchase and sell portfolio securities through brokers who provide the Sub-
Adviser with research, analysis, advice and similar services. In return for
such services, the Funds may pay to those brokers a higher commission than may
be charged by other brokers, provided that the Sub-Adviser determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of the Sub-Adviser to the Funds
and its other clients and that the total commissions paid by the Funds will be
reasonable in relation to the benefits to the Funds over the long term. For
purchases or sales with broker-dealer firms which act as principal, the Sub-
Adviser seeks best execution. Although the Sub-Adviser may receive certain
research or execution services in connection with these transactions, the Sub-
Adviser will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight were attributed to the
services provided by the executing dealer. The Sub-Adviser will not enter
into any soft dollar arrangements relating to principal transactions or
receive in principal transactions the types of services which could be
purchased for hard dollars. Research services furnished by brokers through
which the Funds effect securities
33
<PAGE>
transactions may be used by the Sub-Adviser in advising other funds or
accounts it advises and, conversely, research services furnished to the Sub-
Adviser in connection with other funds or accounts it advises may be used by
the Sub-Adviser in advising the Funds. Information and research received from
brokers will be in addition to, and not in lieu of, the services required to
be performed by the Sub-Adviser under the Sub-Advisory Agreements.
THE BOARDS OF TRUSTEES RECOMMEND THAT THE
SHAREHOLDERS OF THE ACQUIRED FUNDS VOTE "FOR" THE
THE PROPOSED SUB-ADVISORY AGREEMENTS
GENERAL INFORMATION
Brokerage Commissions
---------------------
PaineWebber is the only affiliated broker of the Acquired Funds. For the
fiscal year ended August 31, 1994, Atlas Global Growth Fund paid no brokerage
commissions to PaineWebber. For the fiscal year ended October 31, 1994,
Europe Growth Fund and Global Growth and Income Fund, respectively, paid no
brokerage commissions to PaineWebber.
Shareholder Proposals
---------------------
As a general matter, Atlas Trust and Investment Series do not hold regular
annual or other meetings of shareholders. Any shareholder who wishes to
submit proposals to be considered at a special meeting of the Atlas Trust's or
Investment Series' shareholders should send such proposals, certified mail-
return receipt requested, to each respective Trust at 1285 Avenue of the
Americas, New York, New York 10019, so as to be received a reasonable time
before the proxy solicitation for that meeting is made. Shareholder proposals
that are submitted in a timely manner will not necessarily be included in the
Trust's proxy materials. Inclusion of such proposals is subject to
limitations under the federal securities laws.
Reports to Shareholders
-----------------------
ATLAS TRUST AND INVESTMENT SERIES WILL FURNISH TO SHAREHOLDERS, WITHOUT
CHARGE, A COPY OF THE MOST RECENT ANNUAL REPORT, AND THE MOST RECENT SEMI-
ANNUAL REPORT SUCCEEDING SUCH ANNUAL REPORT, IF ANY, ON REQUEST. REQUESTS FOR
SUCH REPORTS SHOULD BE MADE BY CONTACTING THE ACQUIRED FUND'S TRANSFER AGENT,
PFPC, INC., P.O. BOX 9426, WILMINGTON, DE 19809-9938, OR BY CALLING TOLL-FREE
[1-800-647-1568].
MISCELLANEOUS
AVAILABLE INFORMATION
Atlas Trust, Investment Series and MH/KP Investment Trust are subject to
the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act and in accordance therewith file reports, proxy materials and other
information with the SEC. Such reports, proxy materials and other information
can be inspected and copied at the Public Reference Room maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials
can also be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
34
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of MH/KP Global
Equity Fund shares will be passed upon by Willkie Farr & Gallagher, counsel to
MH/KP Investment Trust.
EXPERTS
The audited financial statements of MH/KP Global Equity Fund, Atlas Global
Growth Fund, Europe Growth Fund and Global Growth and Income Fund,
incorporated herein by reference and in each Fund's Statement of Additional
Information, have been examined by Deloitte & Touche LLP, independent
auditors, Ernst & Young LLP, independent auditors, Price Waterhouse LLP,
independent accountants, and Price Waterhouse LLP, independent accountants,
respectively, whose reports thereon are included in the Funds' Annual Reports
to Shareholders for the fiscal years ended August 31, 1994, August 31, 1994,
October 31, 1994, and October 31, 1994, respectively, and in MH/KP Global
Equity Fund's semi-annual report to shareholders for the six-month period
ended February 28, 1995. The financial statements audited by Deloitte &
Touche LLP, Ernst & Young LLP and Price Waterhouse LLP have been incorporated
herein by reference in reliance on their reports given on their authority as
experts in auditing and accounting.
35
<PAGE>
APPENDIX A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of May 12, 1995, between Mitchell Hutchins/Kidder, Peabody Investment
Trust, a Massachusetts business trust ("MHKP Trust"), on behalf of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and PaineWebber [Atlas Fund]
[Investment Series], a Massachusetts business trust ("PW Trust"), on behalf of
its PaineWebber [Atlas Global Growth] [Europe Growth] [Global Growth and
Income] Fund series ("Target"). (Acquiring Fund and Target are sometimes
referred to herein individually as a "Fund" and collectively as the "Funds,"
and MHKP Trust and PW Trust are sometimes referred to herein collectively as
the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)[(D)][(C)] of the Internal
Revenue Code of 1986, as amended ("Code"). The reorganization will involve
the transfer to Acquiring Fund of Target's assets solely in exchange for
voting shares of beneficial interest in Acquiring Fund ("Acquiring Fund
Shares") and the assumption by Acquiring Fund of Target's liabilities,
followed by the constructive distribution of the Acquiring Fund Shares to the
holders of shares of beneficial interest in Target("Target Shares") in
exchange therefor, all upon the terms and conditions set forth herein. The
foregoing transactions are referred to herein as the "Reorganization." All
agreements, representations, actions, and obligations described herein made or
to be taken or undertaken by either Fund are made and shall be taken or
undertaken by MHKP Trust on behalf of Acquiring Fund and by PW Trust on behalf
of Target.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class E shares ("Class A Acquiring Fund Shares," "Class
B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class E
Acquiring Fund Shares", respectively). Apart from differences in certain
ancillary class-specific expenses, these classes differ only with respect to
the sales charges imposed on the purchase of shares and the fees ("12b-1
fees") payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the Investment Company Act of 1940 ("1940 Act"), as follows:
(1) Class A Acquiring Fund Shares are offered at net asset value ("NAV") plus
a sales charge, if applicable, and are subject to a 12b-1 service fee at the
annual rate of 0.25% of the average daily net assets attributable to the class
("class assets"); (2) Class B Acquiring Fund Shares are offered at NAV without
imposition of any sales charge and are subject to 12b-1 service and
distribution fees at the respective annual rates of 0.25% and 0.75% of class
assets; (3) Class C Acquiring Fund Shares are offered, currently to a limited
group of investors (consisting of former employees of Kidder, Peabody & Co.
Incorporated ("Kidder") and their associated accounts, directors and trustees
of mutual funds formerly distributed by Kidder (now known as Mitchell
Hutchins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds),
Kidder's employee benefit plans, and participants in a certain portfolio asset
allocation program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee; and (4) Class E Acquiring Fund Shares are offered at
NAV without imposition of any sales charge and are subject to a contingent
deferred sales charge and 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.75% of class assets. [Only Classes A,
B, and E Acquiring Fund Shares are involved in the Reorganization.]
Target's shares are divided into [four] [three] classes, designated Class
A, Class B, [Class C,] and Class D shares ("Class A Target Shares," "Class B
Target Shares," ["Class C Target Shares,"] and "Class D Target Shares,"
respectively). Except as noted in the following sentence, these classes
differ only with respect to the sales charges imposed on the purchase of
shares and the 12b-1 fees payable by each class, as follows: (1) Class A
Target Shares are offered at NAV plus a sales charge, if applicable, and are
subject to a 12b-1 service fee at the annual rate of [0.20%] [0.25%] of class
assets; (2) Class B Target Shares are offered at NAV without imposition of
A-1
<PAGE>
any sales charge and are subject to a contingent deferred sales charge and
12b-1 service and distribution fees at the respective annual rates of 0.25%
and 0.75% of class assets; [(3) Class C Target Shares are offered, currently
only to the trustee of the PaineWebber Savings Investment Plan on behalf of
that plan, at NAV without imposition of any sales charge and are not subject
to any 12b-1 fee;] and [(3)] [(4)] Class D Target Shares are offered at NAV
without imposition of any sales charge and are subject to 12b-1 service and
distribution fees at the respective annual rates of 0.25% and 0.75% of class
assets. These classes also may differ from one another with respect to the
allocation of certain class-specific expenses other than 12b-1 fees.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set forth
in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring
Fund Shares determined by dividing the Target Value attributable to the
Class D Target Shares by the NAV (as so computed) of a Class B Acquiring
Fund Share, [(iii) Class C Acquiring Fund Shares determined by dividing the
Target Value attributable to the Class C Target Shares by the NAV (as so
computed) of a Class C Acquiring Fund Share,] and [(iii)] [(iv)] Class E
Acquiring Fund Shares determined by dividing the Target Value attributable
to the Class B Target Shares by the NAV (as so computed) of a Class E
Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph
3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind
or nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses described in
paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books in the
Shareholders' names and transferring such Acquiring Fund Shares thereto. Each
Shareholder's account shall be credited with the respective pro rata number of
full and fractional (rounded to the third decimal place) Acquiring Fund Shares
due that Shareholder, by class (i.e., the account for a Shareholder of Class A
Target Shares shall
A-2
<PAGE>
be credited with the respective pro rata number of Class A Acquiring Fund
Shares due that Shareholder, the account for a Shareholder of Class B Target
Shares shall be credited with the respective pro rata number of Class E
Acquiring Fund Shares due that Shareholder, [the account for a Shareholder of
Class C Target Shares shall be credited with the respective pro rata number of
Class C Acquiring Fund Shares due that Shareholder,] and the account for a
Shareholder of Class D Target Shares shall be credited with the respective pro
rata number of Class B Acquiring Fund Shares due that Shareholder). All
outstanding Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as
a series of PW Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the
Target Shares constructively exchanged therefor shall be paid by the person to
whom such Acquiring Fund Shares are to be issued, as a condition of such
transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New
York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation
Time"), using the valuation procedures set forth in Target's then-current
prospectus and statement of additional information less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund
Share, a Class B Acquiring Fund Share, [a Class C Acquiring Fund Share,] and a
Class E Acquiring Fund Share shall be computed as of the Valuation Time, using
the valuation procedures set forth in Acquiring Fund's then-current prospectus
and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
August 11, 1995, or at such other place and/or on such other date as the
parties may agree. All acts taking place at the Closing shall be deemed to
take place simultaneously as of the close of business on the date thereof or
at such other time as the parties may agree ("Effective Time"). If,
immediately before the Valuation Time, (a) the NYSE is closed to trading or
trading thereon is restricted or (b) trading or the reporting of trading on
the NYSE or elsewhere is disrupted, so that accurate appraisal of the net
value of Target and the NAV per Acquiring Fund Share is impracticable, the
Effective Time shall be postponed until the first business day after the day
when such trading shall have been fully resumed and such reporting shall have
been restored.
3.2. PW Trust shall deliver to MHKP Trust at the Closing a schedule of
the Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by
lot. Target's custodian shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary
taxes in conjunction with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or provision
for payment has been made.
3.3. PW Trust shall deliver to MHKP Trust at the Closing a list of the
names and addresses of the Shareholders and the number (by class) of
outstanding Target Shares owned by each Shareholder, all as of the Effective
Time, certified by the Secretary or Assistant Secretary of Target. The
Transfer Agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders' names.
MHKP Trust shall issue and deliver a confirmation to PW Trust evidencing the
Acquiring Fund Shares (by class) to be credited to Target at the Effective
Time or provide evidence satisfactory to PW Trust that such
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Acquiring Fund Shares have been credited to Target's account on Acquiring
Fund's books. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, stock certificates, receipts, or other documents
as the other party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to
the effect that the representations and warranties it made in this Agreement
are true and correct at the Effective Time except as they may be affected by
the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. PW Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and a
copy of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of PW
Trust;
4.1.4. At the Closing, Target will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, Acquiring Fund will acquire
good and marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and does not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law or
any provision of PW Trust's Declaration of Trust or By-Laws or of any
agreement, instrument, lease, or other undertaking to which Target is a
party or by which it is bound or result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it is bound,
except as previously disclosed in writing to and accepted by MHKP Trust;
4.1.7. Except as disclosed in writing to and accepted by MHKP
Trust, all material contracts and other commitments of or applicable to
Target (other than this Agreement and investment contracts, including
options, futures, and forward contracts) will be terminated, or provision
for discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to be
taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
MHKP Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against PW Trust with respect to Target or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is not
a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated hereby;
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4.1.9. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on
the part of PW Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive relief or no-
action assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to sections 17(a) and 17(d) of the 1940
Act, this Agreement will constitute a valid and legally binding obligation
of Target, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights and
by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of this
Agreement by PW Trust, except for (a) the filing with the SEC of a
registration statement by MHKP Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a prospectus/proxy statement
("Proxy Statement"), (b) receipt of the exemptive relief referenced in
subparagraph 4.1.9, and (c) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MHKP Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. MHKP Trust is a Business Trust; it is duly organized,
validly existing, and in good standing under the laws of the Commonwealth
of Massachusetts; and a copy of its Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts;
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4.2.2. MHKP Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series
of MHKP Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. Class E Acquiring Fund Shares were only recently authorized
for purposes of facilitating the Reorganization, and only one share of that
class will be outstanding immediately before the Effective Time. The
Acquiring Fund Shares to be issued and delivered to Target hereunder will,
at the Effective Time, have been duly authorized and, when issued and
delivered as provided herein, will be duly and validly issued and
outstanding shares of Acquiring Fund, fully paid and non-assessable, except
to the extent that under Massachusetts law shareholders of a Business Trust
may, under certain circumstances, be held personally liable for its
obligations. Except as contemplated by this Agreement, Acquiring Fund does
not have outstanding any options, warrants, or other rights to subscribe
for or purchase any of its shares, nor is there outstanding any security
convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
thereunder and does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law or
any provision of MHKP Trust's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by PW Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by
PW Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against MHKP Trust with respect to Acquiring
Fund or any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on
the part of MHKP Trust's board of trustees, which has made the
determinations required by Rule 17a-8(a) under the 1940 Act; and, subject
to receipt of any necessary exemptive relief or no-action assurances
requested from the SEC or its staff with respect to sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid and legally
binding obligation of Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by MHKP Trust, except for
(a) the filing with the SEC of the Registration Statement, (b) receipt of
the exemptive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
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4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by PW Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2)
of the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M of the Code, and (c) expects to
retain substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged with another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock or securities of five or fewer issuers; and
4.2.17. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
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4.3.3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis[, and the
total adjusted basis,] of the Assets will equal or exceed the Liabilities
to be assumed by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made to
conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is
an employee of Target will be separate consideration for, or allocable to,
any of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will
[be in] [not own shares constituting] "control" of Acquiring Fund within
the meaning of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the
Closing; provided that Target shall not dispose of more than an insignificant
portion of its historic business assets during such period without Acquiring
Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval
of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist MHKP Trust in obtaining such
information as MHKP Trust reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to MHKP Trust at the Closing.
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5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause
to be taken such further action, as the other Fund may deem necessary or
desirable in order to vest in, and confirm to, (a) Acquiring Fund, title to
and possession of all the Assets, and (b) Target, title to and possession of
the Acquiring Fund Shares to be delivered hereunder, and otherwise to carry
out the intent and purpose hereof.
5.8. MHKP Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before
the Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated hereby, as of the Effective Time, with the same force and effect
as if made at and as of the Effective Time, and (c) the following further
conditions that, at or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by PW Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. The Registration Statement shall
have become effective under the 1933 Act, no stop orders suspending the
effectiveness thereof shall have been issued, and the SEC shall not have
issued an unfavorable report with respect to the Reorganization under section
25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin
consummation of the transactions contemplated hereby under section 25(c) of
the 1940 Act. All consents, orders, and permits of federal, state, and local
regulatory authorities (including the SEC and state securities authorities)
deemed necessary by either Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that
either Fund may for itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MHKP Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of MHKP Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by MHKP Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement
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by PW Trust on behalf of Target, is a valid and legally binding obligation
of MHKP Trust with respect to Acquiring Fund, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
6.4.3. Only one Class E Acquiring Fund Share currently is
outstanding. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, except to the extent
that under Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obligations, and
no shareholder of Acquiring Fund has any preemptive right to subscribe for
or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate MHKP Trust's Declaration of Trust or By-Laws or any
provision of any agreement (known to such counsel) to which MHKP Trust
(with respect to Acquiring Fund) is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which MHKP Trust (with respect to Acquiring Fund) is
a party or by which it is bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted by PW Trust;
6.4.5. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by MHKP Trust on behalf of Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.4.6. MHKP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to MHKP Trust (with respect
to Acquiring Fund) or any of its properties or assets attributable or
allocable to Acquiring Fund and (b) MHKP Trust (with respect to Acquiring
Fund) is not a party to or subject to the provisions of any order, decree,
or judgment of any court or governmental body that materially and adversely
affects Acquiring Fund's business, except as set forth in such opinion or
as otherwise disclosed in writing to and accepted by PW Trust.
In rendering such opinion, such counsel may rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
6.5. MHKP Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to PW Trust, substantially to the effect that:
6.5.1. Target is a duly established series of PW Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by MHKP Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of PW
Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate PW Trust's Declaration of Trust or By-Laws
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or any provision of any agreement (known to such counsel) to which PW Trust
(with respect to Target) is a party or by which it is bound or, to the
knowledge of such counsel, result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or decree to
which PW Trust (with respect to Target) is a party or by which it is bound,
except as set forth in such opinion or as previously disclosed in writing
to and accepted by MHKP Trust;
6.5.4. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by PW Trust on behalf of Target of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required under state
securities laws;
6.5.5. PW Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to PW Trust (with respect to
Target) or any of its properties or assets attributable or allocable to
Target and (b) PW Trust (with respect to Target) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its business,
except as set forth in such opinion or as otherwise disclosed in writing to
and accepted by MHKP Trust.
In rendering such opinion, such counsel may rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, addressed to and in form and substance satisfactory to PW
Trust, and MHKP Trust shall have received an opinion of Willkie Farr &
Gallagher, its counsel, addressed to and in form and substance satisfactory to
MHKP Trust, each as to the federal income tax consequences mentioned below
(each a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may
rely as to factual matters, exclusively and without independent verification,
on the representations made in this Agreement (or in separate letters
addressed to such counsel) and the certificates delivered pursuant to
paragraph 3.4. Each Tax Opinion shall be substantially to the effect that,
based on the facts and assumptions stated therein, for federal income tax
purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)[(D)][(C)] of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their TargetShares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the Reorganization,
and Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in
A-11
<PAGE>
exchange for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or
any Shareholder (regarding the recognition of gain or loss and/or the
determination of the basis or holding period) with respect to any asset
(including certain options, futures, and forward contracts included in the
Assets) as to which any unrealized gain or loss is required to be recognized
for federal income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of MHKP Trust's board of trustees,
such waiver will not have a material adverse effect on its shareholders'
interests, and (b) Target may waive any of the foregoing conditions if, in the
judgment of PW Trust's board of trustees, such waiver will not have a material
adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or
not they are consummated) will be borne by the Funds proportionately, as
follows: each such expense will be borne by the Funds in proportion to their
respective net assets as of the close of business on the last business day of
the month in which such expense was incurred. Such expenses include: (a)
expenses incurred in connection with entering into and carrying out the
provisions of this Agreement; (b) expenses associated with the preparation and
filing of the Registration Statement; (c) registration or qualification fees
and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which Target's shareholders are
resident as of the date of the mailing of the Proxy Statement to such
shareholders; (d) printing and postage expenses; (e) legal and accounting
fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or
in any document delivered pursuant hereto or in connection herewith shall
survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed
at or prior to the Effective Time, (b) if a condition to its obligations has
not been met and it reasonably appears that such condition will not or cannot
be met, or (c) if the Closing has not occurred on or before December 31, 1995;
or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers
of either Investment Company, to the other Fund.
A-12
<PAGE>
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts; provided that, in the
case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of
each Investment Company's trustees solely in their capacity as trustees, and
not individually, and that each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its trustees,
officers, or shareholders, but are only binding on and enforceable against the
respective Funds' assets and property. Each Fund agrees that, in asserting
any rights or claims under this Agreement, it shall look only to the other
Fund's assets and property in settlement of such rights or claims and not to
such trustees or shareholders.
A-13
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT
TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL
EQUITY FUND
By: _______________________ ______________________________
Secretary Vice President
ATTEST: PAINEWEBBER [ATLAS FUND] [INVESTMENT SERIES],
on behalf of its series,
PAINEWEBBER [ATLAS GLOBAL GROWTH] [EUROPE
GROWTH] [GLOBAL GROWTH AND INCOME] FUND
By: _______________________ ______________________________
Secretary Vice President
A-14
<PAGE>
APPENDIX B
FORM OF PROPOSED SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT
Agreement made as of , 1995, between MITCHELL HUTCHINS ASSET
MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation, and GE
INVESTMENT MANAGEMENT INCORPORATED ("Sub-Adviser"), a Delaware corporation
(the "Agreement").
RECITALS
--------
(1) Mitchell Hutchins has entered into an [Investment Advisory and
Administration Contract dated April 21, 1988, as supplemented May 19, 1989
("Management Agreement")], with [PaineWebber Investment Series ("Trust")], an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act") with respect to the [PaineWebber Global
Growth and Income Fund ("Portfolio") series of the Trust]; and
(2) Mitchell Hutchins wishes to retain the Sub-Adviser to furnish certain
investment advisory services to Mitchell Hutchins and the Portfolio, and the
Sub-Adviser is willing to furnish those services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as
------------
an investment sub-adviser with respect to the [equity securities portion of
the Portfolio's assets] for the period and on the terms set forth in this
Agreement. The Sub-Adviser accepts that appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Duties as Sub-Adviser.
---------------------
(a) Subject to the supervision of and any guidelines adopted by the Trust's
Board of Trustees (the "Board"), the Sub-Adviser will provide a continuous
investment program for the [equity securities portion of the Portfolio's
assets], including investment research and management. The Sub-Adviser will
determine from time to time what [equity securities investments] will be
purchased, retained or sold by the Portfolio. The Sub-Adviser will be
responsible for placing purchase and sell orders for [equity securities
investments] and for other related transactions. The Sub-Adviser will provide
services under this Agreement in accordance with the Portfolio's investment
objective, policies and restrictions as stated in the Portfolio's Registration
Statement.
(b) The Sub-Adviser agrees that, in placing orders with brokers, it will
obtain the best net result in terms of price and execution; provided that, on
behalf of the Portfolio, the Sub-Adviser may, in its discretion, use brokers
who provide the Portfolio with research, analysis, advice and similar services
to execute portfolio transactions on behalf of the Portfolio, and the Sub-
Adviser may pay to those brokers in return for brokerage and research services
a higher commission than may be charged by other brokers, subject to the Sub-
Adviser's determining in good faith that such commission is reasonable in
terms either of the particular transaction or of the overall responsibility of
the Sub-Adviser to the Portfolio and its other clients and that the total
commissions paid by the Portfolio will be reasonable in relation to the
benefits to the Portfolio over the long term. In no instance will portfolio
securities be purchased from or sold to the Sub-Adviser, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder. Whenever the Sub-Adviser simultaneously
places orders to purchase or sell the same security on behalf of the Portfolio
and one or more other accounts advised by the Sub-Adviser, the orders will be
allocated as to price and amount among all such accounts in a manner believed
to be equitable by the Sub-Adviser over time to each account. Mitchell
Hutchins recognizes that in some cases this procedure may adversely affect the
results obtained for the Portfolio.
(c) The Sub-Adviser will maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf
B-1
<PAGE>
of the Portfolio, and will furnish the Board and Mitchell Hutchins with such
periodic and special reports as the Board or Mitchell Hutchins reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the
Portfolio are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act, and further agrees to surrender promptly to the Trust any records which
it maintains for the Trust upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or Mitchell
Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins with
economic and investment analyses and reports as well as quarterly reports
setting forth the Portfolio's performance and make available to the Board and
Mitchell Hutchins any economic, statistical and investment services normally
available to institutional or other customers of the Sub-Adviser.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair
valuation of any illiquid portfolio securities and will assist in providing
independent sources of market value for all other portfolio securities.
3. Further Duties. In all matters relating to the performance of this
---------------
Agreement, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and currently effective registration statement under the
1940 Act and any amendments or supplements thereto ("Registration Statement")
and with the written instructions and directions of the Board and Mitchell
Hutchins and will comply with the requirements of the 1940 Act, the Investment
Advisers Act of 1940, as amended, ("Advisers Act"), the rules under each, and
Subchapter M of the Internal Revenue Code as applicable to regulated
investment companies. In addition, the Sub-Adviser will act in conformity
with all other applicable federal and state laws and regulations either as
reflected in the Registration Statement or otherwise provided in writing to
the Sub-Adviser by Mitchell Hutchins. Mitchell Hutchins agrees to provide to
the Sub-Adviser copies of the Trust's Trust Instrument, By-Laws, Registration
Statement, written instructions and directions of the Board and Mitchell
Hutchins, and any amendments or supplements to any of these materials as soon
as practicable after such materials become available.
4. Exclusivity. During the term of this Agreement, the Sub-Adviser
------------
agrees that it will not provide investment advice on a discretionary or non-
discretionary basis for any global equity investment products offered to
retail customers in the United States by broker-dealers listed on Schedule A.
The Sub-Adviser shall deliver to Mitchell Hutchins in writing prompt and
regular reports of the Sub-Adviser's investment advisory activities in
sufficient detail to permit Mitchell Hutchins to monitor the terms of this
Agreement.
5. Expenses. During the term of this Agreement, the Sub-Adviser will
---------
bear all expenses incurred by it in connection with its investment sub-
advisory services under this Agreement.
6. Compensation.
-------------
(a) For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, Mitchell Hutchins, not the Portfolio, will pay to
the Sub-Adviser a fee, computed daily and payable monthly, as computed in the
manner set forth in Schedule B, together with a schedule showing the manner in
which the fee was computed.
(b) The fee shall be computed daily and payable monthly to the Sub-Adviser
on or before the fifteenth business day of the next succeeding calendar month.
(c) If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month
or from the beginning of such month to the date of termination, as the case
may be, shall be prorated according to the proportion which such period bears
to the full month in which such effectiveness or termination occurs.
7. Limitation Of Liability. The Sub-Adviser shall not be liable for
------------------------
any error of judgment or mistake of law or for any loss suffered by the
Portfolio, the Trust or its shareholders or by Mitchell Hutchins in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross
B-2
<PAGE>
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
8. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify GEIM, its officers and
directors, and any person who controls GEIM within the meaning of Section 15
of the Securities Act of 1933 ("1933 Act") for any loss or expense (including
attorneys' fees) arising out of any claim, demand, action or suit in the event
that GEIM has been found to be without fault and Mitchell Hutchins or its
parent company, PaineWebber Incorporated ("PaineWebber"), has been found at
fault (i) by the final judgment of a court of competetent jurisdiction or (ii)
in any order of settlement of any claim, demand, action or suit that has been
approved by the Board of Directors of Mitchell Hutchins or PaineWebber.
(b) GEIM agrees to indemnify Mitchell Hutchins, its officers and
directors, and any person who controls Mitchell Hutchins within the meaning of
Section 15 of the 1933 Act for any loss or expense (including attorneys' fees)
arising out of any claim, demand, action or suit in the event that Mitchell
Hutchins has been found to be without fault and GEIM, or its parent company,
General Electric Company ("GE"), has been found at fault (i) by the final
judgment of a court of competetent jurisdiction or (ii) in any order of
settlement of any claim, demand, action or suit that has been approved by the
Board of Directors of GEIM or GE.
9. Representations of Sub-Adviser. The Sub-Adviser represents,
-------------------------------
warrants and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will seek to continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory agency,
necessary to be met in order to perform the services contemplated by this
Agreement; (iv) has the authority to enter into and perform the services
contemplated by this Agreement; and (v) will promptly notify Mitchell Hutchins
of the occurrence of any event that would disqualify the Sub-Adviser from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of that code of ethics, together with
evidence of its adoption. Within fifteen days of the end of the last calendar
quarter of each year that this Agreement is in effect, the president or a
vice-president of the Sub-Adviser shall certify to Mitchell Hutchins that the
Sub-Adviser has complied with the requirements of Rule 17j-1 during the
previous year and that there has been no violation of the Sub-Adviser's code
of ethics or, if such a violation has occurred, that appropriate action was
taken in response to such violation. Upon the written request of Mitchell
Hutchins, the Sub-Adviser shall permit Mitchell Hutchins, its employees or its
agents to examine the reports required to be made to the Sub-Adviser by Rule
17j-1(c)(1) and all other records relevant to the Sub-Adviser's code of
ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form
ADV as most recently filed with the Securities and Exchange Commission ("SEC")
and promptly will furnish a copy of all amendments to Mitchell Hutchins at
least annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of control
of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel of the Sub-
Adviser, in each case prior to or promptly after such change.
10. Representations and Warranties of Mitchell Hutchins. Mitchell
---------------------------------------------------
Hutchins represents, warrants and agrees as follows:
(a) Mitchell Hutchins (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act from
performing the services contemplated by the Management Agreement; (iii) has
met, and will seek to continue to
B-3
<PAGE>
meet for so long as this Agreement remains in effect, any other applicable
federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by the Management Agreement; (iv) has the
authority to enter into and perform the services contemplated by the
Management Agreement; and (v) will promptly notify the Sub-Adviser of the
occurrence of any event that would disqualify Mitchell Hutchins from serving
as an investment adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.
(b) Mitchell Hutchins agrees that it will notify GEIM, to the extent
possible, within a reasonable period of time prior to any termination of this
Agreement by Mitchell Hutchins pursuant to Section 11(c) (including any
termination by assignment resulting from a foreseeable change in control of
Mitchell Hutchins that is a matter of public information), and that it will
notify GEIM promptly following any other termination of this Agreement
pursuant to Section 11(c).
11. Duration and Termination.
-------------------------
(a) This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has
first been approved (i) by a vote of a majority of those trustees of the Trust
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (ii) by a vote of a majority of outstanding voting securities of the
Portfolio.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the above written date. Thereafter, if
not terminated, this Agreement will continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of those trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval, and (ii) by the Board or by the holders of a vote of a majority
of the outstanding voting securities of the Portfolio.
(c) Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of
a majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Sub-Adviser. This Agreement may also be terminated,
without the payment of any penalty, by Mitchell Hutchins: (i) upon 120 days'
written notice to the Sub-Adviser; (ii) upon material breach by the Sub-
Adviser of any of the representations and warranties set forth in Paragraph 9
of this Agreement; or (iii) if the Sub-Adviser becomes unable to discharge its
duties and obligations under this Agreement, including circumstances such as
financial insolvency of the Sub-Adviser or other circumstances that could
adversely affect the Portfolio. The Sub-Adviser may terminate this Agreement
at any time, without the payment of any penalty, on 120 days' written notice
to Mitchell Hutchins. This Agreement will terminate automatically in the event
of its assignment or upon termination of the Management Agreement.
12. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment to the terms of this
Agreement shall be effective until approved by vote of a majority of the
Portfolio's outstanding voting securities (unless the Trust receives an SEC
order permitting it to modify the Agreement without such vote).
13. Governing Law. This Agreement shall be construed in accordance with
--------------
the 1940 Act and the laws of the State of Delaware, without giving effect to
the conflicts of laws principles thereof. To the extent that the applicable
laws of the State of Delaware conflict with the applicable provisions of the
1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
--------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
B-4
<PAGE>
adviser," "net assets," "sale," "sell" and "security" shall have the same
meaning as such terms have in the 1940 Act, subject to such exemption as may
be granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may
be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:____________________________________
Name:
Title:
Attest: GE INVESTMENT MANAGEMENT INCORPORATED
By:_______________________________
Name:
Title:
B-5
<PAGE>
SCHEDULE A
RETAIL BROKER DEALERS
---------------------
[Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Dean Witter Reynolds, Inc.
E.D. Jones
Kemper Financial Services, Kemper Securities Group, Inc.
Legg Mason Wood Walker Incorporated
Merrill Lynch Pierce Fenner & Smith Incorporated
Prudential Securities Incorporated
Raymond James & Associates, Inc.
Smith Barney Inc.]
B-6
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
FUND ANNUAL FEE RATE
---- ---------------
<S> <C>
[PaineWebber Investment Series - PaineWebber 0.29% of average daily net assets attributable
Global Growth and Income Fund to equity portion of portfolio]
</TABLE>
B-7
<PAGE>
PROSPECTUS DECEMBER 29, 1994
- --------------------------------------------------------------------------------
Kidder, Peabody Global Equity Fund
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (800) 528-7778
Kidder, Peabody Global Equity Fund (the 'Fund'), a series of Kidder, Peabody
Investment Trust (the 'Trust'), is designed for investors seeking to expand
their investment horizon beyond the United States by investing their assets
internationally. The Fund's investment objective is long-term growth of capital,
which the Fund attempts to achieve by investing principally in foreign equity
securities.
This Prospectus briefly sets forth certain information about the Fund, including
applicable operating expenses, that prospective investors should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated December 29, 1994, has been filed with the Securities and
Exchange Commission (the 'SEC') and is available to investors upon request and
without charge by calling (800) 854-2505. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
- --------------------------------------------------------------------------------
MANAGER
Kidder Peabody Asset Management, Inc.
INVESTMENT ADVISER
GE Investment Management Incorporated
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
[Logo]
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
The table appearing below shows the costs and expenses that an investor would
incur, either directly or indirectly, as a shareholder of the Fund, based upon
the Fund's annual operating expenses.
<TABLE>
<CAPTION>
Class Class Class
A B C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases of Shares (as a percentage of
offering price)........................................................... 5.75% 0% 0%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)........................................................... 0% 0% 0%
Maximum Contingent Deferred Sales Charge (as a percentage of redemption
proceeds)................................................................. 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed)........................ 0% 0% 0%
Maximum Exchange Fee........................................................ 0% 0% 0%
Maximum Annual Investment Advisory Fee Payable by Shareholders Holding Class
C Shares through the INSIGHT Investment Advisory Program (as a percentage
of average daily value of shares held).................................... 0% 0% 1.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................................. 1.00% 1.00% 1.00%
Rule 12b-1 Fees............................................................. .25 1.00 0
Other Expenses.............................................................. .33 .33 .33
------- ------- -------
Total Fund Operating Expenses........................................... 1.58% 2.33% 1.33%
------- ------- -------
------- ------- -------
</TABLE>
The nature of the services provided to, and the aggregate management fees
paid by, the Fund are described below under 'Management of the Fund.' The Fund
bears an annual Rule 12b-1 service fee of .25% of the value of the average daily
net assets of Class A shares and an annual Rule 12b-1 fee of 1.00% of the value
of the average daily net assets of Class B shares, consisting of a .25% service
fee and a .75% distribution fee. Long-term shareholders of Class B Shares may
pay more than the economic equivalent of the maximum front-end sales charge
currently permitted by the rules of the National Association of Securities
Dealers, Inc. governing investment company sales charges. See 'Distributor.'
The percentage of 'Other Expenses' in the table above is based on amounts
incurred during the Fund's most recent fiscal year; these expenses include fees
for shareholder services, custodial fees, legal and accounting fees, printing
costs and registration fees, the costs of regulatory compliance, a portion of
the costs associated with maintaining the Trust's legal existence and the costs
involved in communicating with the Fund's shareholders.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above and (3) complete redemption at the end of
the period.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Class A................................ $73 $105 $139 $235
Class B................................ $24 $ 73 $125 $267
Class C................................ $29 $ 88 $149 $316
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. The example should not be considered to be a
representation of past or future expenses. Actual expenses of the Fund may be
greater or less than those shown above. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
2
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
The Trust The Trust is an open-end management investment company. See 'General Information.'
- ---------------------------------------------------------------------------------------------------------------------------
The Fund The Fund, which is a series of the Trust, is a diversified fund that seeks long-term growth of
capital by investing principally in foreign equity securities. See 'Design of the Fund' and
'Investment Objective and Policies.'
- ---------------------------------------------------------------------------------------------------------------------------
Benefits of Mutual funds, such as the Fund, are flexible investment tools that are increasingly
Investing popular -- one of four American households now owns shares of at least one mutual fund -- for
in the very sound reasons. The Fund offers investors the following important benefits:
Fund International Investing
The Fund offers investors the opportunity to participate in a number of international equity
markets that, in the view of GE Investment Management Incorporated ('GEIM'), the Fund's
investment adviser, have in the recent past significantly outperformed the U.S. equity
markets. At the same time, the Fund provides investors the ability to expand their investment
portfolios beyond investments solely in U.S. securities and, as a result, to help to reduce
the volatility of those portfolios. The Fund also provides individual investors with a means
of dealing with certain difficulties generally involved in international investing such as
limited access to foreign markets and typically high transaction costs. See 'Design of the
Fund.'
Professional Management
By pooling the monies of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and an array of investments that is typically beyond the
means of most investors. GEIM reviews the fundamental characteristics of far more securities
than can a typical individual investor and may employ portfolio management techniques that
frequently are not used by individual or many institutional investors. See 'Design of the
Fund -- Benefits of Investing through the Fund.'
Transaction Savings
By investing in the Fund, an investor is able to acquire ownership in a portfolio of
international securities without paying the higher transaction costs generally associated with
a series of small securities purchases. See 'Design of the Fund -- Benefits of Investing
through the Fund.'
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens normally
associated with direct ownership of securities. See 'Design of the Fund -- Benefits of
Investing through the Fund.'
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Liquidity
The Fund's convenient purchase and redemption procedures provide shareholders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase of Shares' and 'Redemption of Shares.'
Choice Pricing System
Under the Choice Pricing System'sm', the Fund presently offers three classes of shares
('Classes') that provide different methods of purchasing shares and allow investment
flexibility and a wider range of investment choices. See 'Purchase of Shares.'
Exchange Privilege
Shareholders of the Fund may exchange all or a portion of their shares for shares of the same
Class or the sole outstanding Class of specified funds in the Kidder Family of Funds. See
'Exchange Privilege.'
Total Portfolio Approach
The funds in the Kidder Family of Funds are designed to be strategically combined as part of
a total portfolio approach. This investment philosophy acknowledges the interplay of a
shareholder's many different investing needs and preferences and recognizes that every
investment move a shareholder makes alters the balance of his or her overall financial
profile. The Fund may be used in conjunction with other funds in the Kidder Family of Funds to
build a portfolio that maximizes the potential of available assets while meeting many
different -- and changing -- financial needs.
- ---------------------------------------------------------------------------------------------------------------------------
Purchase of Kidder, Peabody & Co. Incorporated ('Kidder, Peabody'), a major full-line investment services
Shares firm serving the United States and foreign securities markets, acts as the distributor of the
Fund's shares. The Fund presently offers three Classes of shares that differ principally in
terms of the sales charges and rate of expenses to which they are subject and are designed to
provide an investor with the flexibility of selecting an investment best suited to the
investor's needs. See 'Purchase of Shares' and 'Distributor.'
Class A Shares
The public offering price of Class A shares is the net asset value per share next determined
after a purchase order is received, plus a maximum sales charge of 5.75% (6.08% of the net
amount invested). Investors purchasing $50,000 or more, certain employee benefit plans and
employees of Kidder, Peabody's affiliates are eligible for reduced sales charges. The Fund
pays Kidder, Peabody a service fee with respect to Class A shares at the annual rate of .25%
of the value of the average daily net assets attributable to this Class.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Class B Shares
The public offering price of Class B Shares is the net asset value per share next determined
after a purchase order is received without imposition of a sales charge. The Fund pays Kidder,
Peabody a service fee at the annual rate of .25%, and a distribution fee at the annual rate of
.75%, of the average daily net assets attributable to this Class.
Class C Shares
The public offering price of Class C shares, which are available exclusively to employees of
Kidder, Peabody and their associated accounts, directors or trustees of any fund in the Kidder
Family of Funds, employee benefit plans of Kidder, Peabody and participants in the INSIGHT
Investment Advisory Program 'sm' ('INSIGHT'), is the net asset value per share next
determined after a purchase order is received without imposition of a sales charge. This Class
bears no service or distribution fees. Participation in INSIGHT is subject to payment of an
advisory fee at the maximum annual rate of 1.50% of assets held through INSIGHT, generally
charged quarterly in advance.
Investment Minimums
The minimum initial investment in the Fund is $1,000 and the minimum subsequent investment is
$50, except that for individual retirement accounts ('IRAs'), other tax qualified retirement
plans and accounts established pursuant to the Uniform Gifts to Minors Act, the minimum
initial investment is $250 and the minimum subsequent investment is $1.00. See 'Purchase of
Shares.'
- ---------------------------------------------------------------------------------------------------------------------------
Redemption of Shares of the Fund may be redeemed at the Fund's next determined net asset value per share.
Shares Redemptions are not subject to any contingent deferred sales charges or other charges. See
'Redemption of Shares.'
- ---------------------------------------------------------------------------------------------------------------------------
Management
Kidder Peabody Asset Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody,
serves as the Fund's manager and receives a fee, accrued daily and paid monthly, at the annual
rate of 1.00% of the Fund's average daily net assets. KPAM in turn employs GEIM, a wholly-owned
subsidiary of General Electric Company ('GE'), as the Fund's investment adviser, in which
capacity GEIM receives from KPAM a fee, accrued daily and paid monthly, at the annual rate of
.70% of the Fund's average daily net assets up to $200 million and .50% of the Fund's average
daily net assets equal to or in excess of $200 million. The rate of fee paid by the Fund for
investment management services, which is higher than the rate of management fees paid by most
other registered investment companies, reflects the need to devote additional time and incur
added expense in developing the specialized resources contemplated by international investing.
General Electric Capital Services, Inc., a wholly-owned subsidiary of GE, owns all the
outstanding stock of Kidder, Peabody Group Inc. ('Kidder Group'), the parent company of Kidder,
Peabody. See 'Management of the Fund' and 'Distributor.'
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Risk Factors No assurance can be given that the Fund will achieve its investment objective. Investing in an
and Special investment company that invests in securities of companies and governments of foreign
Considerations countries, particularly developing countries, involves risks that go beyond the usual risks
inherent in an investment company limiting its holdings to domestic investments; foreign
brokerage commissions, for example, are generally higher than those charged in the United
States, and foreign securities markets may be less liquid, more volatile and subject to less
governmental supervision than in the United States. A substantial portion of the Fund's assets
may be held in securities denominated in one or more foreign currencies, which will result in
the Fund's bearing the risk that those currencies may lose value in relation to the U.S.
dollar. In investing in non-publicly traded securities and in other investment companies, the
Fund is subject to a number of risks. The Fund may also be subject to certain risks in using
certain investment techniques and strategies such as entering into forward currency contracts,
trading futures contracts and options on futures contracts, entering into transactions
involving options on foreign currencies, stock indexes and securities, lending portfolio
securities, entering into repurchase agreements and purchasing securities on a when-issued or
delayed-delivery basis. See 'Investment Objective and Policies -- Risk Factors and Special
Considerations' at page 16 of this Prospectus.
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Trust with respect to
the Fund by Deloitte & Touche LLP. Financial statements for the fiscal year
ended August 31, 1994 and the report of independent auditors are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------------------
PERIOD PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
-------------------------------------------------------------------------------------------
1992`D' 1993 1994 1993`D'`D' 1994 1993`D'`D' 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $12.00 $12.87 $14.55 $13.80 $14.52 $13.80 $14.56
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income/(loss).............. 0.09 0.03 0.01 (0.02) (0.07) 0.02 0.05
Net realized and unrealized
gains on investments....... 0.78 1.89 2.63 0.74 2.57 0.74 2.63
-------------------------------------------------------------------------------------------
Total from investment
operations................. 0.87 1.92 2.64 0.72 2.50 0.76 2.68
-------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income........ -- (0.08) -- -- -- -- --
Net realized capital gains... -- (0.16) (0.21) -- (0.21) -- (0.21)
-------------------------------------------------------------------------------------------
Total distributions.......... -- (0.24) (0.21) -- (0.21) -- (0.21)
-------------------------------------------------------------------------------------------
Net asset value, end of
period..................... $12.87 $14.55 $16.98 $14.52 $16.81 $14.56 $17.03
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Total return#................ 7.25% 15.24% 18.23% 5.22% 17.29% 5.51% 18.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)................. $113,070 $156,451 $185,493 $10,807 $31,837 $19,098 $28,390
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding
distribution and service
fees....................... 1.43%* 1.28% 1.33% 1.28%* 1.33% 1.28%* 1.33%
Expenses, including
distribution and service
fees....................... 1.68%* 1.53% 1.58% 2.28%* 2.33% 1.28%* 1.33%
Net investment income........ 0.93%* 0.22% 0.07% (0.53)%* (0.68)% 0.47%* 0.32%
PORTFOLIO TURNOVER RATE...... 30.32% 56.35% 50.73% 56.35% 50.73% 56.35% 50.73%
</TABLE>
`D' From November 14, 1991 (Commencement of Operations), to August 31, 1992.
`D'`D' From May 10, 1993 (Commencement of Class Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales load, and is calculated
by giving effect to the reinvestment of dividends on the dividend payment date.
* Annualized
7
<PAGE>
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DESIGN OF THE FUND
The Fund is designed for investors seeking the opportunity to expand their
investment horizon beyond the United States through an actively managed
portfolio principally composed of foreign equity securities. At the same time,
the Fund provides individual investors a means of dealing with the difficulties
often associated with international investing.
ATTRACTIVE INVESTMENT OPPORTUNITIES
By having the flexibility of investing in the securities of issuers located
throughout the world, the Fund is designed to benefit from emerging investment
opportunities existing outside of the United States. A number of international
equity markets have significantly outperformed the U.S. equity markets over the
recent past, and GEIM believes that foreign markets could continue to offer
attractive investment opportunities in the future. In Western Europe, for
example, market deregulation, privatization and lowered barriers to
international investment and trade have already created new investment
opportunities, and economic and political developments in Eastern Europe could
open previously inaccessible markets and provide low-cost labor, which could in
turn further stimulate European economies.
Like many European countries, the newly industrialized countries of Asia
and the Pacific Rim may offer significant opportunities in the future. The
relaxation of trade barriers and the freer movement of capital are increasing
the flow of commerce and promoting economic independence within many countries
in Asia and the Pacific Rim, and the relatively low-cost work force available in
those countries is attracting foreign capital and fueling the growth of
manufacturing industries there.
POTENTIALLY REDUCED VOLATILITY
The Fund's investing in multiple securities markets located throughout the world
that often act independently of each other should help to reduce the volatility
of the Fund's portfolio.
BENEFITS OF INVESTING THROUGH THE FUND
Individual investors undertaking foreign investments often encounter
complications and extra costs. They have found it difficult, for example: to
make purchases and sales of securities; to deal with clearance and settlement
procedures that may differ markedly from those applicable in the United States;
to obtain current information about foreign companies; to hold securities in
safekeeping; and to convert the value of their investments from foreign
currencies into U.S. dollars. The Fund attempts to solve these problems for an
investor by providing the investor with an international investment portfolio
that is managed actively by experienced professionals.
8
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term growth of capital, which the Fund
attempts to achieve by investing principally in foreign equity securities. No
assurance can be given that the Fund will be able to achieve its investment
objective, which may be changed only with the approval of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the '1940 Act'), as the lesser of (1) 67% or more of the
shares present at a Fund meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy or (2) more
than 50% of the outstanding shares of the Fund.
The Fund's annual report for the fiscal year ended August 31, 1994 contains
information regarding relevant market conditions and investment strategies and
techniques pursued by KPAM during such fiscal year and is available to
shareholders without charge upon request made to the Fund at the address listed
on the front cover page of this Prospectus.
INTERNATIONAL INVESTING
The Fund invests in a portfolio of securities issued by companies located in
developed and developing countries throughout the world. Although the Fund is
subject to no prescribed limits on geographic asset distribution, under normal
circumstances, at least 65% of the Fund's assets will be invested in no fewer
than three different countries. In addition, under normal circumstances, at
least 80% of the Fund's total assets will at any one time be invested in
companies or governments of countries represented in the Morgan Stanley Capital
International World Index, a well-known index reflecting developed and
developing markets throughout the world. Although, under normal circumstances,
the Fund invests principally in foreign securities, under unstable market,
economic, political or currency conditions abroad, the Fund may restrict the
securities markets in which its assets are invested and invest all or a
significant portion of its assets in securities of U.S. or Canadian issuers.
TYPES OF PORTFOLIO INVESTMENTS
The Fund does, under normal conditions, invest at least 65% of its assets in
common stocks, preferred stocks, convertible bonds, convertible debentures,
convertible notes, convertible preferred stocks and common stock purchase
warrants or rights, issued by established foreign and domestic companies. The
equity securities in which the Fund invests will in most cases be traded on
foreign or domestic securities exchanges.
In selecting investments on behalf of the Fund, GEIM seeks companies that
are expected to grow faster than relevant markets and whose securities are
available at a price that does not fully reflect the potential growth of those
companies. GEIM typically focuses on companies that possess one or more of a
variety of characteristics, including strong earnings growth relative to price
to earnings ratio, low price to book value, strong cash flow, presence in an
industry experiencing strong growth and high quality management.
9
<PAGE>
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The Fund may invest up to 35% of its total assets in bonds, notes and
debentures of short-to medium-term maturity (that is, no longer than seven years
in maturity) issued by corporate or governmental entities when GEIM believes
that investing in those kinds of debt securities is consistent with the Fund's
investment objective of long-term growth of capital. Because the market value of
debt securities can be expected to vary inversely with changes in prevailing
interest rates, investing in debt securities may provide an opportunity for
capital appreciation when interest rates are expected to decline.
The Fund limits its purchases of debt securities to those that are
investment grade. Securities will be deemed to be of investment grade if they
are rated within the four highest categories established by Standard & Poor's
Corporation ('Standard & Poor's') or Moody's Investors Service, Inc. ('Moody's')
or, if unrated, deemed by GEIM to be of comparable quality. Securities rated in
the fourth highest category, that is, rated BBB by Standard & Poor's or Baa by
Moody's, are considered to possess speculative characteristics. In addition,
adverse changes in economic conditions are more likely to weaken the ability of
issuers of these debt securities to pay principal and interest.
Up to 5% of the value of the Fund's total assets may be invested in
restricted securities, which are securities that may be sold only in a privately
negotiated transaction or in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933, as
amended. In addition, up to 10% of the value of the Fund's net assets may be
invested in restricted securities, illiquid securities, which are securities
lacking readily available markets, and securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
From time to time, the Fund invests in the following types of illiquid
securities: (1) venture capital investments (that is, investments in new and
early-stage companies whose securities are not publicly traded), (2) joint
venture participations, (3) options purchased by the Fund over-the-counter and
the assets used by the Fund to collateralize options written by the Fund
over-the-counter, (4) repurchase agreements not maturing within seven days and
(5) time deposits with maturities in excess of seven days. The Fund typically
invests through a joint venture participation when direct investment by
foreigners in certain entities is restricted by local law or custom. If the Fund
participates in such a joint venture, it anticipates doing so through a
specially-created subsidiary or other special arrangement designed to protect
the Fund to the maximum extent feasible from potential liability.
The Fund may invest in investment funds that invest principally in
securities in which the Fund is authorized to invest. Under the 1940 Act, the
Fund may invest a maximum of 10% of its total assets in the securities of other
investment companies. In addition, under the 1940 Act, not more than 5% of the
Fund's total assets may be invested in the securities of any one investment
company, and the Fund may not own more than 3% of the securities of any
investment company.
The Fund may invest in securities of foreign issuers in the form of
American Depositary Receipts ('ADRs'), which are U.S. dollar-denominated
receipts typically issued by domestic banks or trust companies, and which
represent the deposit with those entities of securities of a foreign issuer.
ADRs are publicly traded on exchanges or over-the-counter in the United States
and are issued through 'sponsored' or 'unsponsored' arrangements. In a sponsored
ADR arrangement, the foreign issuer assumes the obligation to pay some or all of
the depositary's
10
<PAGE>
- --------------------------------------------------------------------------------
transaction fees, whereas under an unsponsored arrangement, the foreign issuer
assumes no obligations and the depositary's transaction fees are paid directly
by the ADR holders. The Fund may invest in ADRs through both sponsored and
unsponsored arrangements.
The Fund, in addition to investing in foreign securities in the form of
ADRs, may purchase European Depositary Receipts ('EDRs'), which are sometimes
referred to as Continental Depositary Receipts ('CDRs'). EDRs and CDRs are
generally issued by foreign banks and evidence ownership of either foreign or
domestic securities.
Under unstable market, economic, political or currency conditions abroad,
the Fund may assume a temporary defensive posture and without limitation hold
cash and invest in money market instruments. To the extent that it holds cash or
invests in money market instruments, the Fund will not achieve its investment
objective of long-term growth of capital.
The Fund may invest in the following types of money market instruments:
securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities ('Government Securities'); obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities that are rated AAA or AA by Standard
& Poor's, Aaa or Aa by Moody's, or that have received an equivalent rating from
another nationally recognized rating agency, or if unrated, deemed by GEIM to be
of equivalent quality; bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of foreign or domestic banks, domestic savings
and loan associations and other banking institutions having total assets in
excess of $500 million); commercial paper rated no lower than A-1 by Standard &
Poor's or Prime-1 by Moody's, or the equivalent from another major rating
service, or, if unrated, of an issuer having an outstanding unsecured debt issue
then rated within the three highest rating categories; and repurchase agreements
meeting the conditions described below under 'Investment Techniques and
Strategies -- Repurchase Agreements.' At no time will the Fund's investments in
bank obligations, including time deposits, exceed 25% of the value of its
assets.
Government Securities in which the Fund may invest include: direct
obligations of the United States Treasury, and obligations issued or guaranteed
by the United States Government or one of its agencies or instrumentalities.
Among the Government Securities that may be held by the Fund are instruments
that are supported by the full faith and credit of the United States;
instruments that are supported by the right of the issuer to borrow from the
United States Treasury; and instruments that are supported solely by the credit
of the instrumentality.
The Fund is authorized to invest in obligations of foreign banks or foreign
branches of domestic banks that are traded in the United States or outside the
United States, but that are denominated in U.S. dollars. These obligations
entail risks that are different from those of investments in obligations of
domestic banks, including foreign economic and political developments outside
the United States, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding or other taxes on income. Foreign branches of domestic
banks are not necessarily subject to the same or similar regulatory requirements
that apply to foreign banks, such as mandatory reserve requirements, loan
limitations and accounting, auditing and financial
11
<PAGE>
- --------------------------------------------------------------------------------
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank than about a domestic bank.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund is authorized to engage in any one or more of the specialized
investment techniques and strategies described below:
FORWARD CURRENCY TRANSACTIONS. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which the Fund's securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another at a future date. The date (which may be any agreed-upon fixed
number of days in the future), the amount of currency to be exchanged and the
price at which the exchange will take place will be negotiated and fixed for the
term of the contract at the time that the Fund enters into the contract. Forward
currency contracts (1) are traded in a market conducted directly between
currency traders (typically, commercial banks or other financial institutions)
and their customers, (2) generally have no deposit requirements and (3) are
typically consummated without payment of any commissions. The Fund, however, may
enter into forward currency contracts requiring deposits or involving the
payment of commissions. To assure that the Fund's forward currency contracts are
not used to achieve investment leverage, the Fund segregates cash or readily
marketable securities with its custodian, or a designated sub-custodian, in an
amount at all times equal to or exceeding the Fund's commitment with respect to
the contracts.
Upon maturity of a forward currency contract, the Fund may (1) pay for and
receive the underlying currency, (2) negotiate with the dealer to roll over the
contract into a new forward currency contract with a new future settlement date
or (3) negotiate with the dealer to terminate the forward contract by entering
into an offset with the currency trader providing for the Fund's paying or
receiving the difference between the exchange rate fixed in the contract and the
then current exchange rate. The Fund may also be able to negotiate such an
offset prior to maturity of the original forward contract. No assurance can be
given that new forward contracts or offsets will always be available to the
Fund.
In hedging a specific portfolio position, the Fund may enter into a forward
contract with respect to either the currency in which the position is
denominated or another currency deemed appropriate by GEIM. The amount the Fund
may invest in forward currency contracts is limited to the amount of the Fund's
aggregate investments in foreign currencies. See the Statement of Additional
Information for a further discussion of forward currency contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in the
U.S. dollar value of foreign currency-denominated securities and against
increases in the U.S. dollar cost of securities to be acquired by the Fund. Like
the writing of other kinds of options, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received; the Fund could also be required, with respect to any option it has
written, to purchase or sell foreign
12
<PAGE>
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currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although in the event of rate movements
adverse to the Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by the Fund are traded on U.S. exchanges or over-the-
counter. The Fund limits the premiums paid on options on foreign currencies to
5% of the value of its total assets. See the Statement of Additional Information
for a further discussion of the use, risks and costs of options on foreign
currencies.
STOCK OPTIONS. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) 'covered' call options. A put option provides its purchaser
with the right to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during or at the
end of the option period. In contrast, a call option gives the purchaser the
right to buy the underlying security covered by the option from the writer of
the option at the stated exercise price. A covered call option contemplates
that, for so long as the Fund is obligated as the writer of the option, it will
own (1) the underlying securities subject to the option or (2) securities
convertible into, or exchangeable without the payment of any consideration for,
the securities subject to the option. The value of the underlying securities on
which covered call options will be written at any one time by the Fund will not
exceed 5% of the Fund's total assets.
The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has the right to sell the securities underlying the option and as the
holder of a call option, the Fund has the right to purchase the securities
underlying the option, in each case at the option's exercise price at any time
prior to, or on, the option's expiration date. The Fund may choose to exercise
the options it holds, permit them to expire or terminate them prior to their
expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investments, the Fund may purchase and write put and call options on stock
indexes listed on foreign or domestic securities exchanges, which indexes
include securities held in the Fund's portfolio. The Fund may also use stock
index options as a means of participating in a foreign equity market without
making direct purchases of equity securities.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. Options on
stock indexes are generally similar to options on specific securities. Unlike
those on securities, however, options on stock indexes do not involve the
delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
When the Fund writes an option on a stock index, it will establish a
segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash or cash
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equivalents or a combination of both in an amount equal to the market value of
the option, and will maintain the account while the option is open. If the Fund
has written a stock index option, it may terminate its obligation by effecting a
closing purchase transaction, which is accomplished by purchasing an option of
the same series as the option previously written.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may trade
stock index, currency and interest rate futures contracts, and options on those
contracts, for a variety of risk reduction purposes such as hedging a portion of
the Fund's portfolio, providing an efficient means of regulating the Fund's
exposure to certain equity markets or hedging against changes in prevailing
levels of currency exchange rates. A stock index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. A currency futures contract is a standardized contract for the future
delivery of a specified amount of currency at a future date at a price set at
the time of the contract, and an interest rate futures contract is a similar
contract for the future delivery of a specific debt security. An option on a
futures contract, in contrast to a direct investment in the contract, gives the
purchaser the right, in return for the premium paid, to assume a position in the
underlying futures contract at a specified exercise price at any time on or
before the expiration date of the option.
The Fund may assume both 'long' and 'short' positions with respect to
futures contracts. A long position involves entering into a futures contract to
buy a commodity, whereas a short position involves entering into a futures
contract to sell a commodity. In entering into futures contracts, the Fund is
required to make initial 'margin' payments, which are payments in the nature of
performance bonds or good faith deposits, and to make 'variation' margin
payments from time to time as the values of the futures contracts fluctuate.
The Fund does not (1) trade any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid on
its outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Fund after taking into account unrealized profits and
losses on any futures contracts or options on futures contracts or (2) enter
into any futures contracts or options on futures contracts if the aggregate of
the market value of the Fund's outstanding futures contracts and market value of
the currencies and futures contracts subject to outstanding options written by
the Fund would exceed 50% of the market value of the total assets of the Fund.
Each short position in a futures or options contract entered into by the Fund is
secured by the Fund's ownership of underlying securities. The Fund does not use
leverage when it enters into long futures or options contracts; the Fund places
in a segregated account with its custodian, or designated sub-custodian, with
respect to each of its long positions, cash, short-term Government Securities or
other U.S. dollar-denominated, high-grade, short-term money market instruments,
having a value equal to the underlying commodity value of the contract.
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping
to meet its operating expenses, the Fund may lend securities to well-known and
recognized U.S. and foreign brokers, dealers and banks. These loans, if and when
made, may not exceed 30% of the Fund's assets taken at market value. The Fund's
loans of securities will be collateralized by cash, letters of credit or
Government Securities. The cash or instruments collateralizing the Fund's loans
of
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securities are maintained at all times in a segregated account with the Fund's
custodian, or with a designated sub-custodian, in an amount at least equal to
the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, will not exceed 10% of the Fund's net assets. The Fund may
engage in repurchase agreement transactions with certain member banks of the
Federal Reserve System and with certain dealers listed on the Federal Reserve
Bank of New York's list of reporting dealers. Under the terms of a typical
repurchase agreement, the Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than seven days) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the securities underlying a repurchase agreement of the Fund is
monitored on an ongoing basis by GEIM or KPAM to ensure that the value is at
least equal at all times to the total amount of the repurchase obligation,
including interest. GEIM or KPAM also monitors, on an ongoing basis to evaluate
potential risks, the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund enters into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.
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INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with respect
to the Fund that may not be changed without approval of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). Included among those
fundamental restrictions are the following:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, or more than 10% of the securities of any class of any
one issuer, except that this limitation is not applicable to the Fund's
investments in Government Securities, and up to 25% of the Fund's assets
may be invested without regard to these 10% limitations.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government and (b) any supranational organization.
Certain other investment restrictions adopted by the Trust with respect to
the Fund are described in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as those
described below:
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by foreign
companies and governments involves considerations and potential risks not
typically associated with investing in obligations issued by the United States
Government and domestic corporations. Less information may be available about
foreign companies than about domestic companies, and foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. The values of foreign investments are affected
by changes in currency rates or exchange control regulations, restrictions or
prohibitions on the repatriation of
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foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States, and foreign securities markets may be less
liquid, more volatile and subject to less governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by: the intervention of the U.S.
government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.
INVESTING IN DEVELOPING COUNTRIES. Investing in securities issued by
companies located in developing countries involves exposure to economic
structures that are generally less diverse and mature than, and to political
systems that can be expected to have less stability than, those of developed
countries. Other characteristics of developing countries that may affect
investment in their markets include certain national policies that may restrict
investment by foreigners in issuers or industries deemed sensitive to relevant
national interests and the absence of developed legal structures governing
private and foreign investments and private property. The typically small size
of the markets for securities issued by companies located in developing
countries and the possibility of a low or nonexistent volume of trading in those
securities may also result in a lack of liquidity and in price volatility of
those securities.
NON-PUBLICLY TRADED SECURITIES. Non-publicly traded securities may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In addition, companies whose
securities are not publicly traded are not subject to the disclosure and other
investor protection requirements that may be applicable if their securities were
publicly traded.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent the Fund invests
in other investment companies, the Fund's shareholders incur certain duplicative
fees and expenses, including investment advisory fees.
FORWARD CURRENCY CONTRACTS. In entering into foreign currency contracts,
the Fund is subject to a number of risks and special considerations. The market
for forward currency contracts, for example, may be limited with respect to
certain currencies. The existence of a limited market may in turn restrict the
Fund's ability to hedge against the risk of devaluation of currencies in which
the Fund holds a substantial quantity of securities. The successful use of
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forward currency contracts as a hedging technique draws upon GEIM's special
skills and experience with respect to those instruments and usually depends on
GEIM's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of forward currency contracts or
may realize losses and thus be in a less advantageous position than if those
strategies had not been used. Many forward currency contracts are subject to no
daily price fluctuation limits so that adverse market movements could continue
with respect to those contracts to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of those contracts and
movements in the prices of the currencies hedged or used for cover will not be
perfect.
The Fund's ability to dispose of its positions in forward currency
contracts depends on the availability of active markets in those instruments,
and GEIM cannot now predict the amount of trading interest that may exist in the
future in forward currency contracts. Forward currency contracts may be closed
out only by the parties entering into an offsetting contract. As a result, no
assurance can be given that the Fund will be able to utilize these contracts
effectively for the purposes described above.
STOCK OPTIONS. The Fund receives a premium when it writes call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise price of the option for as long as
the Fund's obligation as writer of the option continues. Thus, in some periods,
the Fund will receive less total return and in other periods greater total
return from its hedged positions than it would have received from its underlying
securities if unhedged.
In purchasing a put option, the Fund seeks to benefit from a decline in the
market price of the underlying security, whereas in purchasing a call option,
the Fund seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
STOCK INDEX OPTIONS. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded. If the Fund writes a stock index option, it may terminate its obligation
by effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases
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or writes stock index options only if a liquid secondary market for the options
purchased or sold appears to exist, no such secondary market may exist, or the
market may cease to exist at some future date, for some options. No assurance
can be given that a closing purchase transaction can be effected when the Fund
desires to engage in such a transaction.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
transactions involving futures contracts and options on those contracts, the
Fund is subject to a number of risks and special considerations. As suggested
above, many of the securities that may be held by the Fund are denominated in
currencies for which no, or only a highly illiquid, futures or option market
exists, which in turn restricts the Fund's ability to hedge against the risk of
devaluation of currencies in which the Fund holds a substantial quantity of
securities. The successful use of futures contracts and options on those
contracts draws upon GEIM's special skills and experience with respect to those
instruments and usually depends on GEIM's ability to forecast stock market,
currency exchange rate or interest rate movements correctly. Should stock
markets, exchange rates or interest rates move in an unexpected manner, the Fund
may not achieve the anticipated benefits of futures contracts or options on
those contracts or may realize losses and thus be in a less advantageous
position than if those strategies had not been used. Certain futures contracts
and options on futures contracts are subject to no daily price fluctuation
limits so that adverse market movements could continue with respect to those
instruments to an unlimited extent over a period of time. In addition, the
correlation between movements in the prices of those instruments and movements
in the price of the securities and currencies hedged or used for cover are not
perfect.
The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities and currencies are relatively new and still developing. GEIM cannot
now predict the amount of trading interest that may exist in the future in
various types of futures contracts and options. Futures and options may be
closed out only on the exchange on which the contract was entered (or a linked
exchange) so that no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes described above. In
addition, although the Trust anticipates that the Fund's options and futures
transactions will not prevent the Fund from qualifying as a regulated investment
company for federal income tax purposes, the Fund's ability to engage in options
and futures transactions may be limited by this tax consideration. See
'Dividends, Distributions and Taxes -- Taxes.' In writing options, the Fund is
subject to the risk of loss resulting from the difference between the premium
received for the option and the price of the futures contract underlying the
option that the Fund must purchase or deliver upon exercise of the option.
LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which
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the Fund seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or a part of
the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
The Fund will not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. Purchasing
securities on a when-issued or delayed-delivery basis can involve the additional
risk that the yield available in the market when the delivery takes place may be
higher than that obtained in the transaction itself.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Trustees have determined that, to the extent consistent with applicable
provisions of the 1940 Act and rules and exemptions adopted by the SEC under the
1940 Act, transactions for the Fund may be executed through Kidder, Peabody if,
in the judgment of GEIM, the use of Kidder, Peabody is likely to result in price
and execution at least as favorable to the Fund as those obtainable through
other qualified broker-dealers, and if, in the transaction, Kidder, Peabody
charges the Fund a fair and reasonable rate consistent with that charged to
comparable unaffiliated customers in similar transactions.
For the fiscal years ended August 31, 1994 and August 31, 1993, the Fund's
portfolio turnover rates were 50.7% and 56.4%, respectively. An annual turnover
rate of 100% would occur if all of the securities held by the Fund are replaced
once during a period of one year.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees, and the day-to-day operations of the Fund are
conducted through or under the direction of officers of the Trust. The Statement
of Additional Information contains general background information regarding each
Trustee and officer of the Trust.
MANAGER
KPAM, located at 60 Broad Street, New York, New York 10004-2350, serves as the
Fund's manager. A wholly-owned subsidiary of Kidder, Peabody, and a registered
investment adviser under the Investment Advisers Act of 1940, as amended (the
'Advisers Act'), KPAM currently provides investment management, investment
advisory and administrative services to a wide variety of individual and
institutional clients. The Kidder, Peabody Asset Management Group of Companies
(of which KPAM is the primary entity) provides advisory and consulting services
to more than $18 billion in assets as of September 30, 1994. General Electric
Capital Services, Inc., a wholly-owned subsidiary of GE, owns all of the
outstanding stock of Kidder Group, the parent company of Kidder, Peabody.
Under an agreement dated October 17, 1994, GE and Kidder Group agreed to
sell to PaineWebber Group Inc. certain assets of Kidder Group and its
subsidiaries, including Kidder,
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Peabody and KPAM. The consummation of this transaction, which is subject to a
number of conditions and cannot be assured, will result in the deemed assignment
and automatic termination of the agreements pursuant to which Kidder, Peabody
serves as the principal underwriter of the Fund's shares and KPAM serves as the
Fund's manager. Institution of new arrangements with Kidder, Peabody's and
KPAM's successors following the consummation of the transaction, anticipated to
occur in the first quarter of 1995, have been approved by the Trustees and
separately by a majority of the Trustees who are not 'interested persons' of the
Fund within the meaning of the 1940 Act. In addition, the Fund's new management
arrangements will require approval by the holders of a 'majority of the
outstanding voting securities' of the Fund, as defined in the 1940 Act. No
assurance can be given that the required shareholder approvals will be obtained
and, if they are not, the Trustees will take such action as they determine to be
appropriate and in the best interests of the Fund and its shareholders.
As the Fund's manager, KPAM, subject to the supervision and direction of
the Trustees, is generally responsible for furnishing, or causing to be
furnished to the Fund, investment advisory and management services. Included
among the specific services provided by KPAM as manager are: the selection and
compensation of an investment adviser to the Fund; the review of all purchases
and sales of portfolio instruments made by the Fund to assess compliance with
its stated investment objective and policies; the monitoring of the selection of
brokers and dealers effecting transactions on behalf of the Fund; the
maintenance and furnishing of all required records or reports pertaining to the
Fund to the extent those records or reports are not maintained or furnished by
the Fund's transfer agent, custodian or other agents employed by the Fund; the
providing of general administrative services to the Fund not otherwise provided
by the Fund's transfer agent, custodian or other agents employed by the Fund;
and the payment of reasonable salaries and expenses of those of the Fund's
officers and employees, and the fees and expenses of those Trustees, who are
directors, officers or employees of KPAM. From time to time, KPAM in its sole
discretion may waive all or a portion of its fee and/or reimburse all or a
portion of the Fund's operating expenses.
For the fiscal year ended August 31, 1994, the Trust paid KPAM a fee for
services provided to the Fund that is accrued daily and paid monthly at the
annual rate of 1.00% of the Fund's average daily net assets. The rate of fee
paid to KPAM, which is higher than the rate of management fees paid by most
other investment companies registered under the 1940 Act, reflects the need to
devote additional time and incur added expense in developing the specialized
resources contemplated by international investing. For the fiscal year ended
August 31, 1994, Class A's, Class B's and Class C's total expenses represented
1.58%, 2.33% and 1.33% of their average daily net assets, respectively.
INVESTMENT ADVISER
Under the terms of an investment advisory agreement among KPAM, the Trust and
GEIM, KPAM employs GEIM as the Fund's investment adviser. GEIM, located at 3003
Summer Street, P.O. Box 7900, Stamford, Connecticut 06904, is a wholly-owned
subsidiary of GE and a registered investment adviser under the Advisers Act.
GEIM, which was formed under the laws of Delaware in 1988, currently provides
investment management services to various institutional accounts with total
assets, as of September 30, 1994, in excess of $8.0 billion.
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GEIM also serves as the investment adviser to Kidder, Peabody Intermediate
Fixed Income Fund, another series of the Trust, and Kidder, Peabody Municipal
Bond Fund, a series of Kidder, Peabody Investment Trust II. GEIM also serves as
investment adviser and administrator of GE Funds, an open-end management
investment company. In addition, GEIM's principal officers and directors serve
in similar capacities with respect to General Electric Investment Corporation
('GEIC'), which like GEIM is a wholly-owned subsidiary of GE, and which
currently acts as the investment adviser of the Elfun group of funds, including
the Elfun Global Fund, an open-end management investment company registered
under the 1940 Act, that has an investment objective and policies substantially
similar to those of the Fund. Investment in the Elfun Global Fund is generally
limited to regular and senior members of the Elfun Society, whose regular
members are selected from active employees of GE and/or its majority-owned
subsidiaries, and whose senior members are former members who have retired from
those companies.
Ralph R. Layman serves as Chief Investment Officer of the Fund and in that
capacity is the individual primarily responsible for the management of the
Fund's assets. Mr. Layman is an Executive Vice President of GEIM and GEIC, an
affiliate of GEIM and a registered investment adviser. Prior to July 1991, Mr.
Layman served as Executive Vice President, partner and portfolio manager of
Northern Capital Management Co.
As the Fund's investment adviser, GEIM, subject to the supervision and
direction of the Trustees, and subject to review by KPAM, manages the Fund's
portfolio in accordance with the investment objective and stated policies of the
Fund, makes investment decisions for the Fund and places purchase and sale
orders for the Fund's portfolio transactions. GEIM also pays the salaries of all
officers and employees who are employed by both it and the Trust, provides the
Fund with investment officers who are authorized by the Board of Trustees to
execute purchases and sales of securities on behalf of the Fund and employs a
professional staff of portfolio managers who draw upon a variety of sources for
research information for the Fund.
For the fiscal year ended August 31, 1994, KPAM paid GEIM a fee for
services provided by GEIM to the Fund that was accrued daily and paid monthly at
the annual rate of .70% of the value of the Fund's average daily net assets. In
February 1994, the shareholders of the Fund approved a new Investment Advisory
Agreement relating to the Fund under which the fee that KPAM pays to GEIM was
changed to .70% annually of the Fund's average daily net assets up to $200
million and .50% annually of the Fund's average daily net assets equal to or in
excess of $200 million. This fee is accrued daily and paid monthly. The Fund
pays no direct fee to GEIM. From time to time, GEIM in its sole discretion may
waive all or a portion of its fee.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by GEIM, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or more
other accounts managed by GEIM are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales are
allocated in a manner believed by GEIM to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund.
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EXPENSES
Each Class bears its own expenses, which generally include all costs not
specifically borne by KPAM and GEIM. Included among a Class' expenses are costs
incurred in connection with the Class' and Fund's organization; management and
investment advisory fees; any distribution and/or servicing fees; fees for
necessary professional and brokerage services; fees for any pricing service used
in connection with the valuation of shares; the costs of regulatory compliance;
and a portion of the costs associated with maintaining the Trust's legal
existence and corresponding with shareholders of the Fund. The Trust's agreement
with KPAM provides that KPAM will reduce its fees to the Fund to the extent
required by applicable state laws for certain expenses that are described in the
Statement of Additional Information.
PURCHASE OF SHARES
GENERAL INFORMATION
Shares of the Fund must be purchased and maintained through a Kidder, Peabody
brokerage account (an 'Account'), so that an investor who wishes to purchase
shares but who has no existing Account must establish one. Kidder, Peabody
charges no maintenance fee in connection with an Account through which an
investor purchases or holds shares of the Fund.
Purchases are effected at the public offering price of the Fund's shares
next determined after a purchase order is received. Payment for shares purchased
by an investor is due at Kidder, Peabody on the 'settlement date,' which is
generally the fifth business day after the order for purchase is placed, unless
the investor has 'good funds' available in an existing Account that can be
applied to the purchase. 'Good funds' as used in this Prospectus means cash,
Federal funds or certified checks drawn on a U.S. bank. The Trust reserves the
right to reject any purchase order for shares of the Fund and to suspend the
offering for any period of time.
The minimum initial investment in the Fund is $1,000 and the minimum
subsequent investment is $50, except that for IRAs, other tax qualified
retirement plans and accounts established pursuant to the Uniform Gifts to
Minors Act, the minimum initial investment is $250 and the minimum subsequent
investment is $1.00. The Trust reserves the right to vary the minimum initial or
subsequent investment amounts.
Purchase orders for shares of the Fund that are received prior to the close
of regular trading on the New York Stock Exchange (the 'NYSE') on a particular
day (currently 4:00 p.m., New York time) are priced according to the net asset
values determined on that day. Purchase orders received after the close of
regular trading on the NYSE are priced as of the time each Class' net asset
value per share is next determined. See 'Determination of Net Asset Value' below
for a description of the times at which each Class' net asset value per share is
determined.
The Trust offers Fund shareholders an Automatic Investment Plan under which
a shareholder may authorize Kidder, Peabody to place monthly, twice monthly or
quarterly, as selected by the shareholder, a purchase order for Fund shares in
an amount not less than $100.
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The purchase price is paid automatically from a designated bank account of the
shareholder. The Fund reserves the right to terminate or change the provisions
of the Automatic Investment Plan.
Under the Choice Pricing System, the Fund presently offers three methods of
purchasing shares, enabling investors to choose the Class that best suits their
needs, given the amount of purchase and intended length of investment. Kidder,
Peabody Investment Executives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. When purchasing shares of the Fund, investors must
specify whether the purchase is for Class A shares, Class B shares or Class C
shares, as described below.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per Class A
share next determined after a purchase order is received plus a sales charge, if
applicable. Class A shares are subject to a service fee at the annual rate of
.25% of the value of the Fund's average daily net assets attributable to this
Class. See 'Distributor.' The sales charge payable upon the purchase of Class A
shares will vary with the amount of purchase as set forth below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-------------------------------------------
AMOUNT OF PURCHASE AS PERCENTAGE AS PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE OF NET AMOUNT INVESTED
---------------------- ----------------- ----------------------
<S> <C> <C>
Less than $50,000............................................. 5.75% 6.08%
$50,000 but less than $100,000................................ 4.50% 4.75%
$100,000 but less than $250,000............................... 3.50% 3.67%
$250,000 but less than $500,000............................... 2.50% 2.58%
$500,000 but less than $1,000,000............................. 2.00% 2.02%
$1,000,000 or more............................................ 0% 0%
</TABLE>
INSTANCES OF A REDUCED OR WAIVED SALES CHARGE. Class A shares are sold
subject to a reduction of 20% in the sales charges shown in the table above to:
(1) employees of GE and other affiliates of Kidder, Peabody, (2) IRAs for those
employees, (3) other employee benefit plans for those employees and (4) the
spouses and minor children of those employees when orders on their behalf are
placed by the employees.
Class A shares are sold without a sales charge to tax exempt organizations
enumerated in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the 'Code'), and retirement plans qualified under Section 403(b)(7) of the
Code, each having 1,000 or more participants ('Qualified Plans'). Employees
eligible to participate in Qualified Plans sponsored by the same organization or
its affiliates may be aggregated in determining the sales charge applicable to
an investment made by a Qualified Plan.
No sales charge is imposed on Class A shares purchased through reinvestment
of dividends or capital gains distributions. Clients of a newly-employed Kidder,
Peabody Investment Executive are eligible to purchase Class A shares subject to
no sales charge for a period of 90 days after the Investment Executive first
becomes employed by Kidder, Peabody, so long as the following conditions are
met: (1) the purchase is made within 30 days of, and with the proceeds
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from, a redemption of shares of a mutual fund sponsored by the Investment
Executive's previous employer; (2) the Investment Executive served as the
client's broker on the purchase of the shares of the mutual fund; and (3) the
shares of the mutual fund sold were subject to a sales charge. Clients of a
Kidder, Peabody Investment Executive are also eligible to purchase Class A
shares subject to no sales charge so long as the following conditions are met:
(1) the purchase is made within 30 days of, and with the proceeds from, a
redemption of shares of a mutual fund that were purchased through Kidder,
Peabody acting as a selected dealer for the shares pursuant to an agreement
between Kidder, Peabody and the mutual fund's principal underwriter; (2) the
fund invested primarily in global or international equity securities; (3) the
Investment Executive served as the client's broker on the purchase of the shares
of the mutual fund sold; and (4) the shares of the mutual fund sold were subject
to a sales charge. Class A shares may also be offered without a sales charge to
any investment company, other than a company for which Kidder, Peabody serves as
distributor, in connection with the combination of the company with the Fund by
merger, acquisition of assets or otherwise.
VOLUME DISCOUNTS. Any investor meeting certain requirements, including the
signing of a Letter of Intent (a 'Letter'), is eligible to obtain a reduced
sales charge for purchasing Fund shares by combining purchases made over a
13-month period of Class A shares and shares of other mutual funds in the Kidder
Family of Funds with respect to which the investor previously paid, or is
subject to the payment of, a sales charge (collectively referred to as 'Eligible
Shares'). Purchases of Fund shares by eligible investors must aggregate at least
$50,000 and must include a minimum initial investment of at least $5,000 and
minimum subsequent investments of at least $100. For purposes of the procedure
contemplated by a Letter, Eligible Shares owned by an investor will be valued at
their original cost in determining the size of a purchase and the applicable
sales charge.
An investor's purchase of Eligible Shares not originally made pursuant to a
Letter may be included under a Letter subsequently executed within 90 days of
the purchase, so long as the investor informs Kidder, Peabody in writing within
the 90-day period of the investor's desired use of a Letter. The original cost
of an investor's Eligible Shares not purchased pursuant to a Letter may be
included under a Letter subsequently executed within 90 days of the purchase, so
long as the investor informs Kidder, Peabody in writing within the 90-day period
of the investor's desire for that treatment to be applicable. The original cost
of Eligible Shares not purchased pursuant to a Letter may be included as a
credit toward the fulfillment of the terms of the Letter; the reduced sales
charge contemplated by the Letter, however, will apply only to the purchases of
Eligible Shares made after the execution of the Letter, which purchases, as
noted above, must aggregate at least $50,000.
A Letter must provide for 5% of the dollar amount of the intended
investment to be held in escrow by Investors Fiduciary Trust Company ('IFTC') in
the form of Eligible Shares in an account registered in the name of the
shareholder. If the total amount of any Eligible Shares owned at the time a
Letter is signed plus all purchases made under the terms of the Letter less
redemptions (the 'investment') are at least equal to the intended investment,
the amount in escrow will be released to the shareholder. If the investment is
more than $50,000 but less than the intended investment a remittance of the
difference in the dollar amount of sales charge paid and the sales charge that
would have been paid if the investment had been made at a single time
25
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will be made upon request. If the remittance is not sent within 20 days after
such a request, IFTC will redeem an appropriate number of Eligible Shares held
in escrow in order to realize the difference. Amounts remaining in the escrow
account will be released to the shareholder's account. If the total investment
is more than the intended investment and the total is sufficient to qualify for
an additional sales charge reduction, a retroactive price adjustment will be
made for all purchases made under a Letter to reflect the sales charge
applicable to the aggregate amount of the purchases during the 13-month period.
A Letter is not a binding obligation to purchase the indicated amount, and
Kidder, Peabody is not obligated to sell the indicated amount. Reinvested
dividends and capital gains are not applied toward the completion of the
purchases contemplated by a Letter.
RIGHT OF ACCUMULATION. Reduced sales charges on Class A shares are
available under a combined right of accumulation permitting an investor to
combine the value of Eligible Shares and the value of Fund shares being
purchased, to qualify for a reduced sales charge. Before a shareholder may take
advantage of the right of accumulation, the shareholder must provide Kidder,
Peabody at the time of purchase with sufficient information to permit Kidder,
Peabody to confirm that the shareholder is qualified for the right; acceptance
of the shareholder's purchase order is subject to that confirmation. The right
of accumulation may be amended or terminated at any time by the Trust.
DEFINITION OF PURCHASE. For purposes of the volume discounts and right of
accumulation described above, a 'purchase' refers to: a single purchase of
Eligible Shares by an individual; concurrent purchases by an individual, his or
her spouse and their children under the age of 21 years purchasing Eligible
Shares for his, her or their own account; and single purchases by a trustee or
other fiduciary purchasing Eligible Shares for a single trust estate or single
fiduciary account, including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of the Code, even
though more than one beneficiary is involved. The term 'purchase' also includes
purchases by any 'company,' as that term is defined in the 1940 Act, but does
not include: purchases by any such company that has not been in existence for at
least six months or that has no purpose other than the purchase of Eligible
Shares or shares of other investment companies registered under the 1940 Act at
a discount; or purchases by any group of individuals whose participants are
related by virtue of being credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer or clients of an
investment adviser. The term 'purchase' also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
by employees or by employers on behalf of employees by means of a payroll
deduction plan, or otherwise, of Eligible Shares. Purchases by such a company or
non-qualified employee benefit plan will qualify for the volume discounts
offered with respect to the Fund's shares only if the Trust and Kidder, Peabody
are able to realize economies of scale in sales efforts and sales-related
expenses by means of the company's, the employer's or the plan's making the
Prospectus available to individual investors or employees and forwarding
investments by those persons to the Trust, and by any such employer's or plan's
bearing the expense of any payroll deduction plan. The term 'purchase' also
includes any purchase of Eligible Shares by or on behalf of certain members of
the same family, including spouses, children (adult and minor), grandparents and
siblings, provided, however, that the following conditions are met: (1)
following consummation of the purchase, the family has, in the aggregate, (a) at
least $5 million invested in Eligible Shares
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of one or more funds within the Kidder Family of Funds or (b) at least $10
million in cash and/or securities in Kidder, Peabody Accounts; and (2) the Trust
and Kidder, Peabody are able to realize economies of scale in sales effort and
sales-related expenses by means of dealing with a common decision-maker or
otherwise being able to treat the accounts as a single relationship.
REINSTATEMENT PRIVILEGE. The Fund offers a reinstatement privilege under
which a shareholder that has redeemed Class A shares may reinvest the proceeds
from the redemption without imposition of a sales charge, provided the
reinvestment is made within 60 days of the redemption. The tax status of a gain
realized on a redemption will not be affected by exercise of the reinstatement
privilege but a loss will be nullified if the reinvestment is made within 30
days of the redemption. See the Statement of Additional Information for the tax
consequences when, within 90 days of a purchase of Class A shares, the shares
are redeemed and reinvested in the Fund or another mutual fund.
CLASS B SHARES
The public offering price of Class B shares is the net asset value per share
next determined after a purchase order is received without imposition of any
sales charge. Class B shares are subject to a service fee at the annual rate of
.25%, and a distribution fee at the annual rate of .75%, of the value of the
Fund's average daily net assets attributable to this Class. See 'Distributor.'
Kidder, Peabody has adopted guidelines, in view of the relative sales charges,
service fees and distribution fees, directing Investment Executives that all
purchases of shares should be for Class A shares when the purchase is for
$1,000,000 or more by an investor not eligible to purchase Class C shares.
Kidder, Peabody reserves the right to vary these guidelines at any time.
CLASS C SHARES
The public offering price of Class C shares is the net asset value per share
next determined after a purchase order is received without imposition of any
sales charge. Class C shares, which are not subject to any service fee or
distribution fee, are available exclusively to employees of Kidder, Peabody and
their associated accounts, directors or trustees of any fund in the Kidder
Family of Funds, employee benefit plans of Kidder, Peabody and participants in
Insight when shares are purchased through that program. Investors eligible to
purchase Class C shares may not purchase any other Class of shares.
INSIGHT. An investor purchasing $50,000 or more of shares of funds in the
Kidder Family of Funds may participate in INSIGHT, KPAM's total portfolio asset
allocation program, and receive Class C Shares. INSIGHT offers comprehensive
investment services, including a personalized asset allocation investment
strategy using an appropriate combination of funds in the Kidder Family of
Funds, professional investment advice regarding investment among the funds in
the Kidder Family of Funds by KPAM portfolio specialists, monitoring of
investment performance and comprehensive quarterly reports that cover market
trends, portfolio summaries and personalized account information. Participation
in INSIGHT is subject to payment of an advisory fee to KPAM at the maximum
annual rate of 1.5% of assets held through the program (generally charged
quarterly in advance), which covers all INSIGHT investment advisory services and
program administration fees. Employees of Kidder, Peabody are entitled to a 50%
reduction in the fee otherwise payable for participation in INSIGHT. INSIGHT
clients may elect
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to have their INSIGHT fees charged to their accounts (by the automatic
redemption of money market fund shares) or another of their Kidder, Peabody
accounts or, billed separately.
REDEMPTION OF SHARES
A shareholder may redeem Fund shares on any day that the Fund's net asset values
are determined by following the procedures described below.
REDEMPTION THROUGH KIDDER, PEABODY
Shares may be redeemed through Kidder, Peabody, which provides the terms of any
redemption request properly received prior to 4:00 p.m., New York time, on a
given day, to the Fund's transfer agent. The trade date of a redemption so
received is considered to be that day, and the trade date of any redemption
request received at or after 4:00 p.m., New York time, is considered to be the
next business day. If shares to be redeemed were issued in certificate form, the
certificates for the shares to be redeemed must be submitted to the transfer
agent in accordance with the procedures described in items (1) through (4) under
'Redemption by Mail' below.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request in 'good order' to the
Fund's transfer agent at the following address:
Kidder, Peabody Global Equity Fund
Class A, B or C (please specify)
c/o Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
The transfer agent transmits any redemption request that it receives to
Kidder, Peabody, and the request is then treated as if it had been made through
Kidder, Peabody. A redemption request is considered to have been received in
'good order' if the following conditions are satisfied:
(1) the request is in writing, states the Class and number or dollar
amount of shares to be redeemed and identifies the shareholder's Fund
account number;
(2) the request is signed by each registered owner exactly as the
shares are registered;
(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed by the shareholder for transfer (or are
themselves accompanied by an endorsed stock power) and accompany the
redemption request, which should be sent by registered mail for the
protection of the shareholder; and
(4) the signatures on either the written redemption request or the
certificates (or the accompanying stock power) have been guaranteed by a
bank, broker-dealer, municipal securities broker, government securities
dealer or broker, credit union, a member firm of a national securities
exchange, registered securities association or clearing agency, and savings
association (the purpose of a signature guarantee being to protect Fund
shareholders against the possibility of fraud). The transfer agent may
reject redemption instructions if the
28
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guarantor is neither a member of nor a participant in a signature guarantee
program (currently known as 'STAMP''sm').
Additional supporting documents may be required for redemptions of Fund
shares by corporations, executors, administrators, trustees and guardians.
OTHER REDEMPTION POLICIES
Signature guarantees are required in connection with (1) any redemption of Fund
shares made by mail and (2) share ownership transfer requests. These
requirements may be waived by the Trust in certain instances.
Any redemption request made by a shareholder of the Fund will be effected
at the net asset value per share next determined after proper redemption
instructions are received. See 'Determination of Net Asset Value' below. The
proceeds of the redemption generally are credited to the shareholder's Account,
or sent to the shareholder, as applicable, on the fifth business day following
the date after the redemption request was received in good order, but in no
event later than seven days following that date. A shareholder who pays for Fund
shares by personal check will be credited with the proceeds of a redemption of
those shares only after the check used for the purchase has cleared, which may
take up to 15 days or more. If shares are purchased with good funds, no delay in
redemption will occur. The amount of redemption proceeds received by a Fund
shareholder will in no way be affected by any delay in the crediting of those
proceeds.
A Fund account with respect to a Class of shares that is reduced by
redemptions, and not by reason of market fluctuations, to a value of $500 or
less may be redeemed by the Trust, but only after the shareholder has been given
at least 30 days in which to increase the balance in the account to more than
$500. Proceeds of such a redemption will be mailed to the shareholder.
DISTRIBUTIONS IN KIND
If the Trustees determine that it would be detrimental to the best interests of
the Fund's shareholders to make a redemption payment wholly in cash, the Fund
may pay, in accordance with rules adopted by the SEC, any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by
a distribution in kind of readily marketable portfolio securities in lieu of
cash. Redemptions failing to meet this threshold must be made in cash.
Shareholders receiving distributions in kind of portfolio securities may incur
brokerage commissions when subsequently disposing of those securities.
SYSTEMATIC WITHDRAWAL PLAN
The Trust offers a Systematic Withdrawal Plan (the 'Withdrawal Plan') under
which a shareholder of the Fund with $20,000 or more invested in a Class may
elect periodic redemption payments to the shareholder, or a designated payee on
a monthly basis. Payments pursuant to the Withdrawal Plan normally are made
within the last ten days of the month. The minimum rate of withdrawal is $200
per month and the maximum annual withdrawal is 12% of current
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account value in the Class as of the commencement of participation in the
Withdrawal Plan (less the amount of any subsequent redemption outside the
Withdrawal Plan). A shareholder participating in the Withdrawal Plan must
reinvest all income and capital gains distributions, and may not continue to
participate if the shareholder redeems outside the Withdrawal Plan or exchanges
to another fund an amount that would cause the account value in the Class to
fall below $20,000. The Trust may amend or terminate the Withdrawal Plan, and a
shareholder may terminate participation in the Withdrawal Plan at any time.
DETERMINATION OF NET ASSET VALUE
Each Class' net asset value per share is calculated by State Street Bank and
Trust Company ('State Street'), the Fund's custodian, on each day, Monday
through Friday, except that net asset value is not computed on a day in which no
orders to purchase, sell, exchange or redeem Fund shares have been received, any
day on which there is not sufficient trading in the Fund's portfolio securities
that the Fund's net asset values per share might be materially affected by
changes in the value of such portfolio securities or on days on which the NYSE
is not open for trading. The NYSE is currently scheduled to be closed on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas, and on the preceding Friday when one of those
holidays falls on a Saturday or on the subsequent Monday when one of those
holidays falls on a Sunday.
Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE, and is computed by dividing the value of the Fund's
net assets attributable to that Class by the total number of shares outstanding
of that Class. Generally, the Fund's investments are valued at market value or,
in the absence of a market value, at fair value as determined by or under the
direction of the Trustees.
Securities that are primarily traded on foreign exchanges are generally
valued for purposes of calculating each Class' net asset value at the preceding
closing values of the securities on their respective exchanges, except that,
when an occurrence subsequent to the time a value was so established is likely
to have changed that value, the fair market value of those securities will be
determined by consideration of other factors by or under the direction of the
Trustees. A security that is primarily traded on a domestic or foreign stock
exchange is valued at the last sale price on that exchange or, if no sales
occurred during the day, at the current quoted bid price. Short-term investments
that mature in 60 days or less are valued on the basis of amortized cost (which
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) when the
Trustees have determined that amortized cost represents fair value. An option
that is written by the Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last offer price. An option that is
purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract is equal to the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes a limit move with respect to a particular
futures contract or if the securities underlying the
30
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futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used,
futures contracts are valued at their fair market value as determined by or
under the direction of the Trustees.
For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Board of Trustees. In carrying out the Board's valuation policies, State
Street may consult with an independent pricing service retained by the Trust.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class (or the sole
class offered) in certain funds in the Kidder Family of Funds, to the extent
shares are offered for sale in the shareholder's state of residence. For a list
and a description of the funds in the Kidder Family of Funds for which shares
may be exchanged, see 'Exchange Privilege' in the Statement of Additional
Information. Under the Choice Pricing System, an exchange of shares of the Fund
with other funds' shares will be limited to shares of the same class or the sole
class (money market funds only) of shares of a fund from or to which the
exchange is to be effected. For example, if a holder of Class A shares of the
Fund exchanges his shares for shares of Kidder, Peabody Cash Reserve Fund, Inc.
('Cash Reserve Fund') (a money market fund) and thereafter wishes to exchange
those shares for shares of Kidder, Peabody Government Income Fund, Inc. he may
receive only Class A shares in the latter transaction. As another example, if a
holder of shares of Cash Reserve Fund acquired as a result of an initial
investment and not from an exchange with shares of another fund wishes to
exchange his shares for shares of the Fund, he may receive Class A shares, Class
B shares or Class C shares (depending on his eligibility for Class C shares) in
the exchange transaction. Thereafter, any further exchanges would be subject to
the principal described above limiting subsequent exchanges to the same class or
the sole class of shares of other funds. If Class A shares acquired in an
exchange are subject to payment of a sales charge higher than the sales charge
paid on the shares relinquished in the exchange (or any predecessor of those
shares), the exchange will be subject to payment of an amount equal to the
difference, if any, between the sales charge previously paid and the sales
charge payable on the Class A shares acquired in the exchange.
Although the Fund currently imposes no limit on the number of times the
Exchange Privilege may be exercised by any shareholder, the Fund may impose such
limits in the future, in accordance with applicable provisions of the 1940 Act
and rules thereunder. In addition, the Exchange Privilege may be terminated or
revised at any time upon 60 days' prior written notice to Fund shareholders, and
is available only to residents of states in which exchanges are permitted under
state law. The exchange of shares of one fund for shares of another is treated
for federal income tax purposes as a sale of the shares given in exchange by the
shareholder, so that a shareholder may recognize a taxable gain or loss on an
exchange.
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Upon receipt of proper instructions and all necessary supporting documents,
Fund shares submitted for exchange will be redeemed at their net asset value
next determined and simultaneously invested in shares of the fund being
acquired. Settlement of an exchange would occur one business day after the date
on which the request for exchange was received in proper form, unless the dollar
amount of the transaction exceeds 5% of the Fund's total net assets on any given
day, in which case settlement would occur within five business days after the
date on which the request for exchange was received in proper form. The proceeds
of a redemption of Fund shares made to facilitate the exchange of those shares
for shares of another fund must be equal to at least (1) the minimum initial
investment requirement imposed by the fund into which the exchange is being
sought if the shareholder seeking the exchange has not previously invested in
that fund or (2) the minimum subsequent investment requirement imposed by the
fund into which the exchange is being sought if the shareholder has previously
made an investment in that fund.
A shareholder of the Fund wishing to exercise the Exchange Privilege should
obtain from Kidder, Peabody a copy of the current prospectus of the fund into
which an exchange is being sought and review that prospectus carefully before
making the exchange. Kidder, Peabody reserves the right to reject any exchange
request at any time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund and distributions of net
realized capital gains of the Fund, if any, are distributed annually after the
close of the fiscal year in which they are earned. Unless a shareholder
instructs the Fund that dividends and capital gains distributions on shares of
any Class should be paid in cash and credited to the shareholder's Account,
dividends and capital gains distributions are reinvested automatically at net
asset value in additional shares of the same Class. The Fund is subject to a 4%
nondeductible excise tax measured with respect to certain undistributed amounts
of net investment income and capital gains. If necessary to avoid the imposition
of this tax, and if in the best interests of its shareholders, the Fund will
declare and pay dividends of its net investment income and distributions of its
net capital gains more frequently than stated above. The per share dividends and
distributions on Class C shares will be higher than those on Class A shares,
which in turn will be higher than those on Class B shares, as a result of the
different service, distribution and transfer agency fees applicable to the
Classes. See 'Fee Table,' 'Purchase of Shares,' 'Distributor' and 'General
Information.'
TAXES
The Fund has qualified for the fiscal year ended August 31, 1994 to be treated
as a regulated investment company within the meaning of the Code and intends to
qualify for this treatment in each year. To qualify as a regulated investment
company for federal income tax purposes, the Fund limits its income and
investments so that (1) less than 30% of its gross income is derived from the
sale or disposition of stocks, other securities and certain financial
instruments
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(including certain forward contracts) that were held for less than three months
and (2) at the close of each quarter of the taxable year (a) not more than 25%
of the market value of the Fund's total assets is invested in the securities
(other than Government Securities) of a single issuer or of two or more issuers
controlled by the Fund that are engaged in the same or similar trades or
businesses or in related trades or businesses and (b) at least 50% of the market
value of the Fund's total assets is represented by (i) cash and cash items, (ii)
Government Securities and (iii) other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the market value of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer. The requirements for qualification may cause the Fund
to restrict the degree to which it sells or otherwise disposes of stocks, other
securities and certain financial instruments held for less than three months. If
the Fund qualifies as a regulated investment company and meets certain
distribution requirements, the Fund will not be subject to federal income tax on
its net investment income and net realized capital gains that it distributes to
its shareholders.
Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Dividends and distributions paid by the Fund
generally do not qualify for the federal dividends received deduction for
corporate shareholders.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes
reduces the amount of dividends and distributions paid to the Fund's
shareholders. So long as the Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the value
of the Fund's total assets at the close of any taxable year consists of stocks
or securities of foreign corporations, the Fund may elect, for federal income
tax purposes, to treat certain foreign income taxes it pays as having been paid
by its shareholders. If the Fund makes the election, the amount of foreign
income taxes paid by the Fund would be included in the income of its
shareholders and the shareholders would be entitled to either credit their
portions of these amounts against their federal income tax due, if any, or to
deduct these portions from their federal taxable income, if any. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. In addition, certain limitations will be imposed on the extent to
which the credit (but not the deduction) for foreign taxes may be claimed.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
33
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTOR
Kidder, Peabody, a major full-line investment services firm serving foreign and
domestic securities markets, located at 10 Hanover Square, New York, New York
10005-3592, serves as the distributor of the Fund's shares and is paid monthly
fees by the Fund in connection with (1) the servicing of shareholder accounts in
Class A and Class B shares and (2) providing distribution related services in
respect of Class B shares. A monthly service fee, authorized pursuant to a
Shareholder Servicing and Distribution Plan (the 'Plan') adopted by the Trust
with respect to the Fund pursuant to Rule 12b-1 under the 1940 Act, is
calculated at the annual rate of .25% of the value of the average daily net
assets of the Fund attributable to each of Class A and Class B shares and is
used by Kidder, Peabody to provide compensation for ongoing servicing and/or
maintenance of shareholder accounts and an allocation of overhead and other
Kidder, Peabody branch office expenses related to servicing shareholder
accounts. Compensation is paid by Kidder, Peabody to persons, including Kidder,
Peabody employees, who respond to inquiries of shareholders of the Fund
regarding their ownership of shares or their accounts with the Fund or who
provide other similar services not otherwise required to be provided by the
Fund's manager, investment adviser or transfer agent.
In addition, pursuant to the Plan, the Fund pays to Kidder, Peabody a
monthly distribution fee at the annual rate of .75% of the Fund's average daily
net assets attributable to Class B shares. The distribution fee is used by
Kidder, Peabody to provide initial and ongoing sales compensation to its
Investment Executives in respect of sales of Class B shares; costs of printing
and distributing the Fund's Prospectus, Statement of Additional Information and
sales literature to prospective investors in Class B shares; costs associated
with any advertising relating to Class B shares; an allocation of overhead and
other Kidder, Peabody branch office expenses related to distribution of Class B
shares; and payments to, and expenses of, persons who provide support services
in connection with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the shareholder
servicing and/or distribution expenses actually incurred by Kidder, Peabody, and
the payments may exceed expenses actually incurred by Kidder, Peabody. The
Trustees evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so will consider all relevant factors, including
expenses borne by Kidder, Peabody and amounts it receives under the Plan.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the Fund's 'average annual total
return' over various periods of time for each Class. Total return figures, which
are based on historical earnings and are not intended to indicate future
performance, show the average percentage change in value of an investment in the
Class from the beginning date of a measuring period to the end of that period.
These figures reflect changes in the price of shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the same Class. Total return figures will be given
for the most recent one-and five-year periods, or for the life of the Class to
the extent that it has not been in existence for the full length of those
periods, and may be given for other periods as well, such as on a year-by-
34
<PAGE>
- --------------------------------------------------------------------------------
year basis. The average annual total return for any one year in a period longer
than one year might be greater or less than the average for the entire period.
The Trust may quote 'aggregate total return' figures with respect to the
Fund for various periods, representing the cumulative change in value of an
investment for the specific period and reflecting changes in share prices and
assuming reinvestment of dividends and distributions. Aggregate total return may
be calculated either with or without the effect of the sales charge to which
Class A shares are subject and may be shown by means of schedules, charts or
graphs, and may indicate subtotals of the various components of total return
(that is, changes in value of initial investment, income dividends and capital
gains distributions). Reflecting compounding over a longer period of time,
aggregate total return data generally will be higher than average annual total
return data.
The Trust may, in addition to quoting the Classes' average annual and
aggregate total returns, advertise the actual annual and annualized total return
performance data for various periods of time. Actual annual and annualized total
returns may be calculated either with or without the effect of the sales charge
to which Class A shares are subject and may be shown by means of schedules,
charts or graphs. Actual annual or annualized total return data generally will
be lower than average annual total return data, which reflects compounding of
return.
In reports or other communications to Fund shareholders and in advertising
material, the Trust may compare the Classes' performance with (1) the
performance of other mutual funds (or classes thereof) as listed in rankings
prepared by Lipper Analytical Services Inc., CDA Investment Technologies, Inc.
or similar investment services that monitor the performance of mutual funds or
as set out in the nationally recognized publications listed below, (2) the
Morgan Stanley Capital International EAFE Index, the Salomon Russell Global
Equity Index, the FT-Actuaries World Indices, the Standard & Poor's Index of 500
Stocks, and the Dow Jones Industrial Average, each of which is an unmanaged
index of common stocks or (3) other appropriate indexes of investment securities
or with data developed by GEIM or KPAM derived from those indexes. The Trust may
also include in communications to Fund shareholders evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Forbes, Institutional Investor, Investor's Daily, Kiplinger's Personal Finance
Magazine, Money, Morningstar Mutual Fund Values, The New York Times, USA Today
and The Wall Street Journal. Any given performance comparison should not be
considered as representative of the Fund's performance for any future period.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Trust was formed as a business trust pursuant to a Declaration of Trust, as
amended from time to time (the 'Declaration'), under the laws of The
Commonwealth of Massachusetts on March 28, 1991. The Fund commenced operations
on November 14, 1991. The Declaration authorizes the Trustees to create separate
series, and within each series separate Classes, of an unlimited number of
shares of beneficial interest, par value $.001 per share. As of the date of this
Prospectus, the Trustees have established several such series, representing
interests in the Fund
35
<PAGE>
- --------------------------------------------------------------------------------
as described in this Prospectus and in several other series. See 'Exchange
Privilege' in the Statement of Additional Information.
When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; ( 2) the effect of
the respective sales charges, if any, for each Class; (3) the distribution
and/or service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; ( 5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The Board of
Trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trustees.
Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Fund may elect all of the Trustees. Generally shares of the Trust
will be voted on a Trust-wide basis on all matters except those affecting only
the interests of one series, such as the Fund's investment advisory agreement.
In turn, shares of the Fund will be voted on a Fund-wide basis on all matters
except those affecting only the interests of one Class, such as the terms of the
Plan as it relates to a Class.
The Trust intends to hold no annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's outstanding shares. Shareholders of the
Fund who satisfy certain criteria will be assisted by the Trust in communicating
with other shareholders in seeking the holding of the meeting.
REPORTS TO SHAREHOLDERS
The Trust sends Fund shareholders audited semi-annual and annual reports, each
of which includes a list of the investment securities held by the Fund as of the
end of the period covered by the report.
CUSTODIAN AND RECORDKEEPING AGENT;
TRANSFER AND DIVIDEND AGENT
State Street, located at One Monarch Drive, North Quincy, Massachusetts 02171,
serves as the Fund's custodian and recordkeeping agent. Investors Fiduciary
Trust Company, located at 127 West 10th Street, Kansas City, Missouri 64105,
serves as the Fund's transfer and dividend agent.
36
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
No person has been authorized to give any informa-
tion or to make any representations not contained in this
Prospectus, or in the Statement of Additional Information
incorporated into this Prospectus by reference, in connection with
the offering made by this Prospectus and, if given or made, any such
information or representations must not be relied upon as having
been authorized by the Fund or its distributor. This Prospectus does
not constitute an offering by the Fund or by its distributor in any
jurisdiction in which the offering may not lawfully be made.
<TABLE>
<S> <C>
- --------------------------------------------------------
Contents
- --------------------------------------------------------
Fee Table 2
- --------------------------------------------------------
Highlights 3
- --------------------------------------------------------
Financial Highlights 7
- --------------------------------------------------------
Design of the Fund 8
- --------------------------------------------------------
Investment Objective and Policies 9
- --------------------------------------------------------
Management of the Fund 20
- --------------------------------------------------------
Purchase of Shares 23
- --------------------------------------------------------
Redemption of Shares 28
- --------------------------------------------------------
Determination of Net Asset Value 30
- --------------------------------------------------------
Exchange Privilege 31
- --------------------------------------------------------
Dividends, Distributions and Taxes 32
- --------------------------------------------------------
Distributor 34
- --------------------------------------------------------
Performance Information 34
- --------------------------------------------------------
General Information 35
- --------------------------------------------------------
Custodian and Recordkeeping Agent; Transfer
and Dividend Agent 36
- --------------------------------------------------------
</TABLE>
KPGE-1
Kidder,
Peabody
Global
Equity
Fund
Prospectus
December 29, 1994
In Affiliation With
GE Investment Management [logo]
Incorporated
STATEMENT OF DIFFERENCES
<TABLE>
<S> <C>
The Service mark is expressed as .............................. 'sm'
The dagger footnote symbol shall be expressed as .............. 'D'
The double dagger footnote symbol shall be expressed as ....... 'D''D'
</TABLE>
<PAGE>
------------------------------------------------------------------------
PaineWebber Atlas Global Growth Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- January 1, 1995
- --------------------------------------------------------------------------------
The Fund is a series of PaineWebber Atlas Fund ("Trust"). This Prospectus
concisely sets forth information about the Fund a prospective investor should
know before investing. Please retain this Prospectus for future reference. A
Statement of Additional Information dated January 1, 1995 (which is
incorporated by reference herein) has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by contacting the Fund, your
PaineWebber investment executive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.
.Professional Management
.Portfolio Diversification
.Dividend and Capital Gain Reinvestment
.Flexible Pricingsm
.Low Minimum Investment
.Automatic Investment Plan
.Systematic Withdrawal Plan
.Exchange Privileges
.Suitable For Retirement Plans
------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE WISCONSIN INVESTORS SHOULD NOTE THAT THE FUND MAY INVEST UP TO
10% OF ITS NET ASSETS IN RESTRICTED SECURITIES (OTHER THAN RULE 144A
SECURITIES DETERMINED TO BE LIQUID BY THE TRUST'S BOARD OF TRUSTEES).
INVESTMENT IN RESTRICTED SECURITIES (OTHER THAN SUCH RULE 144A
SECURITIES) IN EXCESS OF 5% OF THE FUND'S TOTAL ASSETS MAY BE
CONSIDERED A SPECULATIVE ACTIVITY AND
MAY RESULT IN GREATER RISK AND INCREASED FUND EXPENSES.
------------
Prospectus Page 1
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 6
Flexible Pricing System.................................................... 7
Investment Objective and Policies.......................................... 9
Purchases.................................................................. 12
Exchanges.................................................................. 14
Redemptions................................................................ 15
Conversion of Class B Shares............................................... 16
Other Services and Information............................................. 17
Dividends and Taxes........................................................ 18
Valuation of Shares........................................................ 19
Management................................................................. 19
Performance Information.................................................... 21
General Information........................................................ 21
Appendix................................................................... 23
</TABLE>
-------------
Prospectus Page 2
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Prospectus Summary
- --------------------------------------------------------------------------------
See the body of the Prospectus for more information on the topics discussed in
this summary.
The Fund: PaineWebber Atlas Global Growth Fund ("Fund") is a di-
versified series of an open-end management investment
company.
Investment Objective Long-term capital appreciation; invests primarily in
and Policies: common stocks of issuers based in the United States,
Europe, Japan and the Pacific Basin.
Total Net Assets: $444.7 million at November 30, 1994.
Investment Adviser Mitchell Hutchins Asset Management Inc. ("Mitchell
and Administrator: Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages ap-
proximately $35.3 billion in assets. See "Management."
Purchases: Shares of beneficial interest are available exclu-
sively through PaineWebber and its correspondent firms
for investors who are clients of PaineWebber or those
firms ("PaineWebber clients") and, for other invest-
ors, through PFPC Inc., the Fund's transfer agent
("Transfer Agent").
Flexible Pricing Investors may select Class A, Class B or Class D
System: shares, each with a public offering price that re-
flects different sales charges and expense levels. See
"Flexible Pricing System," "Purchases," "Redemptions"
and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 4.5% of public offering price).
Class B Shares Offered at net asset value (a maximum contingent de-
ferred sales charge of 5% of redemption proceeds is
imposed on certain redemptions made within six years
of date of purchase). Class B shares automatically
convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.
Class D Shares Offered at net asset value without an initial or con-
tingent deferred sales charge. Class D shares pay
higher ongoing expenses than Class A shares and do not
convert into another Class.
Exchanges: Shares may be exchanged for shares of the corresponding
Class of most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid annually; net capital gain also is
distributed annually. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.
Minimum Purchase: $1,000 for the first purchase; $100 for subsequent
purchases.
-------------
Prospectus Page 3
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial
Systematic withdrawal plan sales charge
Rights of accumulation 365-day reinstatement privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class D Shares Automatic investment plan Systematic withdrawal plan
------------------
WHO SHOULD INVEST. The Fund invests primarily in common stocks of issuers based
in the United States, Europe, Japan and the Pacific Basin. The Fund has the
flexibility to commit its assets to the country or countries that Mitchell
Hutchins believes offer the greatest potential for appreciation. While the Fund
is not intended to provide a complete or balanced investment program, it can
serve as one component of an investor's long-term program to accumulate assets
for retirement, college tuition or other major goals.
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Investing in foreign
securities involves special risks, including possible adverse political and
economic developments abroad, differences between foreign and U.S. regulatory
systems and differing characteristics of foreign and U.S. securities and
currency markets. There is often less information publicly available about
foreign issuers. Most of the foreign securities held by the Fund are
denominated in foreign currencies, and the value of these investments thus can
be adversely affected by fluctuations in foreign currency values. Some foreign
currencies can be volatile and may be subject to governmental controls or
intervention. Certain investment grade debt securities in which the Fund may
invest have speculative characteristics. The Fund is permitted to purchase high
yield, high risk debt securities rated lower than investment grade by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or
comparably rated by another nationally recognized statistical rating
organization ("NRSRO"), which may be subject to greater risks of default and
price fluctuation than investment grade securities and are considered
predominantly speculative. The use of options, futures contracts and forward
currency contracts also entails special risks.
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to assist
investors in understanding the expenses associated with investing in the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum sales charge on purchases of shares (as a
percentage of public offering price)................. 4.5% None None
Sales charge on reinvested dividends.................. None None None
Exchange fee.......................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds)................... None 5% None
Annual Fund Operating Expenses(2)
(as a percentage of average net assets)
Management fees....................................... 0.75% 0.75% 0.75%
12b-1 fees(3)......................................... 0.20 1.00 1.00
Other expenses........................................ 0.44 0.44 0.45
----- ----- -----
Total operating expenses.............................. 1.39% 2.19% 2.20%
===== ===== =====
</TABLE>
-------------
Prospectus Page 4
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
Example of Effect of Fund Expenses
An investor would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(4).................... $59 $87 $118 $204
Class B Shares:
Assuming a complete redemption at
end of period(5)(6)............... $72 $99 $137 $214
Assuming no redemption(6).......... $22 $69 $117 $214
Class D Shares....................... $22 $69 $118 $253
</TABLE>
This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same in the years shown. The above tables and the assumption in the
Example of a 5% annual return are required by regulations of the Securities and
Exchange Commission ("SEC") applicable to all mutual funds; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.
- -------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge generally declines by 1% annually
thereafter, reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. The management fee payable to
Mitchell Hutchins is greater than the management fee paid by most funds.
All expenses are those actually incurred for the fiscal year ended August
31, 1994.
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees.................................. 0.20% 0.25% 0.25%
12b-1 distribution fees............................. 0.00 0.75 0.75
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. The 12b-1 service fees for Class A shares reflect a blended
annual rate of the Fund's average daily net assets of 0.25% and 0.15%
representing shares sold on or after December 2, 1988 and shares sold prior
to that date, respectively.
(4) Assumes deduction at the time of purchase of the maximum 4.5% initial sales
charge.
(5) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(6) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
-------------
Prospectus Page 5
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Financial Highlights
- --------------------------------------------------------------------------------
The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of the Fund for each of the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1994, which are incorporated by reference into
the Statement of Additional Information. The financial statements and notes, as
well as the information in the tables appearing below insofar as it relates to
the five years in the period ended August 31, 1994, have been audited by Ernst
& Young LLP, independent auditors, whose report thereon is included in the
Annual Report to Shareholders. Further information about the performance of the
Fund is also included in the Annual Report to Shareholders, which may be
obtained without charge. The information appearing below for periods prior to
the year ended August 31, 1990 also has been audited by Ernst & Young LLP,
whose reports thereon were unqualified.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 15.57 $ 12.72 $ 13.62 $ 14.88 $ 16.02 $ 13.52 $ 22.21 $ 19.31 $ 11.26 $ 8.60
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Income (loss) from in-
vestment operations:
Net investment income.. 0.02 0.08 0.09 0.32 0.33 0.18 0.14 0.13 0.10 0.13
Net realized and
unrealized gains
(losses) from invest-
ment transactions..... 1.47 2.77 (0.79) (0.13) 0.31 3.24 (4.86) 5.90 8.06 2.71
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total income (loss) from
investment operations.. 1.49 2.85 (0.70) 0.19 0.64 3.42 (4.72) 6.03 8.16 2.84
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less dividends and
distributions:
Dividends from net
investment income..... (0.05) -- (0.20) (0.45) (0.71) (0.44) (0.19) (0.09) (0.11) (0.18)
Distributions from net
realized gains on
investments and
foreign currency
transactions.......... (0.68) -- -- (1.00) (1.07) (0.48) (3.78) (3.04) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total dividends and
distributions......... (0.73) -- (0.20) (1.45) (1.78) (0.92) (3.97) (3.13) (0.11) (0.18)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net asset value, end of
period................. $ 16.33 $ 15.57 $ 12.72 $ 13.62 $ 14.88 $ 16.02 $ 13.52 $ 22.21 $ 19.31 $ 11.26
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Total Return(1)......... 9.34% 22.41% (5.25)% 1.46% 3.95% 27.46% (20.23)% 39.42% 72.95% 33.94%
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $213,413 $164,378 $148,453 $208,161 $218,033 $196,044 $192,675 $364,869 $240,979 $88,798
Ratio of expenses to
average net assets**.. 1.39% 1.48% 1.72% 1.58% 1.49% 1.46% 1.32% 1.21% 1.32% 1.22%
Ratio of net investment
income (loss) to
average net assets**.. 0.11% 0.48% 0.44% 2.33% 2.21% 1.35% 1.21% 0.72% 0.73% 1.23%
Portfolio turnover..... 176.16% 258.05% 80.14% 47.34% 64.78% 95.06% 67.10% 81.58% 95.33% 128.74%
</TABLE>
- -------
** During certain periods presented above, PaineWebber/Mitchell Hutchins waived
fees or reimbursed the Fund for portions of its operating expenses. If such
waivers or reimbursements had not been made for the Class A shares, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 1.50% and
1.31%, respectively, for the year ended August 31, 1989, and 1.47% and
0.98%, respectively, for the year ended August 31, 1985. For all other years
presented, there were no fee waivers or expense reimbursements.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain dis-
tributions 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; net results for Class A shares would be lower if sales
charges were included.
-------------
Prospectus Page 6
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS D
---------------------------------------- -----------------------------
FOR THE FOR THE
PERIOD FOR THE YEARS PERIOD
FOR THE YEARS ENDED JULY 1, ENDED JULY 2,
AUGUST 31, 1991+ TO AUGUST 31, 1992+ TO
--------------------------- AUGUST 31, ----------------- AUGUST 31,
1994 1993 1992 1991 1994 1993 1992
-------- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 15.36 $ 12.64 $ 13.61 $13.09 $ 15.44 $ 12.70 $13.51
-------- ------- ------- ------ ------- ------- ------
Income (loss) from
investment operations:
Net investment income
(loss)................ (0.06) 0.09 0.00# (0.01) (0.09) 0.01 (0.02)
Net realized and
unrealized gains
(losses) from
investment
transactions.......... 1.40 2.63 (0.80) 0.53 1.44 2.73 (0.79)
-------- ------- ------- ------ ------- ------- ------
Total income (loss)
from investment
operations............ 1.34 2.72 (0.80) 0.52 1.35 2.74 (0.81)
-------- ------- ------- ------ ------- ------- ------
Less dividends and
distributions:
Dividends from net
investment income..... (0.01) -- (0.17) -- (0.01) -- --
Distributions from net
realized gains on
investments and
foreign currency
transactions.......... (0.68) -- -- -- (0.68) -- --
-------- ------- ------- ------ ------- ------- ------
Total dividends and
distributions......... (0.69) -- (0.17) -- (0.69) -- --
-------- ------- ------- ------ ------- ------- ------
Net asset value, end of
period................. $16.01 $ 15.36 $ 12.64 $13.61 $ 16.10 $ 15.44 $12.70
======== ======= ======= ====== ======= ======= ======
Total return(1)......... 8.48% 21.52% (6.00)% (0.51)% 8.54% 21.57% (6.00)%
======== ======= ======= ====== ======= ======= ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $166,039 $61,231 $13,239 $3,164 $77,136 $31,952 $ 487
Ratio of expenses to
average net assets.... 2.19% 2.13% 2.47% 2.51%* 2.20% 1.90% 2.62%*
Ratio of net investment
income (loss) to
average net assets.... (0.65)% (0.20)% (0.07)% (0.58)%* (0.68)% 0.04% (1.18)%*
Portfolio turnover..... 176.16% 258.05% 80.14% 47.34% 176.16% 258.05% 80.14%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
# Based on average number of shares outstanding at each month end.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain dis-
tributions at net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. The figures do not include
sales charges; results for Class B shares would be lower if sales charges
were included. Total return information for periods less than one year are
not annualized.
- --------------------------------------------------------------------------------
Flexible Pricing System
- --------------------------------------------------------------------------------
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
----------------------- ------------------------ ----------------------
<C> <S> <C> <C>
Class A Maximum initial sales Service fee of up Initial sales charge
charge of 4.5% of the to 0.25% waived or reduced for
public offering price certain purchases
Class B Maximum contingent de- Service fee of 0.25%; Shares convert to
ferred sales charge of distribution fee of Class A shares
5% of redemption pro- 0.75% approximately six
ceeds; declines to zero years after issuance
after six years
Class D None Service fee of 0.25%; --
distribution fee of
0.75%
</TABLE>
-------------
Prospectus Page 7
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
FACTORS TO CONSIDER IN CHOOSING A
CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 4.5% of the public offering price. Because of this initial
sales charge, not all of a Class A shareholder's purchase price is invested in
the Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge of up to 5% of the redemption proceeds applies
to redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$50,000 and Class A share purchases made under the Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of up to 0.25% of average daily net assets. Class B and Class D
shares pay an annual 12b-1 distribution fee of 0.75% of average daily net
assets. Annual 12b-1 distribution fees are a form of asset-based sales charge.
An investor should consider both ongoing annual expenses and initial or
contingent deferred sales charges in estimating the costs of investing in the
respective Classes of Fund shares over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on the Fund's Class B or Class D shares and the 4.5% maximum initial sales
charge on the Fund's Class A shares would all be approximately equal if the
shares were held for six years. Because Class B shares convert to Class A
shares (which do not bear the expense of ongoing distribution fees)
approximately six years after purchase, an investor expecting to hold Fund
shares for longer than six years would generally pay lower cumulative expenses
by purchasing Class A or Class B shares than by purchasing Class D shares. An
investor expecting to hold Fund shares for less than six years would generally
pay lower cumulative expenses by purchasing Class D shares than by purchasing
Class A shares and, due to the contingent deferred sales charges that would
become payable on redemption of Class B shares, such an investor would
generally pay lower cumulative expenses by purchasing Class D shares than Class
B shares.
The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net
asset value of Fund shares, which will affect the actual amount of expenses
paid. Expenses borne by Classes may differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows for each Fund the cumulative expenses an
investor would pay over time on a hypothetical investment in each Class of Fund
shares, assuming an annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensation
for selling one particular Class of Fund shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for distribution
services.
See "Purchases," "Redemptions" and "Management" for a more complete description
of the initial and contingent sales charges, service fees and distribution fees
for the three Classes of shares of the Fund. See also "Conversion of Class B
Shares," "Dividends and Taxes," "Valuation of Shares" and "General Information"
for other differences among the three Classes.
-------------
Prospectus Page 8
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
Investment Objective and Policies
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term capital appreciation.
The Fund seeks to achieve this objective by investing primarily in common
stocks of issuers based in the United States, Europe, Japan and the Pacific
Basin.
Normally, at least 80% of the Fund's assets is invested in common stocks and
securities convertible into common stocks. In managing the Fund's portfolio,
Mitchell Hutchins seeks to identify those companies, both in the United States
and abroad, likely to benefit from long-term trends and shifting trade patterns
as they develop in the global economy. The Fund's investment policies are
designed to enable it to capitalize on unique investment opportunities
presented throughout the world and in international financial markets
influenced by the increasing interdependency of economic cycles and currency
exchange rates.
For example, according to Morgan Stanley Capital International, as of November
30, 1994 approximately 63% of the world's equity securities were denominated in
a currency other than the U.S. dollar. Over the past ten years, certain foreign
equity markets have provided higher investment returns than the U.S. equity
market. These returns reflect interest rates and other market conditions
prevailing in those countries, particularly gains and losses in the denominated
currencies. Year-to-year fluctuations in certain markets have been significant,
and returns for various markets have sometimes been negative. Mitchell Hutchins
believes that, over time, investing in a combination of U.S. and foreign equity
securities is less risky than investing solely in foreign securities and
provides more opportunities for high total return than investing solely in U.S.
securities.
The Fund may invest up to 20% of its assets in non-convertible debt securities
of both domestic and foreign issuers, as well as in obligations issued or
guaranteed by the U.S. or foreign governments, their agencies or
instrumentalities. The Fund will not invest more than 5% of its assets in debt
securities rated lower than investment grade. See "Other Investment Policies
and Risk Factors--Debt Securities."
There can be no assurance that the Fund will achieve its investment objective.
The Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities. The Fund's investment objective and certain investment
limitations as described in the Statement of Additional Information are
fundamental policies that may not be changed without shareholder approval. All
other investment policies may be changed by the Trust's board of trustees
without shareholder approval.
OTHER INVESTMENT POLICIES AND RISK FACTORS
FOREIGN SECURITIES. The Fund's substantial foreign investments involve special
risks, including possible expropriation, confiscatory taxation, withholding
taxes on dividends and interest, limits on the use or transfer of Fund assets,
political or social instability and diplomatic developments. Foreign economies
may differ favorably or unfavorably from the U.S. economy in various respects,
and many foreign securities are less liquid and their prices more volatile than
comparable U.S. securities. Although the Fund generally invests only in
securities traded on recognized exchanges or in over-the-counter markets,
foreign securities at times may be difficult to liquidate rapidly without
adverse price effects. Legal remedies for defaults and disputes may have to be
pursued in foreign courts, whose procedures differ substantially from those of
U.S. courts.
Because foreign securities ordinarily are denominated in currencies other than
the U.S. dollar (as are some securities of U.S. issuers), changes in foreign
currency exchange rates will affect the Fund's net asset value, the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the
-------------
Prospectus Page 9
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
value of a foreign currency rises against the U.S. dollar, the value of the
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of
the Fund's assets denominated in that currency will decrease. The exchange
rates between the U.S. dollar and other currencies are determined by supply and
demand in the currency exchange markets, international balances of payments,
speculation and other economic and political conditions. In addition, some
foreign currency values may be volatile and there is the possibility of
governmental controls on currency exchange or governmental intervention in the
currency markets. 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. Any of these factors could
adversely affect the Fund.
The costs attributable to foreign investing that the Fund must bear frequently
are higher than those attributable to domestic investing. For example, the
costs of maintaining custody of securities in foreign countries exceed
custodian costs related to domestic securities.
DEBT SECURITIES. The Fund is permitted to purchase investment grade corporate
debt securities. Securities rated BBB by S&P, Baa by Moody's or comparably
rated by another NRSRO are investment grade but Moody's considers securities
rated Baa to have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity for such
securities to make principal and interest payments than is the case for higher-
rated debt securities. The Fund is also permitted to invest up to 5% of its
total assets in debt securities rated as low as B+ by S&P, B1 by Moody's or
comparably rated by another NRSRO. These securities are deemed by those NRSROs
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Such securities are commonly referred to as "junk bonds." The Fund
is also permitted to purchase debt securities that are not rated by S&P,
Moody's or another NRSRO but that Mitchell Hutchins determines to be of
comparable quality to that of rated securities in which the Fund may invest.
Such securities are included in the computation of any percentage limitations
applicable to the comparable rated securities. See the Statement of Additional
Information for more information about S&P and Moody's ratings.
Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality and may be reduced after the Fund has
acquired the security. Mitchell Hutchins will consider such an event in
determining whether the Fund should continue to hold the security but is not
required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. Also, NRSROs may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
U.S. government securities in which the Fund may invest include direct
obligations of the U.S. Treasury as well as obligations of U.S. government
agencies and instrumentalities backed by the U.S. Treasury or primarily or
solely by the credit of the issuer.
HEDGING STRATEGIES. The Fund may attempt to reduce the overall risk of its
investments (hedge) by using options (both exchange-traded and OTC), futures
contracts and forward currency contracts. The Fund's ability to use these
instruments may be limited by market conditions, regulatory limits and tax
considerations. The Appendix to this Prospectus describes the hedging
instruments the Fund may use. The Statement of Additional Information contains
further information on these strategies.
The Fund may enter into forward currency contracts, buy or sell foreign
currency futures contracts, write (sell) covered put and call options or buy
put and call options on foreign currencies, securities in which it may invest
and stock indices. In addition, the Fund may buy and sell foreign currency,
stock index and interest rate futures contracts and may write covered put and
call options or buy put and call options on such futures contracts. The Fund
may enter into
-------------
Prospectus Page 10
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
options and futures contracts that approximate (but do not exceed) the full
value of its portfolio.
The Fund may enter into forward currency contracts for the purchase or sale of
a specified currency at a specified future date with respect to specific
transactions or with respect to portfolio positions. For example, when Mitchell
Hutchins anticipates making a currency exchange transaction in connection with
the purchase or sale of a security, the Fund may enter into a forward contract
in order to set the exchange rate at which the transaction will be made. The
Fund also may enter into a forward contract to sell an amount of a foreign
currency approximating the value of some or all of its securities denominated
in such currency. The Fund may use forward contracts in one currency or a
basket of currencies to hedge against fluctuations in the value of another
currency when Mitchell Hutchins anticipates there will be a correlation between
the two and may use forward currency contracts to shift the Fund's exposure to
foreign currency fluctuations from one country to another. The purpose of
entering into these contracts is to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
The Fund might not employ any of the strategies described above, and there can
be no assurance that any strategy used will succeed. If Mitchell Hutchins
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a hedging strategy for the Fund, the Fund would be in a better
position had it not hedged at all. The use of these strategies involves certain
special risks, including (1) the fact that skills needed to use hedging
instruments are different from those needed to select the Fund's securities,
(2) possible imperfect correlation, or even no correlation, between price
movements of hedging instruments and price movements of the investments being
hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments and (4) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to the
need for the Fund to maintain "cover" or to segregate securities in connection
with hedging transactions and the possible inability of the Fund to close out
or to liquidate its hedged position.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment objective and regulatory and federal tax considerations.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities, including certain cover for OTC options and securities
whose disposition is restricted under the federal securities laws (other than
"Rule 144A securities" Mitchell Hutchins has determined to be liquid under
procedures approved by the Trust's trustees). Rule 144A establishes a "safe
harbor" from the registration requirements of the Securities Act of 1933 ("1933
Act"). Institutional markets for restricted securities have developed as a
result of Rule 144A, providing both readily ascertainable values for restricted
securities and the ability to liquidate an investment to satisfy share
redemption orders. An insufficient number of qualified institutional buyers
interested in purchasing Rule 144A-eligible restricted securities held by the
Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
PORTFOLIO TURNOVER. The Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate (100% or more) will
involve correspondingly greater transaction costs, which will be borne directly
by the Fund, and may increase the potential for short-term capital gains.
OTHER INFORMATION. When Mitchell Hutchins believes unusual circumstances
warrant a defensive posture, the Fund temporarily may commit all or a portion
of its assets to cash or money market instruments, including repurchase
agreements, foreign currencies and money market instruments issued by U.S. or
foreign issuers. The Fund may also engage in short sales of securities "against
the box" to defer realization of gains or losses for tax or other purposes. The
Fund may borrow money for temporary purposes, but not in excess of 10% of its
total assets.
-------------
Prospectus Page 11
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------
GENERAL. Class A shares of the Fund are sold to investors subject to an initial
sales charge. Class B shares of the Fund are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and
"Conversion of Class B Shares."
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open an
account. The minimum initial investment for the Fund is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan. Purchase orders will be priced at the net asset value per
share next determined (see "Valuation of Shares") after the order is received
by PaineWebber's New York City offices or by the Transfer Agent, plus any
applicable sales charge for Class A shares. The Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.
When placing purchase orders, investors should specify whether the order is for
Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for purchases with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the fifth Business Day after the order is received at PaineWebber's New York
City offices. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber clients
may purchase shares of the Fund through the Transfer Agent. Shares of the Fund
may be purchased, and an account with the Fund established, by completing and
signing the purchase application at the end of this Prospectus and mailing it,
together with a check to cover the purchase, to the Transfer Agent: PFPC Inc.,
Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware 19899.
Subsequent investments need not be accompanied by an application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:
INITIAL SALES CHARGE SCHEDULE-- CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE
AS A DISCOUNT TO
PERCENTAGE OF SELECTED
---------------------------------------- DEALERS
NET AMOUNT AS A
INVESTED PERCENTAGE
AMOUNT OF OFFERING (NET ASSET OF OFFERING
PURCHASE PRICE VALUE) PRICE
- --------------------- -------- ---------- -----------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer
-------------
Prospectus Page 12
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
receives 90% or more of the sales charge, it may be deemed an "underwriter"
under the 1933 Act.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares made
without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber funds, their spouses, parents and children and advisory clients of
Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the purchase is
made through a PaineWebber investment executive who formerly was employed as a
broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing
brokerage firm, (2) within 90 days of the purchase of Class A shares the
purchaser redeemed shares of one or more mutual funds for which that competing
firm or its affiliates was principal underwriter, provided the purchaser either
paid a sales charge to invest in those funds, paid a contingent deferred sales
charge upon redemption or held shares of those funds for the period required
not to pay the otherwise applicable contingent deferred sales charge and (3)
the total amount of shares of all PaineWebber funds purchased under this sales
charge waiver does not exceed the amount of the purchaser's redemption proceeds
from the competing firm's funds. To take advantage of this waiver, an investor
must provide satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment executives for
more information.
Certificate holders of unit investment trusts ("UITs") sponsored by PaineWebber
may acquire Class A shares of the Fund without regard to minimum investment
requirements and without sales charges by electing to have dividends and other
distributions from their UIT investment automatically invested in Class A
shares.
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group of
related Fund investors purchases Class A shares of the Fund concurrently with
Class A shares of other PaineWebber mutual funds, the purchases may be combined
to take advantage of the reduced sales charge applicable to larger purchases.
In addition, the right of accumulation permits the Fund investor or eligible
group of related Fund investors to pay the lower sales charge applicable to
larger purchases by basing the sales charge on the dollar amount of Class A
shares currently being purchased, plus the net asset value of the investor's or
group's total existing Class A shareholdings in other PaineWebber mutual funds.
An "eligible group of related Fund investors" includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ("IRA"), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act accounts created by the individual
or eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also includes a group of
related employers and one or more qualified retirement plans of such employers.
For more information, an investor should consult the Statement of Additional
Information or contact a PaineWebber investment executive or correspondent firm
or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares of the Fund is the next determined net asset value, and no
initial sales charge is imposed. A contingent deferred sales charge, however,
is imposed upon certain redemptions of Class B shares.
Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1) capital
appreciation of Fund assets, (2) reinvestment of dividends or capital gain
distributions or (3) shares redeemed more than six years after their purchase.
Otherwise, redemption of Class B shares will be subject to a contingent
deferred sales charge. The amount of any applicable contingent deferred sales
charge will be calculated by multiplying the net asset value of such shares at
the time of redemption by the applicable percentage shown in the table below:
-------------
Prospectus Page 13
<PAGE>
--------------------------------
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
REDEMPTION NET ASSET VALUE
DURING AT REDEMPTION
---------- -----------------
<S> <C>
1st Year Since Purchase...................................... 5%
2nd Year Since Purchase...................................... 4
3rd Year Since Purchase...................................... 3
4th Year Since Purchase...................................... 2
5th Year Since Purchase...................................... 2
6th Year Since Purchase...................................... 1
7th Year Since Purchase...................................... None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will
be calculated from the date that the Class B shares were initially acquired in
one of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at the lowest possible
rate. For federal income tax purposes, the amount of the contingent deferred
sales charge will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any contingent deferred sales
charge will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge will
be waived for exchanges, as described below, and for redemptions in connection
with the Fund's systematic withdrawal plan. In addition, the contingent
deferred sales charge will be waived for a total or partial redemption made
within one year of the death of the shareholder. The contingent deferred sales
charge waiver is available where the decedent is either the sole shareholder or
owns the shares with his or her spouse as a joint tenant with right of
survivorship. This waiver applies only to redemption of shares held at the time
of death. The contingent deferred sales charge will also be waived in
connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called "Keogh Plan") or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement plan; and a
redemption resulting from a tax-free return of an excess contribution to an
IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
PURCHASE OF CLASS D SHARES. The public offering price of the Class D shares of
the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
- --------------------------------------------------------------------------------
Exchanges
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber mutual funds, or may be acquired through an exchange of
shares of the corresponding Class of those funds. No initial sales charge is
imposed on the shares being acquired, and no contingent deferred sales charge
is imposed on the shares being disposed of, through an exchange. However,
contingent deferred sales charges may apply to redemptions of Class B shares
acquired through an exchange. A $5.00 exchange fee is charged for each
exchange, and exchanges may be subject to minimum investment requirements of
the fund into which exchanges are made.
The other PaineWebber funds with which Fund shares may be exchanged include:
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PAINEWEBBER INCOME FUNDS
. Global Income Fund
. High Income Fund
. Investment Grade Income Fund
. Short-Term U.S. Government Income Fund
. Short-Term U.S. Government Income Fund for Credit Unions
. Strategic Income Fund
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
. Europe Growth Fund
. Growth Fund
. Regional Financial Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificate form. Shareholders who are not PaineWebber clients or
who hold their shares in certificate form must place exchange orders in writing
with the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, Delaware 19899. All exchanges will be effected based on the
relative net asset values per share next determined after the exchange order is
received at PaineWebber's New York City offices or by the Transfer Agent. See
"Valuation of Shares." Shares of the Fund purchased through PaineWebber or its
correspondent firms may be exchanged only after the settlement date has passed
and payment for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber fund shares to be acquired may be legally made.
Before making any exchange, shareholders should contact their PaineWebber
investment executives or correspondent firms or the Transfer Agent to obtain
more information and prospectuses of the PaineWebber funds to be acquired
through the exchange.
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Redemptions
- --------------------------------------------------------------------------------
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
PaineWebber clients may redeem non-certificated shares through PaineWebber or
its correspondent firms; all other shareholders must redeem through the
Transfer Agent. If a redeeming shareholder owns shares of more than one Class,
the shares will be redeemed in the following order unless the shareholder
specifically requests otherwise: Class D shares, then Class A shares, and
finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within seven days, repurchase
proceeds (less any applicable contingent deferred sales charge) will be paid by
check or credited to the shareholder's brokerage account at the election of the
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
shareholder. PaineWebber investment executives and correspondent firms are
responsible for promptly forwarding redemption requests to PaineWebber's New
York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good
order." "Good order" means that the request must be accompanied by the
following: (1) a letter of instruction or a stock assignment specifying the
number of shares or amount of investment to be redeemed (or that all shares
credited to the Fund account be redeemed), signed by all registered owners of
the shares in the exact names in which they are registered, (2) a guarantee of
the signature of each registered owner by an eligible institution acceptable to
the Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships,
partnerships and corporations and (4) duly endorsed share certificates, if any.
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-certificated
Fund shares may have redemption proceeds of $1 million or more wired to the
shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption
requirements generally, should be referred to the shareholder's PaineWebber
investment executive or correspondent firm, or to the Transfer Agent if the
shares are not held in a PaineWebber brokerage account. If a shareholder
requests redemption of shares which were purchased recently, the Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, it reserves the right to redeem all Fund shares in any shareholder
account of less than $500 net asset value. If the Fund elects to do so, it will
notify the shareholder and provide the shareholder the opportunity to increase
the amount invested to $500 or more within 60 days of the notice. The Fund will
not redeem accounts that fall below $500 solely as a result of a reduction in
net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
shares of the Fund within 365 days after the redemption. To take advantage of
this reinstatement privilege, shareholders must notify their PaineWebber
investment executive or correspondent firm at the time the privilege is
exercised.
- --------------------------------------------------------------------------------
Conversion of Class B Shares
- --------------------------------------------------------------------------------
A shareholder's Class B shares will automatically convert to Class A shares of
the Fund approximately six years after the date of issuance, together with a
pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. See "Valuation
of Shares." If a shareholder effects one or more exchanges among Class B shares
of the PaineWebber mutual funds during the six-year period, the holding periods
for the shares so exchanged will be counted toward the six-year period.
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
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Other Services and Information
- --------------------------------------------------------------------------------
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class D shares of the Fund with a value of $5,000 or more or Class B shares of
the Fund with a value of $20,000 or more may have PaineWebber redeem a portion
of their shares monthly, quarterly or semi-annually under the systematic
withdrawal plan. No contingent deferred sales charge will be imposed on such
withdrawals for Class B shares. The minimum amount for all withdrawals of Class
A or Class D shares is $100, and minimum monthly, quarterly and semi-annual
withdrawal amounts for Class B shares are $200, $400 and $600, respectively.
Quarterly withdrawals are made in March, June, September and December, and
semi-annual withdrawals are made in June and December. A Class B shareholder of
the Fund may not withdraw an amount exceeding 12% annually of his or her
"Initial Account Balance," a term that means the value of the Fund account at
the time the shareholder elects to participate in the systematic withdrawal
plan. A Class B shareholder's participation in the systematic withdrawal plan
will terminate automatically if the Initial Account Balance (plus the net asset
value on the date of purchase of Fund shares acquired after the election to
participate in the systematic withdrawal plan), less aggregate redemptions made
other than pursuant to the systematic withdrawal plan, is less than $20,000.
Shareholders who receive dividends or other distributions in cash may not
participate in the systematic withdrawal plan. Purchases of additional shares
of the Fund concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased through
IRAs available through the Fund. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares will be transferred to an account with the Transfer Agent.
However, if the other firm has entered into a selected dealer agreement with
Mitchell Hutchins relating to the Fund, the shareholder may be able to hold
Fund shares in an account with the other firm.
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
Dividends and 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 such 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). 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 D shares of the Fund are expected
to be lower than those for its Class A shares because of the higher expenses
resulting from distribution fees borne by the Class B and Class D shares.
Dividends on each Class also might be affected differently by the allocation of
other Class-specific expenses. See "Valuation of Shares."
The Fund's dividends and 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 be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions) and net capital gain that
is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional shares) generally are taxable to shareholders as ordinary
income. Distributions of the Fund's net capital gain (whether paid in cash or
in additional shares) are taxable to shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. Shareholders not
subject to tax on their income generally will not be required to pay tax on
amounts distributed to them.
The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
and the share of any foreign taxes paid by the Fund that year and of any
portion of those dividends that qualifies for the corporate dividends-received
deduction.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gain distributions is also required for those shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds payable to the
shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any initial sales charge paid on Class
A shares). An exchange of Fund shares for shares of another PaineWebber fund
generally will have similar tax consequences. However, special tax rules apply
when a shareholder (1) disposes of Class A shares through a redemption or
exchange within 90 days of purchase and (2) subsequently acquires Class A
shares of a PaineWebber fund without paying a sales charge due to the 365-day
reinstatement privilege or the exchange privilege. In these cases, any gain on
the disposition of the original Class A shares would be increased, or loss
decreased, by the amount of the sales charge paid when those shares were
acquired, and that amount will increase the basis of the PaineWebber fund
shares subsequently acquired. In addition, if Fund shares are purchased within
30 days before or after redeeming other Fund shares (regardless of Class) at a
loss, all or a portion of that loss will not be deductible and will increase
the basis of the newly purchased shares.
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
No gain or loss will be recognized to a shareholder as a result of a conversion
of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers.
- --------------------------------------------------------------------------------
Valuation of Shares
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each Class as of the close of regular trading on the NYSE
(currently 4:00 p.m., eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund plus any cash or other assets minus all liabilities by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the board of trustees determines that this does not represent
fair value. Investments denominated in foreign currencies are valued daily in
U.S. dollars based on the then-prevailing exchange rate.
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, investment adviser and administrator of
the Fund, makes and implements all investment decisions and supervises all
aspects of the Fund's operations. Brokerage transactions for the Fund may be
conducted through PaineWebber or its affiliates in accordance with procedures
adopted by the Trust's board of trustees.
Mitchell Hutchins receives a monthly fee for these services at the annual rate
of 0.75% of average daily net assets of the Fund. The advisory fees for the
Fund are higher than those paid by most investment companies to their advisers,
but Mitchell Hutchins believes the fees are comparable to the advisory fees
paid by other funds with similar investment objectives and policies.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund incurs other expenses and, for the fiscal year ended August 31,
1994, the Fund's total expenses for its Class A, Class B and Class D shares,
stated as a percentage of net assets, were 1.39%, 2.19% and 2.20%,
respectively.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by PaineWebber Group Inc., a publicly owned financial services holding
company. At November 30, 1994, Mitchell Hutchins was adviser or subadviser of
29 investment companies with 55 separate portfolios and aggregate assets of
approximately $23 billion.
Frank Jennings has been primarily responsible for the day-to-day portfolio
management of the Fund
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
since December 1992. Mr. Jennings is a vice president of the Trust and a
managing director of global equities for Mitchell Hutchins. Prior to December
1992, Mr. Jennings served as managing director of Global Investments of AIG
Global Investors.
Other members of Mitchell Hutchins' international and domestic equities and
fixed income groups provide input on market outlook, interest rate forecasts
and other considerations pertaining to global and domestic equity and fixed
income investments.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares, the Class B shares and Class D shares ("Class A Plan," "Class B Plan"
and "Class D Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins
monthly service fees at the annual rate of up to 0.25% of the average daily net
assets of each Class of shares and monthly distribution fees at the annual rate
of 0.75% of the average daily net assets of the Class B and Class D shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of up to
0.25% of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber passes on a portion of these fees to its investment
executives to compensate them for shareholder servicing that they perform and
retains the remainder to offset its own expenses in servicing and maintaining
shareholder accounts. These expenses may include costs of the PaineWebber
branch office in which the investment executive is based, such as rent,
communications equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset the Fund's marketing costs
attributable to such Classes, such as preparation of sales literature,
advertising and printing and distributing prospectuses and other shareholder
materials to prospective investors. Mitchell Hutchins also may use the
distribution fees to pay additional compensation to PaineWebber and other costs
allocated to Mitchell Hutchins' and PaineWebber's distribution activities,
including employee salaries, bonuses and other overhead expenses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class D shares
until it has been reimbursed and thereafter will pass a portion of the service
and distribution fees on Class D shares on to its investment executives.
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ("Distribution Contracts")
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees for the Fund, it will not be obligated
to pay more than those fees and, if Mitchell Hutchins' expenses are less than
such fees, it will retain its full fees and realize a profit. The Fund will pay
the service and distribution fees to Mitchell Hutchins until either the
applicable Plan or Distribution Contract is terminated or not renewed. In that
event, Mitchell Hutchins' expenses in excess of service and distribution fees
received or accrued through the termination date will be Mitchell Hutchins'
sole responsibility and not obligations of the Fund. In their annual
consideration of the continuation the Plans, the trustees will review the Plan
and Mitchell Hutchins' corresponding expenses for each Class separately from
the Plans and corresponding expenses for the other two Classes.
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class
A shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five-and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
The Fund will include performance data for all three Classes of Fund shares in
any advertisements or promotional materials including Fund performance data.
Total return information reflects past performance and does not necessarily
indicate future results. Investment return and principal values will fluctuate,
and proceeds upon redemption may be more or less than a shareholder's cost.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
ORGANIZATION. PaineWebber Atlas Fund is registered with the SEC as an open-end
management investment company and was organized as a business trust under the
laws of the Commonwealth of Massachusetts by Declaration of Trust dated October
31, 1986. The trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series, par value $.001 per share.
The shares of beneficial interest of the Fund are divided into four Classes,
designated Class A shares, Class B shares, Class C shares and Class D shares.
Each Class represents interests in the same assets of the Fund. The Classes
differ as follows: (1) each Class of shares has exclusive voting rights on mat-
ters pertaining to its plan of distribution, (2) Class A shares are subject to
an initial sales charge, (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance,
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class, (5) Class C shares, which may be offered only to a limited class of in-
stitutional investors, are subject to neither an initial or contingent deferred
sales charge nor ongoing service or distribution fees, and (6) each Class may
bear differing amounts of certain Class-specific expenses. The board of trust-
ees of the Trust does not anticipate that there will be any conflicts among the
interests of the holders of each Class of Fund shares. On an ongoing basis, the
board of trustees will consider whether any such conflict exists and, if so,
take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees of the Trust holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Trust may remove a trustee by votes cast in person or by proxy at a meeting
called for that purpose. The trustees are
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
required to call a meeting of shareholders for the purpose of voting upon the
question of removal of any trustee when so requested in writing by the
shareholders of record holding at least 10% of the Trust's outstanding shares.
Each share of the Fund has equal voting rights, except as noted above. Each
share of the Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation, except that, due to the
differing expenses borne by the four classes, dividends and liquidation
proceeds of Class B and Class D shares are likely to be lower than for the
Class A shares and are likely to be lower for the Class A, Class B and Class D
shares than for Class C shares.
To avoid additional operating costs and for investor convenience, the Fund does
not issue share certificates. Ownership of shares of the Fund is recorded on a
stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian for the Fund and employs foreign sub-
custodians to provide custody of the Fund's foreign assets. PFPC Inc., a
subsidiary of PNC Bank, National Association, whose principal address is 400
Bellevue Parkway, Wilmington, Delaware 19809, is the Fund's transfer and
dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of shares of the Fund. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
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PAINEWEBBER ATLAS GLOBAL GROWTH FUND
Appendix
- --------------------------------------------------------------------------------
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.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon
exercise of the option, the delivery of the futures position to the holder of
the option will be accompanied by delivery of the accumulated balance that
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the future. The writer of an option, upon
exercise, will assume a short position in the case of a call and a long
position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
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<PAGE>
Application Form
THE PAINEWEBBER
MUTUAL FUNDS [_][_] - [_][_][_][_][_] - [_][_]
PaineWebber Account No.
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INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN
ACCOUNT).
ALSO, DO NOT USE THIS FORM TO OPEN A Return this completed
RETIREMENT PLAN ACCOUNT. FOR form to:
RETIREMENT PLAN FORMS OR FOR PFPC Inc.
ASSISTANCE IN COMPLETING THIS FORM P.O. Box 8950
CONTACT PFPC INC. AT 1-800-647-1568. Wilmington, Delaware 19899
ATTN: PaineWebber Mutual
Funds
PLEASE PRINT
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1 INITIAL INVESTMENT ($1,000 MINIMUM)
ENCLOSED IS A CHECK FOR:
$ (payable to PaineWebber Atlas Global Growth Fund) to pur-
----
chase Class A [_] Class B [_] or Class D [_] shares
2 ACCOUNT REGISTRATION
Not valid without
signature and
Soc. Sec. or 1. Individual / /
Tax ID # ------------- --------------- ------------
- --As joint First Name Last Name MI Soc. Sec. No.
tenants, use
Lines 1 and 2
- --As custodian 2. Joint Tenancy
for a minor, / /
use Lines 1 ----------- --------------- ------------
and 3 First Name Last Name MI Soc. Sec. No.
- --In the name ("Joint Tenants with Rights of Survivorship"
of a unless otherwise specified)
corporation,
trust or other 3. Gifts to Minors / /
organization or -------------------------- ------------
any fiduciary Minor's Name Soc. Sec. No.
capacity, use
Line 4 Under the ___________________________ Uniform Gifts
State of Residence of Minor to Minors Act /
Uniform Transfers
to Minors Act
4. Other Registrations
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Name Tax Ident. No.
5. If Trust, Date of Trust Instrument:
----------
3 ADDRESS
---------------------------- U.S. Citizen [_] YES [_] NO*
Street
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City State Zip Code *Country of Citizenship
4
DISTRIBUTION OPTIONS See Prospectus
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions in
additional shares
[_] Pay dividends to my address above; reinvest capital gain
distributions
[_] Pay both dividends and capital gain distributions in cash
to my address above
[_] Reinvest dividends and pay capital gain distributions in
cash to my address above
NOTE: If a selection is not made, both dividends and capi-
tal gain distributions will be paid in additional Fund
shares of the same Class.
<PAGE>
5 SPECIAL OPTIONS (For More Information--Check Appropriate Box)
[_] Automatic Investment Plan [_] Prototype IRA Application
[_] Systematic Withdrawal Plan
6 RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)
Indicate here any other account(s) in the group of funds that would
qualify for the cumulative quantity discount as outlined in the
Prospectus.
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
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Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
7 PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
"Affiliated" persons are defined as officers, directors/trustees and
employees of the PaineWebber funds, PaineWebber or its affiliates,
and their parents, spouses and children.
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Nature of Relationship
8 SIGNATURE (S) AND TAX CERTIFICATION (S)
I warrant that I have full authority and am of legal age to purchase
shares of the Fund and have received and read a current Prospectus
of the Fund and agree to its terms. The Fund and its Transfer Agent
will not be liable for acting upon instructions or inquiries
believed genuine. Under penalties of perjury, I certify that (1) my
taxpayer identification number provided in this application is
correct and (2) I am not subject to backup withholding because (i) I
have not been notified that I am subject to backup withholding as a
result of failure to report interest or dividends or (ii) the IRS
has notified me that I am no longer subject to backup withholding
(strike out clause (2) if incorrect).
------------------------- ---------------------- ----------
Individual (or Custodian) Joint Registrant (if any) Date
----------------------------------------- -------------- ------
Corporate Officer, Partner, Trustee, etc. Title Date
9 INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By Investment
Executive Only)
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Broker No./Name Branch Wire Code
( )
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Branch Address Telephone
10 CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspondent
Firm Only)
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Name Address
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MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECU-
TIVE OR CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX
8950, WILMINGTON, DELAWARE 19899.
<PAGE>
Shares of the Fund can be exchanged for shares of the following other
PaineWebber Mutual Funds:
PAINEWEBBER INCOME FUNDS
. Global Income Fund
. High Income Fund
. Investment Grade Income Fund
. Short-Term U.S. Government Income Fund
. Short-Term U.S. Government Income Fund for Credit Unions
. Strategic Income Fund
. U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
. California Tax-Free Income Fund
. Municipal High Income Fund
. National Tax-Free Income Fund
. New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
. Blue Chip Growth Fund
. Capital Appreciation Fund
. Communications & Technology Growth Fund
. Europe Growth Fund
. Growth Fund
. Regional Financial Growth Fund
. Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
. Asset Allocation Fund
. Dividend Growth Fund
. Global Energy Fund
. Global Growth and Income Fund
. Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
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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. Read it carefully before investing.
(C) 1995 PaineWebber Incorporated
LOGO Recycled
Paper
PaineWebber
Atlas Global Growth
Fund
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
PROSPECTUS
January 1, 1995
<PAGE>
PaineWebber Atlas PaineWebber
Global Growth Fund Dividend Growth Fund
PaineWebber
Growth Fund
Class C Shares
1285 Avenue of the Americas
New York, New York 10019
PaineWebber Atlas Global Growth Fund ("Atlas Fund"), a series of PaineWebber
Atlas Fund, seeks long-term capital appreciation and invests primarily in
common stocks of issuers based in the United States, Europe, Japan and the
Pacific Basin.
PaineWebber Dividend Growth Fund ("Dividend Growth Fund"), a series of
PaineWebber America Fund, seeks current income and capital growth and invests
primarily in dividend-paying common stocks with the potential for increasing
dividends.
PaineWebber Growth Fund ("Growth Fund"), a series of PaineWebber Olympus
Fund, seeks long-term capital appreciation and invests primarily in common
stocks issued by companies deemed by its investment adviser to have
substantial potential for capital growth.
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The Class C shares described in this Prospectus are currently offered for
sale only to the trustee of the PaineWebber Savings Investment Plan on behalf
of that Plan.
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This Prospectus concisely sets forth information about the Funds a
prospective investor should know before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
January 1, 1995 (which is incorporated by reference herein), has been filed
with the Securities and Exchange Commission. The Statement of Additional
Information can be obtained without charge, and further inquiries can be made,
by contacting the PaineWebber Incorporated Benefits Department, 1000 Harbor
Boulevard, 10th Floor, Weehawken, New Jersey 07087 or by calling
1-201-902-4444.
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Atlas Fund, Dividend Growth Fund and Growth Fund are series of
PaineWebber Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund,
respectively (each a "Trust"), which are Massachusetts business trusts.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS ANY SUCH COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January 1, 1995.
PaineWebber Incorporated
<PAGE>
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their distributor. This Prospectus does not constitute an offering by the
Funds or their distributor in any jurisdiction in which such offering may not
lawfully be made.
------------------------
FUND EXPENSES
The following tables are intended to assist investors in understanding
the expenses associated with investing in Class C shares of each Fund.
Shareholder Transaction Expenses
<TABLE>
<S> <C>
Maximum sales charge on purchases of shares......................................... None
Sales charge on reinvested dividends................................................ None
Redemption fee or deferred sales charge............................................. None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Dividend
Atlas Growth Growth
Fund Fund Fund
---- ---- ----
Management fees.................................... 0.75% 0.70% 0.75%
12b-1 fees......................................... 0.00 0.00 0.00
Other expenses..................................... 0.38 0.20 0.19
---- ---- ----
Total estimated operating expenses................. 1.13% 0.90% 0.94%
==== ==== ====
Example of Effect of Fund Expenses
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:
One Three Five Ten
Year Years Years Years
--- --- --- ----
Atlas Fund................................. $12 $36 $62 $137
Dividend Growth Fund....................... $ 9 $29 $50 $111
Growth Fund................................ $10 $30 $52 $115
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the Securities and Exchange Commission ("SEC") applicable to all mutual funds;
the assumed 5% annual return is not a prediction of, and does not represent,
the projected or actual performance of the Class C shares of any Fund.
The Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses attributable to a Fund's Class C shares will depend upon,
among other things, the level of average net assets and the extent to which
the Fund incurs variable expenses, such as transfer agency costs.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class
C share of each Fund for the periods shown. This information is supplemented
by the financial statements and accompanying notes appearing in each Fund's
Annual Report to Shareholders for the fiscal year ended August 31, 1994, which
are incorporated by reference into the Statement of Additional Information.
Further information about the performance of each Fund is also included in the
Annual Report to Shareholders, which may be obtained without charge. The
financial statements and notes, as well as the information in the tables
appearing below, have been audited by Ernst & Young LLP, independent auditors,
whose report thereon is included in the Annual Report to Shareholders.
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------------------------------------
Dividend Growth Fund
-----------------------------
For the
Period
Atlas Fund February Growth Fund
---------------------------- 12, -----------------------------
For the Years 1992+
For the Years Ended August Ended to For the Years Ended August
31,++ August 31, August 31,++
---------------------------- ------------------ 31, -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------- ------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............... $ 15.64 $ 12.73 $13.62 $ 20.86 $ 20.48 $ 20.95 $ 20.71 $ 16.83 $ 17.50
------- ------- ------ ------- ------- ------- ------- ------- -------
Income (loss) from
investment operations:
Net investment
income.............. 0.04 0.09 0.19 0.33 0.33 0.16 0.03 0.08 0.05
Net realized and
unrealized gains
(losses) from
investment
transactions........ 1.49 2.82 (0.86) (0.40) 0.37 (0.49) 0.55 4.42 (0.11)
------- ------- ------ ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations... 1.53 2.91 (0.67) (0.07) 0.70 (0.33) 0.58 4.50 (0.06)
------- ------- ------ ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Dividends from net
investment income... (0.08) -- (0.22) (0.34) (0.32) (0.14) -- -- (0.01)
Distributions from net
realized gains on
investments and
foreign currency
transactions........ (0.68) -- -- (0.03) -- -- (1.07) (0.62) (0.60)
------- ------- ------ ------- ------- ------- ------- ------- -------
Total dividends and
distributions....... (0.76) -- (0.22) (0.37) (0.32) (0.14) (1.07) (0.62) (0.61)
------- ------- ------ ------- ------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 16.41 $ 15.64 $12.73 $ 20.42 $ 20.86 $ 20.48 $ 20.22 $ 20.71 $ 16.83
======= ======= ====== ======= ======= ======= ======= ======= =======
Total Return(1)........... 9.59% 22.86% (5.10)% (0.31)% 3.44% (1.15)% 2.67% 27.26% (0.52)%
======= ======= ====== ======= ======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets, end of
period (000's)...... $38,912 $16,265 $6,327 $14,690 $17,005 $10,560 $30,521 $20,706 $11,581
Ratio of expenses to
average net
assets.............. 1.13% 1.10% 1.45% 0.90% 0.86% 0.93%* 0.94% 0.95% 1.12%
Ratio of net
investment income to
average net
assets.............. 0.40% 0.87% 0.93% 1.60% 1.62% 1.56%* 0.40% 0.60% 0.38%
Portfolio turnover.... 176.16% 258.05% 80.14% 94.32% 36.52% 15.57% 24.41% 35.81% 32.49%
</TABLE>
- ---------------
* Annualized.
+ Commencement of offering of shares.
++ A per share breakdown for Class C shares has been omitted for the period
August 25, 1991 (commencement of offering of shares) to August 31, 1991
due to immaterial amounts.
(1) Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. Total return
information for periods less than one year are not annualized.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives and Primary Investments
The investment objective of Atlas Fund is to provide long-term capital
appreciation. Atlas Fund seeks to achieve this objective by investing
primarily in common stocks of issuers based in the United States, Europe,
Japan and the Pacific Basin.
The investment objective of Dividend Growth Fund is to provide current
income and capital growth. Dividend Growth Fund seeks to achieve this
objective by investing primarily in dividend-paying common stocks of large,
well established companies with the potential for increasing dividends.
The investment objective of Growth Fund is to provide long-term capital
appreciation. Growth Fund seeks to achieve this objective by investing
primarily in common stocks issued by companies that, in the judgment of its
investment adviser have substantial potential for capital growth.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") serves as
investment adviser and administrator for each Fund. Mitchell Hutchins
Institutional Investors Inc. ("Sub-Adviser") serves as sub-adviser for
Dividend Growth Fund.
There can be no assurance that any Fund will achieve its investment
objective. Each Fund's net asset value fluctuates based upon changes in the
value of its portfolio securities. Each Fund's investment objective and
certain investment limitations as described in the Statement of Additional
Information are fundamental policies that may not be changed without
shareholder approval. All other investment policies may be changed by each
Trust's board of trustees without shareholder approval.
Atlas Fund
Normally, at least 80% of Atlas Fund's assets is invested in common
stocks and securities convertible into common stocks. In managing Atlas Fund's
portfolio, Mitchell Hutchins seeks to identify those companies, both in the
United States and abroad, likely to benefit from long-term trends and shifting
trade patterns as they develop in the global economy. Atlas Fund's investment
policies are designed to enable it to capitalize on unique investment
opportunities presented throughout the world and in international financial
markets influenced by the increasing interdependency of economic cycles and
currency exchange rates.
For example, according to Morgan Stanley Capital International, as of
November 30, 1994 approximately 63% of the world's equity securities were
denominated in a currency other than the U.S. dollar. Over the past ten years,
certain foreign equity markets have provided higher investment returns than
the U.S. equity market. These returns reflect interest rates and other market
conditions prevailing in those countries, particularly gains and losses in the
denominated currencies. Year-to-year fluctuations in certain markets have been
significant, and returns for various markets have sometimes been negative.
Mitchell Hutchins believes that, over time, investing in a combination of U.S.
and foreign equity securities is less risky than investing solely in foreign
securities and provides more opportunities for high total return than
investing solely in U.S. securities.
Atlas Fund's substantial foreign investments involve special risks,
including possible expropriation, confiscatory taxation, withholding taxes on
dividends and interest, limits on the use or transfer of Fund assets,
political or social instability and diplomatic developments. Foreign economies
may differ favorably or unfavorably from the U.S. economy in various respects,
and many foreign securities are less liquid and their prices more volatile
than comparable U.S. secu-
4
<PAGE>
rities. Although Atlas Fund generally invests only in securities traded on
recognized exchanges or in over-the-counter markets, foreign securities at
times may be difficult to liquidate rapidly without adverse price effects.
Legal remedies for defaults and disputes may have to be pursued in foreign
courts, whose procedures differ substantially from those of U.S. courts.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in
foreign currency exchange rates will affect Atlas Fund's net asset value, the
value of dividends and interest earned, gains and losses realized on the sale
of securities and net investment income and capital gain, if any, to be
distributed to shareholders by Atlas Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of Atlas Fund's assets denominated in
that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of Atlas Fund's assets
denominated in that currency will decrease. The exchange rates between the
U.S. dollar and other currencies are determined by supply and demand in the
currency exchange markets, international balances of payments, speculation and
other economic and political conditions. In addition, some foreign currency
values may be volatile and there is the possibility of governmental controls
on currency exchange or governmental intervention in the currency markets.
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. Any of these factors could adversely
affect Atlas Fund.
The costs attributable to foreign investing that Atlas Fund must bear
frequently are higher than those attributable to domestic investing. For
example, the costs of maintaining custody of securities in foreign countries
exceed custodian costs related to domestic securities.
Atlas Fund may enter into forward currency contracts to set the rate at
which currency exchanges will be made for specific contemplated transactions.
Atlas Fund might also enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date either with respect
to contemplated transactions or with respect to portfolio positions. For
example, when Mitchell Hutchins anticipates making a currency exchange
transaction in connection with the purchase or sale of a security, Atlas Fund
may enter into a forward contract in order to set the exchange rate at which
the transaction will be made. Atlas Fund also may enter into a forward
contract to sell an amount of a foreign currency approximating the value of
some or all of its securities denominated in such currency. Atlas Fund may use
forward contracts in one currency or a basket of currencies to hedge against
fluctuations in the value of another currency when Mitchell Hutchins
anticipates there will be a correlation between the two and may use forward
currency contracts to shift the Fund's exposure to foreign currency
fluctuations from one country to another. The purpose of entering into these
contracts is to minimize the risk to Atlas Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies.
Atlas Fund may also write covered put and call options and purchase put
and call options on foreign currencies to hedge against movements in currency
exchange rates. For the same purpose, Atlas Fund may purchase and sell foreign
currency futures contracts and write covered put and call options and purchase
put and call options on such contracts. The risks of these hedging strategies
are similar to those of the other hedging strategies in which Atlas Fund may
engage, as described under "Other Investment Policies and Risk
Factors--Hedging Strategies." See the Statement of Additional
5
<PAGE>
Information for more information on currency hedging strategies.
Atlas Fund may invest up to 20% of its assets in non-convertible debt
securities of both domestic and foreign issuers, as well as in obligations
issued or guaranteed by the U.S. or foreign governments, their agencies or
instrumentalities. Atlas Fund will not invest more than 5% of its assets in
debt securities rated lower than investment grade. See "Other Investment
Policies and Risk Factors--Debt Securities."
Dividend Growth Fund
Mitchell Hutchins and the Sub-Adviser believe that companies with a
history of consistently increasing dividends have the potential for increased
dividends in the future. Under normal circumstances, at least 65% of Dividend
Growth Fund's total assets is invested in common stocks of issuers that, at
the time of purchase, meet the following criteria:
--at least 5% compound annual growth in earnings per share over the past
five years;
--at least 5% compound annual growth in dividends per common share over
the past five years; and
--an increased dividend per common share in each of the past five years.
If a common stock owned by Dividend Growth Fund ceases to meet these criteria
after purchase, the Sub-Adviser will consider selling the stock, but is not
required to do so. Over the past twenty years, the universe of issuers that
have met these criteria has varied between 100 and 300 companies.
Dividend Growth Fund may invest up to 35% of its total assets in common
stocks not meeting all the above criteria, as well as convertible debt
securities, convertible preferred stocks, U.S. government securities,
investment grade corporate debt securities and money market instruments. See
"Other Investment Policies and Risk Factors--Debt Securities." Dividend Growth
Fund will invest in instruments other than common stocks when, in the opinion
of the Sub-Adviser, their projected total return is equal to or greater than
that of common stocks or when such holdings might reduce the volatility of the
Fund's portfolio.
Dividend Growth Fund purchases common stocks only of issuers whose market
capitalizations exceed $300 million. Over the past 65 years, the total return
of equity investments, as measured by the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"), has exceeded the inflation rate, as measured by
the Consumer Price Index, as well as total return on long-term Treasury bonds,
long-term corporate bonds and short-term Treasury bills. However, year-to-year
fluctuations in each of these indexes and instruments have been significant,
and total return for the S&P 500 for some periods has been negative.
Furthermore, there can be no assurance that this trend will continue.
Growth Fund
In selecting stocks for investment by Growth Fund, Mitchell Hutchins
considers all those factors it believes affect potential capital appreciation,
including an issuer's current and projected revenues, earnings, cash flow and
assets, as well as general market conditions in relevant industries. Under
normal circumstances, at least 65% of Growth Fund's assets is invested in
common stocks. Growth Fund may invest up to 35%, and for temporary purposes
more than 35%, of its assets in U.S. government securities and convertible and
non-convertible corporate debt securities. In seeking capital appreciation,
the Fund would invest in debt securities when, for instance, Mitchell Hutchins
anticipates that market interest rates may decline or credit factors or
ratings affecting particular issues may improve. Growth Fund may invest in
corporate debt securities rated lower
6
<PAGE>
than investment grade. See "Other Investment Policies and Risk Factors--Debt
Securities."
Other Investment Policies and Risk Factors
Debt Securities. All the Funds are permitted to purchase investment
grade corporate debt securities. Securities rated BBB by Standard & Poor's
Ratings Group ("S&P"), Baa by Moody's Investor Services, Inc. ("Moody's") or
comparably rated by another nationally recognized statistical rating
organization ("NRSRO") are investment grade but Moody's considers securities
rated Baa to have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity for such
securities to make principal and interest payments than is the case for
higher-rated debt securities. Atlas Fund and Growth Fund are also permitted to
purchase debt securities rated as low as B+ by S&P, B1 by Moody's or
comparably rated by another NRSRO, with Atlas Fund limited in such investments
to 5%, and Growth Fund limited to 35%, of total assets. These securities are
deemed by those NRSROs to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. Such securities are commonly referred to
as "junk bonds." Each Fund is also permitted to purchase debt securities that
are not rated by S&P, Moody's or another NRSRO but that Mitchell Hutchins or
(for Dividend Growth Fund) the Sub-Adviser determines to be of comparable
quality to that of rated securities in which the Fund may invest. Such
securities are included in the computation of any percentage limitations
applicable to the comparable rated securities. See the Statement of Additional
Information for more information about S&P and Moody's ratings.
Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality and may be reduced after the Fund has
acquired the security. Mitchell Hutchins or (for Dividend Growth Fund) the
Sub-Adviser will consider such an event in determining whether the Fund should
continue to hold the security but is not required to dispose of it. Credit
ratings attempt to evaluate the safety of principal and interest payments and
do not reflect an assessment of the volatility of the security's market value
or the liquidity of an investment in the security. Also, NRSROs may fail to
make timely changes in credit ratings in response to subsequent events, so
that an issuer's current financial condition may be better or worse than the
rating indicates.
Lower rated debt securities generally offer a higher current yield than
that available for higher grade issues, but they involve higher risks, in that
they are especially subject to adverse changes in general economic conditions
and in the industries in which the issuers are engaged, to changes in the
financial condition of the issuers and to price fluctuations in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress which
could adversely affect their ability to make payments of interest and
principal and increase the possibility of default. In addition, such issuers
may not have more traditional methods of financing available to them, and may
be unable to repay debt at maturity by refinancing. The risk of loss due to
default by such issuers is significantly greater because such securities
frequently are unsecured and subordinated to the prior payment of senior
indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically. However, such higher yields
7
<PAGE>
did not reflect the value of the income stream that holders of such securities
expected, but rather the risk that holders of such securities could lose a
substantial portion of their value as a result of the issuers' financial
restructuring or default. There can be no assurance that such declines will
not recur. The market for lower-rated debt issues generally is thinner and
less active than that for higher quality securities, which may limit a Fund's
ability to sell such securities at fair value in response to changes in the
economy or financial markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of lower rated securities, especially in a thinly traded market.
U.S. government securities in which the Funds may invest include direct
obligations of the U.S. Treasury as well as obligations of U.S. government
agencies and instrumentalities backed by the U.S. Treasury or primarily or
solely by the credit of the issuer.
Dollar-Denominated Foreign Securities. Dividend Growth Fund and Growth
Fund each may invest up to 25% of its total assets in U.S. dollar-denominated
securities of foreign issuers that are traded on recognized U.S. exchanges or
in the U.S. over-the-counter ("OTC") market. Atlas Fund may invest in such
securities without limitation. These investments may involve special risks,
arising both from political and economic developments abroad and differences
between foreign and U.S regulatory systems. Foreign securities may be less
liquid and their prices more volatile than comparable U.S. securities. The
prices of these securities may also be affected by fluctuations in the values
of foreign currencies.
Hedging Strategies. Each Fund may attempt to reduce the overall risk of
its investments (hedge) by using options (both exchange-traded and OTC) and
futures contracts. A Fund's ability to use these instruments may be limited by
market conditions, regulatory limits and tax considerations. The Appendix to
this Prospectus describes the hedging instruments a Fund may use. The
Statement of Additional Information contains further information on these
strategies.
The Funds may write (sell) covered put and call options or buy put and
call options on securities in which they may invest and on stock indices. In
addition, the Funds may buy and sell stock index futures contracts and
interest rate futures contracts and may write covered put and call options or
buy put and call options on such futures contracts. Because each Fund intends
to use options and futures for hedging purposes, each Fund may enter into
options and futures contracts that approximate (but do not exceed) the full
value of its portfolio.
The Funds might not employ any of the strategies described above, and
there can be no assurance that any strategy used will succeed. If Mitchell
Hutchins or (for Dividend Growth Fund) the Sub-Adviser incorrectly forecasts
interest rates, market values or other economic factors in utilizing a hedging
strategy for a Fund, the Fund would be in a better position had it not hedged
at all. The use of these strategies involves certain special risks, including
(1) the fact that skills needed to use hedging instruments are different from
those needed to select a Fund's securities, (2) possible imperfect
correlation, or even no correlation, between price movements of hedging
instruments and price movements of the investments being hedged, (3) the fact
that, while hedging strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments and (4) the possible inability
of a Fund to purchase or sell a portfolio security at a time that otherwise
would be favorable for it to do so, or the possible need for a Fund to sell a
portfolio security at a disadvantageous time, due to the need for a Fund to
maintain "cover" or to segregate securities in connection with hedging
8
<PAGE>
transactions and the possible inability of such Fund to close out or to
liquidate its hedged position.
New financial products and risk management techniques continue to be
developed. Each Fund may use these instruments and techniques to the extent
consistent with its investment objective and regulatory and federal tax
considerations.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities, including certain cover for OTC options and securities
whose disposition is restricted under the federal securities laws (other than
"Rule 144A securities" Mitchell Hutchins or (for Dividend Growth Fund) the
Sub-Adviser has determined to be liquid under procedures approved by the
Trust's trustees). Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act of 1933. Institutional markets for
restricted securities have developed as a result of Rule 144A, providing both
readily ascertainable values for restricted securities and the ability to
liquidate an investment to satisfy share redemption orders. An insufficient
number of qualified institutional buyers interested in purchasing Rule
144A-eligible restricted securities held by a Fund, however, could affect
adversely the marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
Portfolio Turnover. Each Fund's portfolio turnover rate may vary greatly
from year to year and will not be a limiting factor when Mitchell Hutchins or
(for Dividend Growth Fund) the Sub-Adviser deems portfolio changes
appropriate. A higher turnover rate for (100% or more) a particular Fund will
involve correspondingly greater transaction costs, which will be borne
directly by that Fund, and may increase the potential for taxable short-term
capital gains.
Other Information. When Mitchell Hutchins or (for Dividend Growth Fund)
the Sub-Adviser believes unusual circumstances warrant a defensive posture,
each Fund temporarily may commit all or a portion of its assets to cash or
money market instruments, including repurchase agreements. In the case of
Atlas Fund, such temporary investments may include foreign currencies and
money market instruments issued by U.S. or foreign issuers. The Funds may also
engage in short sales of securities "against the box" to defer realization of
gains or losses for tax or other purposes. Each Fund may borrow money for
temporary purposes, but not in excess of 10% of its total assets.
PURCHASES AND REDEMPTIONS
The Class C shares of the Funds described in this Prospectus currently
are offered for sale only to the trustee of the PaineWebber Savings Investment
Plan ("PW SIP"), a defined contribution plan sponsored by Paine Webber Group
Inc. ("PW Group"). Such shares may be purchased or redeemed only by such
trustee on behalf of the PW SIP at net asset value without any sales or
redemption charge.
The trustee of the PW SIP purchases and redeems Fund shares to implement
the investment choices of individual plan participants with respect to their
PW SIP contributions. Individual plan participants should consult the Plan
Information Statement and Summary Plan Description of the PW SIP (collectively
the "Plan Documents") for a description of the procedures and limitations
applicable to making and changing investment choices. Copies of the Plan
Documents are available from the PaineWebber Incorporated Benefits Department,
1000 Harbor Boulevard, 10th Floor, Weehawken, New Jersey 07087 (telephone
1-201-902-4444).
As described in the Plan Documents, the average net asset value per share
at which shares of a Fund are purchased or redeemed by the
9
<PAGE>
trustee of the PW SIP for the accounts of individual participants might be
more or less than the net asset value per share prevailing at the time that
such participants made their investment choices or made their contributions to
the PW SIP.
Purchase and redemption orders by the trustee of the PW SIP for shares of
a Fund will be effected at the net asset value per share next computed (see
"Valuation of Shares") after the order is received by the Funds' transfer
agent, PFPC Inc. ("Transfer Agent"). Each Fund and Mitchell Hutchins reserve
the right to reject any purchase order and to suspend the offering of Fund
shares for a period of time.
DIVIDENDS AND TAXES
Dividends. Dividend Growth Fund pays quarterly dividends from net
investment income; Atlas Fund and Growth Fund pay dividends from such income
annually. Each 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) and net short-term capital gain, if any. Atlas Fund also
distributes any net realized gains from foreign currency transactions with its
annual dividend. Each Fund may make additional distributions if necessary to
avoid a 4% excise tax on certain undistributed income and capital gain.
Each Fund's dividends and other distributions are paid in additional Fund
shares at net asset value unless the Transfer Agent is instructed otherwise.
Taxes. Each Fund intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code so that it will
be relieved of federal income tax on that part of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and, for Atlas Fund, net gains from certain foreign currency
transactions) and net capital gain that is distributed to its shareholders.
The Class C shares of the Funds described in this Prospectus currently
are offered for sale only to the trustee of the PW SIP acting on behalf of
such plan. As a qualified profit-sharing plan, the PW SIP generally pays no
federal income tax. Individual participants in the PW SIP should consult the
Plan Documents and their own tax advisers for information on the tax
consequences associated with participating in the PW SIP.
VALUATION OF SHARES
The net asset value of each Fund's shares fluctuates and is determined as
of the close of regular trading on the New York Stock Exchange Inc. ("NYSE")
(currently 4:00 p.m., eastern time) each Business Day. A "Business Day" is any
day, Monday through Friday, on which the NYSE is open for business. Each
Fund's net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets minus all
liabilities by the total number of Fund shares outstanding.
Each Fund values its assets based on their current market value where
market quotations are readily available. If such value cannot be established,
assets are valued at fair value as determined in good faith by or under the
direction of each 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 of Atlas Fund denominated in a foreign
currency are valued daily in U.S. dollars based on the then-prevailing
exchange rate. It should be recognized that judgment plays a greater role in
valuing lower rated debt securities in which Growth Fund and Atlas Fund may
invest, because there is less reliable, objective data available.
10
<PAGE>
MANAGEMENT
The board of trustees for each Trust, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's
day-to-day management. Mitchell Hutchins, investment adviser and administrator
of each Fund, makes and implements all investment decisions and supervises all
aspects of the operations of Atlas Fund and Growth Fund. Mitchell Hutchins
supervises the activities of the Sub-Adviser for the Dividend Growth Fund and
supervises all other aspects of that Fund's operations. The Sub-Adviser makes
and implements all investment decisions for Dividend Growth Fund. Brokerage
transactions for the Funds may be conducted through PaineWebber or its
affiliates in accordance with procedures adopted by each Trust's board of
trustees.
Mitchell Hutchins receives a monthly fee for these services, at the
annual rate of 0.75% of average daily net assets for Atlas Fund and Growth
Fund and 0.70% of average daily net assets for Dividend Growth Fund. The
advisory fees for Atlas Fund and Growth Fund are higher than those paid by
most investment companies to their advisers, but Mitchell Hutchins believes
the fees are comparable to the advisory fees paid by other funds with similar
investment objectives and policies. Mitchell Hutchins (not Dividend Growth
Fund) pays the Sub-Adviser a fee for its sub-investment advisory services in
an amount equal to 0.25% of Dividend Growth Fund's average daily net assets.
Each Fund incurs other expenses and, for the fiscal year ended August 31,
1994, each Fund's total expenses for its Class C shares, stated as a
percentage of net assets, were as follows: 1.13% for Atlas Fund, 0.90% for
Dividend Growth Fund and 0.94% for Growth Fund. See "Fund Expenses."
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York,
New York 10019. It is a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"), which is in turn wholly owned by PW Group, the sponsor of the
PW SIP and a publicly owned financial services holding company. As of November
30, 1994, Mitchell Hutchins was adviser or a sub-adviser to 29 investment
companies with 55 separate portfolios and aggregate assets of approximately
$23 billion.
The Sub-Adviser is a wholly owned subsidiary of Mitchell Hutchins and
also is located at 1285 Avenue of the Americas, New York, New York 10019. The
Sub-Adviser provides asset management services to corporations, mutual funds,
governmental organizations, employee benefit plans, insurance funds,
endowments and foundations, and, as of November 30, 1994, managed
approximately $9.2 billion in assets.
Frank Jennings has been primarily responsible for the day-to-day
portfolio management of Atlas Fund since December 1992. Mr. Jennings is a vice
president of PaineWebber Atlas Fund and a managing director of global equities
for Mitchell Hutchins. Prior to December 1992, Mr. Jennings served as managing
director of Global Investments of AIG Global Investors.
Gyanendra (Joe) Joshi has been primarily responsible for the day-to-day
portfolio management of Dividend Growth Fund since May 1994. Mr. Joshi has
been a Managing Director, Equity Investments, of the Sub-Adviser since 1989.
Ellen R. Harris has been primarily responsible for the day-to-day
portfolio management of Growth Fund since its inception. Ms. Harris is a vice
president of PaineWebber Olympus Fund and chief domestic equity strategist, a
managing director and chief investment officer--domestic of Mitchell Hutchins.
Prior to joining Mitchell Hutchins in 1983 as a portfolio manager, Ms. Harris
served as a vice president and portfolio manager at American General Capital
Management (now American Capital Management).
Other members of Mitchell Hutchins' international and domestic equities
and fixed income
11
<PAGE>
groups provide input on market outlook, interest rate forecasts and other
considerations pertaining to global and domestic equity and fixed income
investments.
Distribution Arrangements. Mitchell Hutchins is the distributor of shares
of the Funds and has appointed PaineWebber as the exclusive dealer for the
sale of those shares.
PERFORMANCE INFORMATION
Each 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. 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.
Each Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods than those
used for standardized return and may include cumulative returns, average
annual rates, actual year-by-year rates or any combination thereof.
Each Fund also may use standardized return and, in conjunction therewith,
non-standardized return, of its Class A, Class B and Class D shares in
performance advertisements. Advertised returns for one Class of a Fund's
shares may include periods during which that Class was outstanding but others
were not. Standardized returns of the other Classes of Fund shares will
reflect the higher ongoing expenses attributable to those Classes, as well as
the deduction of any applicable initial or contingent deferred sales charge.
Non-standardized return of Class A or Class B shares will reflect such higher
ongoing expenses but not the sales charges, and would be lower if the sales
charges were included.
Total return information reflects past performance and does not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a
shareholder's cost.
GENERAL INFORMATION
Organization. Each Fund is organized as a series of a Massachusetts
business trust (each a "Trust"), which is registered with the SEC as an
open-end management investment company. The three Trusts were organized under
separate Declarations of Trust, each dated October 31, 1986.
The trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series, par value $.001 per share, of each
Trust. Although each Fund is offering only its own shares, it is possible that
a Fund could become liable for a misstatement in this Prospectus about another
Fund. The trustees of the Trusts have considered this factor in approving the
use of a combined Prospectus.
In addition to Growth Fund, shares of one other series of PaineWebber
Olympus Fund have been authorized.
The shares of beneficial interest of each Fund are divided into four
Classes, designated Class A shares, Class B shares, Class C shares and Class D
shares. Each Class represents interests in the same assets of each Fund. The
Classes differ as follows: (1) Class A, Class B and Class D shares, unlike
Class C shares, bear certain fees under plans of distribution and have
exclusive voting rights on matters pertaining to those plans, (2) Class A
shares are subject to an initial sales charge, (3) Class B shares bear ongoing
distribution fees, are subject to a contingent deferred sales charge upon
certain redemptions and will automatically convert to Class A shares
12
<PAGE>
approximately six years after issuance, (4) Class D shares are subject to
neither an initial nor a contingent deferred sales charge, bear ongoing
distribution fees and do not convert into another Class, (5) Class C shares
are subject to neither an initial or contingent deferred sales charge nor
ongoing service or distribution fees and (6) each Class may bear differing
amounts of certain Class-specific expenses. The board of trustees of each
Trust does not anticipate that there will be any conflicts among the interests
of the holders of each Class of Fund shares. On an ongoing basis, each board
of trustees will consider whether any such conflict exists and, if so, take
appropriate action.
The Trusts do not hold annual shareholder meetings. There normally will
be no meetings of shareholders to elect trustees unless fewer than a majority
of the trustees of a Trust holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares
of a Trust may remove a trustee by votes cast in person or by proxy at a
meeting called for that purpose. The trustees are required to call a meeting
of shareholders for the purpose of voting upon the question of removal of any
trustee when so requested in writing by the shareholders of record of not less
than 10% of a Trust's outstanding shares. Each share of a Fund has equal
voting rights, except as noted above. Each share of a Fund is entitled to
participate equally in dividends and distributions and the proceeds of any
liquidation, except that, due to the differing expenses borne by the four
Classes, dividends and liquidation proceeds of Class B and Class D shares are
likely to be lower for the other Classes than for Class C shares.
To avoid additional operating costs and for investor convenience, share
certificates are not issued. Ownership of shares of each Fund is recorded on a
stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
Custodian and Transfer Agent. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is custodian for Dividend
Growth Fund and Growth Fund. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian for Atlas Fund and employs foreign
sub-custodians to provide custody of the Fund's foreign assets. PFPC Inc., a
subsidiary of PNC Bank, National Association, whose principal address is 400
Bellevue Parkway, Wilmington, Delaware 19809, is the Funds' transfer and
dividend disbursing agent.
Confirmations and Statements. The PW SIP receives confirmations of
purchases and redemptions of shares of the Funds and quarterly statements from
the Transfer Agent. The PW SIP also receives audited annual and unaudited
semi-annual financial statements of the Funds. PW SIP participants receive
periodic information about their plan participation from the PW SIP plan
administrator.
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<PAGE>
APPENDIX
The Funds may use the hedging instruments described below except only
Atlas Fund may use foreign currency options, futures contracts and forward
contracts:
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 the exercise of the option during the option term, to
buy the underlying security or currency at the exercise price.
Options on Stock Indexes--A stock index assigns relative values to
the stocks included in the index and fluctuates with changes in the
market values of those stocks. A stock index option operates in the same
way as a more traditional stock option, except that exercise of a stock
index option is effected with cash payment and does not involve delivery
of securities. Thus, upon exercise of a stock index option, the purchaser
will realize, and the writer will pay, an amount based on the difference
between the exercise price and the closing price of the stock index.
Stock Index Futures Contracts--A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index
value at the close of trading of the contract and the price at which the
futures contract is originally struck. No physical delivery of the stocks
comprising the index is made. Generally, contracts are closed out prior
to the expiration date of the contract.
Interest Rate and Foreign Currency Futures Contracts--Interest rate
and foreign currency futures contracts are bilateral agreements pursuant
to which one party agrees to make, and the other party agrees to accept,
delivery of a specified type of debt security or currency at a specified
future time and at a specified price. Although such futures contracts by
their terms call for actual delivery or acceptance of debt securities or
currency, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Options on Futures Contracts--Options on futures contracts are
similar to options on securities or currency, except that an option on a
futures contract gives the purchaser the right, in return for the
premium, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put), rather
than to purchase or sell a security or currency, at a specified price at
any time during the option term. Upon exercise of the option, the
delivery of the futures position to the holder of the option 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.
14
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TABLE OF CONTENTS
Page
----
Fund Expenses........................... 2
Financial Highlights.................... 3
Investment Objectives and Policies...... 4
Purchases and Redemptions............... 9
Dividends and Taxes..................... 10
Valuation of Shares..................... 10
Management.............................. 11
Performance Information................. 12
General Information..................... 12
Appendix................................ 14
(C)1995 PaineWebber Incorporated
Recycled
Paper
(LOGO)
- PaineWebber
Atlas Global Growth Fund
Dividend Growth Fund
Growth Fund
Class C Shares
Prospectus
January 1, 1995
<PAGE>
PAINEWEBBER PAINEWEBBER GLOBAL
EUROPE GROWTH FUND GROWTH AND INCOME FUND
PAINEWEBBER GLOBAL
ENERGY FUND
1285 Avenue of the Americas
New York, New York 10019
. Professional Management These Funds are series of
PaineWebber Investment Series
. Dividend and Capital Gain ("Trust"). This Prospectus concisely
Reinvestment sets forth information about the
Funds a prospective investor should
. Flexible Pricing SM know before investing. Please retain
this Prospectus for future refer-
. Low Minimum Investment ence. A Statement of Additional In-
formation dated March 1, 1995 (which
. Automatic Investment Plan is incorporated by reference herein)
has been filed with the Securities
. Systematic Withdrawal Plan and Exchange Commission. The State-
ment of Additional Information can
. Exchange Privileges be obtained without charge, and
further inquiries can be made, by
. Suitable for Retirement Plans contacting the Funds, your
PaineWebber investment executive or
PaineWebber's correspondent firms or
by calling toll-free 1-800-647-1568.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY
SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
PROSPECTIVE WISCONSIN INVESTORS SHOULD NOTE THAT EACH FUND MAY INVEST UP
TO 10% OF ITS NET ASSETS IN RESTRICTED SECURITIES (OTHER THAN RULE 144A
SECURITIES DETERMINED TO BE LIQUID BY THE TRUST'S BOARD OF TRUSTEES).
INVESTMENT IN RESTRICTED SECURITIES (OTHER THAN SUCH RULE 144A SECU-
RITIES) IN EXCESS OF 5% OF A FUND'S TOTAL ASSETS MAY BE CONSIDERED A
SPECULATIVE ACTIVITY AND MAY RESULT IN GREATER RISK AND INCREASED
FUND EXPENSES.
----------------
The date of this Prospectus is March 1, 1995.
PaineWebber Mutual Funds
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR THEIR
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
--------------
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed
in this summary.
<TABLE>
<CAPTION>
<C> <S>
The Funds: This Prospectus describes three separate series (each a "Fund")
of an open-end, management investment company. Each Fund has its
own investment objective and policies.
Investment Objectives
and Policies:
PaineWebber Europe A diversified Fund seeking long-term capital appreciation;
Growth Fund ("Europe invests principally in equity securities of issuers based in
Growth Fund") Europe.
PaineWebber Global A non-diversified Fund seeking high total return; invests in
Growth and Income Fund equity, debt and money market securities of issuers based
("Global Growth and In- primarily in the U.S., Europe, Japan and the Pacific Basin.
come Fund")
PaineWebber Global A diversified Fund seeking to achieve high total return by
Energy Fund ("Global investing principally in securities of foreign and domestic
Energy Fund") energy and energy service companies.
</TABLE>
<TABLE>
<CAPTION>
Total Net Assets at
January 31, 1995:
<S> <C> <C>
Europe Growth Fund $108.6 million Global Growth Global Energy Fund
and Income Fund $23.0 million
$85.8 million
</TABLE>
<TABLE>
<C> <S>
Investment Adviser: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages
approximately $39.3 billion in assets. See
"Management."
Purchases: Shares of beneficial interest are available
exclusively through PaineWebber and its
correspondent firms for investors who are clients of
PaineWebber or those firms ("PaineWebber clients")
and, for other investors, through PFPC Inc., the
Funds' transfer agent ("Transfer Agent").
</TABLE>
2
<PAGE>
<TABLE>
<C> <S>
Flexible Pricing System: Investors may select Class A, Class B or Class D
shares, each with a public offering price that
reflects different sales charges and expense
levels. See "Flexible Pricing System," "Purchases,"
"Redemptions" and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable
sales charge (maximum is 4.5% of public offering
price).
Class B Shares Offered at net asset value (a maximum contingent
deferred sales charge of 5% of redemption proceeds
is imposed on certain redemptions made within six
years of date of purchase). Class B shares
automatically convert into Class A shares (which
pay lower ongoing expenses) approximately six years
after purchase.
Class D Shares Offered at net asset value without an initial or
contingent deferred sales charge. Class D shares
pay higher ongoing expenses than Class A shares and
do not convert into another Class.
Exchanges: Shares may be exchanged for shares of the
corresponding Class of most PaineWebber mutual
funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid annually; net capital gain is
distributed annually. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are
paid in Fund shares of the same Class at net asset
value unless the shareholder has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent
purchases.
</TABLE>
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial
Systematic withdrawal plan sales charge
Rights of accumulation 365-day reinstatement privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class D Shares Automatic investment plan Systematic withdrawal plan
WHO SHOULD INVEST. Each Fund has its own suitability considerations and risk
factors, as summarized below and described in detail under "Investment Objec-
tives and Policies." While no single Fund is intended to provide a complete or
balanced investment program, each can serve as one component of an investor's
long-term program to accumulate assets for retirement, college tuition or other
major goals.
3
<PAGE>
EUROPE GROWTH FUND. Investing principally in equity securities of issuers
based in Europe, Europe Growth Fund is designed for investors seeking long-
term capital appreciation.
GLOBAL GROWTH AND INCOME FUND. Investing in equity, debt and money market
securities of issuers based primarily in the United States, Europe, Japan
and the Pacific Basin, Global Growth and Income Fund is designed for invest-
ors seeking the benefits of the Fund's flexibility to commit its assets to
the countries and categories of assets that, in the opinion of Mitchell
Hutchins, offer the greatest potential for high total return.
GLOBAL ENERGY FUND. Investing principally in equity and debt securities of
foreign and domestic energy and energy service companies, Global Energy Fund
is designed for investors seeking high total return potential through the
investment of a portion of their assets in the energy and energy service in-
dustries.
RISK FACTORS. Investors in the Funds should be able to assume the special
risks of investing in foreign securities, which include possible adverse polit-
ical, social and economic developments abroad and differing characteristics of
foreign economies and markets. There is often less information publicly avail-
able about foreign issuers. These risks are greater with respect to securities
of issuers located in emerging market countries, in which each Fund is autho-
rized to invest. Most of the foreign securities held by the Funds are denomi-
nated in foreign currencies, and the value of these investments thus can be ad-
versely affected by fluctuations in foreign currency values. Some foreign cur-
rencies can be volatile and may be subject to governmental controls or inter-
vention. Prospective investors are urged to read "Investment Objectives and
Policies" for more complete information about risk factors.
There can be no assurance that any Fund will achieve its investment objec-
tive, and each Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities.
Certain investment grade debt securities in which the Funds may invest have
speculative characteristics. Global Growth and Income Fund and Global Energy
Fund are permitted to purchase debt securities rated lower than investment
grade by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Group ("S&P") or another nationally recognized statistical rating organization
("NRSRO") or, if not so rated, determined by Mitchell Hutchins to be of compa-
rable quality. Such securities are subject to greater risks of default or price
fluctuation than investment grade securities and are considered predominantly
speculative. The use of options, futures contracts and forward currency con-
tracts also entails special risks.
As a non-diversified Fund, Global Growth and Income Fund is subject to
greater risk with respect to its portfolio securities than investment companies
that have a broader range of investments, because changes in the financial con-
dition or market assessment of a single issuer may cause greater fluctuation in
the Fund's total return and the price of its shares. Global Energy Fund's pol-
icy of concentrating its investments in the energy and energy service indus-
tries may cause the value of its shares to fluctuate more than if it invested
in a greater number of industries. In particular, its shares will be affected
by economic, competitive and regulatory developments in those industries, in-
cluding changes in the price and supply of different energy fuels.
4
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS. The following tables are intended to as-
sist investors in understanding the expenses associated with investing in each
Fund.
SHAREHOLDER TRANSACTION EXPENSES(1)
<TABLE>
<CAPTION>
EUROPE GLOBAL GROWTH AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------------- ----------------- -----------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B D A B D A B D
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on
purchases of shares (as
a percentage of public
offering price)......... 4.5% None None 4.5% None None 4.5% None None
Sales charge on rein-
vested dividends........ None None None None None None None None None
Exchange fee............. $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Maximum contingent
deferred sales charge
(as a percentage of
redemption proceeds).... None 5% None None 5% None None 5% None
</TABLE>
ANNUAL FUND OPERATING EXPENSES(2)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
------------------- ------------------- -------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B D A B D A B D
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees.......... 0.85% 0.85% 0.85% 0.90% 0.90% 0.90% 0.85% 0.85% 0.85%
12b-1 fees(3)............ 0.25 1.00 1.00 0.25 1.00 1.00 0.25 1.00 1.00
Other expenses........... 0.55 0.55 0.54 0.61 0.64 0.65 0.89 0.97 0.89
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating expenses. 1.65% 2.40% 2.39% 1.76% 2.54% 2.55% 1.99% 2.82% 2.74%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- -------
(1) Sales charge waivers are available for Class A and Class B shares, re-
duced sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent de-
ferred sales charge on Class B shares applies to redemptions during the first
year after purchase; the charge generally declines by 1% annually thereafter,
reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. The management fees paid to
Mitchell Hutchins are greater than the management fees paid by most funds. All
expenses are those actually incurred for the fiscal year ended October 31,
1994.
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
------------------- ------------------- -------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B D A B D A B D
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12b-1 service fees....... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
12b-1 distribution fees.. 0.00 0.75 0.75 0.00 0.75 0.75 0.00 0.75 0.75
</TABLE>
5
<PAGE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class D shareholders may pay more in direct and indirect sales charges (includ-
ing distribution fees) than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
EUROPE GROWTH FUND
Class A Shares(1)..................................... $61 $ 95 $131 $232
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $74 $105 $148 $238
Assuming no redemption(3)........................... $24 $ 75 $128 $238
Class D Shares........................................ $24 $ 75 $128 $273
GLOBAL GROWTH AND INCOME FUND
Class A Shares (1).................................... $62 $ 98 $136 $243
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $76 $109 $155 $251
Assuming no redemption(3)........................... $26 $ 79 $135 $251
Class D Shares........................................ $26 $ 79 $136 $289
GLOBAL ENERGY FUND
Class A Shares (1).................................... $64 $105 $147 $266
Class B Shares:
Assuming a complete redemption at end of peri-
od(2)(3)........................................... $79 $117 $169 $277
Assuming no redemption(3)........................... $29 $ 87 $149 $277
Class D Shares........................................ $28 $ 85 $145 $307
</TABLE>
- -------
(1) Assumes deduction at the time of purchase of the maximum 4.5% initial sales
charge.
(2) Assumes deduction at the time of redemption of the maximum applicable con-
tingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of any Class of the Funds' shares.
6
<PAGE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
actual expenses attributable to each Class of a Fund's shares will depend upon,
among other things, the level of average net assets and the extent to which a
Fund incurs variable expenses, such as transfer agency costs.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of each Fund for each of the pe-
riods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Funds' Annual Report to Shareholders for
the fiscal year ended October 31, 1994, which are incorporated by reference
into the Statement of Additional Information. The financial statements and
notes and the financial information in the tables below insofar as it relates
to each of the periods presented in the five year period ended October 31, 1994
have been audited by Price Waterhouse LLP, independent accountants, whose un-
qualified report thereon is included in the Annual Report to Shareholders. Fur-
ther information about the Funds' performance also is included in the Annual
Report to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
EUROPE GROWTH FUND
-----------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------------- -------------------------------------------
FOR THE YEARS
FOR THE PERIOD ENDED FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, FEBRUARY 7, 1990+ OCTOBER 31, JULY 1, 1991+
------------------------------------- TO OCTOBER 31, -------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990 1994 1993 1992 1991
------- ------- ------- -------- ----------------- ------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $9.75 $ 7.19 $ 8.48 $ 8.94 $ 9.55 $ 9.62 $ 7.14 $ 8.45 $ 8.52
------- ------- ------- -------- -------- ------- ------- ------ ------
Income (loss) from
investment operations:
Net investment income
(loss)............... (0.03) 0.02 0.08 0.06 0.12 (0.09) (0.03) 0.06 (0.02)
Net realized and
unrealized gains
(losses) from
investment
transactions......... (0.36) 2.54 (1.13) (0.35) (0.73) (0.37) 2.51 (1.15) (0.05)
------- ------- ------- -------- -------- ------- ------- ------ ------
Total income (loss)
from investment
operations............ (0.39) 2.56 (1.05) (0.29) (0.61) (0.46) 2.48 (1.09) (0.07)
------- ------- ------- -------- -------- ------- ------- ------ ------
Less dividends and
distributions from:
Net investment income. (0.02) -- (0.06) (0.12) -- -- -- (0.04) --
Net realized gains on
investments and
foreign currency
transactions......... (0.35) -- (0.18) (0.05) -- (0.35) -- (0.08) --
------- ------- ------- -------- -------- ------- ------- ------ ------
Total dividends and
distributions......... (0.37) -- (0.24) (0.17) -- (0.35) -- (0.22) --
------- ------- ------- -------- -------- ------- ------- ------ ------
Net asset value, end of
period................ $ 8.99 $ 9.75 $ 7.19 $ 8.48 $ 8.94 $ 8.81 $ 9.62 $ 7.14 $ 8.45
======= ======= ======= ======== ======== ======= ======= ====== ======
Total Return(1)........ (4.24)% 35.61% (12.69)% (3.21)% (6.39)% (5.03)% 34.73% (13.19)% (0.82)%
======= ======= ======= ======== ======== ======= ======= ====== ======
Ratios/Supplemental
data:
Net assets, end of
period (000's)....... $78,285 $97,773 $78,667 $128,888 $158,736 $37,525 $34,386 $5,446 $1,641
Ratio of expenses to
average net assets... 1.65% 1.84% 2.05% 1.78% 1.85%* 2.40 % 2.46% 2.79% 2.60%*
Ratio of net
investment income
(loss) to average net
assets............... (0.35)% 0.19% 0.82% 0.64% 1.92%* (1.05)% (0.77)% 0.39% (1.36)%*
Portfolio turnover
rate................. 173.58 % 252.23% 59.64% 86.80% 48.59% 173.58 % 252.23% 59.64% 86.80%
</TABLE>
- --------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain dis-
tributions at net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. The figures do not include
sales charges; results of Class A and Class B shares would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
8
<PAGE>
<TABLE>
<CAPTION>
EUROPE GROWTH FUND
- -------------------------------------
CLASS D
- -------------------------------------
FOR THE YEARS
ENDED FOR THE PERIOD
OCTOBER 31, JULY 6, 1992+
- ------------------- TO OCTOBER 31,
1994 1993 1992
- ------- ------- --------------
<S> <C> <C>
$ 9.67 $ 7.17 $ 8.33
- ------- ------- ------
(0.11) (0.02) (0.01)
(0.35) 2.52 (1.15)
- ------- ------- ------
(0.46) 2.50 (1.16)
- ------- ------- ------
-- -- --
(0.35) -- --
- ------- ------- ------
(0.35) -- --
- ------- ------- ------
$ 8.86 $ 9.67 $ 7.17
======= ======= ======
(5.00)% 34.87% (13.93)%
======= ======= ======
$14,064 $15,522 $681
2.39 % 2.39 % 3.26 %*
(1.00)% (0.74)% (0.94)%*
173.58 % 252.23 % 59.64 %
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
GLOBAL GROWTH
------------------------------------------------------------
CLASS A
------------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, JUNE 9, 1989+
-------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 11.31 $ 8.73 $ 9.26 $ 10.09 $ 10.02 $ 9.55
------- ------- ------- ------- ------- --------
Income (loss) from
investment operations:
Net investment income.. 0.17 0.30 0.50 0.49 0.58 0.22
Net realized and
unrealized gains
(losses) from
investment
transactions.......... (0.01) 2.32 (0.66) 0.02 0.18 0.25
------- ------- ------- ------- ------- --------
Total income (loss) from
investment operations... 0.16 2.62 (0.16) 0.51 0.76 0.47
------- ------- ------- ------- ------- --------
Less dividends and
distributions from:
Net investment income.. (0.16) (0.04) (0.37) (0.54) (0.55) --
Net realized gains on
investments and
foreign currency
transactions.......... (0.11) -- -- (0.80) (0.14) --
------- ------- ------- ------- ------- --------
Total dividends and
distributions........... (0.27) (0.04) (0.37) (1.34) (0.69) --
------- ------- ------- ------- ------- --------
Net asset value, end of
period.................. $ 11.20 $ 11.31 $ 8.73 $ 9.26 $ 10.09 $ 10.02
======= ======= ======= ======= ======= ========
Total Return(1).......... 1.35% 30.10% (1.90)% 5.90% 7.73% 4.92%
======= ======= ======= ======= ======= ========
Ratios/Supplemental data:
Net assets, end of
period (000's)........ $61,813 $67,284 $60,540 $83,431 $98,354 $103,493
Ratio of expenses to
average net assets.... 1.76% 2.02% 1.72% 1.95% 2.04% 2.20%*
Ratio of net investment
income to average net
assets................ 1.10% 2.54% 4.76% 5.04% 5.50% 5.66%*
Portfolio turnover
rate.................. 172.13% 205.86% 59.27% 65.26% 141.75% 39.57%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gains distri-
butions at net asset value on the payable date, and a sale at net asset value
on the last day of each period reported. The figures do not include sales
charges; results of Class A and Class B shares would be lower if sales
charges were included. Total return information for periods less than one
year is not annualized.
10
<PAGE>
<TABLE>
<CAPTION>
AND INCOME FUND
- -------------------------------------------------------------------------
CLASS B CLASS D
- ----------------------------------------- -------------------------------
FOR THE
FOR THE YEARS ENDED FOR THE PERIOD YEARS ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+ OCTOBER 31, JULY 2, 1992+
- ------------------------ TO OCTOBER 31, --------------- TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
- ------- ------- ------ -------------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.20 $ 8.68 $ 9.23 $ 8.58 $ 11.22 $ 8.71 $9.32
- ------- ------- ------ ------ ------- ------ -----
0.04 0.03 0.35 0.05 0.05 0.03 0.06
0.04 2.50 (0.58) 0.60 0.04 2.51 (0.67)
- ------- ------- ------ ------ ------- ------ -----
0.08 2.53 (0.23) 0.65 0.09 2.54 (0.61)
- ------- ------- ------ ------ ------- ------ -----
(0.14) (0.01) (0.32) -- (0.15) (0.03) --
(0.11) -- -- -- (0.11) -- --
- ------- ------- ------ ------ ------- ------ -----
(0.25) (0.01) (0.32) -- (0.26) (0.03) --
- ------- ------- ------ ------ ------- ------ -----
$ 11.03 $ 11.20 $ 8.68 $ 9.23 $ 11.05 $11.22 $8.71
======= ======= ====== ====== ======= ====== =====
0.60% 29.11% (2.61)% 7.58% 0.68% 29.20% (6.55)%
======= ======= ====== ====== ======= ====== =====
$34,468 $18,639 $4,554 $1,947 $11,492 $7,063 $ 683
2.54% 2.74% 2.50% 2.52%* 2.55% 2.72% 2.82%*
0.38% 1.52% 4.07% 3.32%* 0.34% 1.40% 3.92%*
172.13% 205.86% 59.27% 65.26% 172.13% 205.86% 59.27%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
GLOBAL ENERGY FUND
----------------------------------------------------
CLASS A
----------------------------------------------------
FOR THE YEARS FOR THE PERIOD
ENDED OCTOBER 31, JULY 1, 1991+
------------------------- TO
1994 1993 1992 OCTOBER 31, 1991
------- ------- ------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 14.21 $ 11.63 $12.18 $11.20
------- ------- ------ ------
Income (loss) from invest-
ment operations:
Net investment income
(loss).................. 0.03 0.16 0.25 0.01
Net realized and
unrealized gains (loss-
es) from investment and
foreign currency trans-
actions................. (0.91) 2.69 (0.66) 0.97
------- ------- ------ ------
Total income (loss) from
investment operations.... (0.88) 2.85 (0.41) 0.98
------- ------- ------ ------
Less dividends and distri-
butions from:
Net investment income.... (0.10) (0.27) (0.14) --
Net realized gains on in-
vestments and foreign
currency transactions... (1.84) -- -- --
------- ------- ------ ------
Total dividends and dis-
tributions............... (1.94) (0.27) (0.14) --
------- ------- ------ ------
Net asset value, end of
period.................. $ 11.39 $ 14.21 $11.63 $12.18
======= ======= ====== ======
Total Return(1)........... (5.79)% 24.90% (3.44)% 8.84%
======= ======= ====== ======
Ratios/Supplemental data:
Net assets, end of period
(000's)................. $11.230 $12,702 $2,575 $ 80
Ratio of expenses to av-
erage net assets**...... 1.99% 2.05% 2.05% 1.83%*
Ratio of net investment
income (loss) to average
net assets**............ 0.20% 1.21% 2.89% 0.26%*
Portfolio turnover rate.. 156.96% 148.01% 89.00% 50.98%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gains distri-
butions at net asset value on the payable date, and a sale at net asset value
on the last day of each period reported. The figures do not include sales
charges; results of Class A and Class B would be lower if sales charges were
included. Total return information for periods less than one year is not
annualized.
** No reimbursements or voluntary waivers were made during the years ended Oc-
tober 31, 1994, 1993, 1992, 1991 or 1990. PaineWebber and Mitchell Hutchins
voluntarily waived a portion of their advisory and administration, distribu-
tion and service fees for the year ended October 31, 1989. If such waivers
had not been made, the annualized ratios of expenses and net investment in-
come to average net assets would have been 3.33% and 1.45%, respectively, for
the year ended October 31, 1989. For the year ended October 31, 1988,
PaineWebber and Mitchell Hutchins waived a significant portion of their advi-
sory and administration fee and all of their distribution and service fees.
If such waivers had not been made, the annualized ratios of expenses and net
investment income to average net assets would have been 3.98% and 1.72%, re-
spectively. During the period from September 18, 1987 (commencement of offer-
ing of Class B shares) to October 31, 1987, PaineWebber and Mitchell Hutchins
reimbursed the Fund for a significant portion of its operating expenses and
waived their advisory and administration, distribution and service fees. If
such reimbursement and waivers had not been made, the annualized ratio of ex-
penses to average net assets would have been 8.64% and the Fund would have
sustained a net loss for the period.
12
<PAGE>
<TABLE>
<CAPTION>
GLOBAL ENERGY FUND
- ---------------------------------------------------------------------------------------------------------------
CLASS B CLASS D
- ------------------------------------------------------------------------------- -------------------------------
FOR THE PERIOD
SEPTEMBER 18, FOR THE FOR THE PERIOD
1987+ YEARS ENDED JULY 8, 1992+
FOR THE YEARS ENDED OCTOBER 31, TO OCTOBER 31, TO
- --------------------------------------------------------------- OCTOBER 31, --------------- OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988 1987 1994 1993 1992
- ------- ------- ------- ------- ------- ------- ------- -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.19 $ 11.60 $ 12.16 $ 12.45 $ 12.05 $ 10.30 $ 9.27 $ 10.00 $14.09 $11.60 $11.95
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(0.05) 0.19 0.13 0.17 0.08 0.24 0.35 0.02 (0.04) 0.26 0.02
(0.92) 2.56 (0.64) 0.36 1.16 1.84 0.94 (0.75) (0.93) 2.47 (0.37)
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(0.97) 2.75 (0.51) 0.53 1.24 2.08 1.29 (0.73) (0.97) 2.73 (0.35)
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
-- (0.16) (0.05) (0.13) (0.11) (0.27) (0.26) -- -- (0.24) --
(1.84) -- -- (0.69) (0.73) (0.06) -- -- (1.84) -- --
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
(1.84) (0.16) (0.05) (0.82) (0.84) (0.33) (0.26) -- (1.84) (0.24) --
- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------ ------
$ 11.38 $ 14.19 $ 11.60 $ 12.16 $ 12.45 $ 12.05 $ 10.30 $ 9.27 $11.28 $14.09 $11.60
======= ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
(6.56)% 23.80% (4.09)% 4.89% 10.37% 20.47% 14.06% (7.30)% (6.59)% 23.84% (2.93)%
======= ======= ======= ======= ======= ======= ======= ======= ====== ====== ======
$17,341 $24,140 $36,460 $53,506 $58,748 $23,825 $17,510 $13,524 $1,481 $1,777 $ 56
2.82% 2.82% 3.04% 2.50% 2.48% 2.60% 2.11% 2.24%* 2.74% 2.76% 2.13%*
(0.59)% 0.72% 0.76% 1.39% 1.01% 2.19% 3.59% 2.58%* (0.49)% 0.24% 1.39%*
156.96% 148.01% 89.00% 50.98% 76.57% 90.86% 110.76% 0.00% 156.96% 148.01% 89.00%
</TABLE>
13
<PAGE>
FLEXIBLE PRICING SYSTEM
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 4.5% of the waived or reduced for
public offering price certain purchases
CLASS B Maximum contingent Service fee of 0.25%; Shares convert to Class A
deferred sales charge of distribution fee of 0.75% shares approximately six
5% of redemption years after issuance
proceeds; declines to
zero after six years
CLASS D None Service fee of 0.25%; --
distribution fee of 0.75%
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing annual expenses de-
scribed below, as well as any other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this ini-
tial sales charge, not all of a Class A shareholder's purchase price is in-
vested in the Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge of up to 5% of the redemption proceeds applies
to redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$50,000 and Class A share purchases made under a Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.
The entire initial sales charge on Class A shares is waived for certain eli-
gible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D
14
<PAGE>
shares, investors eligible for complete waivers should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B and Class D shares
pay an annual 12b-1 distribution fee of 0.75% of average daily net assets. An-
nual 12b-1 distribution fees are a form of asset-based sales charge. An in-
vestor should consider both ongoing annual expenses and initial or contingent
deferred sales charges in estimating the costs of investing in the respective
Classes of Fund shares over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on a Fund's Class B or Class D shares and the 4.5% maximum initial sales
charge on the Class A shares would all be approximately equal if the shares
were held for six years. Because Class B shares convert to Class A shares
(which do not bear the expense of ongoing distribution fees) approximately six
years after purchase, an investor expecting to hold shares of the Funds for
longer than six years would generally pay lower cumulative expenses by purchas-
ing Class A or Class B shares than by purchasing Class D shares. An investor
expecting to hold shares of the Funds for less than six years would generally
pay lower cumulative expenses by purchasing Class D shares than by purchasing
Class A shares, and, due to the contingent deferred sales charges that would
become payable on redemption of Class B shares, such an investor would gener-
ally pay lower cumulative expenses by purchasing Class D shares than Class B
shares.
The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net as-
set value of Fund shares, which will affect the actual amount of expenses paid.
Expenses borne by Classes may differ slightly because of the allocation of
other Class-specific expenses. The "Example of Effect of Fund Expenses" under
"Prospectus Summary" shows for each Fund the cumulative expenses an investor
would pay over time on a hypothetical investment in each Class of Fund shares,
assuming an annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensa-
tion for selling one particular Class of Fund shares rather than another. In-
vestors should understand that distribution fees and initial and contingent de-
ferred sales charges all are intended to compensate Mitchell Hutchins for dis-
tribution services.
See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of each Fund. See also "Con-
version of Class B Shares," "Dividends and Taxes," "Valuation of Shares" and
"General Information" for other differences among the three Classes.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS
The investment objective of EUROPE GROWTH FUND is long-term capital apprecia-
tion. Europe Growth Fund seeks to achieve this objective by investing princi-
pally in equity securities of issuers based in Europe.
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The investment objective of GLOBAL GROWTH AND INCOME FUND is high total re-
turn. Global Growth and Income Fund seeks to achieve this objective by invest-
ing in equity, debt and money market securities of issuers based primarily in
the United States, Europe, Japan and the Pacific Basin.
The investment objective of GLOBAL ENERGY FUND is to achieve high total re-
turn by investing principally in securities of foreign and domestic energy and
energy service companies.
There can be no assurance that any Fund will achieve its investment objec-
tive. Each Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. Each Fund's investment objective and certain
investment limitations as described in the Statement of Additional Information
are fundamental policies that may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.
EUROPE GROWTH FUND
Under normal circumstances, at least 65% of Europe Growth Fund's total assets
are invested in equity securities (which include common stocks, preferred
stocks and securities convertible into common stocks) of issuers based in Eu-
rope. European countries include Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey and the United Kingdom. If Mitch-
ell Hutchins considers an appropriate opportunity to arise, the Fund may invest
in issuers based in Eastern European countries, including Bulgaria, the Czech
Republic, Hungary, Poland, Romania and Slovakia. Mitchell Hutchins expects that
the Fund normally will be invested in issuers based in at least three different
European countries. There is no limit on the portion of the Fund's assets that
may be invested in securities of issuers based in any one country.
As of December 31, 1994, according to Morgan Stanley Capital International,
over 63% of the capitalization of the public securities markets of Europe was
represented by the three largest European markets: the United Kingdom, Germany
and France. While Europe Growth Fund's investments are not required to reflect
such distribution of market capitalization, Mitchell Hutchins expects to invest
a significant portion of the Fund's assets in issuers based in these countries.
Europe Growth Fund may invest up to 35% of its total assets in equity securi-
ties of issuers based in countries outside Europe, including the United States.
The Fund also may invest up to 20% of its total assets in non-convertible cor-
porate debt securities of both U.S. and foreign issuers, as well as in obliga-
tions issued or guaranteed by U.S. or foreign governments, their agencies or
instrumentalities or by supranational organizations such as the International
Bank for Reconstruction and Development ("World Bank"). The Fund may invest
only in investment grade debt securities. See "Other Investment Policies and
Risk Factors--Debt Securities."
In the opinion of Mitchell Hutchins, the best equity returns will be gener-
ated from markets that have the best economic growth. Mitchell Hutchins at-
tempts to identify equity securities within those countries likely to benefit
from long-term trends and shifting trade patterns as they develop in the Euro-
pean economy. Individual equity securities are selected based upon a fundamen-
tal analysis of financial reports, earnings potential and assessment of a
security's current price, as compared to projections of its future value.
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<PAGE>
The 12 countries of the European Union have eliminated cross-border tariffs
and non-tariff barriers. It is the opinion of Mitchell Hutchins that Europe's
economic reform could create a new unified market that will stimulate growth
and could provide a unique opportunity for investors. No assurance can be giv-
en, however, that such developments will occur, will occur in the expected time
frame or will have positive effects. Over the past 10 years, equity securities
traded in certain European countries have provided higher investment returns
than equity securities of U.S. issuers. Mitchell Hutchins believes that the
relative performance of various European countries' securities markets histori-
cally has reflected wide variations relating to the unique characteristics of
each country's economy. Year-to-year fluctuations in certain markets have been
significant.
Europe Growth Fund may invest in securities of issuers based in Eastern Eu-
rope, where capital markets may be new or developing. Such securities generally
are illiquid and may involve greater risks than investments in securities of
issuers based elsewhere in Europe. These countries may have relatively unstable
governments, economies based only on a few industries and relatively new secu-
rities markets that trade a small number of securities. Securities of issuers
located in these countries tend to have volatile prices and may offer signifi-
cant potential for loss as well as gain.
GLOBAL GROWTH AND INCOME FUND
Under normal circumstances, Global Growth and Income Fund invests in securi-
ties, denominated in foreign currencies or U.S. dollars, of issuers based in at
least three countries, including the United States. There is no limit on the
portion of the Fund's assets that may be invested in securities of issuers
based in any one country. There are no prescribed limits on the allocation of
the Fund's investments among equity, debt and money market securities; accord-
ingly, at any given time, any portion or all of the Fund's assets may be in-
vested in equity, debt or money market securities. Mitchell Hutchins antici-
pates, however, that under normal market conditions, the Fund's portfolio will
include securities in each of those categories.
In determining the allocation of Global Growth and Income Fund's assets among
equity, debt and money market securities, Mitchell Hutchins evaluates the mar-
kets for such securities around the world. In allocating assets, Mitchell
Hutchins considers the expected returns of each asset class, the projected
risks for each class and risk premiums. Based on this analysis, Mitchell
Hutchins determines the appropriate asset mix for the Fund. The Fund's portfo-
lio manager utilizes a multi-layer decision structure, starting with asset al-
location, then market allocation within assets, and then security allocation
within each country.
In the opinion of Mitchell Hutchins, the best equity returns will be gener-
ated from markets which have the best economic growth. Mitchell Hutchins at-
tempts to identify equity securities within those countries likely to benefit
from long-term trends and shifting trade patterns as they develop in the global
economy. Individual equity securities are selected based upon a fundamental
analysis of financial reports, earnings potential and assessment of a
security's current price, as compared to projections of its future value. The
equity securities in which Global Growth and Income Fund may invest include
common stocks of U.S. and foreign issuers and preferred stock when Mitchell
Hutchins believes the return on such stock is attractive relative to alterna-
tive investments.
In determining Global Growth and Income Fund's investment in debt securities,
Mitchell Hutchins considers the expected fu-
17
<PAGE>
ture direction of interest rates, the anticipated potential return relative to
credit risk and currency risk. When anticipating future movements in interest
rates, Mitchell Hutchins considers, among other things, a country's general
economic conditions, current levels of interest rates and real rates, as well
as current and anticipated monetary policies. When evaluating currency risk,
Mitchell Hutchins considers, among other things, relative inflation rates, rel-
ative interest rates, money flows and the political and economic stability of
each country.
The debt securities in which Global Growth and Income Fund may invest include
(1) debt securities issued or guaranteed by foreign governments, their agen-
cies, instrumentalities or political subdivisions, (2) U.S. or foreign corpo-
rate debt securities, including commercial paper, (3) debt obligations of banks
and bank holding companies, (4) debt securities issued or guaranteed by supra-
national organizations, (5) securities issued or guaranteed by the U.S. govern-
ment, its agencies or instrumentalities and (6) U.S. or foreign mortgage-re-
lated securities. The Fund may invest up to 35% of its assets in non-investment
grade debt securities. See "Other Investment Policies and Risk Factors--Debt
Securities."
Global Growth and Income Fund may hold cash (U.S. dollars or foreign curren-
cies) and may invest in money market instruments of U.S. or foreign issuers.
Such instruments may include securities issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, high-grade commercial
paper, including variable rate securities, bank certificates of deposit, bank-
ers' acceptances and repurchase agreements secured by any of the foregoing.
GLOBAL ENERGY FUND
Under normal market conditions, at least 65% of Global Energy Fund's net as-
sets are invested in equity and debt securities of foreign and domestic energy
and energy service companies based in at least three countries, including the
United States.
Energy companies are the primary producers of raw energy materials such as
oil and gas. Energy service companies are companies that provide services, sup-
plies and equipment to energy companies. Accordingly, energy and energy service
companies generally benefit from increases in energy prices. Conversely, energy
price declines generally work to the detriment of energy and energy service
companies.
Global Energy Fund's ability to invest in foreign issuers may provide it with
the flexibility to react to developments, both positive and negative, with re-
spect to energy production and consumption in specific parts of the world. The
Fund may invest an unlimited percentage of its assets in the securities of for-
eign issuers and expects that a substantial portion of its assets normally will
be invested in such securities. Mitchell Hutchins currently expects to invest
the Fund's assets primarily in securities of energy and energy service compa-
nies located in one or more of the following countries: Australia, Belgium,
Canada, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands,
Norway, the Philippines, Singapore, Spain, Sweden, Switzerland, the United
Kingdom and the United States.
While Mitchell Hutchins expects that at times substantially all of Global En-
ergy Fund's assets will be invested in energy and energy service company secu-
rities, the Fund may invest up to 35% of its assets in equity and debt securi-
ties of issuers in any industry, including the utility sector, although no more
than 25% of the Fund's assets may be invested in any industry other than the
energy or energy service industries. The Fund may invest up to 35% of
18
<PAGE>
its assets in non-investment grade debt securities. See "Other Investment Poli-
cies and Risk Factors--Debt Securities."
The business activities of energy companies in which Global Energy Fund in-
vests may include the production, transmission, marketing or control of energy
or energy fuels (including oil, gas and coal, as well as newer sources of en-
ergy such as nuclear, geothermal, oil shale and solar power), energy research
or experimentation and activities related to the solution of energy-related
problems, such as energy conservation and pollution control. The activities of
energy service companies in which the Fund invests may include the manufacture,
operation and maintenance of equipment used in drilling or constructing oil and
gas wells and pipelines, the construction of drilling platforms, the manufac-
ture and provision of mining equipment, the measurement of energy or energy fu-
els and services relating to the interpretation of seismic and other data.
Global Energy Fund's policy of concentrating its investments in the energy
and energy service industries may cause the value of its shares to fluctuate
more than if it invested in a greater number of industries. The Fund's shares
will be affected by economic, competitive and regulatory developments in those
industries. Energy and energy service companies are subject to risks occasioned
by changes in the price and supply of different energy fuels. Prices and sup-
plies may fluctuate significantly over short periods of time due to a variety
of factors, such as domestic and foreign political and regulatory developments,
energy conservation efforts, the success of exploration efforts and the devel-
opment and implementation of new forms or sources of energy. Energy and energy
service companies are also affected by supply, demand and normal competitive
factors.
OTHER INVESTMENT POLICIES AND RISK FACTORS
FOREIGN SECURITIES. Each Fund's investment policies are designed to enable it
to capitalize on unique investment opportunities presented throughout the world
and in in- ternational financial markets influenced by the increasing interde-
pendence of economic cycles and currency exchange rates. As of December 31,
1994, more than 63% of the Salomon Brothers World Government Bond Market Index
was represented by securities denominated in currencies other than the U.S.
dollar; according to Morgan Stanley Capital International, as of December 31,
1994, over 63% of the value of the world's equity securities were located out-
side of the United States.
Over the past eight years, debt securities offered by certain foreign govern-
ments provided higher investment returns than U.S. government debt securities,
and over the past 10 years, certain foreign equity markets have provided higher
investment returns than the U.S. equity market. Such returns reflect interest
rates and other market conditions prevailing in those countries and the effect
of gains and losses in the denominated currencies, which have had a substantial
impact on investment in foreign fixed income and equity securities. The rela-
tive performance of various countries' fixed income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been sig-
nificant, and negative returns have been experienced in various markets from
time to time.
Mitchell Hutchins believes that over time investment in a composite of U.S.
and foreign securities is less risky than portfolios comprised exclusively of
foreign securities and provides investors with the potential to earn a higher
return than portfolios invested exclusively in U.S. securities.
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<PAGE>
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the differ-
ences between the regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation, confiscatory taxation, with-
holding taxes on dividends and interest, limitations on the use or transfer of
Fund assets and political or social instability or diplomatic developments.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of pay-
ments position. Securities of many foreign companies may be less liquid and
their prices more volatile than securities of comparable U.S. companies. While
each Fund generally invests only in securities that are traded on recognized
exchanges or in over-the-counter markets, from time to time foreign securities
may be difficult to liquidate rapidly without significantly depressing the
price of such securities. There may be less publicly available information con-
cerning foreign issuers of securities held by the Funds than is available con-
cerning U.S. companies. Transactions in foreign securities may be subject to
less efficient settlement practices. Foreign securities trading practices, in-
cluding those involving securities settlement where Fund assets may be released
prior to receipt of payment, may expose a Fund to increased risk in the event
of a failed trade or the insolvency of a foreign broker-dealer. Legal remedies
for defaults and disputes may have to be pursued in foreign courts, whose pro-
cedures differ substantially from those of U.S. courts.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in for-
eign currency exchange rates will affect each Fund's net asset value, the value
of dividends and interest earned, gains and losses realized on the sale of se-
curities and net investment income and capital gains, if any, to be distributed
to shareholders by each Fund. If the value of a foreign currency rises against
the U.S. dollar, the value of Fund assets denominated in that currency will in-
crease; correspondingly, if the value of a foreign currency declines against
the U.S. dollar, the value of Fund assets denominated in that currency will de-
crease. The exchange rates between the U.S. dollar and other currencies are de-
termined by supply and demand in the currency exchange markets, international
balances of payments, speculation and other economic and political conditions.
In addition, some foreign currency values may be volatile and there is the pos-
sibility of governmental controls on currency exchange or governmental inter-
vention in currency markets. Any of these factors could adversely affect the
Funds.
The costs attributable to foreign investing that each Fund must bear fre-
quently are higher than those attributable to domestic investing. For example,
the costs of maintaining custody of securities in foreign countries exceed cus-
todian costs related to domestic securities.
Each Fund may invest in securities of issuers located in emerging market
countries. The risks of investing in foreign securities may be greater with re-
spect to securities of issuers in, or denominated in the currencies of, emerg-
ing market countries. The economies of emerging market countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures im-
posed or negotiated by the countries with which they trade. These economies
also have been and may continue to be adversely affected by economic conditions
in the countries
20
<PAGE>
with which they trade. Many emerging market countries have experienced substan-
tial, and in some periods extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had and may continue
to have very negative effects on the economies and securities markets of cer-
tain emerging market countries. The securities markets of emerging market coun-
tries are substantially smaller, less developed, less liquid and more volatile
than the securities markets of the United States and other developed countries.
Disclosure and regulatory standards in many respects are less stringent in
emerging market countries than in the United States and other major markets.
There also may be a lower level of monitoring and regulation of emerging mar-
kets and the activities of investors in such markets, and enforcement of exist-
ing regulations may be extremely limited. Investing in local markets, particu-
larly in emerging market countries, may require the Fund to adopt special pro-
cedures, seek local government approvals or take other actions, each of which
may involve additional costs to the Fund. Certain emerging market countries may
also restrict investment opportunities in issuers in industries deemed impor-
tant to national interests.
DEBT SECURITIES. Each Fund is permitted to purchase investment grade debt se-
curities. Securities rated BBB by S&P or Baa by Moody's are investment grade
but Moody's considers securities rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity for such securities to make principal and interest pay-
ments than is the case for higher-rated securities. Global Growth and Income
Fund may invest up to 35% of its net assets in debt securities rated below in-
vestment grade but not lower than B- by S&P, B by Moody's or comparably rated
by another NRSRO and Global Energy Fund may invest up to 35% of its net assets
in debt securities rated below investment grade but not lower than BB by S&P,
Ba by Moody's or comparably rated by another NRSRO. These securities are deemed
by those NRSROs to be predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal and may involve major risk expo-
sure to adverse conditions. Such securities are commonly referred to as "junk
bonds." Each Fund is also permitted to purchase debt securities that are not
rated by a NRSRO but Mitchell Hutchins determines to be of comparable quality
to that of rated securities in which the Fund may invest. Such securities are
included in the computation of any percentage limitations applicable to the
comparable rated securities.
The market value of debt securities generally varies inversely with interest
rate changes. Ratings of debt securities represent the NRSROs' opinions regard-
ing their quality, are not a guarantee of quality and may be reduced after a
Fund has acquired the security. Mitchell Hutchins would consider such an event
in determining whether the Fund should continue to hold the security but is not
required to dispose of it. However, in the event that, due to a downgrade of
one or more debt securities, an amount in excess of 35% of Global Growth and
Income Fund's or Global Energy Fund's net assets, as the case may be, is held
in securities rated below investment grade and comparable unrated securities,
Mitchell Hutchins will engage in an orderly disposition of such securities to
the extent necessary to ensure that the Fund's holdings of such securities do
not exceed 35% of the Fund's net assets. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not reflect an assessment of
the volatility of the security's market value or the liquidity of an investment
in the security. Also, NRSROs may fail to make timely changes in credit ratings
in response to subsequent events, so that an issuer's financial condition may
be better or worse than the rating indicates. See the Statement of Additional
21
<PAGE>
Information for more information about S&P's and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than that
available for higher grade issues, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress, which could adversely
affect their ability to make payments of interest and principal and increase
the possibility of default. In addition, such issuers may not have more tradi-
tional methods of financing available to them, and may be unable to repay debt
at maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and sub-
ordinated to the prior payment of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose dra-
matically. However, such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that hold-
ers of such securities could lose a substantial portion of their value as a re-
sult of the issuers' financial restructuring or default. There can be no assur-
ance that such declines will not recur. The market for lower rated debt securi-
ties generally is thinner and less active than that for higher quality securi-
ties, which may limit a Fund's ability to sell such securities at fair value in
response to changes in the economy or financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower rated securities, especially in a
thinly traded market.
U.S. AND FOREIGN GOVERNMENT SECURITIES. The U.S. government securities in
which the Funds may invest include direct obligations of the U.S. government
(such as Treasury bills, notes and bonds) and obligations issued or guaranteed
by U.S. government agencies and instrumentalities, including securities that
are backed by the full faith and credit of the United States (such as Govern-
ment National Mortgage Association certificates), securities that are supported
primarily or solely by the creditworthiness of the issuer (such as securities
issued by the Resolution Funding Corporation and the Tennessee Valley Authori-
ty) and securities that are supported primarily or solely by specific pools of
assets and the creditworthiness of a U.S. government-related issuer (such as
securities issued by the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation). Global Growth and Income Fund is authorized to
invest in mortgage-backed securities guaranteed by the Government National
Mortgage Association but has no current intention of investing more than 10% of
its total assets in such securities.
Global Growth and Income Fund may invest in "zero coupon" Treasury securi-
ties, which are U.S. Treasury bills, notes and bonds that have been stripped of
their unmatured interest coupons, and receipts or certificates representing in-
terest in such stripped debt obligations and coupons. A zero coupon security
pays no cash interest to its holder prior to maturity. Accordingly, these secu-
rities usually are issued and traded at a deep discount from their face or par
value and are subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of compara-
22
<PAGE>
ble maturities that make current distributions of interest. Federal tax law re-
quires that the holder of a zero coupon security include in gross income each
year the original issue discount that accrues on the security for the year,
even though the holder receives no interest payment on the security during the
year. For additional discussion of the tax treatment of zero coupon Treasury
securities, see "Taxes" in the Statement of Additional Information.
The foreign government securities in which the Funds may invest generally
consist of obligations supported by national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational entities, which include international organi-
zations designated or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples include the World Bank, the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank.
Foreign government securities also include debt securities of "quasi-govern-
mental agencies" and debt securities denominated in multinational currency
units of an issuer (including supranational issuers). An example of a multina-
tional currency unit is the European Currency Unit ("ECU"). An ECU represents
specified amounts of the currencies of certain member states of the European
Union. Debt securities of quasi-governmental agencies are issued by entities
owned by either a national, state or equivalent government or are obligations
of a political unit that is not backed by the national government's full faith
and credit and general taxing powers. Foreign government securities also in-
clude mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including quasi-governmental agen-
cies.
Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Funds may have limited
legal recourse in the event of default. Political conditions, especially a sov-
ereign entity's willingness to meet the terms of its debt obligations, are of
considerable significance.
HEDGING AND RELATED INCOME STRATEGIES. Each Fund except Europe Growth Fund
may use options (both exchange-traded and over-the-counter) and futures con-
tracts to attempt to enhance income, and each Fund may attempt to reduce the
overall risk of its investments (hedge) by using options, futures contracts and
forward currency contracts. Hedging strategies may be used in an attempt to
manage a Fund's foreign currency exposure, and other risks of a Fund's invest-
ments that can cause fluctuations in its net asset value. Each Fund's ability
to use these strategies may be limited by market conditions, regulatory limits
and tax considerations. The Appendix to this Prospectus describes the hedging
instruments that the Funds may use and the Statement of Additional Information
contains further information on these strategies.
Each Fund may enter into forward currency contracts, buy or sell foreign cur-
rency futures contracts, write (sell) covered call or put options and buy put
or call options on securities, foreign currencies and such futures contracts.
In addition, the Funds may buy or sell interest rate futures contracts and
stock index futures contracts, purchase put and call options or write covered
call or put options on such contracts, and write covered call or put options
and buy put or call options on securities indices. Each Fund may enter into op-
tions and futures contracts under which up to 100% of its portfolio is at risk.
23
<PAGE>
Each Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to spe-
cific transactions or with respect to portfolio positions. For example, when
Mitchell Hutchins anticipates making a currency exchange transaction in connec-
tion with the purchase or sale of a security, a Fund may enter into a forward
contract in order to set the exchange rate at which the transaction will be
made. A Fund also may enter into a forward currency contract to sell an amount
of a foreign currency approximating the value of some or all of the Fund's se-
curities denominated in such currency. Each Fund may use forward contracts in
one currency or a basket of currencies to hedge against fluctuations in the
value of another currency when Mitchell Hutchins anticipates there will be a
correlation between the two and may use forward currency contracts to shift a
Fund's exposure to foreign currency fluctuations from one country to another.
The purpose of entering into these contracts is to minimize the risk to the
Funds from adverse changes in the relationship between the U.S. dollar and for-
eign currencies.
The Funds might not employ any of the strategies described above, and there
can be no assurance that any strategy used will succeed. If Mitchell Hutchins
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a strategy for a Fund, the Fund might have been in a better posi-
tion had it not hedged at all. The use of these strategies involves certain
special risks, including (1) the fact that skills needed to use hedging instru-
ments are different from those needed to select the Funds' securities, (2) pos-
sible imperfect correlation, or even no correlation, between price movements of
hedging instruments and price movements of the investments being hedged, (3)
the fact that, while hedging strategies can reduce the risk of loss, they can
also reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments and (4) the possible inability
of a Fund to purchase or sell a portfolio security at a time that otherwise
would be favorable for it to do so, or the possible need for a Fund to sell a
portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with hedging transac-
tions and the possible inability of a Fund to close out or to liquidate its
hedged position.
New financial products and risk management techniques continue to be devel-
oped. Each Fund may use these instruments and techniques to the extent consis-
tent with its investment objectives and regulatory and tax considerations.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities, and
Global Growth and Income Fund may invest up to 25% of its assets in such secu-
rities. A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the
holder to receive interest paid or accrued on debt or dividends paid on pre-
ferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics in
that they generally (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying stock because they have fixed income characteris-
tics, and (3) provide the potential for capital appreciation if the market
price of the underlying common stock increases. While no securities investment
is without some risk, investments in convertible securities generally entail
less risk than the
24
<PAGE>
issuer's common stock, although the extent to which such risk is reduced de-
pends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
REPURCHASE AGREEMENTS. Each Fund may use repurchase agreements. Repurchase
agreements are transactions in which a Fund purchases securities from a bank or
recognized securities dealer and simultaneously commits to resell the securi-
ties 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 se-
curities. Repur-chase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value of
the underlying securities and delays and costs to each Fund if the other party
to the repurchase agreement becomes insolvent. Each Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimum credit risks in accordance with guidelines
established by the Trust's board of trustees.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase debt ob-
ligations on a "when-issued" basis or may pur- chase or sell securities for de-
layed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but a Fund would not
pay for such securities or start earning interest on them until they are deliv-
ered. However, when a Fund purchases securities on a when-issued or delayed de-
livery basis, it immediately as-sumes the risks of ownership, including the
risk of price fluctuation. Failure by a counter party to deliver a security
purchased on a when-issued or delayed delivery basis may result in a loss or
missed opportunity to make an alternative investment. Depending on market con-
ditions, a Fund's when-issued and delayed delivery purchase commitments could
cause its net asset value to be more volatile, because such securities may in-
crease the amount by which the Fund's total assets, including the value of
when-issued and delayed delivery securities held by the Fund, exceed its net
assets.
PRIVATE MORTGAGE-RELATED SECURITIES. Global Growth and Income Fund may invest
up to 10% of its total assets in mortgage-related securities of private U.S.
and foreign issuers. Such instruments may include collateralized mortgage obli-
gations and pass-through securities representing ownership interests in pools
of residential and commercial real property mortgages. These securities are de-
signed to provide periodic payments of interest and principal to the investor.
Each mortgagor's payments to his lending institution on his mortgage are
"passed through" to securities holders. Prepayments of the mortgages included
in the underlying mortgage pool may adversely impact the yield of the mortgage-
backed securities. Private mortgage-related securities of foreign issuers are
subject to the risks described above under "Investment Objective and Policies--
Foreign Securities" with respect to foreign securities generally.
PRECIOUS METAL-RELATED SECURITIES. Global Growth and Income Fund invests in
precious metal-related securities when Mitchell Hutchins believes such invest-
ments are attractively priced in relation to the value of a company's precious
metal-related assets or when the values of precious metals are expected to ben-
efit from inflationary pressure or other economic, political or financial un-
certainty or instability. Precious metal-related securities are equity securi-
ties of companies that explore for, extract, process or deal in precious met-
als, i.e., gold, silver and platinum, and asset-based securities indexed to the
value of such metals. The prices of precious metals and of the securities of
precious metal-related companies historically have been subject to volatility,
and
25
<PAGE>
the earnings and financial condition of such companies are heavily influenced
by the prices of the precious metals in which they conduct operations. Asset-
based securities are debt securities, preferred stock or convertible securi-
ties, the principal amount, redemption terms or conversion terms of which are
related to the market price of some precious metals such as gold bullion. The
Fund will purchase only asset-based securities that are rated BBB or better by
S&P, Baa or better by Moody's or comparably rated by another NRSRO (or are is-
sued by issuers that have outstanding debt obligations that are rated BBB or
better by S&P, Baa or better by Moody's or comparably rated by another NRSRO or
commercial paper that is rated A-1 by S&P, Prime-1 by Moody's or comparably
rated by another NRSRO) or, if not rated, determined by Mitchell Hutchins to be
of comparable quality. If the asset-based security is backed by a bank letter
of credit or other similar facility, Mitchell Hutchins may take such backing
into account in determining the creditworthiness of the issuer. The Fund does
not expect that more than 15% of its total assets will be invested in such se-
curities during the coming year.
REAL ESTATE-RELATED SECURITIES. Global Growth and Income Fund may invest in
real estate-related securities, including equity securities of real estate in-
vestment trusts that own income-producing properties and real estate investment
trusts that make various types of mortgage loans, often combined with equity
features. The securities of such trusts generally earn above-average dividends
and may offer the potential for capital appreciation. Such securities will be
subject to the risks customarily associated with the real estate industry, in-
cluding declines in the value of the real estate investments of the trusts. The
Fund invests in real estate-related securities when Mitchell Hutchins believes
the return on such securities is attractive relative to alternative invest-
ments. The Fund does not expect that more than 15% of its total assets will be
invested in such securities during the coming year.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in il-
liquid securities, including certain cover for over-the-counter options, repur-
chase agreements with maturities in excess of seven days and securities whose
disposition is restricted under the federal securities laws (other than "Rule
144A securities" Mitchell Hutchins has determined to be liquid under procedures
approved by the Trust's board of trustees). Rule 144A establishes a "safe har-
bor" from the registration requirements of the Securities Act of 1933 ("1933
Act"). Institutional markets for restricted securities have developed as a re-
sult of Rule 144A, providing both readily ascertainable values for restricted
securities and the ability to liquidate an investment to satisfy share redemp-
tion orders. An insufficient number of qualified institutional buyers inter-
ested in purchasing Rule 144A-eligible restricted securities held by a Fund,
however, could affect adversely the marketability of such portfolio securities
and the Fund might be unable to dispose of such securities promptly or at fa-
vorable prices.
PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate (100% or more) for a par-
ticular Fund will involve correspondingly greater transaction costs, which will
be borne directly by that Fund, and may increase the potential for short-term
capital gains.
OTHER INFORMATION
When Mitchell Hutchins believes unusual circumstances warrant a defensive
posture, each Fund temporarily may commit all or any portion of its assets to
cash (U.S. dollars or foreign currencies) or money market instruments of U.S.
or foreign issuers, including repurchase
26
<PAGE>
agreements. The Funds also may engage in short sales of securities "against
the box" to defer realization of gains and losses for tax or other purposes.
Each Fund may borrow money for temporary or emergency purposes, but not in ex-
cess of 10% of its total assets.
While Europe Growth Fund and Global Energy Fund are "diversified" as that
term is defined in the Investment Company Act of 1940 ("1940 Act"), Global
Growth and Income Fund is "non-diversified" (as defined in the 1940 Act). How-
ever, Global Growth and Income Fund intends to meet the diversification and
other requirements necessary to continue to qualify as a "regulated investment
company" for federal income tax purposes. See "Dividends and Taxes." This
means, in general, that more than 5% of the total assets of Global Growth and
Income Fund may be invested in securities of one issuer (including a foreign
government), but only if, at the close of each quarter of the Fund's taxable
year, the aggregate amount of such holdings does not exceed 50% of the value
of its total assets and no more than 25% of the value of its total assets is
invested in the securities of a single issuer. To the extent that the Fund's
portfolio at times may include the securities of a smaller number of issuers
than if it were "diversified" the Fund will at such times be subject to
greater risk with respect to its portfolio securities than an investment com-
pany that invests in a broader range of securities, in that changes in the fi-
nancial condition or market assessment of a single issuer may cause greater
fluctuation in the Fund's total return and the price of Fund shares.
PURCHASES
GENERAL. Class A shares of the Funds are sold to investors subject to an
initial sales charge. Class B shares of the Funds are sold without an initial
sales charge but are subject to higher ongoing expenses than Class A shares
and a contingent deferred sales charge payable upon certain redemptions. Class
B shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares
and do not convert into another Class. See "Flexible Pricing System" and "Con-
version of Class B Shares."
Shares of the Funds are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Trans-
fer Agent. Investors may contact a local PaineWebber office to open an ac-
count. The minimum initial investment for each Fund is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, cer-tain pension
plans and retirement accounts and participants in a Fund's automatic invest-
ment plan. Purchase orders will be priced at the net asset value per share
next determined (see "Valuation of Shares") after the order is received by
PaineWebber's New York City offices or by the Transfer Agent, plus any appli-
cable sales charge for Class A shares. Each Fund and Mitchell Hutchins reserve
the right to reject any purchase order and to suspend the offering of Fund
shares for a period of time.
When placing purchase orders, investors should specify whether the order is
for Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million. In-
vestment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for purchases with checks drawn on U.S.
27
<PAGE>
banks or with funds held in brokerage accounts at PaineWebber or its correspon-
dent firms. Payment is due on the fifth Business Day after the order is re-
ceived at PaineWebber's New York City offices. A "Business Day" is any day,
Monday through Friday, on which the New York Stock Exchange, Inc. ("NYSE") is
open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber cli-
ents may purchase shares of the Funds through the Transfer Agent. Shares of a
Fund may be purchased, and an account with the Fund established, by completing
and signing the purchase application at the end of this Prospectus and mailing
it, together with a check to cover the purchase, to the Transfer Agent: PFPC
Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. Subsequent investments need not be accompanied by an application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:
INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
---------------------------------------- DISCOUNT TO SELECTED
AMOUNT OF OFFERING NET AMOUNT INVESTED DEALERS AS A PERCENTAGE
PURCHASE PRICE (NET ASSET VALUE) OF OFFERING PRICE
--------- -------- ------------------- -----------------------
<S> <C> <C> <C>
Less than
$50,000 4.50% 4.71% 4.25%
$50,000 to
$99,999 4.00 4.17 3.75
$100,000
to
$249,999 3.50 3.63 3.25
$250,000
to
$499,999 2.50 2.56 2.25
$500,000
to
$999,999 1.75 1.78 1.50
$1,000,000
and
over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own re-
sources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for each Fund's shares, than those shown
above. To the extent PaineWebber or any dealer receives 90% or more of the
sales charge, it may be deemed an "underwriter" under the 1933 Act.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Funds are avail-
able without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares made
without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any Paine-
Webber fund, their spouses, parents and children and advisory clients of Mitch-
ell Hutchins.
Class A shares of the Funds also may be purchased without a sales charge if
the purchase is made through a PaineWebber investment executive who formerly
was employed as a broker with another firm registered as a broker-dealer with
the SEC, provided (1) the purchaser was the investment executive's client at
the competing brokerage firm, (2) within 90 days of the purchase of Class A
shares the purchaser redeemed shares of one or more mutual funds for which that
competing firm or its affiliates was principal underwriter, provided the
28
<PAGE>
purchaser either paid a sales charge to invest in those funds, paid a contin-
gent deferred sales charge upon redemption or held shares of those funds for
the period required not to pay the otherwise applicable contingent deferred
sales charge and (3) the total amount of shares of all PaineWebber funds pur-
chased under this sales charge waiver does not exceed the amount of the pur-
chaser's redemption proceeds from the competing firm's funds. To take advantage
of this waiver, an investor must provide satisfactory evidence that all the
above-noted conditions are met. Qualifying investors should contact their
PaineWebber investment executives for more information.
Certificate holders of unit investment trusts ("UITs") sponsored by
PaineWebber may acquire Class A shares of any Fund without regard to minimum
investment requirements and without sales charges by electing to have dividends
and other distributions from their UIT investment automatically invested in
Class A shares.
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group
of related Fund investors purchases Class A shares of a Fund concurrently with
Class A shares of other PaineWebber mutual funds, the purchases may be combined
to take advantage of the reduced sales charge applicable to larger purchases.
In addition, the right of accumulation permits a Fund investor or eligible
group of related Fund investors to pay the lower sales charge applicable to
larger purchases by basing the sales charge on the dollar amount of Class A
shares currently being purchased, plus the net asset value of the investor's or
group's total existing Class A shareholdings in other PaineWebber mutual funds.
An "eligible group of related Fund investors" includes an individual, the in-
dividual's spouse, parents and children, the individual's individual retirement
account ("IRA"), certain companies controlled by the individual and employee
benefit plans of those companies, and trusts or Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts created by the individual or eli-
gible group of individuals for the benefit of the individual and/or the indi-
vidual's spouse, parents or children. The term also includes a group of related
employers and one or more qualified retirement plans of such employers. For
more information, an investor should consult the Statement of Additional Infor-
mation or contact a PaineWebber investment executive or correspondent firm or
the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price
of the Class B shares of each Fund is the next determined net asset value, and
no initial sales charge is imposed. A contingent deferred sales charge, howev-
er, is imposed upon certain redemptions of Class B shares.
Class B shares of a Fund that are redeemed will not be subject to a contin-
gent deferred sales charge to the extent that the value of such shares repre-
sents (1) capital appreciation of Fund assets, (2) reinvestment of dividends or
capital gain distributions or (3) shares redeemed more than six years after
their purchase. Otherwise, redemptions of Class B shares will be subject to a
contingent deferred sales charge. The amount of any applicable contingent de-
ferred sales charge will be calculated by multiplying the net asset value of
such shares at the time of redemption by the applicable percentage shown in the
table below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF NET
ASSET VALUE AT
REDEMPTION DURING REDEMPTION
- ----------------- -------------------
<S> <C>
1st Year Since Purchase..................................... 5%
2nd Year Since Purchase..................................... 4
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>
29
<PAGE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares of a Fund acquired through an exchange with another PaineWebber mutual
fund will be calculated from the date that the Class B shares were initially
acquired in one of the other PaineWebber funds, and Class B shares being re-
deemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. This
will result in any contingent deferred sales charge being imposed at the lowest
possible rate. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The amount of any contingent de-
ferred sales charge will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
will be waived for exchanges, as described below, and for redemptions in con-
nection with each Fund's systematic withdrawal plan. In addition, the contin-
gent deferred sales charge will be waived for a total or partial redemption
made within one year of the death of the shareholder. The contingent deferred
sales charge waiver is available where the decedent is either the sole share-
holder or owns the shares with his or her spouse as a joint tenant with right
of survivorship. This waiver applies only to redemption of shares held at the
time of death. The contingent deferred sales charge will also be waived in con-
nection with a lump-sum or other distribution in the case of an IRA, a self-em-
ployed individual retirement plan (so-called "Keogh Plan") or a custodial ac-
count under Section 403(b) of the Internal Revenue Code following attainment of
age 59 1/2; a total or partial redemption resulting from any distribution fol-
lowing retirement in the case of a tax-qualified retirement plan; and a redemp-
tion resulting from a tax-free return of an excess contribution to an IRA.
Contingent deferred sales charge waivers will be granted subject to confirma-
tion (by PaineWebber in the case of shareholders who are PaineWebber clients or
by the Transfer Agent in the case of all other shareholders) of the sharehold-
er's status or holdings, as the case may be.
PURCHASES OF CLASS D SHARES. The public offering price of the Class D shares
of each Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
EXCHANGES
Shares of each Fund may be exchanged for shares of the corresponding Class of
other PaineWebber mutual funds (including the other funds) and Mitchell
Hutchins/Kidder, Peabody ("MH/KP") mutual funds, or may be acquired through an
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares being acquired, and no contingent deferred
sales charge is imposed on the shares being disposed of, through an exchange.
However, contingent deferred sales charges may apply to redemptions of Class B
shares of PaineWebber mutual funds acquired through an exchange. Class B shares
of MH/KP mutual funds differ from those of PaineWebber mutual funds. Class B
shares of MH/KP mutual funds are equivalent to Class D shares of PaineWebber
mutual funds. Thus, contingent deferred sales charges are not applicable to re-
demptions of the Class B shares of MH/KP mutual funds. A $5.00 exchange fee is
charged for each exchange, and exchanges may be subject to minimum investment
requirements of the fund into which exchanges are made.
30
<PAGE>
The other PaineWebber and Mitchell Hutchins/Kidder, Peabody funds with which
Fund shares may be exchanged include:
PaineWebber Income Funds
. GLOBAL INCOME FUND
. HIGH INCOME FUND
. INVESTMENT GRADE INCOME FUND
. MH/KP ADJUSTABLE RATE GOVERNMENT FUND
. MH/KP GLOBAL FIXED INCOME FUND
. MH/KP GOVERNMENT INCOME FUND
. MH/KP INTERMEDIATE FIXED INCOME FUND
. SHORT-TERM U.S. GOVERNMENT INCOME FUND
. SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
. STRATEGIC INCOME FUND
. U.S. GOVERNMENT INCOME FUND
PaineWebber Tax-Free Income Funds
. CALIFORNIA TAX-FREE INCOME FUND
. MH/KP MUNICIPAL BOND FUND
. MUNICIPAL HIGH INCOME FUND
. NATIONAL TAX-FREE INCOME FUND
. NEW YORK TAX-FREE INCOME FUND
PaineWebber Growth Funds
. ATLAS GLOBAL GROWTH FUND
. BLUE CHIP GROWTH FUND
. CAPITAL APPRECIATION FUND
. COMMUNICATIONS & TECHNOLOGY GROWTH FUND
. GROWTH FUND
. MH/KP EMERGING MARKETS EQUITY FUND
. MH/KP GLOBAL EQUITY FUND
. MH/KP SMALL CAP GROWTH FUND
. REGIONAL FINANCIAL GROWTH FUND
. SMALL CAP VALUE FUND
PaineWebber Growth and Income Funds
. ASSET ALLOCATION FUND
. DIVIDEND GROWTH FUND
. MH/KP ASSET ALLOCATION FUND
. MH/KP EQUITY INCOME FUND
. UTILITY INCOME FUND
PaineWebber Money Market Fund
PaineWebber clients must place exchange orders through their PaineWebber in-
vestment executives or correspondent firms unless the shares to be exchanged
are held in certificate form. Shareholders who are not PaineWebber clients or
who hold their shares in certificate form must place exchange orders in writing
with the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, Delaware 19899. All exchanges will be effected based on the
relative net asset values per share next determined after the exchange order is
received at PaineWebber's New York City offices or by the Transfer Agent. See
"Valuation of Shares." Shares of the Funds purchased through PaineWebber or its
correspondent firms may be exchanged only after the settlement date has passed
and payment for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or termi-
nated at any time, upon at least 60 days' notice when such notice is required
by SEC rules. See the Statement of Additional Information for further details.
This exchange privilege is available only in those jurisdictions where the sale
of the PaineWebber and MH/KP fund shares to be acquired may be legally made.
Before making any exchange, shareholders should contact their PaineWebber in-
vestment executives or correspondent firms or the Transfer Agent to obtain more
information and prospectuses of the PaineWebber and MH/KP funds to be acquired
through the exchange.
REDEMPTIONS
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemp-
31
<PAGE>
tion request. PaineWebber clients may redeem non-certificated shares through
PaineWebber or its correspondent firms; all other shareholders must redeem
through the Transfer Agent. If a redeeming shareholder owns shares of more than
one Class, the shares will be redeemed in the following order unless the share-
holder specifically requests otherwise: Class D shares, then Class A shares,
and finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As each Fund's agent,
PaineWebber may honor a redemption request by repurchasing Fund shares from a
redeeming shareholder at the shares' net asset value next determined after re-
ceipt of the request by PaineWebber's New York City offices. Within seven days,
repurchase proceeds (less any applicable contingent deferred sales charge) will
be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and correspon-
dent firms are responsible for promptly forwarding redemption requests to
PaineWebber's New York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption re-
quests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in "good or-
der." "Good order" means that the request must be accompanied by the following:
(1) a letter of instruction or a stock assignment specifying the number of
shares or amount of investment to be redeemed (or that all shares credited to a
Fund account be redeemed), signed by all registered owners of the shares in the
exact names in which they are registered, (2) a guarantee of the signature of
each registered owner by an eligible institution acceptable to the Transfer
Agent and in accordance with SEC rules, such as a commercial bank, trust com-
pany or member of a recognized stock exchange, (3) other supporting legal docu-
ments for estates, trusts, guardianships, custodianships, partnerships and cor-
porations and (4) duly endorsed share certificates, if any. Shareholders are
responsible for ensuring that a request for redemption is received in "good or-
der."
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-certifi-
cated Fund shares may have redemption proceeds of $1 million or more wired to
the shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption re-
quirements generally, should be referred to the shareholder's PaineWebber in-
vestment executive or correspondent firm, or to the Transfer Agent if the
shares are not held in a PaineWebber brokerage account. If a shareholder re-
quests redemption of shares which were purchased recently, a Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.
Because the Funds incur certain fixed costs in maintaining shareholder ac-
counts, each
32
<PAGE>
Fund reserves the right to redeem all Fund shares in any shareholder account of
less than $500 net asset value. If the Fund elects to do so, it will notify the
shareholder and provide the shareholder the opportunity to increase the amount
invested to $500 or more within 60 days of the notice. A Fund will not redeem
accounts that fall below $500 solely as a result of a reduction in net asset
value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund ac-
count without a sales charge up to the dollar amount redeemed by purchasing
Class A shares of the same Fund within 365 days after the redemption. To take
advantage of this reinstatement privilege, shareholders must notify their
PaineWebber investment executive or correspondent firm at the time the privi-
lege is exercised.
CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A shares
in the same Fund approximately six years after the date of issuance, together
with a pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so con-
verted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. If a share-
holder effects one or more exchanges among Class B shares of the PaineWebber
mutual funds during the six-year period, the holding periods for the shares so
exchanged will be counted toward the six-year period. Because the per share net
asset value of the Class A shares may be higher than that of the Class B shares
at the time of conversion, a shareholder may receive fewer Class A shares than
the number of Class B shares converted, although the dollar value will be the
same. See "Valuation of Shares."
OTHER SERVICES AND INFORMATION
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Funds
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in a 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 aver-
aging." When under the plan a shareholder invests the same dollar amount each
month, the shareholder will purchase more shares when a Fund's net asset value
per share is low and fewer shares when the net asset value per share is high.
Using this technique, a shareholder's average purchase price per share over any
given period will be lower than if the shareholder purchased a fixed number of
shares on a monthly basis during the period.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class D shares of a Fund with a value of $5,000 or more or non-certificated
Class B shares of a Fund with a value of $20,000 or more may have PaineWebber
redeem a portion of their shares monthly, quarterly or semi-annually under the
systematic withdrawal plan. No contingent deferred sales charge will be imposed
on such withdrawals for Class B shares. The minimum amount for all withdrawals
of Class A or Class D shares is $100, and minimum monthly,
33
<PAGE>
quarterly and semi-annual withdrawal amounts for Class B shares are $200, $400
and $600, respectively. Quarterly withdrawals are made in March, June, Septem-
ber and December, and semi-annual withdrawals are made in June and December. A
Class B shareholder of a Fund may not withdraw an amount exceeding 12% annually
of his or her "Initial Account Balance," a term that means the value of the
Fund account at the time the shareholder elects to participate in the system-
atic withdrawal plan. A Class B shareholder's participation in the systematic
withdrawal plan will terminate automatically if the Initial Account Balance
(plus the net asset value on the date of purchase of Fund shares acquired after
the election to participate in the systematic withdrawal plan), less aggregate
redemptions made other than pursuant to the systematic withdrawal plan, is less
than $20,000. Shareholders who receive dividends or other distributions in cash
may not participate in the systematic withdrawal plan. Purchases of additional
shares of a Fund concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Funds may be purchased through
IRAs available through the Funds. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Funds as well as
in other investments available through PaineWebber. Investors considering es-
tablishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of a Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares will be transferred to an account with the Transfer Agent. How-
ever, if the other firm has entered into a selected dealer agreement with
Mitchell Hutchins relating to the Funds, the shareholder may be able to hold
Fund shares in an account with the other firm.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund pays an annual dividend from its net investment income
and net short-term capital gain, if any. Each Fund distributes any net realized
gain from foreign currency transactions with such dividend and also distributes
annually substantially all of its net capital gain (the excess of net long-term
capital gain over net short-term capital loss). Each 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 a Fund are
calculated at the same time and in the same manner. Dividends on Class B and
Class D shares of a Fund are expected to be lower than those for its Class A
shares because of the higher expenses resulting from the distribution fees
borne by the Class B and Class D shares. Dividends on each Class also might be
affected differently by the allocation of other Class-specific expenses. See
"Valuation of Shares."
Each Fund's dividends and other distributions are paid in additional Fund
shares of the same Class at net asset value unless the shareholder has re-
quested cash payments. Shareholders who wish to receive dividends and/or other
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber invest-
ment executives or correspondent firms or complete the appropriate section of
the application form.
TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so
34
<PAGE>
that it will be relieved of federal income tax on that part of its investment
company taxable income (consisting generally of net investment income, net
gains from certain foreign currency transactions and net short-term capital
gain) and net capital gain that is distributed to its shareholders.
Dividends from a Fund's investment company taxable income (whether paid in
cash or in additional Fund shares) generally are taxable to its shareholders as
ordinary income. Distributions of a Fund's net capital gain (whether paid in
cash or in additional Fund shares), when designated as such, are taxable to its
shareholders as long-term capital gain, regardless of how long they have held
their Fund shares. Shareholders not subject to tax on their income generally
will not be required to pay tax on amounts distributed to them.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed
paid) that year and of any portion of those dividends that qualifies for the
corporate dividends-received deduction. Under certain circumstances, the notice
also will specify the shareholder's share of any foreign taxes paid by the
Fund, in which event the shareholder would be required to include in his gross
income his pro rata share of those taxes but might be entitled to claim a
credit or deduction for those taxes.
Each Fund is required to withhold 31% of all dividends, capital gain distri-
butions and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and capital gain
distributions is also required for such shareholders who otherwise are subject
to backup withholding.
A redemption of shares of a Fund may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the redemption proceeds payable
to the shareholder are more or less than the shareholder's adjusted basis for
the redeemed shares (which normally includes any initial sales charge paid on
Class A shares). An exchange of Fund shares for shares of another PaineWebber
fund generally will have similar tax consequences. However, special tax rules
apply when a shareholder (1) disposes of Class A shares of a Fund through a re-
demption or exchange within 90 days of purchase and (2) subsequently acquires
Class A shares of a PaineWebber fund without paying a sales charge due to the
365-day reinstatement privilege or exchange privilege. In these cases, any gain
on the disposition of the original Class A shares will be increased, or loss
decreased, by the amount of the sales charge paid when those shares were ac-
quired, and that amount will increase the basis of the PaineWebber fund shares
subsequently acquired. In addition, if shares of a Fund are purchased within 30
days before or after redeeming other shares of that Fund (regardless of Class)
at a loss, all or a portion of that loss will not be deductible and will in-
crease the basis of the newly purchased shares.
No gain or loss will be recognized to a shareholder as a result of a conver-
sion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax consid-
erations generally affecting each Fund and its shareholders; see the Statement
of Additional Information for a further discussion. There may be other federal,
state or local tax considerations applicable to a particular investor. Prospec-
tive investors are urged to consult their tax advisers.
35
<PAGE>
VALUATION OF SHARES
The net asset value of each Fund's shares fluctuates and is determined sepa-
rately for each Class as of the close of regular trading on the NYSE (currently
4:00 p.m., eastern time) each Business Day. Each Fund's net asset value per
share is determined by dividing the value of the securities held by the Fund
plus any cash or other assets minus all liabilities by the total number of Fund
shares outstanding.
Each Fund values its assets based on their current market value when market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation gener-
ally is used to value debt obligations with 60 days or less remaining to matu-
rity, unless the board of trustees determines that this does not represent fair
value. All investments denominated in foreign currencies are valued daily in
U.S. dollars based on the then-prevailing exchange rate. It should be recog-
nized that judgment plays a greater role in valuing lower rated debt securities
because there is less reliable, objective data available.
MANAGEMENT
The Trust's board of trustees, as part of its overall management responsibil-
ity, oversees various organizations responsible for the Funds' day-to-day man-
agement. Mitchell Hutchins, the investment adviser and administrator of each
Fund, makes and implements all investment decisions and supervises all aspects
of each Fund's operations. Mitchell Hutchins receives a monthly fee for these
services. For the fiscal year ended October 31, 1994, Europe Growth Fund,
Global Growth and Income Fund and Global Energy Fund paid advisory fees at the
effective annual rates of 0.85%, 0.90% and 0.85% of such Fund's average daily
net assets, respectively. The Funds' advisory fees are higher than those paid
by most investment companies to their advisers, but Mitchell Hutchins believes
the fees are justified by the global nature of the Funds' investment activi-
ties. Brokerage transactions for the Funds may be conducted through PaineWebber
or its affiliates in accordance with procedures adopted by the Trust's board of
trustees.
Each Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. Each Fund incurs various other expenses and, for the fiscal year ended
October 31, 1994, the Funds' total expenses for their Class A, Class B and
Class D shares, stated as a percentage of net assets, were as follows: 1.65%,
2.40% and 2.39% for Europe Growth Fund, 1.76%, 2.54% and 2.55% for Global
Growth and Income Fund, and 1.99%, 2.82% and 2.74% for Global Energy Fund, re-
spectively.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. As of January 31, 1995, Mitchell Hutchins was adviser or sub-
adviser of 36 investment companies with 63 separate portfolios and aggregate
assets of approximately $26.2 billion, including approximately $3.0 billion in
global funds.
Lauren Young has been primarily responsible for the day-to-day portfolio man-
agement of Europe Growth Fund since January 1994. Ms. Young is a vice president
and a portfolio manager of Mitchell Hutchins. Prior to joining Mitchell
Hutchins as a European equity analyst in February 1990, Ms. Young served as a
corporate finance analyst at Salomon Brothers and
36
<PAGE>
in the capital markets division of Donaldson, Lufkin and Jenrette.
Frank Jennings and Stuart Waugh have been primarily responsible for the day-
to-day portfolio management of Global Growth and Income Fund since November
1994. Mr. Jennings is a managing director of global equities of Mitchell
Hutchins. Prior to 1992, Mr. Jennings served as managing director of Global In-
vestments of AIG Global Investors. Mr. Waugh is a vice president of the Trust
and a managing director of global fixed income investments of Mitchell
Hutchins. Mr. Waugh has been employed by Mitchell Hutchins as a portfolio man-
ager for the last eight years.
Karen Finkel and Ellen R. Harris are responsible for the day-to-day manage-
ment of Global Energy Fund. Ms. Finkel and Ms. Harris assumed their responsi-
bilities in March 1995 and December 1994, respectively. Ms. Finkel is a first
vice president of Mitchell Hutchins and has been employed by Mitchell Hutchins
as a portfolio manager for the last seven years. Ms. Harris is a chief domestic
equity strategist and a managing director of Mitchell Hutchins. She is also a
vice president of the Trust and of other investment companies for which Mitch-
ell Hutchins or PaineWebber serves as investment adviser and has been employed
by Mitchell Hutchins as a portfolio manager for the last 11 years.
Other members of Mitchell Hutchins' international equities and fixed income
groups provide input on market outlook, interest rate forecasts and other con-
siderations pertaining to global equity and fixed income investments.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of each
Fund's shares and has appointed PaineWebber as the exclusive dealer for the
sale of those shares. Under separate plans of distribution pertaining to the
Class A shares, Class B shares and Class D shares ("Class A Plan," "Class B
Plan" and "Class D Plan," collectively, "Plans"), each Fund pays Mitchell
Hutchins monthly service fees at the annual rate of 0.25% of the average daily
net assets of each Class of shares. Each Fund pays Mitchell Hutchins monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
of the Class B shares and the Class D shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily to
pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in each Fund by
PaineWebber clients. PaineWebber passes on a portion of these fees to its in-
vestment executives to compensate them for shareholder servicing that they per-
form and retains the remainder to offset its own expenses in servicing and
maintaining shareholder accounts. These expenses may include costs of the
PaineWebber branch office in which the investment executive is based, such as
rent, communications equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Funds'
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset each Fund's marketing costs
attributable to such Classes, such as preparation of sales literature, adver-
tising and printing and distributing prospectuses and other shareholder materi-
als to prospective investors. Mitchell Hutchins also may use the distribution
fees to pay additional compensation to PaineWebber and other costs allocated to
Mitchell Hutchins' and PaineWebber's distri-
37
<PAGE>
bution activities, including employee salaries, bonuses and other overhead ex-
penses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of one or more of the Funds. If
PaineWebber makes such payments, it will retain the service and distribution
fees on Class D shares until it has been reimbursed and thereafter will pass a
portion of the service and distribution fees on Class D shares on to its in-
vestment executives.
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution con-
tracts pertaining to each Class of shares ("Distribution Contracts") obligate
the Funds to pay service and distribution fees to Mitchell Hutchins as compen-
sation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if Mitchell Hutchins' expenses exceed
its service or distribution fees for any Fund, the Fund will not be obligated
to pay more than those fees and, if Mitchell Hutchins' expenses are less than
such fees, it will retain its full fees and realize a profit. Each Fund will
pay the service and distribution fees to Mitchell Hutchins until either the ap-
plicable Plan or Distribution Contract is terminated or not renewed. In that
event, Mitchell Hutchins' expenses in excess of service and distribution fees
received or accrued through the termination date will be Mitchell Hutchins'
sole responsibility and not obligations of the Fund. In their annual considera-
tion of the continuation of each Fund's Plans, the Trust's board of trustees
will review the Plan and Mitchell Hutchins' corresponding expenses for each
Class separately from the Plans and corresponding expenses for the other two
Classes.
PERFORMANCE INFORMATION
Each 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 com-
pound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. Standardized return for the Class A
shares of each Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of each 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.
Each Fund may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
Each Fund will include performance data for all three Classes of Fund shares
in any advertisements or promotional materials including Fund performance data.
Total return and yield information reflects past performance and does not nec-
essarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a sharehold-
er's cost.
38
<PAGE>
GENERAL INFORMATION
ORGANIZATION. PaineWebber Investment Series is registered with the SEC as an
open-end management investment company and was organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts by Declara-
tion of Trust dated December 22, 1986. The trustees have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$.001 per share. In addition to the Funds, shares of one other series have been
authorized.
The shares of beneficial interest of each Fund are divided into three Clas-
ses, designated Class A shares, Class B shares and Class D shares. Each Class
represents interests in the same assets of each Fund. The Classes differ as
follows: (1) each Class has exclusive voting rights on matters pertaining to
its plan of distribution; (2) Class A shares are subject to an initial sales
charge; (3) Class B shares bear ongoing distribution fees, are subject to a
contingent deferred sales charge upon certain redemptions and will automati-
cally convert to Class A shares approximately six years after issuance; (4)
Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class; and (5) each Class may bear differing amounts of certain Class-specific
expenses. The Trust's board of trustees does not anticipate that there will be
any conflicts among the interests of the holders of the different Classes of
shares of a Fund. On an ongoing basis, the board of trustees will consider
whether any such conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be
no meetings of shareholders to elect trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so re-
quested in writing by the shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of each Fund has equal voting rights,
except as noted above. Each share of each Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any liquida-
tion except that, due to the differing expenses borne by the three Classes,
dividends and liquidation proceeds for the Class B and Class D shares are
likely to be lower than for the Class A shares. The shares of each series of
the Trust will be voted separately except when an aggregate vote of all series
is required by the 1940 Act.
To avoid additional operating costs and for investor convenience, the Funds
no longer issue share certificates. Ownership of shares of each Fund is re-
corded on a stock register by the Transfer Agent and shareholders have the same
rights of ownership with respect to such shares as if certificates had been is-
sued.
CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, is custodian of each Fund's assets and employs
foreign sub-custodians, approved by the Trust's board of trustees in accordance
with applicable requirements under the 1940 Act, to provide custody of the
Funds' foreign assets. PFPC Inc., a subsidiary of PNC Bank, National Associa-
tion, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, is the Funds' transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and re-
39
<PAGE>
demptions of shares of the Funds. PaineWebber clients receive statements at
least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Funds.
40
<PAGE>
APPENDIX
THE FUNDS MAY USE SOME OR ALL OF THE FOLLOWING HEDGING INSTRUMENTS:
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 re-
turn 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 secu-
rity or currency against payment of the exercise price. A put option is a simi-
lar 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 obliga-
tion, upon exercise of the option during the option term, to buy the underlying
security or currency at the exercise price.
OPTIONS ON SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional stock option, except that exercise of an index option is effected
with cash payment and does not involve delivery of securities. Thus, upon exer-
cise of an index option, the purchaser will realize, and the writer will pay,
an amount based on the difference between the exercise price and the closing
price of the index.
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 trad-
ing 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. Gener-
ally, contracts are closed out prior to the expiration date of the contract.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and for-
eign currency futures contracts are bilateral agreements pursuant to which one
party agrees to make, and the other party agrees to accept, delivery of a spec-
ified type of 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 con-
tracts are closed out before the settlement date without the making or taking
of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to op-
tions on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short po-
sition if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exer-
cise of the option, the delivery of the futures position to the holder of the
option will be accompanied by delivery of the accumulated balance that repre-
sents the amount by which the market price of the futures contract exceeds, in
the case of a call, or is less than, in the case of a put, the exercise price
of the option on the future. The writer of an option, upon exercise, will as-
sume a short position in the case of a call and a long position in the case of
a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an obliga-
tion to purchase or sell a specific currency at a specified future date, which
may be any fixed number of days from the contract date agreed upon by the par-
ties, at a price set at the time the contract is entered into.
41
<PAGE>
Application Form
THE PAINEWEBBER [_] [_] - [_] [_] [_] [_] [_] - [_] [_]
MUTUAL FUNDS PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).
ALSO, DO NOT USE THIS FORM TO OPEN Return this completed form
A RETIREMENT PLAN ACCOUNT. FOR to: PFPC Inc. P.O. Box 8950
RETIREMENT PLAN FORMS OR FOR Wilmington, Delaware 19899
ASSISTANCE IN COMPLETING THIS FORM ATTN: PaineWebber Mutual
CONTACT PFPC INC. AT 1-800-647-1568. Funds
PLEASE PRINT
- --------------------------------------------------------------------------------
1 INITIAL INVESTMENT ($1,000 MINIMUM)
ENCLOSED IS A CHECK FOR:
$ (payable to PaineWebber Europe Growth Fund) to pur-
----
chase Class A [_] or Class B [_] or Class D [_] shares.
$ (payable to PaineWebber Global Growth and Income Fund)
----
to purchase Class A [_] or Class B [_] or Class D [_] shares.
$ (payable to PaineWebber Global Energy Fund) to pur-
----
chase Class A [_] or Class B [_] or Class D [_] shares.
(Check one Class; if no Class is specified Class A shares will
be purchased)
A SEPARATE CHECK IS REQUIRED FOR YOUR INVESTMENT IN EACH FUND.
2 ACCOUNT REGISTRATION
Not valid 1. Individual / /
without ------------- --------------- ------------
signature and First Name Last Name MI Soc. Sec. No.
Soc. Sec. or
Tax ID #. 2. Joint Tenancy / /
- --As joint ------------ --------------- ------------
tenants, use First Name Last Name MI Soc. Sec. No.
Lines 1 and 2. ("Joint Tenants with Rights of Survivorship"
- --As custodian unless otherwise specified)
for a minor,
use Lines 1 3. Gifts to Minors / /
and 3. -------------------------- ------------
- --In the name Minor's Name Soc. Sec. No.
of a corporation,
trust or other Under the ___________________________ Uniform Gifts
organization State of Residence of Minor to Minors Act/
or any fiduciary Uniform Transfers
capacity, use to Minors Act
Line 4.
4. Other Registrations
------------------------ --------------
Name Tax Ident. No.
5. If Trust, Date of Trust Instrument:
----------
3 ADDRESS
---------------------------- U.S. Citizen [_] YES [_] NO*
Street
---------------------------- ----------------------------
City State Zip Code *Country of Citizenship
4 DISTRIBUTION OPTIONS See Prospectus
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions in
additional shares.
[_] Pay dividends to my address above; reinvest capital gain
distributions.
[_] Pay both dividends and capital gain distributions in cash
to my address above.
[_] Reinvest dividends and pay capital gain distributions in
cash to my address above.
NOTE: If a selection is not made, both dividends and
capital gain distributions will be paid in additional
Fund shares of the same Class.
<PAGE>
5 SPECIAL OPTIONS (For More Information--Check Appropriate Box)
[_] Automatic Investment Plan [_] Prototype IRA Application
[_] Systematic Withdrawal Plan
6 RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)
Indicate here any other account(s) in the group of funds that would
qualify for the cumulative quantity discount as outlined in the
Prospectus.
-------------------- ---------- --------------------
Fund Name Account No.Registered Owner
-------------------- ---------- --------------------
Fund Name Account No.Registered Owner
-------------------- ---------- --------------------
Fund Name Account No.Registered Owner
7 PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
"Affiliated" persons are defined as officers, directors/trustees and
employees of the PaineWebber funds, PaineWebber or its affiliates, and
their parents, spouses and children.
--------------------------------------------------------------------------
Nature of Relationship
8 SIGNATURE(S) AND TAX CERTIFICATION
I warrant that I have full authority and am of legal age to purchase
shares of the Fund(s) specified and have received and read a current
Prospectus of the Fund(s) and agree to its terms. The Fund(s) and their
Transfer Agent will not be liable for acting upon instructions or
inquiries believed genuine. Under penalties of perjury, I certify that (1)
my taxpayer identification number provided in this application is correct
and (2) I am not subject to backup withholding because (i) I have not been
notified that I am subject to backup withholding as a result of failure to
report interest or dividends or (ii) the IRS has notified me that I am no
longer subject to backup withholding (strike out clause (2) if incorrect).
--------------------------- --------------------- ---------
Individual (or Custodian) Joint Registrant (if any) Date
--------------------------- --------------------- ---------
Corporate Officer, Partner, Title Date
Trustee, etc.
9 INVESTMENT EXECUTIVE IDENTIFICATION (To be Completed By Investment
Executive Only)
-------------------------- --------------------------
Broker No./Name Branch Wire Code
( )
-------------------------- --------------------------
Branch Address Telephone
10 CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspondent
Firm Only)
-------------------------- --------------------------
Name Address
--------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EX-ECUTIVE OR
CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950, WILMINGTON, DELAWARE
19899.
<PAGE>
(continued from back cover page)
PAINEWEBBER GROWTH FUNDS (CONTINUED)
.Europe Growth Fund
.Growth Fund
.MH/KP Emerging Markets Equity Fund
.MH/KP Global Equity Fund
.MH/KP Small Cap Growth Fund
.Regional Financial Growth Fund
.Small Cap Value Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
.Asset Allocation Fund
.Dividend Growth Fund
.MH/KP Asset Allocation Fund
.MH/KP Equity Income Fund
.Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
<PAGE>
Shares of the Funds can be exchanged for shares of other PaineWebber and
Mitchell Hutchins/Kidder, Peabody mutual funds, which include:
PAINEWEBBER INCOME FUNDS
.Global Income Fund
.High Income Fund
.Investment Grade Income Fund
.MH/KP Adjustable Rate Government Fund
.MH/KP Global Fixed Income Fund
.MH/KP Government Income Fund
.MH/KP Intermediate Fixed Income Fund
.Short-Term U.S. Government Income Fund
.Short-Term U.S. Government Income Fund
for Credit Unions
.Strategic Income Fund
.U.S. Government Income Fund
PAINEWEBBER TAX-FREE INCOME FUNDS
.California Tax-Free Income Fund
.MH/KP Municipal Bond Fund
.Municipal High Income Fund
.National Tax-Free Income Fund
.New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
.Atlas Global Growth Fund
.Blue Chip Growth Fund
.Capital Appreciation Fund
.Communications & Technology Growth
Fund
(continued on the inside of back cover)
--------------
A prospectus containing more complete information for any of the above funds
can be obtained from a PaineWebber investment executive or correspondent firm.
Read the prospectus carefully before investing.
(C) 1995 PaineWebber Incorporated
LOGO Printed on Recycled Paper
PAINEWEBBER
EUROPE GROWTH FUND
GLOBAL GROWTH AND
INCOME FUND
GLOBAL ENERGY FUND
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 2
Financial Highlights....................................................... 8
Flexible Pricing System.................................................... 14
Investment Objectives and Policies......................................... 15
Purchases ................................................................. 27
Exchanges.................................................................. 30
Redemptions................................................................ 31
Conversion of Class B Shares............................................... 33
Other Services and Information............................................. 33
Dividends and Taxes........................................................ 34
Valuation of Shares........................................................ 36
Management................................................................. 36
Performance Information.................................................... 38
General Information........................................................ 39
Appendix................................................................... 41
</TABLE>
PROSPECTUS
March 1, 1995
<PAGE>
MITCHELL HUTCHINS/KIDDER PEABODY INVESTMENT TRUST
PART B
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
(a series of Mitchell Hutchins/Kidder,Peabody Investment Trust)
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
(a series of PaineWebber Atlas Fund)
PAINEWEBBER EUROPE GROWTH FUND
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
(each a series of PaineWebber Investment Series)
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to three proposed
reorganizations whereby Mitchell Hutchins/Kidder, Peabody Global Equity Fund
("MH/KP Global Equity Fund"), a series of Mitchell Hutchins/Kidder, Peabody
Investment Trust ("Trust") would acquire the assets of each of PaineWebber Atlas
Global Growth Fund ("Atlas Global Growth Fund"), a series of PaineWebber Atlas
Fund, PaineWebber Europe Growth Fund, a series of PaineWebber Investment Series
("Investment Series"), and PaineWebber Global Growth and Income Fund ("Global
Growth and Income Fund"), a series of Investment Series, in exchange solely for
shares of beneficial interest in MH/KP Global Equity Fund and the assumption by
MH/KP Global Equity Fund of Atlas Global Growth Fund's, Europe Growth Fund's and
Global Growth and Income Fund's liabilities. The following described documents,
each of which is attached hereto, are incorporated herein by this reference:
(1) The Statements of Additional Information of MH/KP Global Equity Fund
dated December 29, 1994, Atlas Global Growth Fund, dated January 1,
1995 and Europe Growth Fund and Global Growth and Income Fund dated
March 1, 1995.
(2) The Annual Reports to Shareholders of MH/KP Global Equity Fund and
Atlas Global Growth Fund, each for the fiscal year ended August 31,
1994, and Europe Growth Fund and Global Growth and Income Fund, each
for the fiscal year ended October 31, 1994.
(3) The Semi-Annual Reports to Shareholders of MH/KP Global Equity Fund
and Atlas Global Growth Fund, each for the six months ended February
28, 1995.
(4) Pro Forma Financial Statements for the year ended February 28, 1995.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the prospectus/proxy statement dated June ___,
1995 relating to the above-referenced transactions. A copy of this
prospectus/proxy statement may be obtained by calling any PaineWebber
Incorporated ("PaineWebber") investment executive or correspondent firm or by
calling toll-free 1-800-647-1568. This Statement of Additional Information is
dated June ___, 1995.
1
<PAGE>
The following information updates information contained in the Statement of
Additional Information of MH/KP Global Equity Fund, dated December 29, 1994
("MH/KP Global Equity Fund SAI"), that is incorporated by reference into this
Statement of Additional Information. Effective February 13, 1995, the name of
the Trust was changed to Mitchell Hutchins/Kidder, Peabody Investment Trust and
the name of Kidder, Peabody Global Equity Fund was changed to Mitchell
Hutchins/Kidder, Peabody Global Equity Fund.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The information under the section entitled "Trustees and Officers" is
replaced with the following:
The trustees and executive officers of the Trust, their age, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Name and Address;* Age Position with Trust Business Experience; Other Directorships
----------------------- ------------------- ----------------------------------------
<S> <C> <C>
David J. Beaubien; 60 Trustee Chairman of Yankee Environmental
Montague Industrial Park Systems, Inc., manufacturer of solar
101 Industrial Road, Box 746 radiation monitoring instruments.
Turners Falls, Massachusetts 01376 Director of IEC Electronics, Inc.,
manufacturer of electronic assemblies,
Belfort Instruments Inc., manufacturer
of environmental instruments, and
Oriel Instruments Corporation,
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 also a director or trustee of 13
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name and Address;* Age Position with Trust Business Experience; Other Directorships
----------------------- ------------------- ----------------------------------------
<S> <C> <C>
William W. Hewitt, Jr.; 66 Trustee Director/Trustee of The Guardian Life
P.O. Box 2359 Insurance Company of America group
Princeton, New Jersey 08543-2359 of mutual funds from 1988 to the
present. Mr. Hewitt is also a director
or trustee of 13 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan; 67 Trustee Principal of The Dilenschneider
200 Park Avenue Group, Inc., a corporate
New York, New York 10166 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 also a director or
trustee of 13 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frank P. L. Minard**; 49 Trustee and Mr. Minard is chairman and a
President director of Mitchell Hutchins Asset
Management Inc. ("Mitchell
Hutchins"), chairman of the board of
Mitchell Hutchins Institutional
Investors Inc. and a director of
PaineWebber. Prior to 1993, Mr.
Minard was managing director of
Oppenheimer Capital in New York
and Director of Oppenheimer Capital
Ltd. in London. Mr. Minard is also
president of 13 and a director or
trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name and Address;* Age Position with Trust Business Experience; Other Directorships
----------------------- ------------------- ----------------------------------------
<S> <C> <C>
Carl W. Schafer; 59 Trustee President of the Atlantic Foundation,
P.O. Box 1164 a charitable foundation supporting
Princeton, New Jersey 08542 mainly oceanographic exploration and
research. Director of Evans Systems,
Inc., a petroleum products and a
diversified firm, International
Agritech Resources, Inc., an
agribusiness investment and consulting
firm, Ardic Exploration and
Development Ltd. and Hidden Lake
Gold Mines Ltd., gold mining
companies, Electronic Clearing
House, Inc., a financial transactions
processing company, Wainoco Oil
Corporation and Bio Techniques
Laboratories Inc., an agricultural
biotechnology company. Prior to
January 1993, chairman of the
Investment Advisory Committee of the
Howard Hughes Medical Institute and
director of Ecova Corporation, a toxic
waste treatment firm. Prior to May
1990, principal of Rockefeller and
Company, Inc., manager of
investments. Mr. Schafer is also a
director or trustee of 13 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name and Address;* Age Position with Trust Business Experience; Other Directorships
----------------------- ------------------- ----------------------------------------
<S> <C> <C>
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president and
manager----advisory administration
----of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital
Management, Inc., an investment
advisory firm. Prior to April 1993,
Ms. Boyle was a vice president and
manager----legal administration----of
Mitchell Hutchins. Ms. Boyle is also
a vice president of 26 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is also
a vice president and assistant treasurer
of 39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice
Secretary president and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president and
secretary of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 43 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. From April 1990 to May
1992, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in the
law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld
is also a vice president of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Name and Address;* Age Position with Trust Business Experience; Other Directorships
----------------------- ------------------- ----------------------------------------
<S> <C> <C>
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August
1992 to August 1994, he was a vice
president at BlackRock Financial
Management, L.P. Prior to August
1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a fund-
raising director for a U.S. Senate
campaign. Prior to September 1991,
she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a
vice president and assistant treasurer
of 39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice president
Treasurer and the director of the mutual fund
finance division of Mitchell Hutchins.
Prior to 1991, he was an audit senior
manager with Ernst & Young LLP.
Mr. Sluyters is also a vice president
and treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Name and Address;* Age Position with Trust Business Experience; Other Directorships
----------------------- ------------------- ----------------------------------------
<S> <C> <C>
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to 1993, he was a
partner in the law firm of Shereff,
Friedman, Hoffman & Goodman.
Mr. Todd is also a vice president and
assistant secretary of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</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 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 attended for each fund in the
Trust. Trustees are reimbursed for any expenses incurred in attending meetings.
Trustees and officers of the Trust own in the aggregate less than 1% of the
shares of the Fund. The Chairman of the board's Audit Committee receives an
annual fee of $250. 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.
Compensation Table
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From the
Aggregate Benefits Estimated Trust and the
Compensation Accrued as Annual Fund Complex
From Part of a Benefits Upon Paid to
Name of Person, Position the Trust* Fund's Expenses Retirement Trustees**
- -------------------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C>
David J. Beaubien,
Trustee................. $14,375 - - $77,589
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
William W. Hewitt, Jr.,
Trustee................. $14,375 - - $77,364
Thomas R. Jordan,
Trustee................. $14,375 - - $78,489
Frank P.L. Minard,
Trustee and President... - - - -
Carl W. Schafer,
Trustee................. $15,625 - - $81,589
</TABLE>
* Represents fees paid to each trustee during the fiscal year ended August 31,
1994
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994
MANAGER
Effective February 13, 1995 the Management Agreement with Kidder
Peabody Asset Management, Inc. ("KPAM") terminated as a result of the sale of
assets of KPAM and certain other assets of Kidder, Peabody & Co. Group,
Incorporated ("Kidder, Peabody") and its subsidiaries to Paine Webber Group Inc.
("PW Group").
INVESTMENT ADVISER
At a special meeting of shareholders that took place on April 13,
1995, Mitchell Hutchins was approved by the shareholders as MH/KP Global Equity
Fund's investment adviser and administrator and GE Investment Management
Incorporated ("GEIM") was approved as MH/KP Global Equity Fund's sub-adviser.
MH/KP Global Equity Fund pays the same fee for investment advisory and
administration services to Mitchell Hutchins as was previously paid to KPAM and
Mitchell Hutchins (not the Fund) pays the same fee for sub-advisory services to
GEIM as previously paid by KPAM.
Investment advisory functions for MH/KP Global Equity Fund were
previously transferred on February 13, 1995, from KPAM to Mitchell Hutchins on
an interim basis as a result of the asset purchase transaction by and among
Kidder, Peabody, its parent, General Electric Company, and PW Group.
DISTRIBUTOR
Mitchell Hutchins serves as the distributor of MH/KP Global Equity
Fund's shares. All references in the MH/KP Global Equity Fund SAI to Kidder,
Peabody as MH/KP Global Equity Fund's distributor are replaced with references
to Mitchell Hutchins.
8
<PAGE>
TRANSFER AND DIVIDEND AGENT
PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, National Association,
whose principal address is 400 Bellevue Parkway, Wilmington, Delaware 19809 is
MH/KP Global Equity Fund's transfer agent. All references in the MH/KP Global
Equity Fund SAI to IFTC as the Fund's transfer agent are replaced with
references to PFPC.
REDEMPTION OF SHARES
The first paragraph under the section entitled "Systematic Withdrawal
Plan" is replaced with the following:
Shareholders who own shares of MH/KP Global Equity Fund with a value
of $5,000 or more may have Mitchell Hutchins redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal plan. The
minimum amount for all withdrawals of shares is $100.
EXCHANGE PRIVILEGE
Effective February 14, 1995, shares of MH/KP Global Equity Fund may be
exchanged for shares of the corresponding class of shares of PaineWebber Funds
offered under the PaineWebber Flexible Pricing/SM/ System. Effective May 1,
1995, the exchange privilege of MH/KP Global Equity Fund was modified to
eliminate the exchange privilege with former Kidder, Peabody money market funds.
9
<PAGE>
Statement of Additional Information December 29, 1994
- --------------------------------------------------------------------------------
Kidder, Peabody Global Equity Fund
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (212) 656-1737
This Statement of Additional Information supplements the information contained
in the Prospectus dated December 29, 1994, of Kidder, Peabody Global Equity Fund
(the 'Fund'), a series of Kidder, Peabody Investment Trust (the 'Trust'), and
should be read together with the Prospectus. The Prospectus may be obtained
without charge by writing or calling the Trust at the address or the telephone
number listed above. This Statement of Additional Information, although not a
prospectus, is incorporated in its entirety by reference into the Prospectus.
For ease of reference, the section headings used in this Statement of Additional
Information are identical to those used in the Prospectus except as noted in
parentheses in the Table of Contents.
- --------------------------------------------------------------------------------
MANAGER
Kidder Peabody Asset Management, Inc.
INVESTMENT ADVISER
GE Investment Management Incorporated
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
[Logo]
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the investment objective of the Fund and the policies
to be employed to achieve that objective. Supplemental information is set out
below concerning certain of the securities and other instruments in which the
Fund may invest, the investment techniques and strategies that the Fund may
utilize and certain risks involved with those investments, techniques and
strategies.
RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the Securities
Act of 1933, as amended (the '1933 Act'), but that can be sold to 'qualified
institutional buyers' in accordance with Rule 144A under the 1933 Act ('Rule
144A Securities'). Particular Rule 144A Securities are considered illiquid and,
therefore, subject to the Fund's limitation on the purchase of illiquid
securities, unless the Trustees determine on an ongoing basis that an adequate
trading market exists for the Rule 144A Securities. The Fund's purchasing Rule
144A Securities could have the effect of increasing the level of illiquidity in
the Fund to the extent that qualified institutional buyers become uninterested
for a time in purchasing Rule 144A Securities. The Board of Trustees may adopt
guidelines and delegate to Kidder Peabody Asset Management, Inc. ('KPAM'), the
Fund's manager, or to GE Investment Management Incorporated ('GEIM'), the Fund's
investment adviser, the daily function of determining and monitoring the
liquidity of Rule 144A Securities, although the Board of Trustees will retain
ultimate responsibility for any determination regarding liquidity. The ability
to sell to qualified institutional buyers under Rule 144A is a recent
development and neither KPAM nor GEIM can predict how this market will develop.
The Board of Trustees will carefully monitor any investments by the Fund in Rule
144A Securities.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities ('Government Securities') in which the Fund may
invest include debt obligations of varying maturities issued by the United
States Treasury or issued or guaranteed by an agency or instrumentality of the
United States Government, including the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance. Because the United States Government is not obligated by law to
provide support to an instrumentality that it sponsors, the Fund invests in
obligations issued by an instrumentality of the United States Government only if
KPAM or GEIM determines that the instrumentality's credit risk does not make its
securities unsuitable for investment by the Fund.
2
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT TECHNIQUES AND STRATEGIES
FORWARD CURRENCY TRANSACTIONS. At or before the maturity of a forward
currency contract, the Fund may either sell a portfolio security and make
delivery of the currency, or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second contract pursuant to
which the Fund will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. If the Fund retains the portfolio
security and engages in an offsetting transaction, the Fund, at the time of
execution of the offsetting transaction, will incur a gain or a loss to the
extent that movement has occurred in forward currency contract prices. Should
forward prices decline during the period between the Fund's entering into a
forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. The use of forward currency contracts does
not eliminate fluctuations in the underlying prices of the securities, but it
does establish a rate of exchange that can be achieved in the future. In
addition, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time, they limit any
potential gain that might result should the value of the currency increase.
If a devaluation is generally anticipated, the Fund may not be able to
contract to sell currency at a price above the devaluation level it anticipates.
The Fund will not enter into a currency transaction if, as a result, it will
fail to qualify as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the 'Code'), for a given year. See 'Taxes -- Tax
Status of the Fund and its Shareholders.'
OPTIONS ON FOREIGN CURRENCIES. To protect against diminutions in the value
of securities held by the Fund in a particular foreign currency, the Fund may
purchase put options on the foreign currency. In such a case, if the value of
the currency declined, the Fund would have the right to sell the currency for a
fixed amount in U.S. dollars, which would offset, in whole or in part, the
adverse effect on the Fund's portfolio that otherwise would have resulted. When
an increase in the U.S. dollar value of a currency in which securities to be
acquired by the Fund are denominated is projected, thereby increasing the cost
of the securities, the Fund conversely may purchase call options on the
currency. The purchase of the options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction, or to the extent, anticipated, the Fund could sustain losses
on transactions in foreign currency options that would require it to forego a
portion, or all, of the benefits of advantageous changes in the rates. The
premiums paid by the Fund in purchasing options on foreign currencies, options
on securities and options on stock indexes are limited to not more than 20% of
the Fund's net assets.
3
<PAGE>
- --------------------------------------------------------------------------------
When GEIM anticipates a decline in the U.S. dollar value of foreign
currency-denominated securities due to adverse fluctuations in exchange rates,
the Fund could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option would most likely
not be exercised, and the diminution in value of portfolio securities would be
offset by the amount of the premium received. Instead of purchasing a call
option to hedge against an anticipated increase in the U.S. dollar cost of
securities to be acquired, the Fund could write a put option on the relevant
currency that, if rates moved in the manner projected, would expire unexercised
and allow the Fund to hedge the increased cost up to the amount of the premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss that may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund may
also be required to forego all, or a portion, of the benefits that might
otherwise have been obtained from favorable movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written by the Fund on a foreign currency is 'covered' if the Fund owns
the foreign currency underlying the call or has an absolute and immediate right
to acquire the foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by the Fund's
custodian or by a designated sub-custodian) upon conversion or exchange of other
foreign currency held by the Fund. A call option also is deemed to be covered if
the Fund has a call on the same foreign currency and in the same principal
amount as the call written when the exercise price of the call held (1) is equal
to or less than the exercise price of the call written or (2) is greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, Government Securities and other high-grade liquid debt securities
in a segregated account with the Fund's custodian or with a designated
sub-custodian.
The Fund may write uncovered call options on foreign currencies to provide
a hedge against a decline, due to an adverse change in exchange rates, in the
U.S. dollar value of a security that the Fund owns or has a right to acquire. A
call option written for these purposes, typically referred to as
'cross-hedging,' would be written on a foreign currency that GEIM determines is
closely correlated with the foreign currency in which the hedged security is
denominated. In such circumstances, the Fund would collateralize the option by
maintaining in a segregated account with its custodian, or with a designated
sub-custodian, cash or Government Securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars. To the extent that
cash or cash equivalents, including Government Securities, are maintained by the
Fund in a segregated account with the Fund's custodian or with a designated
sub-custodian to collateralize the Fund's writing of options on foreign
currencies, options on securities and options on stock indexes, the Fund will
limit the collateralization to not more than 50% of its net assets.
STOCK OPTIONS. To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options on securities. Should these state laws change or
should the Fund obtain a waiver of their application, the Fund may commit more
than 5% of its assets to premiums when purchasing call and put options on
securities. In addition, should the Trust determine that a commitment is no
4
<PAGE>
- --------------------------------------------------------------------------------
longer in the best interests of the Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of the Fund's shares in the state
involved.
FUTURES CONTRACTS. The Fund may trade stock index, currency and interest
rate futures contracts to the extent permitted under rules and interpretations
adopted by the Commodity Futures Trading Commission (the 'CFTC'). U.S. futures
contracts have been designed by exchanges that have been designated as 'contract
markets' by the CFTC, and must be executed through a futures commission
merchant, or brokerage firm, that is a member of the relevant contract market.
Futures contracts trade on a number of contract markets, and, through their
clearing corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, the Fund will be required to deposit in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money market
instruments equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded and brokers
may charge a higher amount). This amount is known as 'initial margin' and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming that all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as 'variation margin,' to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as 'marking-to-market.'
At any time prior to the expiration of a futures contract, the Fund may elect to
close a position by taking an opposite position, which will operate to terminate
the Fund's existing position in the contract.
Positions in futures contracts may be closed out only on the exchange on
which they were undertaken (or through a linked exchange). No secondary market
for futures contracts currently exists, and although the Fund intends to trade
futures contracts only if an active market for them exists, no assurance can be
given that an active market will exist for the contracts at any particular time.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made on that day at a price
beyond that limit. Prices for futures contracts may move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting the Fund to substantial
losses. In that case, and in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the Fund's securities
being hedged, if any, may partially or completely offset losses on the futures
contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write put and call
options on stock index, currency and interest rate futures contracts that are
traded on a U.S. exchange or
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board of trade or a foreign exchange, to the extent permitted under rules and
interpretations of the CFTC, as a hedge against changes in market conditions and
interest rates, and may enter into closing transactions with respect to those
options to terminate existing positions. No assurance can be given that the
closing transactions can be effected.
LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the value of the Fund's total
assets. The Fund will not lend securities to Kidder, Peabody & Co. Incorporated
('Kidder, Peabody'), the Fund's distributor, unless the Fund has applied for and
received specific authority to do so from the Securities and Exchange Commission
(the 'SEC'). The Fund's loans of securities will be collateralized by cash,
letters of credit or Government Securities. The cash or instruments
collateralizing the Fund's loans of securities will be maintained at all times
in a segregated account with the Fund's custodian, or with a designated
sub-custodian, in an amount at least equal to the current market value of the
loaned securities. From time to time, the Fund may pay a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and is acting
as a 'finder.' The Fund will comply with the following conditions whenever it
loans securities: (1) the Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities loaned rises above the
level of the collateral; (3) the Fund must be able to terminate the loan at any
time; (4) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) voting rights on the loaned securities may
pass to the borrower except that, if a material event adversely affecting the
investment in the loaned securities occurs, the Trust's Board of Trustees must
terminate the loan and regain the right to vote the securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 14 below have been adopted by the
Trust as fundamental policies with respect to the Fund. Under the Investment
Company Act of 1940, as amended (the '1940 Act'), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. Investment restrictions numbered 15
through 17 may be changed by a vote of a majority of the Trust's Board of
Trustees at any time.
Under the investment restrictions adopted by the Trust with respect to the
Fund:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, or more than 10% of the securities of any class of any
one issuer, except that this limitation is not
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applicable to the Fund's investments in Government Securities, and up to
25% of the Fund's assets may be invested without regard to these 10%
limitations.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include (a) the government
of any country other than the United States, but not the United States
Government and (b) any supranational organization.
6. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts or options on futures contracts will not be deemed to be
a purchase of securities on margin.
7. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the Fund
owns an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short.
8. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.
9. The Fund will not purchase or sell commodities or commodity
contracts (except currencies, stock index, currency and interest rate
futures contracts and related options, forward foreign currency contracts
and other similar contracts).
10. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
11. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the 1933 Act.
12. The Fund will not purchase any security, other than a security
acquired pursuant to a plan of reorganization or an offer of exchange, if
as a result of the purchase (a) the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or (b) more than 5% of the value
of the Fund's total assets would be invested in securities of any one or
more closed-end investment companies.
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13. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.
14. The Fund will not make investments for the purpose of exercising
control of management.
15. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets
invested in securities of companies (including predecessors) that have been
in continuous operation for fewer than three years.
16. The Fund will not purchase or retain securities of any company if,
to the knowledge of the Fund, any of the Trust's Trustees or officers or
any officer or director of GEIM or KPAM individually owns more than .5% of
the outstanding securities of the company and together they own
beneficially more than 5% of the securities.
17. The Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would exceed 5% of the value of the Fund's net assets of which not
more than 2% of the Fund's net assets may be invested in warrants not
listed on a recognized foreign or domestic stock exchange.
The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchases of securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Certain transactions involving futures contracts, options on foreign currencies
and forward currency contracts are not traded on contract markets regulated by
the CFTC; forward currency contracts also are not regulated by the SEC. Instead,
forward currency contracts are traded through financial institutions acting as
market-makers. Foreign currency options are traded on certain national
securities exchanges, such as the Philadelphia Stock Exchange and the Chicago
Board Options Exchange, subject to SEC regulation. In the forward currency
market, no daily price fluctuation limits are applicable, and adverse market
movements could, therefore, continue to an unlimited extent over a period of
time. Moreover, a trader of forward currency contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with those positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the protections provided to traders on organized
exchanges are available with respect to those transactions. In particular, all
foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (the 'OCC'),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may exist,
potentially permitting the Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
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The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of
exchange-traded foreign currency options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing members, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
Futures contracts, options on futures contracts, forward currency contracts
and options on foreign currencies may be traded on foreign exchanges, to the
extent permitted by the CFTC. These transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of these positions also could be adversely affected by (1)
other complex foreign political and economic factors, (2) lesser availability of
data on which to make trading decisions than in the United States, (3) delays in
the Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lesser trading volume.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for the Fund are made by GEIM, subject to
review by KPAM and the Trustees. Transactions on domestic stock exchanges and
some foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. No stated commission is generally applicable to
securities traded in U.S. over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups. The cost of securities
purchased from underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. Government Securities generally are
purchased from underwriters or dealers, although certain newly issued Government
Securities may be purchased directly from the United States Treasury or from the
issuing agency or instrumentality.
In selecting brokers or dealers to execute securities transactions on
behalf of the Fund, GEIM seeks the best overall terms available. In assessing
the best overall terms available for any transaction, GEIM considers factors
that it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, the investment
advisory agreement among the Trust, KPAM and GEIM relating to the Fund
authorizes GEIM, on behalf of the Fund, in selecting brokers or dealers to
execute a particular transaction, and in evaluating the best overall terms
available, to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which GEIM or
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its affiliates exercise investment discretion. The fees under the investment
advisory agreement are not reduced by reason of the Fund's receiving brokerage
and research services. The Trustees periodically review the commissions paid by
the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the Fund.
Over-the-counter purchases and sales by the Fund are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. The Fund does not purchase any security,
including Government Securities, during the existence of any underwriting or
selling group relating to the security of which Kidder, Peabody is a member,
except to the extent permitted under rules, interpretations or exemptions of the
SEC. For the fiscal years ended August 31, 1994 and August 31, 1993 and for the
period November 14, 1991 (commencement of operations) through August 31, 1992,
the Fund paid $801,045, $572,495 and $515,412, respectively, in commissions with
respect to securities transactions. None of the commissions were paid to Kidder,
Peabody. For the fiscal years ended August 31, 1994 and August 31, 1993 and for
the period November 14, 1991 (commencement of operations) through August 31,
1992, the Fund did not pay any commissions with respect to futures transactions.
The Fund does not consider portfolio turnover rate a limiting factor in
making investment decisions. The Fund's turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of portfolio securities. Securities with remaining
maturities of one year or less on the date of acquisition are excluded from the
calculation.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The names of Trustees and officers of the Trust, together with information as to
their principal business occupations during the last five years, are shown
below. An asterisk appears before the name of each Trustee who is an 'interested
person' of the Trust, as defined in the 1940 Act.
*George V. Grune, Jr., Trustee, Chairman of the Board and President.
Executive Managing Director of the Asset Management Division of Kidder, Peabody
and President and a Director of KPAM.
David J. Beaubien, Trustee. Chairman of Yankee Environmental Systems, Inc.,
manufacturer of meteorological measuring instruments. Director of IEC, Inc.,
manufacturer of electronic assemblies, Belfort Instruments, Inc., manufacturer
of environmental instruments, and Oriel Corp., manufacturer of optical
instruments. Prior to January 1991, Senior Vice President of EG&G, Inc., a
company that makes and provides a variety of scientific and technically oriented
products and services.
William W. Hewitt, Jr., Trustee. Trustee of The Guardian Asset Allocation
Fund, The Guardian Baillie Gifford International Fund, The Guardian Bond Fund,
Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The Guardian
Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian U.S.
Government Trust.
*Russell H. Johnson, Trustee and Vice Chairman. Managing Director of
Kidder, Peabody and a Managing Director and a director of KPAM. Prior to April
1993 and December 1991, Senior Vice President of KPAM and Kidder, Peabody,
respectively.
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Thomas R. Jordan, Trustee. Principal of The Dilenschneider Group, Inc., a
corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm.
Carl W. Schafer, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd. and Hidden Lake Gold
Mines Ltd., gold mining companies, Electronic Clearing House, Inc., a financial
transactions processing company, Wainoco Oil Corporation and Bio Techniques
Laboratories Inc., an agricultural biotechnology company. Prior to January 1993,
chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Prior
to May 1990, principal of Rockefeller and Company, Inc., manager of investments.
Ralph R. Layman, Chief Investment Officer and Executive Vice President.
Executive Vice President of GEIM and General Electric Investment Corporation, a
registered investment adviser ('GEIC'). Prior to July 1991, Executive Vice
President, partner and portfolio manager of Northern Capital Management Co.
Pamela J. Thomas, Investment Officer. International equity analyst for
GEIC. Prior to May 1992, graduate student at the Wharton School. Prior to
September 1990, equity analyst/portfolio manager for the Bank of Bermuda.
Robert B. Jones, Senior Vice President. Senior Vice President of Kidder,
Peabody and Senior Vice President and director of KPAM. Prior to December 1990,
Vice President of Kidder, Peabody.
Lawrence H. Kaplan, Senior Vice President, General Counsel and Secretary.
Senior Vice President and Associate General Counsel of Kidder, Peabody,
director, Senior Vice President, General Counsel and Assistant Secretary of KPAM
and a director and/or officer of various Kidder, Peabody subsidiaries. Prior to
November 1990, attorney in private practice with the law firm of Brown & Wood.
John J. Boretti, Vice President and Chief Financial Officer. Vice President
of Kidder, Peabody and Vice President and Chief Financial Officer of KPAM. Prior
to October 1992, self employed as a consultant. Prior to August 1992, director,
Executive Vice President, Chief Financial Officer and Treasurer of USF&G Review
Management Corp., Vice President and director of USF&G Investment Management
Corp., Treasurer of USF&G Mutual Funds, Executive Vice President, Treasurer and
Chief Financial Officer of USF&G Investment Services, Inc. and director of Axe
Houghton Management. Prior to December 1990, Vice President of USF&G Financial
Services.
Ronald A. Huether, Treasurer and Assistant Secretary. Vice President of
Kidder, Peabody and a Vice President and Treasurer of KPAM.
Lisa S. Kellman, Assistant Secretary. Assistant Vice President of Kidder,
Peabody and KPAM. Prior to January 1993, Administrative Officer of Kidder,
Peabody.
Leonard I. Chubinsky, Assistant Vice President and Assistant Secretary.
Assistant Vice President and Assistant General Counsel of Kidder, Peabody and
Assistant Vice President of KPAM. Prior to July 1992, attorney with
Curtiss-Wright Corporation, a diversified manufacturing company.
Helen V. Del Bove, Assistant Treasurer. Assistant Vice President of Kidder,
Peabody and Vice President of KPAM.
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Certain of the Trustees and officers of the Trust are directors and/or
trustees and officers of other mutual funds managed by KPAM. The addresses of
the non-interested Trustees are as follows: Mr. Beaubien, Montague Industrial
Park, 101 Industrial Road, Box 746, Turners Falls, Massachusetts 01376; Mr.
Hewitt, P.O. Box 2359, Princeton, New Jersey 08543-2359; Mr. Jordan, 200 Park
Avenue, New York, New York 10166; and Mr. Schafer, P.O. Box 1164, Princeton, New
Jersey 08542. The address of each of Mr. Grune, Mr. Johnson and the officers
listed above, other than Mr. Layman and Ms. Thomas, is 60 Broad Street, New
York, New York 10004-2350. The address of Mr. Layman and Ms. Thomas is 3003
Summer Street, Stamford, Connecticut 06094.
By virtue of the responsibilities assumed by KPAM under its Management
Agreement with the Trust, and by GEIM under its investment advisory agreement
with KPAM and the Trust, the Fund requires no executive employees other than
officers of the Trust, none of whom devotes full time to the affairs of the
Fund. Trustees and officers of the Trust, as a group, owned 1.02% of the
outstanding Class C shares as of December 1, 1994 and owned less than 1% of the
outstanding Class A shares and Class B shares as of December 1, 1994. The Trust
pays each Trustee who is not an officer, director or employee of KPAM, GEIM, or
any of their affiliates, an annual retainer of $1,000, and $375 for each Board
of Trustees meeting attended, and reimburses the Trustee for out-of-pocket
expenses associated with attendance at Board meetings. The Chairman of the
Board's audit committee receives an annual fee of $250. No officer, director or
employee of KPAM, GEIM, or any of their affiliates, receives any compensation
from the Trust for serving as an officer or Trustee of the Trust. For the fiscal
year ended August 31, 1994, the Trust paid $57,907 in Trustees' fees and
out-of-pocket expenses, of which $10,391 was allocated to the Fund.
MANAGER
KPAM, located at 60 Broad Street, New York, New York 10004-2350, and a
wholly-owned subsidiary of Kidder, Peabody, bears all expenses in connection
with the performance of its services as the Fund's manager.
The Management Agreement, pursuant to the terms of which KPAM acts as the
Fund's manager, remains in effect for an initial term of two years and
thereafter continues in effect from year to year, provided its continuance is
approved at least annually by (1) the Trustees or (2) by a vote of a majority of
the Fund's outstanding voting securities, as defined in the 1940 Act, provided
that in either event the continuance is also approved by a majority of the
Trustees who are not 'interested persons,' as defined in the 1940 Act, of any
party to the Management Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Management Agreement was most
recently continued by the Trustees, including a majority of the Trustees who are
not 'interested persons,' at a meeting held on March 2, 1994. The Management
Agreement is terminable without penalty, by the Trust on not more than 60 nor
less than 30 days' notice to KPAM, by vote of the holders of a majority of the
Fund's outstanding voting securities, as defined in the 1940 Act, or by KPAM on
not more than 60 nor less than 30 days' notice to the Trust. The Management
Agreement will terminate automatically in the event of its assignment, as
defined in the 1940 Act and the rules thereunder.
For the fiscal years ended August 31, 1994 and August 31, 1993 and for the
period November 14, 1991 (commencement of operations) through August 31, 1992,
the Trust paid fees of $2,339,156, $1,284,039 and $763,896, respectively, to
KPAM with respect to the Fund.
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KPAM will not be liable for any error of judgment or mistake of law or for
any loss suffered by the Trust with respect to the Fund in connection with the
matters to which the Management Agreement relates, except for a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Management Agreement.
Under the Management Agreement, KPAM has agreed that, if in any fiscal year
of the Fund, the aggregate expenses of the Fund (including management fees, but
excluding interest, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Trust, KPAM will
reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of KPAM's fees under the Management
Agreement. Any expense reimbursement will be estimated, reconciled and paid on a
monthly basis. As of the date of this Statement of Additional Information, the
most restrictive state expense limitation applicable to the Fund requires
reimbursement of expenses in any year that the Fund's expenses subject to the
limitation exceed 2 1/2% of the first $30 million of the average daily value of
the Fund's net assets, 2% of the next $70 million of the average daily value of
the Fund's net assets and 1 1/2% of the remaining average daily value of the
Fund's net assets. For the fiscal year ended August 31, 1994, the Fund's
expenses did not exceed such limitations.
INVESTMENT ADVISER
GEIM, located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut 06904,
and a wholly-owned subsidiary of GE, bears all expenses in connection with the
performance of its services as the Fund's investment adviser. The Investment
Advisory Agreement (the 'Advisory Agreement') remains in effect for an initial
term of two years and thereafter continues in effect from year to year, provided
its continuance is approved at least annually by (1) the Trustees or (2) by a
vote of a majority of the Fund's outstanding voting securities, as defined in
the 1940 Act, provided that in either event the continuance is also approved by
a majority of the Trustees who are not 'interested persons,' as defined in the
1940 Act, of any party to the Advisory Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement was most recently continued by the Trustees, including a majority of
the Trustees who are not 'interested persons,' at a meeting held on March 2,
1994. The Advisory Agreement is terminable without penalty, by the Trust on not
more than 60 nor less than 30 days' notice to GEIM, by vote of the holders of a
majority of the Fund's outstanding voting securities, as defined in the 1940
Act, or by GEIM on not more than 60 nor less than 30 days' notice to the Trust.
The Advisory Agreement will terminate automatically in the event of its
assignment, as defined in the 1940 Act and the rules thereunder.
For the fiscal years ended August 31, 1994 and August 31, 1993 and for the
period November 14, 1991 (commencement of operations) through August 31, 1992,
KPAM paid fees of $1,637,409, $936,271 and $534,727, respectively, to GEIM with
respect to the Fund.
Under the Advisory Agreement, GEIM has agreed that, if in any fiscal year
of the Fund, the aggregate expenses of the Fund (including management fees, but
excluding interest, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Trust, GEIM will
reimburse KPAM for 70% on the Fund's average daily net assets up to $200
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million and 50% thereafter of the amount KPAM is required to reimburse the Trust
under the Management Agreement. The expense reimbursement obligation of GEIM is
limited to the amount of GEIM's fees under the Advisory Agreement. For the
fiscal year ended August 31, 1994, the Fund's expenses did not exceed such
limitations.
GEIM will not be liable for any error of judgment or mistake of law or for
any loss suffered by the Trust with respect to the Fund in connection with the
matters to which the Advisory Agreement relates, except for a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Advisory Agreement.
DISTRIBUTOR
Kidder, Peabody, located at 10 Hanover Square, New York, New York 10005-3592,
serves as the distributor of the Fund's shares on a best efforts basis. Under a
Shareholder Servicing and Distribution Plan (the 'Plan') adopted by the Trust
with respect to the Fund pursuant to Rule 12b-1 under the 1940 Act, the Trust
pays Kidder, Peabody monthly fees calculated at the aggregate annual rates of
.25% and 1.00% of the value of the Fund's average daily net assets attributed to
Class A shares and Class B shares, respectively. Under its terms, the Plan
continues from year to year, so long as its continuance is approved annually by
vote of the Trust's Board of Trustees, including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan (the 'Independent Trustees').
The Plan may not be amended to increase materially the amount to be spent for
the services provided by Kidder, Peabody without Fund shareholder approval, and
all material amendments of the Plan also must be approved by the Trustees in the
manner described above. The Plan may be terminated with respect to a Class at
any time, without penalty, by vote of a majority of the Independent Trustees or
by a vote of a majority of the outstanding voting securities (as defined in the
1940 Act) represented by the Class on not more than 30 days' written notice to
Kidder, Peabody.
Pursuant to the Plan, Kidder, Peabody provides the Trust's Board of
Trustees with periodic reports of amounts expended under the Plan and the
purpose for which the expenditures were made. The Trustees believe that the
Fund's expenditures under the Plan benefit the Fund and its shareholders by
providing better shareholder services and by facilitating the distribution of
shares. With respect to Class A shares, for the fiscal year ended August 31,
1994, Kidder, Peabody received $418,200 from the Fund, of which it is estimated
that $213,663 was spent on commission credits to branch offices for payments of
shareholder servicing compensation to Investment Executives and $204,537 was
spent on overhead and other branch office shareholder servicing-related
expenses. With respect to Class B shares, for the fiscal year ended August 31,
1994, Kidder, Peabody received $227,554 from the Fund, of which it is estimated
that $995 was spent on advertising, $2,217 was spent on printing and mailing of
prospectuses to other than current shareholders, $118,333 was spent on
commission credits to branch offices for payments of commissions and shareholder
servicing compensation to Investment Executives and $106,009 was spent on
overhead and other branch office distribution or shareholder servicing-related
expenses. The term 'overhead and other branch office distribution or shareholder
servicing-related expenses' represents (1) the expenses of operating Kidder,
Peabody's branch offices in connection with the sale of Fund shares or servicing
of shareholder accounts, including lease costs, the salaries
14
<PAGE>
- --------------------------------------------------------------------------------
and employee benefits of operations and sales and servicing support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(2) the costs of client sales seminars, (3) travel expenses of mutual fund sales
coordinators to promote the sale of Fund shares and (4) other incidental
expenses relating to branch promotion or servicing of Fund sales.
CUSTODIAN AND RECORDKEEPING AGENT
State Street Bank and Trust Company ('State Street'), located at One Monarch
Drive, North Quincy, Massachusetts 02171, serves as the Fund's custodian and
recordkeeping agent. In those capacities, State Street maintains custody of the
Fund's portfolio securities, calculates each Class' net asset value per share
and maintains certain accounting and financial records of the Fund. Under its
custodial agreement with the Trust, State Street is authorized to appoint one or
more banking institutions as sub-custodians of assets owned by the Fund.
TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company ('IFTC'), located at 127 West 10th Street,
Kansas City, Missouri 64105, serves as the Fund's transfer and dividend agent.
As transfer agent, IFTC maintains the Trust's official record of Fund
shareholders, and as dividend agent, IFTC is responsible for crediting dividends
to the accounts of Fund shareholders.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, located at Two World Financial Center, New York, New York
10281, serves as independent auditors for the Trust. In that capacity, Deloitte
& Touche LLP audits the Trust's financial statements.
COUNSEL
Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, serves as counsel to the Trust.
PRINCIPAL SHAREHOLDERS
With respect to the Fund, to the knowledge of the Trust, First Agricultural
Bank, Customers Security Account, 99 West Street, Pittsfield, Massachusetts
01201-5759, owned 5.00% of Class A's shares of beneficial interest on December
1, 1994.
With respect to the Fund, to the knowledge of the Trust, the following
persons owned of record 5% or more of Class C's shares of beneficial interest on
December 1, 1994:
New England Investment Corp., Global Account, 300 Delaware Avenue,
Wilmington, Delaware 19801-1612, owned 32.95% of the Class' outstanding
shares.
Ernest J. Boch, Global Account, 95 Morse Street, Norwood,
Massachusetts 02062-4680, owned 6.46% of the Class' outstanding shares.
The Fund is not aware as to whether or to what extent shares owned of
record also are owned beneficially.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of the Fund is included in the
Prospectus. The right of redemption of shares of the Fund may be suspended or
the date of payment postponed (1) for
15
<PAGE>
- --------------------------------------------------------------------------------
any periods during which the New York Stock Exchange (the 'NYSE') is closed
(other than for customary weekend and holiday closings), (2) when trading in the
markets the Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists, making disposal of the Fund's
investments or determination of net asset value not reasonably practicable or
(3) for such other periods as the SEC by order may permit for the protection of
the Fund's shareholders.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the 'Withdrawal Plan') is available to each Fund
shareholder with $20,000 or more invested in a Class who wishes to receive
redemption payments monthly. Withdrawals of at least $200 monthly may be made
under the Withdrawal Plan by redeeming as many shares of the Class as may be
necessary to cover the stipulated withdrawal payment. To the extent that
withdrawals exceed dividends, distributions and appreciation of a shareholder's
investment in the Class, the value of the shareholder's investment will be
reduced; continued withdrawal payments may further reduce the shareholder's
investment and ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in the Fund. A shareholder's purchasing of
additional shares of the Fund while participating in the Withdrawal Plan would
generally not be advantageous, and for that reason purchases of shares in
amounts less than at least one year's scheduled withdrawals or $2,400, whichever
is greater, by participants in the Withdrawal Plan will not ordinarily be
permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificated form must deposit their share certificates with
IFTC, as agent for Withdrawal Plan members. All dividends and distributions on
shares in the Withdrawal Plan are reinvested in shares of the same Class
automatically at net asset value.
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, net asset value is not calculated on certain
holidays. On those days, securities held by the Fund may nevertheless be
actively traded, and the value of the Fund's shares could be significantly
affected.
The Fund invests principally in foreign securities and, as a result, the
calculation of each Class' net asset value may not take place contemporaneously
with the determination of the prices of certain of the portfolio securities used
in the calculation. A security that is listed or traded on more than one
exchange is valued for purposes of calculating each Class' net asset value at
the quotation on the exchange determined to be the primary market for the
security. All assets and liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the mean between the bid and
offered quotations of the currencies against U.S. dollars as last quoted by any
recognized dealer. If the bid and offered quotations are not available, the rate
of exchange will be determined in good faith by the Trust's Board of Trustees.
In carrying out the Board's valuation policies, State Street may consult with an
independent pricing service retained by the Trust.
EXCHANGE PRIVILEGE
The exchange privilege described in the Prospectus may be suspended or postponed
if (1) redemption of Fund shares is suspended under Section 22(e) of the 1940
Act or (2) the Trust
16
<PAGE>
- --------------------------------------------------------------------------------
temporarily delays or ceases the sale of the Fund's shares because the Fund is
unable to invest amounts effectively in accordance with its investment
objective, policies and restrictions.
Shares of each Class may be exchanged for shares of the same Class (or the
sole Class offered) in the following funds in the Kidder Family of Funds, to the
extent shares are offered for sale in the shareholder's state of residence:
Kidder, Peabody Adjustable Rate Government Fund, a series of the Trust,
seeks high current income while limiting the degree of fluctuation of its
net asset value resulting from movements in interest rates by investing in
adjustable rate securities and Government Securities.
Kidder, Peabody Asset Allocation Fund, a series of the Trust, seeks total
return by following a systematic investment strategy that actively
allocates the fund's assets among common stocks, U.S. Treasury notes and
U.S. Treasury bills.
Kidder, Peabody California Tax Exempt Money Fund, a money market fund
designed for California investors, seeks maximum current income exempt
from federal and California income taxation to the extent consistent with
the preservation of capital and the maintenance of liquidity.
Kidder, Peabody Cash Reserve Fund, Inc., a general purpose money market
fund, seeks maximum current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
Kidder, Peabody Emerging Markets Equity Fund, a series of Kidder, Peabody
Investment Trust II ('Trust II'), seeks long term capital appreciation
through an actively managed portfolio consisting of equity securities of
issuers in emerging markets in Asia, Latin America, the Middle East,
Southern Europe, Eastern Europe and Africa.
Kidder, Peabody Equity Income Fund, Inc. seeks reasonably high current
dividend and interest income and long term capital appreciation, while
limiting risk to principal, through investments primarily in equity
securities.
Kidder, Peabody Global Fixed Income Fund, a series of the Trust, seeks
total return through an actively managed portfolio of fixed income
securities issued primarily by governmental authorities, foreign
government related issuers and supranational organizations.
Kidder, Peabody Government Income Fund, Inc. seeks high current income
through investments in Government Securities.
Kidder, Peabody Government Money Fund, Inc., a money market fund, seeks
maximum current income to the extent consistent with the preservation of
capital and the maintenance of liquidity through investment in Government
Securities.
Kidder, Peabody Intermediate Fixed Income Fund , a series of the Trust,
seeks maximum total return through an actively managed portfolio
consisting primarily of intermediate term, fixed income securities rated
in the three highest grades by recognized rating agencies.
Kidder, Peabody Municipal Bond Fund, a series of Trust II, seeks as high a
level of current interest income that is exempt from Federal income
taxation as is consistent with prudent investment management and the
preservation of capital through investments primarily in high quality
municipal obligations.
17
<PAGE>
- --------------------------------------------------------------------------------
Kidder, Peabody Municipal Money Market Series -- Connecticut Series, a
money market fund designed for Connecticut investors, seeks maximum
current income exempt from federal and Connecticut income taxation to the
extent consistent with the preservation of capital and the maintenance of
liquidity.
Kidder, Peabody Municipal Money Market Series -- New Jersey Series, a
money market fund designed for New Jersey investors, seeks maximum current
income exempt from federal and New Jersey income taxation to the extent
consistent with the preservation of capital and the maintenance of
liquidity.
Kidder, Peabody Municipal Money Market Series -- New York Series, a money
market fund designed for New York investors, seeks maximum current income
exempt from federal, New York State and New York City income taxation to
the extent consistent with the preservation of capital and the maintenance
of liquidity.
Kidder, Peabody Premium Account Fund, a general purpose money market fund
for persons subscribing to the Kidder, Peabody Premium Account asset
management system, seeks maximum current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
Kidder, Peabody Small Cap Equity Fund, a series of Kidder, Peabody
Investment Trust III, seeks long term capital appreciation through
investments primarily in equity securities of small capitalization
companies.
Kidder, Peabody Tax Exempt Money Fund, Inc., a money market fund, seeks
maximum current income exempt from federal income taxation to the extent
consistent with the preservation of capital and the maintenance of
liquidity.
TAXES
Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.
TAX STATUS OF THE FUND AND ITS SHAREHOLDERS
The Fund is treated as a separate entity for federal income tax purposes. The
Fund's net investment income, capital gains and distributions will be determined
separately from any other series that the Trust may designate.
The Fund has qualified for the fiscal year ended August 31, 1994 to be
treated as a 'regulated investment company' under the Code and intends to
continue to qualify for this treatment for each year. If the Fund (1) is a
regulated investment company and (2) distributes to its shareholders at least
90% of its net investment income (including for this purpose its net realized
short-term capital gains), the Fund will not be liable for federal income taxes
to the extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
The Fund's transactions in foreign currencies, forward currency contracts,
options and futures contracts (including options and futures on foreign
currencies) are subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of
18
<PAGE>
- --------------------------------------------------------------------------------
income to the Fund and defer Fund losses. These rules (1) could affect the
character, amount and timing of distributions to shareholders of the Fund, (2)
will require the Fund to 'mark to market' certain types of the positions in its
portfolio (that is, treat them as if they were closed out), and (3) may cause
the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes described above and in the Prospectus. The Fund
seeks to monitor its transactions, seeks to make the appropriate tax elections
and seeks to make the appropriate entries in its books and records when it
acquires any foreign currency, forward currency contract, option, futures
contract or hedged investment, to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long-term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short-term capital gain or
loss if the shareholder has held the shares for one year or less.
The Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, are taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Fund shares, and are designated as capital gain
dividends in a written notice mailed by the Trust to the shareholders of the
Fund after the close of the Fund's prior taxable year. If a shareholder receives
a capital gain dividend with respect to any Fund share, and if the share is sold
before it has been held by the shareholder for more than six months, then any
loss on the sale or exchange of the share, to the extent of the capital gain
dividend, will be treated as a long-term capital loss.
Investors considering buying Fund shares on or just prior to the record
date for a taxable dividend or capital gain distribution should be aware that
the amount of the forthcoming dividend or distribution payment will be a taxable
dividend or distribution payment.
Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of a fund in the Kidder Family
of Funds on which a sales charge normally is imposed without paying a sales
charge in accordance with the exchange privilege described in the Prospectus. In
these cases, any gain on the disposition of the Fund shares will be increased,
or loss decreased, by the amount of the sales charge paid when the shares were
acquired, and that amount will increase the adjusted basis of the fund shares
subsequently acquired. In addition, if shares of the Fund are purchased within
30 days of redeeming shares at a loss, the loss will not be deductible and
instead will increase the basis of the newly purchased shares.
If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to 'backup withholding,' then the
shareholder may be subject to a 31% 'backup withholding' tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular federal income
tax liability.
19
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign entities classified under the
Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.
The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund. If the Fund is not able
to make the foregoing election, it may be able to avoid the interest charge (but
not the ordinary income treatment) on disposition of the stock by electing,
under proposed regulations, each year to mark-to-market the stock (that is,
treat it as if it were sold for fair market value). Such an election could also
result in acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
As noted in the Prospectus, the Trust, from time to time, may quote the Fund's
performance, in terms of the Classes' total returns, in reports or other
communications to shareholders or in advertising material. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of any Class, it will also disclose this information for the other
Classes.
A Class' average annualized total return figures described in the
Prospectus are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1 + T)'pp'n = ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-
or 10-year period at the end of a 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
A Class' aggregate total return figures described in the Prospectus
represent the cumulative change in the value of an investment in shares of the
Class for the specified period and are computed by the following formula:
AGGREGATE TOTAL RETURN = ERV - P
------
P
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000; and
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the beginning of a 1-, 5-
or 10-year period at the end of the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
Set forth below is total return information for the periods indicated
expressed as a percentage:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES* CLASS C SHARES*
-------------------- --------------- ---------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------------------
MAXIMUM SALES CHARGE
--------------------
INCLUDED EXCLUDED
-------- --------
<S> <C> <C> <C> <C>
1 year ended August 31, 1994.................... 11.41% 18.23% 17.29% 18.49%
Inception (November 14, 1991) to August 31,
1994.......................................... 12.13 14.52
May 10, 1993 to August 31, 1994................. 17.43 18.59
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
----------------------------------------------------------
MAXIMUM SALES CHARGE
--------------------
INCLUDED EXCLUDED
-------- --------
<S> <C> <C> <C> <C>
Year ended August 31
Inception (November 14, 1991) through 1992...... 1.10% 7.25%
1993............................................ 8.58 15.24
May 10, 1993 to August 31, 1993................. 5.22% 5.51%
1994............................................ 11.41 18.23 17.29 18.49
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
----------------------------------------------------------
MAXIMUM SALES CHARGE
--------------------
INCLUDED EXCLUDED
-------- --------
<S> <C> <C> <C> <C>
Inception (November 14, 1991) to August 31,
1994.......................................... 37.74% 46.12%
May 10, 1993 to August 31, 1994................. 23.41% 25.02%
</TABLE>
- ------------
* Prior to May 10, 1993 no Class B or C shares were publicly issued.
---------------------------
Each Class' performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Class' performance for any specified period in the future.
In addition, because a Class' performance will fluctuate, it may not provide a
basis for comparing an investment in a Class with certain bank deposits or other
investments that pay a fixed yield for a stated period of time.
GENERAL INFORMATION
The Trust was organized as an unincorporated business trust under the laws of
The Commonwealth of Massachusetts pursuant to a Declaration of Trust dated March
28, 1991, as amended
21
<PAGE>
- --------------------------------------------------------------------------------
from time to time (the 'Declaration'). In the interest of economy and
convenience, certificates representing shares in the Trust are not physically
issued except upon specific request made by a shareholder to IFTC. IFTC
maintains a record of each shareholder's ownership of Fund shares.
Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust. Thus, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
22
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ARGENTINA
Telecom Argentina(28).......................................... 43,492 $ 2,256,277 $ 3,174,916 1.3%
Telefonica de Argentina 1 (ADR)(28)............................ 57,869 2,265,967 4,217,203 1.7
Transportadora de Gas Del Sur.(31)............................. 138,900 1,875,150 1,916,820 0.8
------------ ------------ -----
Total Investments in Argentina....................... 6,397,394 9,308,939 3.8
- --------------------------------------------------------------------------------------------------------------------------
AUSTRIA
Creditanstalt Bank(2).......................................... 37,178 2,332,516 2,289,319 0.9
- --------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
Brambles Industries Ltd.(7).................................... 368,745 3,728,734 4,106,928 1.7
Burns, Philp & Company Ltd.(31)................................ 1,274,675 3,735,826 3,644,098 1.5
Pacific Dunlop Ltd.(9)......................................... 760,608 2,760,954 2,576,509 1.0
------------ ------------ -----
Total Investments in Australia....................... 10,225,514 10,327,535 4.2
- --------------------------------------------------------------------------------------------------------------------------
DENMARK
Den Danske Bank Aktieselskab(2)................................ 35,497 2,100,883 1,816,854 0.7
ISS International Service System A/S(6)........................ 100,814 3,163,967 2,846,894 1.2
------------ ------------ -----
Total Investments in Denmark......................... 5,264,850 4,663,748 1.9
- --------------------------------------------------------------------------------------------------------------------------
FRANCE
Banque Nationale de Paris(2)................................... 67,475 3,218,731 3,128,816 1.3
Carrefour SA(15)............................................... 7,458 1,822,691 3,006,835 1.2
Cie Generale des Eaux(26)...................................... 23,153 2,311,679 2,400,074 1.0
Coflexip(19)................................................... 175,249 2,976,297 3,811,666 1.6
Total(23)...................................................... 95,359 4,716,463 5,692,732 2.3
Valeo(1)....................................................... 103,538 3,509,263 5,481,446 2.2
------------ ------------ -----
Total Investments in France.......................... 18,555,124 23,521,569 9.6
- --------------------------------------------------------------------------------------------------------------------------
GERMANY
Ava Allegmeine Handelsgesellschaft der Verbraucher AG (27)..... 9,288 4,309,717 3,616,868 1.5
Gehe AG(16).................................................... 9,340 2,029,507 3,353,245 1.4
SAP AG(8)...................................................... 8,740 1,385,657 3,967,948 1.6
Veba AG(22).................................................... 16,695 4,431,211 5,894,467 2.4
------------ ------------ -----
Total Investments in Germany......................... 12,156,092 16,832,528 6.9
- --------------------------------------------------------------------------------------------------------------------------
HONG KONG
Giordano Holdings Ltd.(27)..................................... 9,220,000 4,802,559 5,034,926 2.0
Hutchison Whampoa Ltd.(9)...................................... 1,079,000 2,168,294 5,403,587 2.3
Television Broadcasts Ltd.(4).................................. 739,000 1,583,633 3,490,495 1.4
Varitronix International Ltd.(12).............................. 1,072,000 1,439,548 1,609,172 0.6
------------ ------------ -----
Total Investments in Hong Kong....................... 9,994,034 15,538,180 6.3
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ITALY
IMI(2)......................................................... 49,761 $ 394,324 $ 338,308 0.1%
Istituto Mobiliare Italian(2).................................. 44,497 899,028 889,940 0.4
Stet(28)....................................................... 894,000 1,481,790 2,872,207 1.2
Stet Saving (Non Convertible)(28).............................. 478,247 924,515 1,255,206 0.5
------------ ------------ -----
Total Investments in Italy........................... 3,699,657 5,355,661 2.2
- --------------------------------------------------------------------------------------------------------------------------
JAPAN
Canon, Inc.(25)................................................ 266,000 3,736,070 4,649,189 1.9
DDI Corp.(28).................................................. 491 3,325,248 5,050,986 2.0
Hoshiden Corp.(12)............................................. 101,000 2,432,497 2,370,537 1.0
Murata Manufacturing Company, Ltd.(12)......................... 43,000 1,512,301 1,863,870 0.8
Nintendo Company, Ltd.(30)..................................... 42,000 3,585,793 2,642,697 1.1
Nippon Express Company, Ltd.(31)............................... 569,000 5,252,830 6,080,699 2.4
Secom Company, Ltd.(7)......................................... 81,000 4,193,629 5,395,955 2.2
Suzuki Motor Corp.(1).......................................... 297,000 3,674,844 3,618,876 1.5
------------ ------------ -----
Total Investments in Japan........................... 27,713,212 31,672,809 12.9
- --------------------------------------------------------------------------------------------------------------------------
MALAYSIA
AMMB Holding BHD(2)............................................ 473,000 1,928,215 5,175,459 2.1
Telekom Malaysia Berhad(28).................................... 393,000 2,409,946 3,286,518 1.3
------------ ------------ -----
Total Investments in Malaysia........................ 4,338,161 8,461,977 3.4
- --------------------------------------------------------------------------------------------------------------------------
MEXICO
Grupo Financiero Bancomer (ADR)(2)............................. 144,060 4,285,998 3,911,906 1.6
Telefonos De Mexico(28)........................................ 884,478 2,180,905 2,819,469 1.1
Telefonos De Mexico S.A.(28)................................... 52,534 2,976,956 3,296,509 1.3
------------ ------------ -----
Total Investments in Mexico.......................... 9,443,859 10,027,884 4.0
- --------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND
Fisher & Paykel(17)............................................ 711,190 1,799,987 1,807,529 0.7
- --------------------------------------------------------------------------------------------------------------------------
NORWAY
Petroleum Geo Serv.(23)........................................ 292,680 3,110,818 5,622,202 2.3
- --------------------------------------------------------------------------------------------------------------------------
SPAIN
Argentaria(2).................................................. 71,956 3,312,346 3,018,787 1.2
Corporacion Bancaria de Espana(2).............................. 18,547 408,776 389,487 0.2
------------ ------------ -----
Total Investments in Spain........................... 3,721,122 3,408,274 1.4
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SWEDEN
Arjo AB(16).................................................... 82,205 $ 1,127,671 $ 1,277,302 0.5%
Astra AB(16)................................................... 300,858 5,867,615 6,817,318 2.9
Linjebuss AB(31)............................................... 76,644 1,239,118 1,260,364 0.5
------------ ------------ -----
Total Investments in Sweden.......................... 8,234,404 9,354,984 3.9
- --------------------------------------------------------------------------------------------------------------------------
SWITZERLAND
BBC Brown Boveri Ltd.(11)...................................... 4,005 2,116,838 3,629,155 1.5
Danzas Holdings(31)............................................ 2,823 1,668,882 3,560,541 1.4
Merkur Hldgs AG(27)............................................ 7,374 1,590,546 2,031,725 0.8
Nestle SA (Registered)(15)..................................... 2,085 1,302,447 1,920,642 0.8
Roche Hldgs AG(16)............................................. 864 2,298,489 3,956,757 1.6
------------ ------------ -----
Total Investments in Switzerland..................... 8,977,202 15,098,820 6.1
- --------------------------------------------------------------------------------------------------------------------------
THAILAND
International Cosmetics Ltd.(10)............................... 8,650 305,902 193,450 0.1
MDX Public Company Ltd.(13).................................... 184,170 1,109,284 956,154 0.4
Thai Farmers Bank(2)........................................... 323,020 634,177 2,605,832 1.0
------------ ------------ -----
Total Investments in Thailand........................ 2,049,363 3,755,436 1.5
- --------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
Airtours PLC(31)............................................... 182,712 1,340,308 1,276,823 0.5
BPB Industries PLC(5).......................................... 484,341 1,903,304 2,395,297 1.0
Medeva PLC(16)................................................. 1,172,628 2,539,788 2,340,213 1.0
Takare PLC(16)................................................. 892,586 3,048,691 2,837,741 1.2
Waste Management PLC(6)........................................ 393,528 3,394,512 3,807,751 1.5
Waste Management International PLC(6).......................... 80,585 1,353,486 1,581,481 0.6
------------ ------------ -----
Total Investments in United Kingdom.................. 13,580,089 14,239,306 5.8
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES
Allied Signal, Inc.(9)......................................... 153,894 $ 4,362,699 $ 5,751,788 2.4%
Chrysler Corp.(1).............................................. 91,492 5,037,115 4,403,053 1.8
Colgate Palmolive Co.(18)...................................... 48,991 2,668,219 2,804,735 1.2
Countrywide Credit Industries, Inc.(14)........................ 304,675 5,710,172 4,532,041 1.8
First Financial Management Corp.(8)............................ 35,328 1,366,387 2,146,176 0.9
Fruit Of The Loom, Inc.(29).................................... 144,017 4,475,143 3,798,448 1.5
Hayes Wheels Int'l., Inc.(1)................................... 79,925 2,026,045 1,958,163 0.8
Intel Corp.(12)................................................ 42,791 1,694,290 2,813,508 1.1
International Business Machines, Inc.(8)....................... 47,810 2,747,147 3,280,961 1.3
International Paper Co.(24).................................... 84,715 5,832,177 6,533,644 2.6
Morgan J.P.& Co., Inc.(2)...................................... 42,645 2,520,920 2,809,239 1.2
Sunrise Med., Inc.(20)......................................... 104,697 2,584,281 2,656,686 1.1
Toys-R-Us, Inc.(30)............................................ 102,247 3,459,601 3,770,358 1.5
Wheelabrator Technologies, Inc.(26)............................ 253,268 4,734,415 4,337,215 1.8
Zebra Technologies Corp., Cl. A(21)............................ 31,500 1,231,409 1,236,375 0.5
------------ ------------ -----
Total Investments in United States................... 50,450,020 52,832,390 21.5
------------ ------------ -----
Total Common Stocks.................................. 202,043,418 244,119,090 99.3
------------ ------------ -----
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION
Federal Home Loan Mortgage Corp.
Discount Notes 4.70%, 09/01/94............................... $ 200,000 200,000 200,000 0.1
------------ ------------ -----
TOTAL INVESTMENTS.............................................. $202,243,418 244,319,090 99.4
------------
------------
OTHER ASSETS LESS LIABILITIES.................................. 1,400,777 0.6
------------ -----
NET ASSETS..................................................... $245,719,867 100.0%
------------ -----
------------ -----
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
FORWARD FOREIGN EXCHANGE CONTRACTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY SELL CONTRACTS (PAYABLE) VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar, expiring 9/1/94................................................. $ 1,278 $ 1,282 $ (4)
Swiss Francs, expiring 9/1/94...................................................... 49,904 49,941 (37)
German Deutsche Marks, expiring 9/1/94............................................. 91,341 91,497 (156)
Danish Krone, expiring 9/1/94...................................................... 89 89 --
Spanish Pesetas, expiring 9/1/94................................................... 119,754 120,569 (815)
British Pounds, expiring 9/1/94.................................................... 42,449 42,515 (66)
Italian Lira, expiring 9/1/94...................................................... 32,010 32,229 (219)
Japanese Yen, expiring 9/1/94...................................................... 99,843 99,918 (75)
New Zealand Dollar, expiring 9/1/94................................................ 42,401 42,497 (96)
Hong Kong Dollar, expiring 9/1/94.................................................. 78,147 78,155 (8)
Malaysian Ringgit, expiring 9/1/94................................................. 5,328 5,330 (2)
Philippine Peso, expiring 9/1/94................................................... 2,483 2,516 (33)
Thailand Baht, expiring 9/1/94..................................................... 25,990 26,021 (31)
--------- -------- --------------
$ 591,017 $592,559 $ (1,542)
--------- -------- --------------
--------- -------- --------------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
Percent of Net Assets
<TABLE>
<S> <C>
1. Automobiles................................. 6.3%
2. Banks....................................... 10.7
3. Beverages................................... 0.0
4. Broadcast -- Media.......................... 1.4
5. Building Materials.......................... 1.0
6. Commercial Services......................... 3.4
7. Communication Equipment..................... 3.9
8. Computers................................... 3.8
9. Conglomerates............................... 5.6
10. Cosmetics................................... 0.1
11. Electrical Equipment........................ 1.5
12. Electronics................................. 3.5
13. Engineering & Construction.................. 0.4
14. Finance..................................... 1.8
15. Foods....................................... 2.0
16. Healthcare.................................. 8.4
17. Home Furniture & Appliances................. 0.7%
18. Household Products.......................... 1.1
19. Machinery................................... 1.6
20. Medical Products & Supplies................. 1.1
21. Office Equipment & Supplies................. 0.5
22. Oil & Gas Drilling.......................... 2.4
23. Oil Well Equipment & Services............... 4.6
24. Paper & Forest Products..................... 2.7
25. Photography................................. 1.9
26. Pollution Control........................... 2.7
27. Retail...................................... 4.3
28. Telecommunications.......................... 10.6
29. Textile..................................... 1.5
30. Toys........................................ 2.6
31. Transportation.............................. 7.2
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
28
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (identified cost-$202,243,418) (Note 1a)............................ $244,319,090
Foreign cash, at value (identified cost-$777,604) (Note 1b)............................... 778,112
Cash...................................................................................... 8,580
Receivables:
Shares sold.......................................................................... $2,059,479
Dividends............................................................................ 151,715
Tax reclaim.......................................................................... 444,067
----------
2,655,261
Prepaid expenses (Note 1f)................................................................ 170,707
------------
TOTAL ASSETS.................................................... 247,931,750
------------
LIABILITIES
Payables:
Shares redeemed...................................................................... 1,698,167
Securities purchased................................................................. 27,294
Investment advisory fees (Note 2).................................................... 206,174
Service fees (Note 2)................................................................ 45,458
Distribution fees (Note 2)........................................................... 19,974
Net unrealized loss on forward currency contracts (Note 1c).......................... 1,542 1,998,609
----------
Accrued expenses.......................................................................... 213,274
------------
TOTAL LIABILITIES............................................... 2,211,883
------------
NET ASSETS
At value.................................................................................. $245,719,867
------------
------------
Net assets were comprised of:
Aggregate paid-in-capital............................................................ $185,311,853
Undistributed net investment income.................................................. 422,782
Undistributed net realized capital gains from investments and foreign currency
transactions........................................................................ 17,903,171
Net unrealized appreciation on investments and translation of foreign denominated
assets and liabilities (Note 3)..................................................... 42,082,061
------------
Net assets................................................................................ $245,719,867
------------
------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ----------- -----------
<S> <C> <C> <C>
Net assets.............................................................. $185,493,225 $31,837,013 $28,389,629
Outstanding shares of beneficial interest, ($.001 par value)............ 10,925,463 1,894,276 1,666,769
Net asset values per share.............................................. $16.98 $16.81 $17.03
Maximum offering price per share for Class A ($16.98[div].9425)......... $18.02 N/A N/A
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Interest and discounts earned (net of $1,296, amortization of premiums)...... $ 214,406
Dividends (net of $336,279 foreign tax withheld at source)................... 3,640,789
-----------
TOTAL INCOME....................................... $ 3,855,195
EXPENSES
Investment advisory (Note 2)................................................. 2,339,156
Distribution -- Class B (Note 2)............................................. 190,640
Servicing (Note 2):
Class A................................................................. $457,000
Class B................................................................. 63,546 520,546
--------
Custodian.................................................................... 285,200
Transfer agent............................................................... 132,000
Prospectus and shareholders' reports......................................... 80,596
Amortization of organization costs (Note 1e)................................. 62,627
Professional................................................................. 49,300
Pricing...................................................................... 47,998
Federal and state registration............................................... 34,422
Trustees' fees and expenses (Note 2)......................................... 9,890
Miscellaneous................................................................ 69,363
-----------
TOTAL EXPENSES..................................... 3,821,738
-----------
NET INVESTMENT INCOME........................................................ 33,457
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS (NOTE 3)
Realized gain from investment transactions (excluding short-term
investments):
Proceeds from sales..................................................... 115,986,245
Cost of investments sold................................................ (96,253,145)
-----------
NET REALIZED GAIN ON INVESTMENT TRANSACTIONS................................. 19,733,100
NET REALIZED CURRENCY LOSS ON INVESTMENT TRANSACTIONS (NOTE 1b).............. (22,678)
Change in unrealized appreciation:
Change in unrealized appreciation on investments and forward foreign
exchange contracts.................................................... 17,518,715
Change in unrealized appreciation due to translation of foreign
denominated assets and liabilities.................................... (9,002)
-----------
NET CHANGE IN UNREALIZED APPRECIATION........................................ 17,509,713
-----------
NET INCREASE IN NET ASSETS
Resulting from operations.................................................... $37,253,592
-----------
-----------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1993 AUGUST 31, 1994
----------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income..................................................................... $ 356,691 $ 33,457
Net realized gain on investment transactions.............................................. 1,752,144 19,733,100
Net realized currency loss on investment transactions..................................... (821,600) (22,678)
Net change in unrealized appreciation..................................................... 19,701,077 17,509,713
----------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 20,988,312 37,253,592
----------------------------------
NET INVESTMENT INCOME INCLUDED IN PRICES OF SHARES SOLD AND REDEEMED (NOTE
1H)........................................................................... 10,888 1,018
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A................................................................................... (775,332) --
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED SHORT-TERM CAPITAL GAINS
Class A................................................................................... (1,549,170) (1,858,584)
Class B................................................................................... -- (230,113)
Class C................................................................................... -- (260,619)
----------------------------------
TOTAL DISTRIBUTIONS FROM NET REALIZED SHORT-TERM CAPITAL GAINS.................. (1,549,170) (2,349,316)
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED LONG-TERM CAPITAL GAINS
Class A................................................................................... -- (580,807)
Class B................................................................................... -- (71,910)
Class C................................................................................... -- (81,444)
----------------------------------
TOTAL DISTRIBUTIONS FROM NET REALIZED LONG-TERM CAPITAL GAINS................... -- (734,161)
----------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares.......................................................... 83,189,473 78,480,740
Net asset value of shares issued to shareholders in connection with the reinvestment of
dividends and distributions............................................................. 2,284,191 3,031,120
Cost of shares redeemed................................................................... (30,862,339) (56,319,218)
----------------------------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS.............. 54,611,325 25,192,642
----------------------------------
TOTAL INCREASE IN NET ASSETS.................................................... 73,286,023 59,363,775
NET ASSETS
Beginning of year......................................................................... 113,070,069 186,356,092
----------------------------------
End of year............................................................................... $ 186,356,092 $ 245,719,867
----------------------------------
----------------------------------
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------------------------------------------------
PERIOD PERIOD YEAR
ENDED ENDED ENDED
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31, AUGUST 31,
----------------------------------------------------------------------------------------
1992`D' 1993 1994 1993`D'`D' 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $12.00 $12.87 $14.55 $13.80 $14.52
----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss)........ 0.09 0.03 0.01 (0.02) (0.07)
Net realized and unrealized gains on
investments....................... 0.78 1.89 2.63 0.74 2.57
----------------------------------------------------------------------------------------
Total from investment operations.... 0.87 1.92 2.64 0.72 2.50
----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
(NOTE 1i)
Net investment income............... -- )(0.08 -- -- --
Net realized capital gains.......... -- )(0.16 )(0.21 -- (0.21)
----------------------------------------------------------------------------------------
Total distributions................. -- )(0.24 )(0.21 -- (0.21)
----------------------------------------------------------------------------------------
Net asset value, end of period...... $12.87 $14.55 $16.98 $14.52 $16.81
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Total return#....................... 7.25% 15.24% 18.23% 5.22% 17.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $113,070 $156,451 $185,493 $10,807 $31,837
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding distribution and
service fees...................... 1.43%* 1.28% 1.33% 1.28%* 1.33%
Expenses, including distribution and
service fees...................... 1.68%* 1.53% 1.58% 2.28%* 2.33%
Net investment income............... 0.93%* 0.22% 0.07% (0.53)%* (0.68)%
PORTFOLIO TURNOVER RATE............. 30.32% 56.35% 50.73% 56.35% 50.73%
<CAPTION>
CLASS C
-------------------
PERIOD YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
1993`D'`D' 1994
--------------------
<S> <C> <C>
Net asset value, beginning of
period............................ $13.80 $14.56
--------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss)........ 0.02 0.05
Net realized and unrealized gains on
investments....................... 0.74 2.63
--------------------
Total from investment operations.... 0.76 2.68
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
(NOTE 1i)
Net investment income............... -- --
Net realized capital gains.......... -- (0.21)
--------------------
Total distributions................. -- (0.21)
--------------------
Net asset value, end of period...... $14.56 $17.03
--------------------
--------------------
Total return#....................... 5.51% 18.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $19,098 $28,390
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding distribution and
service fees...................... 1.28%* 1.33%
Expenses, including distribution and
service fees...................... 1.28%* 1.33%
Net investment income............... 0.47%* 0.32%
PORTFOLIO TURNOVER RATE............. 56.35% 50.73%
</TABLE>
`D' From November 14, 1991 (Commencement of Operations), to August 31, 1992.
`D'`D' From May 10, 1993 (Commencement of Class Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales charge, and is
calculated by giving effect to the reinvestment of dividends on the dividend
payment date.
* Annualized
See Notes to Financial Statements.
32
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. The Fund is a series of Kidder, Peabody Investment Trust, which is registered
under the Investment Company Act of 1940 as a diversified, open-end investment
management company. The Fund commenced operation on November 14, 1991. The
following is a summary of significant accounting policies consistently followed
by the Fund.
On May 10, 1993 the Fund adopted the Choice Pricing System'sm'. The System
offers three classes of shares having identical voting, dividend liquidation and
other rights. Class A Shares are sold subject to a front-end sales load and a
service fee of .25% per annum of average class net assets. Class B shares bear a
service fee of .25% per annum and a distribution fee of .75% per annum of
average class net assets. Class C shares, which are available exclusively to
employees of Kidder, Peabody, employee benefit plans of Kidder, Peabody and
participants of the Insight Investment Advisory Program, are sold at net asset
value without a sales load and bear no such distribution or service fees.
Classes A and B have exclusive voting rights as to matters relating to the 12b-1
Distribution Plan.
On May 10, 1993 all pre-existing shares of the Fund converted to class A
shares at net asset value, with the exception of shares eligible for Class C.
(a) Securities listed on national securities exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued or, lacking any sales, the last available bid price. Securities trade in
the over-the-counter market are valued on the basis of bid prices at the close
of trading on such a day by dealers that make markets in such securities.
Portfolio securities which are traded in both the over-the-counter market and on
a stock exchange are valued on the exchange designated by or under the authority
of the Trustees as the primary market. Short-term securities which mature in
more than 60 days are valued at current market quotations. Short-term securities
which mature in less than 60 days are valued at amortized cost which
approximates market. Options which are traded on exchanges are valued at their
last sale price as of the close of such exchanges or, lacking any sales, at the
last available bid price. Securities for which market quotations are not readily
available are determined in good faith by or under the direction of the Fund's
Trustees.
(b) The Fund's financial statements are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) Market value of investment securities, other assets and liabilities -- at
the closing rate of exchange.
(ii) Purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of securities held at fiscal year end. However, the
Fund does isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of portfolio securities
sold during the fiscal year.
Realized currency gain/loss on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency denominated assets and liabilities at
year end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with those of domestic origin as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
(c) The Fund is authorized to enter into forward currency contracts as a
hedge to fluctuations in foreign currency exchange rates on unsettled portfolio
transactions.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. Generally, the Fund
will enter into such forward contracts on the transaction's trade date with a
contracted date coinciding with the settlement date of the underlying security.
Should the underlying security fail to settle within the contracted period the
forward currency contract is renegotiated at a new exchange rate. The
33
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
gain or loss resulting from the difference between the original and renegotiated
settlement values is recognized and included in realized transaction gain/loss.
Premiums and/or discounts incurred in connection with the establishment of
such contracts are amortized over the lives of the contracts.
(d) It is the Fund's policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders. The
method of such distribution for purposes of maintaining regulated investment
company status is made on a fund level rather than a class level. Therefore, no
Federal income tax provision is required. Under the applicable foreign tax law,
a withholding tax may be imposed on interest, dividends and capital gains at
various rates. Such withholding taxes are netted against income and recorded as
a receivable when reclaim is deemed probable.
(e) Security transactions are recorded on the trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is earned from
settlement date and is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Organization costs are being amortized evenly over a sixty-month period.
Prepaid registration fees are charged to income as the related shares are
issued.
(g) Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
(h) The Fund utilizes an accounting method known as income equalization,
whereby a portion of proceeds from sales and costs of redemptions of capital
shares, equivalent to the amount of distributable net investment income on the
date of transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
redemptions of shares.
(i) Income and Fund level expenses are allocated to each class on a pro-rata
basis based upon each class' daily net assets. Class specific expenses are
charged directly to each class. Dividends from net investment income are
calculated by deducting class specific and allocated fund level expenses from
the gross dividend rate, which is equal to total income divided by total shares
outstanding of the Fund. Distributions from net realized gains are allocated
based upon the outstanding shares of each class.
The Fund's policy is to distribute substantially all of its net investment
income. Net realized capital gains, if any, will be distributed once a year.
2. The Fund has entered into a management agreement with Kidder Peabody Asset
Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co.
Incorporated ('KP'). General Electric Capital Services, Inc., a wholly-owned
subsidiary of General Electric Company ('GE'), has a 100% interest in Kidder,
Peabody Group Inc., the parent company of KP. KPAM serves as the Fund's manager
and receives a fee, accrued daily and paid monthly at the annual rate of 1.00%
of the Fund's average daily net assets. KPAM in turn employs GE Investment
Management Incorporated ('GEIM'), a wholly owned subsidiary of GE, as the Fund's
investment adviser, in which capacity GEIM receives from KPAM a fee, paid
monthly, calculated and accrued daily at the annual rate of .70% of the Fund's
average daily net assets. As the Fund's manager, KPAM is generally responsible
for furnishing, or causing to be furnished to the Fund, investment management
and administrative services.
As the Fund's investment adviser, GEIM manages the Fund's portfolio, makes
decisions for the Fund, and places purchase and sale orders for the Fund's
portfolio transactions. GEIM also pays the salaries of all officers and
employees who are employed by both GEIM and the Fund, provides the Fund with
investment officers, and employs a professional staff of portfolio managers who
draw upon a variety of sources for research information for the Fund.
Total annual expenses of the Fund, exclusive of taxes, interest, all
brokers' commission and other normal charges incidental to the purchase and sale
of portfolio securities, but including fees paid to KPAM, are not expected to
exceed the limits prescribed by any state in which the Fund's shares are offered
for sale. KPAM will reimburse the Fund for any expenses in excess of such
limits. No expense reimbursement was required for the year ended August 31,
1994.
KP is the exclusive distributor of the Fund's shares. Its services include
payment of sale commissions to registered representatives and various other
promotional and sale-related expenses. KP receives monthly, from the Fund, the
distribution and service fees which are calculated and accrued daily. KP also
receives the proceeds of any front-
34
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
end sales load with respect to the purchase of shares of Class A.
Certain officers and/or Trustees of the Fund are officers and/or directors
of KPAM and/or GEIM. Each Trustee who is not an 'affiliated person' of either
KPAM or GEIM receives an annual fee of $1,000 and an attendance fee of $375 per
meeting.
3. Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1994, were $147,039,111 and $115,986,245, respectively.
As of August 31, 1994, net unrealized appreciation on investments and
foreign cash, for Federal income tax purposes, aggregated $42,076,180 of which
$49,288,985 related to appreciated securities and $7,212,805 related to
depreciated securities. The aggregate cost of investments at August 31, 1994,
for book and Federal income tax purposes was $202,243,418.
4. The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. Transactions totaling
$78,481,758 from net proceeds from sale of shares and $56,319,218, representing
cost of shares redeemed and $3,031,120 representing reinvestment of dividends
for the year ended August 31, 1994 were as follows for each class:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- --------------------------------------------------------------
<S> <C> <C>
Year Ended August 31, 1994:
Shares sold..................... 2,764,374 $43,492,060
Shares issued in reinvestment of
dividends and distributions... 149,182 2,394,380
Shares redeemed................. (2,738,250) (44,032,678)
--------------------------
NET INCREASE............... 175,306 $ 1,853,762
--------------------------
--------------------------
Year Ended August 31, 1993:
Shares sold..................... 4,102,023 $54,283,811
Shares issued in reinvestment of
dividends and distributions... 183,387 2,284,191
Shares redeemed................. (2,317,779) (30,547,445)
--------------------------
NET INCREASE............... 1,967,631 $26,020,557
--------------------------
--------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
- --------------------------------------------------------------
<S> <C> <C>
Year Ended August 31, 1994:
Shares sold..................... 1,520,043 $23,745,336
Shares issued in reinvestment of
dividends and distributions... 18,552 296,272
Shares redeemed................. (388,843) (6,218,957)
--------------------------
NET INCREASE............... 1,149,752 $17,822,651
--------------------------
--------------------------
May 10, 1993 to August 31, 1993:
Shares sold..................... 760,799 $10,520,920
Shares issued in reinvestment of
dividends and distributions... -- --
Shares redeemed................. (16,274) (229,347)
--------------------------
NET INCREASE............... 744,525 $10,291,573
--------------------------
--------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- --------------------------------------------------------------
<S> <C> <C>
Year Ended August 31, 1994:
Shares sold..................... 707,025 $11,244,362
Shares issued in reinvestment of
dividends and distributions... 21,173 340,468
Shares redeemed................. (372,775) (6,067,583)
--------------------------
NET INCREASE............... 355,423 $ 5,517,247
--------------------------
--------------------------
May 10, 1993 to August 31, 1993:
Shares sold..................... 1,317,517 $18,395,630
Shares issued in reinvestment of
dividends and distributions... -- --
Shares redeemed................. (6,171) (85,547)
--------------------------
NET INCREASE............... 1,311,346 $18,310,083
--------------------------
--------------------------
</TABLE>
35
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. The Fund takes possession of securities under repurchase agreements before
releasing any money to the counterparty under such agreement. Eligible
collateral for repurchase agreement transactions are the instruments that the
Fund is allowed to reinvest in, as stated in the Prospectus. The Fund attempts
to attain a short maturity (2 years or less), although that is not always
available. The value of the collateral must be a minimum of 102% of the market
value of the securities being loaned, allowing for minor variations arising from
marking to market of such collateral. If the issuer defaults or if bankruptcy or
regulatory proceeding are commenced with respect to the issuer, the realization
of the proceeds may be delayed or limited.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Trustees and Shareholders,
Kidder, Peabody Global Equity Fund
(one of the portfolios constituting the
Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets
and liabilities, including the schedule of investments, of Kidder, Peabody
Global Equity Fund as of August 31, 1994, the related statements of operations
for the year then ended and of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and the financial highlights present
fairly in all material respects, the financial position of Kidder, Peabody
Global Equity Fund as of August 31, 1994, the results of its operations, the
changes in its net assets and the financial highlights for each of the
respectively stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
October 14, 1994
36
<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------
Contents
- ---------------------------------------------
Investment Objective and Policies 2
- ---------------------------------------------
Management of the Fund 10
- ---------------------------------------------
Principal Shareholders 15
- ---------------------------------------------
Redemption of Shares 16
- ---------------------------------------------
Determination of Net Asset Value 16
- ---------------------------------------------
Exchange Privilege 17
- ---------------------------------------------
Taxes (See in the Prospectus 'Dividends,
Distributions and Taxes') 18
- ---------------------------------------------
Determination of Performance (See in the
Prospectus 'Performance Information') 20
- ---------------------------------------------
General Information 22
- ---------------------------------------------
Financial Statements 23
- ---------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Kidder,
Peabody
Global
Equity
Fund
</TABLE>
<TABLE>
<S> <C>
Statement of
Additional
Information
December 29, 1994
In affiliation with
GE Investment Management
</TABLE>
STATEMENT OF DIFFERENCES
The division mark symbol shall be expressed as........................... [div]
The dagger footnote symbol shall be expressed as......................... 'D'
The double dagger footnote symbol shall be expressed as............... 'D' 'D'
The service mark shall be expressed as................................... 'sm'
Mathematical powers normally expressed as superscript shall be preceded by 'pp'
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Atlas Global Growth Fund ("Fund") is a diversified series of
PaineWebber Atlas Fund ("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 common stocks of issuers based in
the United States, Europe, Japan and the Pacific Basin. The Fund's investment
adviser, administrator and distributor is Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"). As distributor for the Fund, Mitchell Hutchins
has appointed PaineWebber to serve as the exclusive dealer for the sale of Fund
shares. This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Fund's current Prospectus, dated January
1, 1995. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free 1-800-647-
1568. This Statement of Additional Information is dated January 1, 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 Ratings Group ("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.
As noted in the Prospectus, the Fund may invest in non-investment grade debt
securities--that is, debt securities that are not rated at the time of purchase
within one of the four highest grades assigned by S&P or Moody's, comparably
rated by another NRSRO or determined by Mitchell Hutchins to be of comparable
quality. Lower rated debt securities generally offer a higher current yield
than that available for higher grade issues, but they involve higher risks, in
that they are especially subject to adverse changes in general economic
conditions and, in the industries in which the issuers are engaged, to changes
in the financial condition of the issuers and to price fluctuations in response
to changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress which
could adversely affect their ability to make payments of interest and principal
and increase the possibility of default. In addition,
<PAGE>
such issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The risk of
loss due to default by such issuers is significantly greater because such
securities frequently are unsecured and subordinated to the prior payment of
senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower rated debt
issues generally is thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Many of the foreign
securities held by the Fund are not registered with the Securities and Exchange
Commission ("SEC"), nor are the issuers thereof subject to its reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by the Fund than is available
concerning U.S. companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.
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 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
2
<PAGE>
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. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, purchased over-the-counter ("OTC")
options, repurchase agreements maturing in more than seven days and restricted
securities other than those Mitchell Hutchins has determined are liquid
pursuant to guidelines established by the Trust's board of trustees. The assets
used as cover for OTC options written by the Fund will be considered illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund
may repurchase any OTC option it writes at a maximum price to be calculated by
a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure 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"). Illiquid securities include those that are subject to
restrictions contained in the securities laws of other countries. However,
securities that are freely marketable in the country where they are principally
traded, but would not be freely marketable in the United States, will not be
subject to this 10% limit. 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
3
<PAGE>
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. ("NASD"). 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 board of trustees for the Trust 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 but not limited to (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.
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 Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the Trust's board of
trustees. Mitchell Hutchins reviews and monitors the creditworthiness of those
institutions under the board's general supervision.
4
<PAGE>
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its total assets. Such agreements involve the sale of
securities held by the Fund subject to its agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary purposes. While a reverse repurchase agreement is
outstanding, the Fund's custodian segregates assets to cover the Fund's
obligations under the reverse repurchase agreement. See "Investment Policies
and Restrictions--Segregated Accounts."
LENDING OF PORTFOLIO SECURITIES. Although the Fund has no intention of doing
so during the coming year, it is authorized to lend up to 10% of the total
value of its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
with the Fund's custodian bank collateral either in cash or money market
instruments 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.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions to make
future payments to third parties, including reverse repurchase agreements, it
will maintain with an approved custodian in a segregated account cash, U.S.
government securities or other liquid high-grade debt securities, marked to
market daily, in an amount at least equal to the Fund's obligation or
commitment under such transactions. As described below under "Hedging
Strategies," segregated accounts may also be required in connection with
certain transactions involving options, futures contracts and foreign currency
forward contracts.
INVESTMENT LIMITATIONS OF THE FUND
The Fund may not (1) purchase any securities other than those its investment
objective permits it to purchase; (2) purchase securities of any one issuer
(except U.S. government securities) if as a result more than 5% of the Fund's
total assets would be invested in such issuer or the Fund would own or hold
more than 10% of the outstanding voting securities of that issuer, provided,
however, that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations; (3) purchase securities on margin, except
for short-term credit necessary for clearance of portfolio transactions, and
except that the Fund may make margin deposits in connection with its use of
options, futures contracts and options on futures contracts; (4) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter
under federal securities laws; (5) make short sales of securities
5
<PAGE>
or maintain a short position, except that the Fund may (a) make short sales and
may maintain short positions in connection with its use of options, futures
contracts and options on futures contracts and (b) sell short "against the
box"; (6) purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein; (7) purchase or sell
commodities or commodity contracts, provided that the Fund may engage in
forward currency contracts and provided that the Fund may purchase or sell
stock index futures, foreign currency futures, interest rate futures and
options thereon; (8) invest in oil, gas or mineral-related programs or leases;
(9) make loans, except through loans of portfolio securities and except through
repurchase agreements; provided that for purposes of this restriction the
acquisition of bonds, debentures, or other corporate debt securities and
investment in government obligations, short-term commercial paper, certificates
of deposit and bankers' acceptances shall not be deemed to be the making of
loans; (10) issue senior securities or borrow money, except from banks for
temporary purposes and except for reverse repurchase agreements, and then in an
aggregate amount not in excess of 10% of the Fund's total assets; provided
further that the Fund will not purchase securities while borrowings in excess
of 5% of its total assets are outstanding; (11) make an investment in any one
industry if the investment would cause the aggregate value of the Fund's
investments in such industry to exceed 25% of its total assets; or (12)
purchase any securities issued by any other investment company, except by
purchase in the open market where no commission or profit, other than a
customary brokers' commission, is earned by any sponsor or dealer associated
with the investment company whose shares are acquired as a result of such
purchase, provided that such securities in the aggregate do not represent more
than 10% of the Fund's total assets, and except in connection with the merger,
consolidation or acquisition of all the securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (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
the securities of any issuer if, to the knowledge of the Fund's management, the
officers and trustees of the Trust and the officers and directors of Mitchell
Hutchins (each owning beneficially more than 0.5% of the outstanding securities
of an issuer) own in the aggregate more than 5% of the securities of the
issuer; (2) except under unusual circumstances, purchase securities issued by
investment companies unless they are issued by companies that follow a policy
of investing primarily in the capital markets of a single foreign country; (3)
purchase any security if as a result more than 5% of the Fund's total assets
would be invested in securities of companies that together with any
predecessors have been in continuous operation for less than three years; (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) make investments in warrants if such investments,
valued at the lower of cost or market, exceed 5% of
6
<PAGE>
the value of its net assets, which amount may include warrants that are not
listed on the New York or American Stock Exchanges, provided that such unlisted
warrants, valued at the lower of cost or market, do not exceed 2% of the Fund's
net assets, and further provided that this restriction does not apply to
warrants attached to, or sold as a unit with, other securities. For purposes of
this restriction, the term "warrants" does not include options on securities,
stock or bond indices, foreign currencies or futures contracts; or (6) invest
more than 35% of its total assets in debt securities rated Ba or lower by
Moody's or BB or lower by S&P, comparably rated by another NRSRO or determined
by Mitchell Hutchins to be of comparable quality. This non-fundamental policy
(6) can be changed only upon 30 days' advance notice to shareholders. The Fund
will continue to interpret fundamental investment limitation (6) to prohibit
investment in real estate limited partnerships.
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures"), options on futures contracts and forward currency contracts,
to attempt to hedge the Fund's portfolio. The particular Hedging Instruments
are described in the Appendix to the Prospectus.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
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
7
<PAGE>
broad equity market sectors in which the Fund has invested or expects to
invest. Hedging Instruments on debt securities may be used to hedge either
individual securities or broad fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, the Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with options, futures contracts, forward currency contracts and
other hedging techniques. These new opportunities may become available as
Mitchell Hutchins develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts or
other techniques are developed. Mitchell Hutchins 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
Mitchell Hutchins to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. While Mitchell Hutchins is experienced
in the use of Hedging Instruments, there can be no assurance that any
particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded.
The effectiveness of hedges using Hedging Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially
8
<PAGE>
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
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 currencies or forward currency contracts or (2) cash
and short-term liquid debt securities, with a value sufficient at all times to
cover its potential obligations to the extent not covered as provided in (1)
above. The Fund will comply with SEC guidelines regarding cover for hedging
transactions and will, if the guidelines so require, set aside cash, U.S.
government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell) covered
put 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
9
<PAGE>
as cover for OTC options written by the Fund would be considered illiquid to
the extent described under "Investment Policies and Limitations--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.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction. The Fund 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.
10
<PAGE>
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 securities underlying put options written by the
Fund, determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by the Fund that are held at any time will not exceed 20%
of the Fund's net assets.
FUTURES. The Fund may purchase and sell stock index futures contracts and
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 whom the
transaction was effected, "initial margin" consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing 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
11
<PAGE>
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.
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, options on futures
positions and options on foreign currencies traded on a commodities exchange
that are not for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums on those positions (excluding the amount
by which options are "in-the-money") may not exceed 5% of the Fund's net
assets.
12
<PAGE>
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by the Fund that are held at any time will not exceed 20%
of the Fund's total net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of the Fund's total
assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Fund may use
options and futures on foreign currencies, as described above, and forward
currency forward contracts, as described below, to hedge against movements in
the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security 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 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.
13
<PAGE>
FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. Such transactions may serve as long
hedges--for example, the Fund may purchase a forward currency contract to lock
in the U.S. dollar price of a security denominated in a foreign currency that
the Fund intends to acquire. Forward currency contract transactions may also
serve as short hedges--for example, the Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
As noted above, the Fund also may seek to hedge against changes in the value
of a particular currency by using forward contracts on another foreign currency
or a basket of currencies, the value of which Mitchell Hutchins believes will
have a positive correlation to the values of the currency being hedged. In
addition, the Fund may use forward currency contracts to shift its exposure to
foreign currency fluctuations from one country to another. For example, if the
Fund owned securities denominated in a foreign currency and Mitchell Hutchins
believed that currency would decline relative to another currency, it might
enter into a forward contract to sell an appropriate amount of the first
foreign currency, with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as
"cross hedging." Use of a different foreign currency magnifies the risk that
movements in the price of the Hedging Instrument will not correlate or will
correlate unfavorably with the foreign currency being hedged.
The cost to 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
14
<PAGE>
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Fund may enter into
forward currency contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate the Fund to deliver an
amount of foreign currency in excess of the value of the position being hedged
by such contracts or (2) the Fund maintains cash, U.S. government securities or
other liquid, high-grade debt securities in a segregated account in an amount
not less than the value of its total assets committed to the consummation of
the contract and not covered as provided in (1) above, as marked to market
daily.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.** Trustee and Mr. Bewkes is a director of Paine
Chairman of the Webber Group Inc. ("PW Group")
Board of Trustees (holding company of PaineWebber
and Mitchell Hutchins) and a con-
sultant to PW Group. Prior to
1988, he was chairman of the
board, president and chief execu-
tive officer of American Bakeries
Company. Mr. Bewkes is also a di-
rector of Interstate Bakeries
Corporation and a director or
trustee of other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Meyer Feldberg Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Insti-
tute of Technology. Dean Feldberg
is also a director of AMSCO In-
ternational Inc., Federated De-
partment Stores, Inc., Inco Homes
Corporation and New World Commu-
nications Group Incorporated and
a director or trustee of other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was
a partner in the law firm of Fry-
er, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul B. Guenther** Trustee and President Mr. Guenther is president and a
director of PW Group and Mitchell
Hutchins and a director of
PaineWebber. Mr. Guenther is also
president and a director or
trustee of other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Frederic V. Malek Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, he was
campaign manager of Bush-Quayle
'92. From 1990 to 1992, he was
vice chairman, and from 1989 to
1990, he was president of North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to 1989, he was em-
ployed by the Marriott Corpora-
tion (hotels, restaurants, air-
line catering and contract feed-
ing), where he most recently was
an executive vice president and
president of Marriott Hotels and
Resorts. Mr. Malek is also a di-
rector of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc. and National Ed-
ucation Corporation and a direc-
tor or trustee of other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frank P. L. Minard** Trustee Mr. Minard is chairman and chief
executive officer of Mitchell
Hutchins, chairman of the board
of Mitchell Hutchins Institu-
tional Investors Inc. and an ex-
ecutive vice president of PW
Group. Prior to 1993, Mr. Minard
was managing director of Oppen-
heimer Capital in New York and
Director of Oppenheimer Capital
Ltd. in London. Mr. Minard is
also a director or trustee of
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Judith Davidson Moyers Trustee Mrs. Moyers is president of Public
Public Affairs Affairs Television, Inc., an edu-
Television cational consultant and a home
356 W. 58th Street economist. Mrs. Moyers is also a
New York, New York 10019 director of Ogden Corporation and
a director or trustee of other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Thomas F. Murray Trustee Mr. Murray is a real estate and
400 Park Avenue financial consultant. Mr. Murray
New York, New York 10022 is also a director and chairman
of American Continental Proper-
ties, Inc., a trustee of Pruden-
tial Realty Trust and a director
or trustee of other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle Vice President Ms. Boyle is a vice president and
manager--advisory administration
of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Man-
agement, Inc., an investment ad-
visory firm. Prior to April 1993,
Ms. Boyle was a vice president
and manager--legal administration
of Mitchell Hutchins. Ms. Boyle
is also a vice president of other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was
an associate at the law firm of
Seward & Kissel. Ms. Cohen is
also a vice president and assis-
tant secretary of other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Ellen R. Harris Vice President Ms. Harris is chief domestic eq-
uity strategist and a managing
director and chief investment of-
ficer--domestic of Mitchell
Hutchins. Ms. Harris is also a
vice president of other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frank Jennings Vice President Mr. Jennings is a managing direc-
tor of international equities for
Mitchell Hutchins. Prior to De-
cember 1992, Mr. Jennings served
as Managing Director of Global
Investments for AIG Global In-
vestors. Mr. Jennings is also a
vice president of other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Clifford E. Kirsch Vice President and Mr. Kirsch is a first vice presi-
Assistant Secretary dent and associate general coun-
sel of Mitchell Hutchins. Prior
to March 1994, he was an assis-
tant director in the Division of
Investment Management at the SEC.
Mr. Kirsch is also a vice presi-
dent and assistant secretary of
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Dianne E. O'Donnell Vice President and Ms. O'Donnell is a first vice
Secretary president and senior associate
general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a
vice president and secretary of
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld Vice President Ms. Schonfeld is a managing direc-
tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Prior to April 1990, she was a
partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a
vice president of other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert Vice President and Mr. Schubert is a vice president
Assistant Treasurer of Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* THE TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Martha J. Slezak Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a
fundraising director for a U.S.
Senate campaign. Prior to Septem-
ber 1991, she was a tax manager
with Arthur Andersen & Co. Ms.
Slezak is also a vice president
and assistant treasurer of other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Julian F. Sluyters Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of the
mutual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager
with Ernst & Young LLP. Mr.
Sluyters is also a vice president
and treasurer of other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm
of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 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.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the Investment Company Act of 1940 ("1940 Act") by virtue of their
positions with PW Group, PaineWebber and/or Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust $3,000
annually and $250 per meeting of the board or any committee thereof. Trustees
also are reimbursed for any expenses incurred in attending meetings. Trustees
and officers of the Trust own in the aggregate less than
21
<PAGE>
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.
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 March 1, 1989 ("Advisory Contract"). Under the Advisory Contract, the
Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate of 0.75% of the Fund's daily net assets.
For the fiscal years ended August 31, 1994, August 31, 1993 and August 31,
1992, the Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administration fees of $3,143,778, $1,307,641 and $1,492,499, respectively.
Under a service agreement with the Trust pursuant to which PaineWebber
provides certain services to the Fund not otherwise provided by the Fund's
transfer agent, which agreement is reviewed by the Trust's board of trustees
annually, during the fiscal years ended August 31, 1994, August 31, 1993 and
August 31, 1992, the Fund paid (or accrued) to PaineWebber service fees of
$169,521, $90,347 and $102,907, respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. 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, uncollectable items of deposit and other
insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Trust or
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.
22
<PAGE>
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 $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended August 31, 1994, August 31, 1993 and August 31, 1992, no reimbursements
were required pursuant to such limitation.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the board of trustees or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.
The following table shows the approximate net assets as of November 30, 1994,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT NET
CATEGORY ASSETS
---------- --------
($ MIL)
<S> <C>
Domestic (excluding Money Market)............................... $5,662.8
Global.......................................................... 3,257.6
Equity/Balanced................................................. 2,538.9
Fixed Income (excluding Money Market)........................... 6,381.5
Taxable Fixed Income.......................................... 4,666.7
Tax-Free Fixed Income......................................... 1,714.8
Money Market Funds.............................................. 14,061.6
</TABLE>
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class D shares under separate distribution contracts with
the Trust dated July 7, 1993 (collectively, "Distribution Contracts") that
require Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of the Fund. Shares of the Fund are offered
continuously. Under separate exclusive dealer agreements between Mitchell
Hutchins and PaineWebber dated July 7, 1993 relating to the Class A, Class B
and Class D shares of the Fund (collectively, "Exclusive Dealer Agreements"),
PaineWebber and its correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class D shares of the Fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class D
Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins
23
<PAGE>
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, except that the Class
A Plan for the Fund provides that the service fee paid with respect to shares
sold prior to December 2, 1988 ("Old Shares") is paid at the annual rate of
0.15% of the Fund's net assets represented by such Old Shares. Shares acquired
through new purchases, reinvestment of dividends and other distributions and
exchanges on or after December 2, 1988 are not considered "Old Shares" for this
purpose. Under the Class B Plan and the Class D 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 D
shares, respectively.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the board of trustees of the Trust at least quarterly, and the trustees will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect
only so long as it is approved at least annually, and any material amendment
thereto is approved, by the Trust's board of trustees, including those trustees
who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose, (3)
payments by the Fund under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class of the Fund and (4) while the Plan remains in effect, the
selection and nomination of trustees who are not "interested persons" of the
Trust shall be committed to the discretion of the trustees who are not
"interested persons" of the Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins will allocate expenses attributable to the sale of each Class of Fund
shares to such Class based on the ratio of sales of shares of such Class to the
sales of all three Classes of shares. The fees paid by one Class of Fund shares
will not be used to subsidize the sale of any other Class of Fund shares.
For the fiscal year ended August 31, 1994, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Plans:
<TABLE>
<S> <C>
Class A...................................................... $ 398,327
Class B...................................................... $1,271,219
Class D...................................................... $ 631,019
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, 1994:
CLASS A
Marketing and advertising.................................... $ 50,897
Printing of prospectuses and statements of additional
information................................................. 1,255
Branch network costs allocated and interest expense.......... 356,115
Service fees paid to PaineWebber investment executives....... 179,247
</TABLE>
24
<PAGE>
<TABLE>
CLASS B
<S> <C>
Marketing and advertising...................................... $ 98,637
Amortization of commissions.................................... 479,993
Printing of prospectuses and statements of additional
information................................................... 2,372
Branch network costs allocated and interest expense............ 788,478
Service fees paid to PaineWebber investment executives......... 143,012
CLASS D
Marketing and advertising...................................... $ 66,441
Amortization of commissions.................................... 191,264
Printing of prospectuses and statements of additional
information................................................... 1,558
Branch network costs allocated and interest expense............ 501,624
Service fees paid to PaineWebber investment executives......... 70,991
</TABLE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network
costs allocated and interest expense" consist of an allocated portion of the
expenses of various PaineWebber departments involved in the distribution of
the Fund's shares, including the PaineWebber retail branch system.
In approving the Fund's overall Flexible Pricing SM system of distribution,
the Trust's board of trustees considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby
encouraging current shareholders to make additional investments in the Fund
and attracting new investors and assets to the Fund to the benefit of the Fund
and its shareholders, (2) facilitate distribution of the Fund's shares and (3)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution
arrangements.
In approving the Class A Plan, the trustees considered all the features of
the distribution system, including (1) the conditions under which initial
sales charges would be imposed and the amount of such charges, (2) Mitchell
Hutchins' belief that the initial sales charge combined with a service fee
would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan, the trustees considered all the features of
the distribution system, including (1) the conditions under which contingent
deferred sales charges would be
25
<PAGE>
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 D 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 and paying for distribution on an
ongoing basis, (3) Mitchell Hutchins' belief that the ability of PaineWebber
investment executives and correspondent firms to receive sales compensation for
their sales of Class D shares on an ongoing basis, along with continuing
service fees, while their customers invest their entire purchase payments
immediately in Class D shares and do not face contingent deferred sales
charges, would prove attractive to the investment executives and correspondent
firms, resulting in greater growth to the Fund than might otherwise be the
case, (4) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (5) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (6)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service- and
distribution-related expenses and costs. The trustees also recognized that
Mitchell Hutchins' willingness to compensate PaineWebber and its investment
executives without the concomitant receipt by Mitchell Hutchins of initial
sales charges or contingent deferred sales charges upon redemption, was
conditioned upon its expectation of being compensated under the Class D Plan.
With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees 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
26
<PAGE>
sales charges and retained the following approximate amounts, net of
concessions to PaineWebber as exclusive dealer.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST
31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Earned............................................. $900,089 $359,121 $176,317
Retained........................................... 55,975 24,048 10,523
</TABLE>
For the fiscal year ended August 31, 1994, Mitchell Hutchins earned and
retained $345,680 from contingent deferred sales charges paid upon certain
redemptions of Class B shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board of trustees of the Trust,
Mitchell Hutchins is responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, Mitchell Hutchins seeks to obtain the best net results
for the Fund, taking into account such factors as the price (including the
applicable brokerage commission or dealer spread), size of order, difficulty
of execution and operational facilities of the firm involved. Prices paid to
dealers in principal transactions, through which most debt securities 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 Mitchell Hutchins
generally seeks reasonably competitive commission rates and dealer spreads,
payment of the lowest commission or spread is not necessarily consistent with
obtaining the best net results. For the fiscal years ended August 31, 1994,
August 31, 1993 and August 31, 1992, the Fund paid $4,545,604, $3,041,882 and
$339,112, 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 contemplate that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in
conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to Mitchell Hutchins or its affiliates are reasonable and
fair. Specific provisions in the Advisory Contract authorize Mitchell Hutchins
and any of its affiliates that is a member of a national securities exchange
to effect portfolio transactions for the Fund on such exchange and to retain
compensation in connection with such transactions. Any such transactions will
be effected and related compensation paid only in accordance with applicable
SEC regulations. For the fiscal years ended August 31, 1994, August 31, 1993
and August 31, 1992, the Fund paid $0, $4,000 and $0, respectively, in
brokerage commissions to PaineWebber.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of
27
<PAGE>
Mitchell Hutchins and its affiliates, are similar to those in effect with
respect to brokerage transactions in securities.
Consistent with the interests of the Fund and subject to the review of the
board of trustees of the Trust, Mitchell Hutchins may cause the Fund to
purchase and sell portfolio securities through brokers who provide the Fund
with research, analysis, advice and similar services. In return for such
services, the Fund may pay to those brokers a higher commission than may be
charged by other brokers, provided that Mitchell Hutchins determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins to the Fund
and its other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. Research
services furnished by brokers through which the Fund effects securities
transactions may be used by Mitchell Hutchins in advising other funds or
accounts it advises and, conversely, research services furnished to Mitchell
Hutchins in connection with other funds or accounts Mitchell Hutchins advises
may be used by Mitchell Hutchins in advising the Fund. Information and research
received from brokers will be in addition to, and not in lieu of, the services
required to be performed by Mitchell Hutchins under the Advisory Contract. For
the fiscal year ended August 31, 1994, Mitchell Hutchins directed $67,049,373
in portfolio transactions to brokers chosen because they provided research
services, for which the Fund paid $297,369 in commissions. The Fund may
purchase and sell portfolio securities to and from dealers who provide the Fund
with research services. Portfolio transactions will not be directed by the Fund
to dealers solely on the basis of research services provided. The Fund will not
purchase portfolio securities at a higher price or sell such securities at a
lower price in connection with transactions effected with a dealer, acting as
principal, who furnishes research services to Mitchell Hutchins than would be
the case if no weight were given by Mitchell Hutchins to the dealer's
furnishing of such services. Research services furnished by the dealers through
which or with which the Fund effects securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts they advise and,
conversely, research services furnished to Mitchell Hutchins in connection with
other funds or accounts that Mitchell Hutchins advises may be used in advising
the Fund.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund involved and such other
account(s) as to amount according to a formula deemed equitable to the Fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Fund is concerned,
or upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in
which Mitchell Hutchins or any of its affiliates is a member of the
underwriting or selling group, except pursuant to procedures adopted by the
board of trustees of the Trust 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
28
<PAGE>
offering price prior to the end of the first business day after the date of the
public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may vary
greatly from year to year, but it will not be a limiting factor when management
deems portfolio changes appropriate. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended August
31, 1994 and August 31, 1993, the Fund's portfolio turnover rate was 176.16%
and 258.05%, 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; or
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that other employer).
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares
29
<PAGE>
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 New York Stock Exchange, Inc. ("NYSE") is closed or trading on the
NYSE is restricted as determined by the SEC, (2) when an emergency exists, as
defined by the SEC, that makes it not reasonably practicable
30
<PAGE>
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 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
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<PAGE>
or fifteenth day of the month. Settlement occurs five business days after the
trade date, and the purchase price of the shares is withdrawn from the
investor's RMA account on the settlement date from the following sources and in
the following order: uninvested cash balances, balances in RMA money market
funds, or margin borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to enrolling
in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may take
up to two weeks to become effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether through the
Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard (R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the five RMA money market funds--RMA Money Market Portfolio,
RMA U.S. Government Portfolio,
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<PAGE>
RMA Tax-Free Fund, RMA California Municipal Money Fund and RMA New York
Municipal Money Fund. Each money market fund attempts to maintain a stable
price per share of $1.00, although there can be no assurance that it will
be able to do so. Investments in the money market funds are not insured or
guaranteed by the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $25 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of 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
33
<PAGE>
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 Mitchell Hutchins as the primary market. Securities
traded in the OTC market and listed on Nasdaq are valued at the last trade
price on Nasdaq at 4:00 p.m., eastern time; other OTC securities are valued at
the last bid price available prior to valuation. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of 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.
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<PAGE>
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)n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment 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 shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years will reflect conversion of the Class B shares to
Class A shares at the end of the sixth year.
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<PAGE>
The following table shows performance information for the Class A, Class B
and Class D 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 D
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*............................ 4.44% 3.48% 8.54%
Non-Standardized Return......................... 9.34% 8.48% 8.54%
Five years ended August 31, 1994:
Standardized Return*............................ 5.02% NA NA
Non-Standardized Return......................... 5.98% NA NA
Ten years ended August 31, 1994:
Standardized Return*............................ 15.40% NA NA
Non-Standardized Return......................... 15.94% NA NA
Inception** to August 31, 1994:
Standardized Return*............................ 13.71% 7.22% 10.45%
Non-Standardized Return......................... 14.20% 8.29% 10.45%
</TABLE>
- --------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Until December 2, 1988, the maximum
sales charge imposed on purchases of Class A shares was 8.5%. This higher
sales charge is not reflected in the Standardized Return set forth above. 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 D shares do not impose an initial or
contingent deferred sales charge; therefore, Non-Standardized Return is
identical to Standardized Return.
** The inception date for each Class of shares is as follows: Class A--December
30, 1983, Class B--July 1, 1991 and Class D--July 2, 1992.
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 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
36
<PAGE>
Fund investment are reinvested by being paid 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.
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--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
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<PAGE>
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 shares of the Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for any dividend or capital gain distribution, the shareholder
will pay full price for the shares and receive some portion of the price back
as a taxable distribution.
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.
The Fund has invested, and may continue to invest, in the stock of "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that,
in general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances,
the Fund
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<PAGE>
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.
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corporations, including eliminating
the provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed by Congress in 1991 and 1992 and
vetoed. It is unclear at this time whether, and in what form, the proposed
modifications may be enacted into law.
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 and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Fund realizes
in connection therewith. Income from foreign currencies (except certain gains
therefrom that may be excluded by future 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
39
<PAGE>
not qualify for this treatment, it may be forced to defer the closing out of
certain options, futures and forward currency contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Fund to continue to
qualify as a RIC.
OTHER INFORMATION
PaineWebber Atlas Fund is an entity of the type commonly known as a
"Massachusetts business trust." Effective July 1, 1991, the name of the Fund
was changed from "PaineWebber Classic Atlas Fund" to its current name. 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 D shares. The higher fee is imposed due to the higher
costs incurred by the transfer agent in tracking shares subject to a contingent
deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the
applicable charge. Moreover, the tracking and calculations required by the
automatic conversion feature of the Class B shares will cause the transfer
agent to incur additional costs. Although the transfer agency fee will differ
on a per account basis as stated above, the specific extent to which the
transfer agency fees will differ between the Classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each Class and the relative
amounts of net assets in each Class.
COUNSEL. The law firm of Kirkpatrick & Lockhart, 1800 M Street, N.W.,
Washington, D.C., 20036-5891, counsel to the Fund, has passed upon the legality
of the shares offered by the Prospectus. Kirkpatrick & Lockhart also acts as
counsel to PaineWebber and Mitchell Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Fund.
40
<PAGE>
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1994 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 by reference in this
Statement of Additional Information.
41
<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 RATINGS GROUP ("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
42
<PAGE>
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 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.
43
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRE-
SENTATIONS 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 LAW-
FULLY BE MADE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging Strategies........................................................ 7
Trustees and Officers..................................................... 15
Investment Advisory and Distribution Arrangements......................... 22
Portfolio Transactions.................................................... 27
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 29
Conversion of Class B Shares.............................................. 33
Valuation of Shares....................................................... 34
Performance Information................................................... 35
Taxes..................................................................... 37
Other Information......................................................... 40
Financial Statements...................................................... 41
Appendix.................................................................. 42
</TABLE>
(C) 1995 PaineWebber Incorporated
LOGO Recycled
Paper
PAINEWEBBER
ATLAS GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
January 1, 1995
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PaineWebber Atlas Global Growth Fund
PaineWebber Dividend Growth Fund
PaineWebber Growth Fund
Class C Shares
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
The three funds named above (each a "Fund") are diversified series of
PaineWebber Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund,
respectively (each a "Trust"), professionally managed, open-end investment
companies organized as Massachusetts business trusts. PaineWebber Atlas Global
Growth Fund ("Atlas Fund") seeks long-term capital appreciation; it invests
primarily in common stocks of issuers based in the United States, Europe,
Japan and the Pacific Basin. PaineWebber Dividend Growth Fund ("Dividend
Growth Fund") seeks current income and capital growth; it invests primarily in
dividend-paying common stocks with the potential for increasing dividends.
PaineWebber Growth Fund ("Growth Fund") seeks long-term capital appreciation;
it invests primarily in common stocks issued by companies deemed by Growth
Fund's investment adviser to have substantial potential for capital growth.
The Funds' investment adviser, administrator and distributor is Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). Mitchell Hutchins
Institutional Investors Inc. ("Sub-Adviser"), a wholly owned subsidiary of
Mitchell Hutchins, serves as sub-adviser to Dividend Growth Fund. As
distributor for the Funds, Mitchell Hutchins has appointed PaineWebber to
serve as the exclusive dealer for the sale of Fund shares. The Class C shares
described in this Statement of Additional Information are currently offered
for sale only to the trustee of the PaineWebber Savings Investment Plan acting
on behalf of that Plan. This Statement of Additional Information is not a
prospectus and should be read only in conjunction with the Funds' current
Prospectus, dated January 1, 1995. A copy of the Prospectus may be obtained by
contacting the PaineWebber Incorporated Benefits Department, 1000 Harbour
Boulevard, 10th Floor, Weehawken, New Jersey 07087 or by calling
1-201-902-4444. This Statement of Additional Information is dated January 1,
1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
Yield Factors and Ratings. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of 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
<PAGE>
Statement of Additional Information. The Funds may use these ratings in
determining whether to purchase, sell or hold a security. It should be
emphasized, however, that ratings are general and are not absolute standards
of quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices.
As noted in the Prospectus, Atlas Fund and Growth Fund may invest in
non-investment grade debt securities--that is, debt securities that are not
rated at the time of purchase within one of the four highest grades assigned
by S&P or Moody's, comparably rated by another NRSRO or determined by Mitchell
Hutchins or (for Dividend Growth Fund) the Sub-Adviser to be of comparable
quality.
Special Considerations Relating to Foreign Securities. Many of the
foreign securities held by the Funds are not registered with the Securities
and Exchange Commission ("SEC"), nor are the issuers thereof subject to its
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Funds than is
available concerning U.S. companies. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or
to other regulatory requirements comparable to those applicable to U.S.
companies.
All the Funds may invest in foreign securities by purchasing American
Depository Receipts ("ADRs"). Atlas 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 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 Funds'
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.
Atlas 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 Atlas 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 Funds may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign
taxes to which the Funds would be subject.
Foreign Currency Transactions. Although Atlas 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. Atlas
2
<PAGE>
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, Atlas Fund could suffer a loss of some or
all of the amounts deposited. Atlas 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. Each Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which a Fund has valued the
securities and includes, among other things, purchased over-the-counter
("OTC") options, repurchase agreements maturing in more than seven days and
restricted securities other than those Mitchell Hutchins or (for Dividend
Growth Fund) the Sub-Adviser has determined are liquid pursuant to guidelines
established by the Trusts' boards of trustees. The assets used as cover for
OTC options written by a 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"). In the case of Atlas Fund, illiquid securities include those that are
subject to restrictions contained in the securities laws of other countries.
However, securities that are freely marketable in the country where they are
principally traded, but would not be freely marketable in the United States,
will not be subject to this 10% limit for Atlas Fund. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time 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
3
<PAGE>
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. An
insufficient number of qualified institutional buyers interested in purchasing
Rule 144A-eligible restricted securities held by a Fund, however, could affect
adversely the marketability of such portfolio securities and a Fund might be
unable to dispose of such securities promptly or at favorable prices.
The board of trustees for each Trust has delegated the function of making
day-to-day determinations of liquidity to Mitchell Hutchins or (for Dividend
Growth Fund) the Sub-Adviser, pursuant to guidelines approved by the board.
Mitchell Hutchins or the Sub-Adviser 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 or the
Sub-Adviser will monitor the liquidity of restricted securities in each Fund's
portfolio and report periodically on such decisions to the board of trustees.
Repurchase Agreements. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. A Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date
agreed to is, in effect, secured by such securities. If the value of these
securities is less than the repurchase price, plus any agreed-upon additional
amount, the other party to the agreement must provide additional collateral so
that at all times the collateral is at least equal to the repurchase price,
plus any agreed-upon additional amount. The difference between the total
amount to be received upon repurchase of the securities and the price which
was paid by a Fund upon acquisition is accrued as interest and included in
that Fund's net investment income. Repurchase agreements carry certain risks
not associated with direct investments in securities, including possible
declines in the market value of the underlying securities and delays and costs
to a Fund if the other party to a repurchase agreement becomes insolvent.
Each Fund intends to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins or (for Dividend Growth
Fund) the Sub-Adviser to present minimal credit risks in accordance with
guidelines established by the Trusts' boards of trustees. Mitchell Hutchins or
the Sub-Adviser reviews and monitors the creditworthiness of those
institutions under the boards' general supervision.
Reverse Repurchase Agreements. Each Fund may enter into reverse
repurchase agreements with banks and securities dealers up to an aggregate
value of not more than 5% of the Fund's total assets. Such agreements involve
the sale of securities held by a Fund subject to the Fund's agreement to
repurchase the securities at an agreed-upon date and price reflecting a market
rate of interest. Such agreements are considered to be borrowings and may be
entered into only for temporary purposes. While a reverse repurchase agreement
is outstanding, a Fund's custodian segregates assets to cover the Fund's
obligations under the reverse repurchase agreement. See "Investment Policies
and Restrictions--Segregated Accounts."
4
<PAGE>
Lending of Portfolio Securities. Although the Funds have no intention of
doing so during the coming year, each Fund is authorized to lend up to 10% of
the total value of its portfolio securities to broker-dealers or institutional
investors that Mitchell Hutchins or (for Dividend Growth Fund) the Sub-Adviser
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 or the Sub-Adviser will consider, and during the period of
the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. Each Fund will retain authority to terminate
any loans at any time. A 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. A 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. A 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.
Investment Criteria--Dividend Growth Fund. Under normal circumstances,
at least 65% of Dividend Growth Fund's total assets is invested in common
stocks of issuers that, at the time of purchase, meet the following criteria:
--at least 5% compound annual growth in earnings per share over the
past five years;
--at least 5% compound annual growth in dividends per common share
over the past five years; and
--an increased dividend per common share in each of the past 5 years.
In determining whether an issuer has met the growth in earnings
criterion, the Sub-Adviser may adjust an issuer's reported earnings to
disregard the effects of extraordinary, unusual or non-recurring items, such
as disaster losses, gains or losses from the disposition of a segment of a
business or other significant asset, or the proceeds or costs of litigation.
Such an adjustment could increase or decrease earnings per share for purposes
of determining whether an issuer qualifies under the growth in earnings
criterion.
The Sub-Adviser will determine whether to disregard the effects on
reported income of such items based upon its evaluation of whether the items
are isolated or extraordinary occurrences that are unlikely to have a material
and continuing effect on earnings per share. The Sub-Adviser's determination
will not necessarily accord with an issuer's classification of an item for
financial reporting purposes, and an item that is not classified as
"extraordinary" on an issuer's income statement might nonetheless be
disregarded for purposes of the growth in earnings criterion if the
Sub-Adviser believes the item to be an isolated occurrence. Conversely, the
Sub-Adviser might take into account the effect of an item classified as
"extraordinary" if it believes that the item could have a material and
continuing effect on earnings per share. In making adjustments for items not
classified as extraordinary, the Sub-Adviser will estimate the change in
income taxes payable resulting from its adjustments.
5
<PAGE>
In determining whether an issuer has met the two criteria relating to
growth in dividends, the Sub-Adviser may disregard a dividend classified by
the issuer as an "extraordinary" or "special" dividend.
Segregated Accounts. When a Fund enters into certain transactions to
make future payments to third parties, including reverse repurchase
agreements, the Fund will maintain with an approved custodian in a segregated
cash account, U.S. government securities or other liquid high-grade debt
securities, marked to market daily, in an amount at least equal to the Fund's
obligation or commitment under such transactions. As described below under
"Hedging Strategies," segregated accounts may also be required in connection
with certain transactions involving options, futures contracts and forward
currency contracts.
Investment Limitations of the Funds
Atlas Fund. Atlas Fund may not (1) purchase any securities other than
those its investment objective permits it to purchase; (2) purchase securities
of any one issuer (except U.S. government securities) if as a result more than
5% of Atlas Fund's total assets would be invested in such issuer or Atlas Fund
would own or hold more than 10% of the outstanding voting securities of that
issuer, provided, however, that up to 25% of the value of Atlas Fund's total
assets may be invested without regard to these limitations; (3) purchase
securities on margin, except for short-term credit necessary for clearance of
portfolio transactions, and except that Atlas Fund may make margin deposits in
connection with its use of options, futures contracts and options on futures
contracts; (4) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, Atlas Fund
may be deemed an underwriter under federal securities laws; (5) make short
sales of securities or maintain a short position, except that Atlas Fund may
(a) make short sales and may maintain short positions in connection with its
use of options, futures contracts and options on futures contracts and (b)
sell short "against the box"; (6) purchase or sell real estate, provided that
Atlas Fund may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein; (7) purchase or sell commodities or commodity contracts, provided
that Atlas Fund may engage in forward currency contracts and provided that
Atlas Fund may purchase or sell stock index futures, foreign currency futures,
interest rate futures and options thereon; (8) invest in oil, gas or
mineral-related programs or leases; (9) make loans, except through loans of
portfolio securities and except through repurchase agreements; provided that
for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in government obligations,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of loans; (10) issue senior securities or
borrow money, except from banks for temporary purposes and except for reverse
repurchase agreements, and then in an aggregate amount not in excess of 10% of
Atlas Fund's total assets; provided further that Atlas Fund will not purchase
securities while borrowings in excess of 5% of its total assets are
outstanding; (11) make an investment in any one industry if the investment
would cause the aggregate value of Atlas Fund's investments in such industry
to exceed 25% of Atlas Fund's total assets; or (12) purchase any securities
issued by any other investment company, except by purchase in the open market
where no commission or profit, other than a customary brokers' commission, is
earned by any sponsor or dealer associated with the investment company whose
shares are acquired as a result of such purchase, provided that such
securities in the aggregate do not represent more than 10% of Atlas Fund's
total assets, and except in connection with the merger, consolidation or
acquisition of all the securities or assets of such an issuer.
6
<PAGE>
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 Atlas 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: Atlas Fund may not (1) purchase or
retain the securities of any issuer if, to the knowledge of Atlas Fund's
management, the officers and trustees of the Trust and the officers and
directors of Mitchell Hutchins (each owning beneficially more than 0.5% of the
outstanding securities of an issuer) own in the aggregate more than 5% of the
securities of the issuer; (2) except under unusual circumstances, purchase
securities issued by investment companies unless they are issued by companies
that follow a policy of investing primarily in the capital markets of a single
foreign country; (3) purchase any security if as a result more than 5% of its
total assets would be invested in securities of companies that together with
any predecessors have been in continuous operation for less than three years;
(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 it has valued
the securities and includes, among other things, repurchase agreements
maturing in more than seven days; (5) make investments in warrants if such
investments, valued at the lower of cost or market, exceed 5% of the value of
its net assets, which amount may include warrants that are not listed on the
New York or American Stock Exchanges, provided that such unlisted warrants,
valued at the lower of cost or market, do not exceed 2% of its net assets, and
further provided that this restriction does not apply to warrants attached to,
or sold as a unit with, other securities. For purposes of this restriction,
the term "warrants" does not include options on securities, stock or bond
indices, foreign currencies or futures contracts; or (6) invest more than 35%
of its total assets in debt securities rated Ba or lower by Moody's or BB or
lower by S&P, comparably rated by another NRSRO or determined by Mitchell
Hutchins to be of comparable quality. This non-fundamental policy (6) can be
changed only upon 30 days' advance notice to shareholders. The Fund will
continue to interpret fundamental investment limitation (6) to prohibit
investment in real estate limited partnerships.
Dividend Growth Fund. Dividend Growth Fund may not (1) purchase any
securities other than those its investment objective permits it to purchase;
(2) purchase securities of any one issuer (except U.S. government securities)
if as a result more than 5% of Dividend Growth Fund's total assets would be
invested in such issuer or Dividend Growth Fund would own or hold more than
10% of the outstanding voting securities of that issuer, provided, however,
that up to 25% of the value of Dividend Growth Fund's total assets may be
invested without regard to these limitations; (3) purchase securities on
margin, except for short-term credit necessary for clearance of portfolio
transactions and except that Dividend Growth Fund may make margin deposits in
connection with its use of options, futures contracts and options on futures
contracts; (4) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, Dividend
Growth Fund may be deemed an underwriter under the federal securities laws;
(5) make short sales of securities or maintain a short position, except that
Dividend Growth Fund may (a) make short sales and may maintain short positions
in connection with its use of options, futures contracts and options on
futures contracts and
7
<PAGE>
(b) sell short "against the box"; (6) purchase or sell real estate, provided
that Dividend Growth Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interest therein; (7) purchase or sell commodities or commodity contracts,
except that Dividend Growth Fund may purchase or sell stock index futures,
interest rate futures and options thereon; (8) invest in oil, gas or
mineral-related programs or leases; (9) make loans, except through loans of
portfolio securities as described herein and except through repurchase
agreements; provided that for purposes of this restriction the acquisition of
bonds, debentures, or other corporate debt securities and investment in
government obligations, short-term commercial paper, certificates of deposit
and bankers' acceptances shall not be deemed to be the making of loans; (10)
purchase any securities issued by any other investment company, except in
connection with the merger, consolidation or acquisition of all the securities
or assets of such an issuer; (11) issue senior securities or borrow money,
except from banks for temporary purposes and except for reverse repurchase
agreements, and then in an aggregate amount not in excess of 10% of Dividend
Growth Fund's total assets; provided further that Dividend Growth Fund will
not purchase securities while borrowings in excess of 5% of Dividend Growth
Fund's total assets are outstanding; or (12) make an investment in any one
industry if the investment would cause the aggregate value of Dividend Growth
Fund's investments in such industry to exceed 25% of Dividend Growth Fund's
total assets.
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 Dividend Growth 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: Dividend Growth Fund may not (1)
purchase or retain the securities of any issuer if, to the knowledge of
Dividend Growth Fund's management, the officers and trustees of the Trust and
the officers and directors of Mitchell Hutchins and the Sub-Adviser (each
owning beneficially more than 0.5% of the outstanding securities of an issuer)
own in the aggregate more than 5% of the securities of the issuer; (2)
purchase any security if as a result more than 5% of its total assets would be
invested in securities of companies that together with any predecessors have
been in continuous operation for less than three years; (3) 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 it has valued the securities and
includes, among other things, repurchase agreements maturing in more than
seven days; or (4) make investments in warrants if such investments, valued at
the lower of cost or market, exceed 5% of the value of its net assets, which
amount may include warrants that are not listed on the New York or American
Stock Exchanges, provided that such unlisted warrants, valued at the lower of
cost or market, do not exceed 2% of the its net assets, and further provided
that this restriction does not apply to warrants attached to, or sold as a
unit with, other securities. For purposes of this restriction, the term
"warrants" does not include options on securities, stock or bond indices or
futures contracts; or (5) invest more than 35% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, comparably
rated by another NRSRO or determined by the Sub-Adviser to be of comparable
quality. This non-fundamental policy (5) can be changed only upon 30 days'
advance notice to shareholders.
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The Fund will continue to interpret fundamental investment limitation (6) to
prohibit investment in real estate limited partnerships.
Growth Fund. Growth Fund may not (1) issue senior securities or borrow
money, except from banks for temporary purposes and except for reverse
repurchase agreements, and then in an aggregate amount not in excess of 10% of
Growth Fund's total assets; provided further that Growth Fund will not
purchase securities while borrowings (including reverse repurchase agreements)
in excess of 5% of Growth Fund's total assets are outstanding; (2) make an
investment in any one industry if the investment would cause the aggregate
value of Growth Fund's investments in such industry to exceed 25% of Growth
Fund's total assets; (3) purchase securities of any one issuer (except U.S.
government securities) if as a result more than 5% of Growth Fund's total
assets would be invested in such issuer or Growth Fund would own or hold more
than 10% of the outstanding voting securities of that issuer, provided,
however, that up to 25% of the value of Growth Fund's total assets may be
invested without regard to these limitations; (4) purchase securities on
margin, except for short-term credit necessary for clearance of portfolio
transactions and except that Growth Fund may make margin deposits in
connection with its use of options, futures contracts and options on futures
contracts; (5) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, Growth Fund
may be deemed an underwriter under federal securities laws; (6) make short
sales of securities or maintain a short position, except that Growth Fund may
(a) make short sales and may maintain short positions in connection with its
use of options, futures contracts and options on future contracts and (b) sell
short "against the box"; (7) purchase or sell real estate, provided that
Growth Fund may invest in securities secured by real estate or interests
therein or issued by companies that invest in real estate or interests
therein; (8) purchase or sell commodities or commodity contracts, except that
Growth Fund may purchase or sell stock index futures and interest rate futures
and options thereon; (9) invest in oil, gas or mineral-related programs or
leases; (10) make loans, except through loans of portfolio securities as
described herein and except through repurchase agreements; provided that for
purposes of this restriction the acquisition of bonds, debentures, or other
corporate debt securities and investments in government obligations,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of loans; or (11) purchase any securities
issued by any other investment company, except by purchase in the open market
where no commission or profit, other than a customary brokers' commission, is
earned by any sponsor or dealer associated with the investment company whose
shares are acquired as a result of such purchase, provided that such
securities in the aggregate do not represent more than 10% of Growth Fund's
total assets, and except in connection with the merger, consolidation or
acquisition of all the securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed
without the affirmative vote of the lesser of (a) more than 50% of the
outstanding shares of Growth 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: Growth Fund may not (1) purchase or
retain the securities of any issuer if, to
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the knowledge of Growth Fund's management, the officers and trustees of the
Trust and the officers and directors of Mitchell Hutchins (each owning
beneficially more than 0.5% of the outstanding securities of an issuer) own in
the aggregate more than 5% of the securities of the issuer; (2) purchase any
security if as a result more than 5% of its total assets would be invested in
securities of companies that together with any predecessors have been in
continuous operation for less than three years; (3) 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 it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days;
(4) make investments in warrants if such investments, valued at the lower of
cost or market, exceed 5% of the value of its net assets, which amount may
include warrants that are not listed on the New York or American Stock
Exchanges, provided that such unlisted warrants, valued at the lower of cost
or market, do not exceed 2% of its net assets, and further provided that this
restriction does not apply to warrants attached to, or sold as a unit with,
other securities. For purposes of this restriction, the term "warrants" does
not include options on securities, stock or bond indices or futures contracts;
or (5) invest more than 35% of its total assets in debt securities rated Ba or
lower by Moody's or BB or lower by S&P, comparably rated by another NRSRO or
determined by Mitchell Hutchins to be of comparable quality. This
non-fundamental policy (5) can be changed only upon 30 days' advance notice to
shareholders. The Fund will continue to interpret fundamental investment
limitation (7) to prohibit investment in real estate limited partnerships.
HEDGING STRATEGIES
General Description of Hedging Strategies. As discussed in the
Prospectus, Mitchell Hutchins or (for Dividend Growth Fund) the Sub-Adviser
may use a variety of financial instruments ("Hedging Instruments"), including
certain options, futures contracts (sometimes referred to as "futures"),
options on futures contracts and, in the case of Atlas Fund, forward currency
contracts, to attempt to hedge the Funds' portfolios. The particular Hedging
Instruments are described in the Appendix to the Prospectus.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
to partially or fully offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge a Fund takes a
position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example, a
Fund might purchase a put option on a security to hedge against a potential
decline in the value of that security. If the price of the security declined
below the exercise price of the put, 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 a Fund intends to acquire. Thus, in a
long hedge a 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, a Fund might purchase a call option on a
security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the
exercise price of the
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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 a 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 a Fund has invested or expects to invest. Hedging Instruments
on debt securities may be used to hedge either individual securities or broad
fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded,
the Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins or (for Dividend Growth Fund) the
Sub-Adviser expects to discover additional opportunities in connection with
options, futures contracts, forward currency contracts and other hedging
techniques. These new opportunities may become available as Mitchell Hutchins
or the Sub-Adviser develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts or
other techniques are developed. Mitchell Hutchins or the Sub-Adviser may
utilize these opportunities to the extent that they are consistent with the
Funds' investment objectives and permitted by the Funds' investment
limitations and applicable regulatory authorities. The Funds' 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 Mitchell Hutchins or (for Dividend Growth Fund) the Sub-Adviser to predict
movements of the overall securities, currency and interest rate markets, which
requires different skills than predicting changes in the prices of individual
securities. While Mitchell Hutchins and the Sub-Adviser are 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. Because Dividend Growth Fund
invests primarily in common stocks of issuers meeting the
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specific criteria described in the Prospectus, there might be a significant
lack of correlation between the portfolio and the stock indices underlying any
such Hedging Instruments used by that Fund.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements in
the investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a
short hedge because Mitchell Hutchins or (for Dividend Growth Fund) the
Sub-Adviser 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, a 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 a 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 a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position
in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of a contra party to enter into a transaction
closing out the position. Therefore, there is no assurance that any hedging
position can be closed out at a time and price that is favorable to the Fund.
Cover for Hedging Strategies. The Funds will not use Hedging Instruments
for speculative purposes or for purposes of leverage. Transactions using
Hedging Instruments, other than purchased options, expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
other options or futures contracts or (in the case of Atlas Fund) currencies
or forward currency contracts or (2) cash and short-term liquid debt
securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for hedging transactions and will,
if the guidelines so require, set aside cash, U.S. government securities or
other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion
of a Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. The Funds may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices
and, in the case of Atlas Fund, 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
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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 Funds would be considered illiquid to the extent described
under "Investment Policies and Limitations--Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration
dates of up to nine months. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit a Fund to realize
profits or limit losses on an option position prior to its exercise or
expiration.
The Funds may purchase and write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between a Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when a Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying 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 Funds 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 (in the case
of Atlas Fund) used by the Funds are European style options. This means that
the option is only exercisable immediately prior to its expiration. This is in
contrast to American-style options, which are exercisable at any time prior to
the expiration date of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each 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 a Fund
will enter into OTC options only with contra parties that are
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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 a Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or
call option written by a 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. A Fund's use of options is governed
by the following guidelines, which can be changed by its Trust's board of
trustees without shareholder vote:
(1) A Fund may purchase a put or call option, including any
straddles or spreads, only if the value of its premium, when aggregated
with the premiums on all other options held by the Fund, does not exceed
5% of the Fund's total assets.
(2) The aggregate value of securities underlying put options written
by a Fund, determined as of the date the put options are written, will
not exceed 50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by the Fund that are held at any time will
not exceed 20% of the Fund's net assets.
Futures. The Funds may purchase and sell stock index futures contracts
and interest rate futures contracts and, in the case of Atlas Fund, foreign
currency futures contracts. The Funds may also purchase put and call options,
and write covered put and call options, on futures in which they are 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 strategies similar to those
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 whom the transaction was effected, "initial margin" consisting of
cash, U.S. government securities or other liquid, high-grade debt securities,
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing 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, a Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a
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futures broker. When a Fund purchases an option on a future, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If 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. Each 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 a Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. 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.
Limitations on the Use of Futures. A Fund's use of futures is governed
by the following guidelines, which can be changed by its Trust's board of
trustees without shareholder vote:
(1) To the extent a Fund enters into futures contracts, options on
futures positions and options on foreign currencies traded on a
commodities exchange that are not for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums on those
positions (excluding the amount by which options are "in-the-money") may
not exceed 5% of the Fund's net assets.
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(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by a Fund that are held at any time will not
exceed 20% of the Fund's net assets.
(3) The aggregate margin deposits on all futures contracts and
options thereon held at any time by a Fund will not exceed 5% of the
Fund's net assets.
Foreign Currency Hedging Strategies Special Considerations. Atlas 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 that Fund's
securities are denominated. Such currency hedges can protect against price
movements in a security Atlas 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.
Atlas 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, Atlas 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 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, Atlas 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, Atlas Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents
and might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
Forward Currency Contracts. Atlas 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, Atlas Fund may purchase a forward currency
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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, Atlas Fund may sell
a forward currency contract to lock in the U.S. dollar equivalent of the
proceeds from the anticipated sale of a security denominated in a foreign
currency.
As noted above, the Fund also may seek to hedge against changes in the
value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which Mitchell Hutchins
believes will have a positive correlation to the values of the currency 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 Atlas Fund owned securities denominated in a foreign currency and
Mitchell Hutchins believed that currency would decline relative to another
currency, it might enter into a forward contract to sell an appropriate amount
of the first foreign currency, with payment to be made in the second foreign
currency. Transactions that use two foreign currencies are sometimes referred
to as "cross hedging." Use of a different foreign currency magnifies the risk
that movements in the price of the Hedging Instrument will not correlate or
will correlate unfavorably with the foreign currency being hedged.
The cost to Atlas 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 Atlas 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, Atlas 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. Atlas Fund may
enter into forward currency contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
position being hedged by such contracts or (2) the Fund maintains cash, U.S.
government
17
<PAGE>
securities or other liquid, high-grade debt securities in a segregated account
in an amount not less than the value of its total assets committed to the
consummation of the contract and not covered as provided in (1) above, as
marked to market daily.
TRUSTEES AND OFFICERS
The trustees and executive officers of each Trust (except as indicated),
their business addresses and principal occupations during the past five years
are:
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address* each Trust Other Directorships
- ------------------------- -------------------- ---------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.** Trustee and Mr. Bewkes is a director of PaineWebber Group
Chairman of the Inc. ("PW Group") (holding company of
Board of Trustees PaineWebber, Mitchell Hutchins and the Sub-
Adviser) and a consultant to PW Group.
Prior to 1988, he was chairman of the
board, president and chief executive
officer of American Bakeries Company. Mr.
Bewkes is also a director of Interstate
Bakeries Corporation and a director or
trustee of other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg Trustee Mr. Feldberg is Dean and Professor of Manage-
Columbia University ment of the Graduate School of Business,
101 Uris Hall Columbia University. Prior to July 1989, he
New York, New York 10027 was president of the Illinois Institute of
Technology. Dean Feldberg is also a
director of AMSCO International Inc.,
Federated Department Stores, Inc., Inco
Homes Corporation and New World
Communications Group Incorporated and a
director or trustee of other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
George W. Gowen Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a director or trustee
of other investment companies for which
Mitchell Hutchins or PaineWebber serves as
an investment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address* each Trust Other Directorships
- ------------------------- -------------------- ---------------------------------------------
<S> <C> <C>
Paul B. Guenther** Trustee and Mr. Guenther is president and a director of
President PW Group and Mitchell Hutchins and a direc-
tor of PaineWebber. Mr. Guenther is also
president and a director or trustee of
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Frederic V. Malek Trustee Mr. Malek is chairman of Thayer Capital
901 15th Street, N.W. Partners (investment bank) and a
Suite 300 co-chairman and director of CB Commercial
Washington, D.C. 20005 Group Inc. (real estate). From January 1992
to November 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to 1992, he
was vice chairman, and from 1989 to 1990,
he was president of Northwest Airlines
Inc., NWA Inc. (holding company of
Northwest Airlines Inc.) and Wings Hold-
ings Inc. (holding company of NWA Inc.).
Prior to 1989, he was employed by the
Marriott Corporation (hotels, restaurants,
airline catering and contract feeding),
where he most recently was an executive
vice president and president of Marriott
Hotels and Resorts. Mr. Malek is also a
director of American Management Systems,
Inc., Automatic Data Processing, Inc.,
Avis, Inc., FPL Group, Inc., ICF
International, Manor Care, Inc. and Na-
tional Education Corporation and a director
or trustee of other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank P. L. Minard** Trustee Mr. Minard is chairman and chief executive
officer of Mitchell Hutchins, chairman of
the board of Mitchell Hutchins
Institutional Investors Inc. and an
executive vice president of PW Group. Prior
to 1993, Mr. Minard was managing director
of Oppenheimer Capital in New York and
Director of Oppenheimer Capital Ltd. in
London. Mr. Minard is also a director or
trustee of other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address* each Trust Other Directorships
- ------------------------- -------------------- ---------------------------------------------
<S> <C> <C>
Judith Davidson Moyers Trustee Mrs. Moyers is president of Public Affairs
Public Affairs Television Television, Inc., an educational consultant
356 W. 58th Street and a home economist. Mrs. Moyers is also a
New York, New York 10019 director of Ogden Corporation and a
director or trustee of other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Thomas F. Murray Trustee Mr. Murray is a real estate and financial
400 Park Avenue consultant. Mr. Murray is also a director
New York, New York 10022 and chairman of American Continental
Properties, Inc., a trustee of Prudential
Realty Trust and a director or trustee of
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Teresa M. Boyle Vice President Ms. Boyle is a vice president and manager--
advisory administration of Mitchell
Hutchins. Prior to November 1993, she was
Compliance Manager of Hyperion Capital
Management, Inc., an investment advisory
firm. Prior to April 1993, Ms. Boyle was a
vice president and manager--legal
administration of Mitchell Hutchins. Ms.
Boyle is also a vice president of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Joan L. Cohen Vice President and Ms. Cohen is a vice president and attorney of
Assistant Secretary Mitchell Hutchins. Prior to December 1993,
she was an associate at the law firm of
Seward & Kissel. Ms. Cohen is also a vice
president and assistant secretary of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ellen R. Harris Vice President Ms. Harris is chief domestic equity
strategist and a managing director and
chief investment officer--domestic of
Mitchell Hutchins. Ms. Harris is also a
vice president of other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address* each Trust Other Directorships
- ------------------------- -------------------- ---------------------------------------------
<S> <C> <C>
Frank Jennings Vice President, Mr. Jennings is a managing director of
PaineWebber international equities for Mitchell
Atlas Fund Hutchins. Prior to December 1992, Mr.
Jennings served as Managing Director of
Global Investments for AIG Global
Investors. Mr. Jennings is also a vice
president of other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Clifford E. Kirsch Vice President and Mr. Kirsch is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to March 1994, he was an
assistant director in the Division of
Investment Management at the SEC. Mr.
Kirsch is also a vice president and
assistant secretary of other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is also a vice
president and assistant treasurer of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell Vice President and Ms. O'Donnell is a first vice president and
Secretary senior associate general counsel of
Mitchell Hutchins. Ms. O'Donnell is also a
vice president and secretary of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins. From
April 1990 to May 1994, she was a partner
in the law firm of Arnold & Porter. Prior
to April 1990, she was a partner in the law
firm of Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a vice
president of other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address* each Trust Other Directorships
- ------------------------- -------------------- ---------------------------------------------
<S> <C> <C>
Paul H. Schubert Vice President and Mr. Schubert is a vice president of Mitchell
Assistant Treasurer Hutchins. From August 1992 to August 1994,
he was a vice president at BlackRock
Financial Management, L.P. Prior to August
1992, he was an audit manager with Ernst &
Young LLP. Mr. Schubert is also a vice
president and assistant treasurer of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Martha J. Slezak Vice President and Ms. Slezak is a vice president of Mitchell
Assistant Treasurer Hutchins. From September 1991 to April
1992, she was a fundraising director for a
U.S. Senate campaign. Prior to September
1991, she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a vice
president and assistant treasurer of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters Vice President and Mr. Sluyters is a senior vice president and
Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. Prior to
1991, he was an audit senior manager with
Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of other
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd Vice President and Mr. Todd is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to 1993, he was a partner
in the law firm of Shereff, Friedman,
Hoffman & Goodman. Mr. Todd is also a vice
president and assistant secretary of 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 Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of each Trust
as defined in the Investment Company Act of 1940 ("1940 Act") by virtue of
their positions with PW Group, PaineWebber and/or Mitchell Hutchins.
22
<PAGE>
Each Trust pays trustees who are not "interested persons" of the Trust
$250 per meeting of the board or any committee thereof; the Trusts also pay
each such trustee the following annual compensation: $3,000 for PaineWebber
Atlas Fund, $1,500 for PaineWebber America Fund and $2,000 for PaineWebber
Olympus Fund. Trustees also are reimbursed for any expenses incurred in
attending meetings. Trustees and officers of the Trusts own in the aggregate
less than 1% of the shares of each Fund. Because Mitchell Hutchins and
PaineWebber perform substantially all of the services necessary for the
operation of the Trusts and the Funds, the Trusts require no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber presently
receives any compensation from the Trusts for acting as a trustee or officer.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
Investment Advisory Arrangements. Mitchell Hutchins acts as the
investment adviser and administrator of each Fund pursuant to separate
contracts dated March 1, 1989 with the respective Trusts (each an "Advisory
Contract"). Under the Advisory Contracts, each Fund pays Mitchell Hutchins a
fee, computed daily and paid monthly at the annual rates set forth in the
Prospectus.
For the fiscal years ended August 31, 1994, August 31, 1993 and August
31, 1992, the Funds paid (or accrued) to Mitchell Hutchins the following
investment advisory and administration fees: Atlas Fund--$3,143,778,
$1,307,641 and $1,492,499; Dividend Growth Fund--$4,892,163, $6,413,944 and
$3,852,408; and Growth Fund--$2,069,033, $1,402,141 and $1,017,798.
The Advisory Contract for Dividend Growth Fund authorizes Mitchell
Hutchins to retain one or more sub-advisers. Mitchell Hutchins has entered
into a separate contract with the Sub-Adviser, dated May 19, 1994
("Sub-Advisory Contract"), pursuant to which the Sub-Adviser determines what
securities will be purchased, sold or held by Dividend Growth Fund. Under the
Sub-Advisory Contract, Mitchell Hutchins (not Dividend Growth Fund) pays the
Sub-Adviser a fee in the annual amount of 0.25% of that Fund's average daily
net assets. The Sub-Adviser bears all expenses incurred by it in connection
with its services under the Sub-Advisory Contract. For the fiscal period May
19, 1994 to August 31, 1994, Mitchell Hutchins paid (or accrued) to the
Sub-Adviser sub-advisory fees of $405,821.
Under a service agreement with each Trust pursuant to which PaineWebber
provides certain services not otherwise provided by the Fund's transfer agent,
which agreements are reviewed by each Trust's board of trustees annually,
during the fiscal years ended August 31, 1994, August 31, 1993 and August 31,
1992, the Funds paid (or accrued) the following respective fees: Atlas
Fund--$169,521, $90,347 and $102,907; Dividend Growth Fund--$303,496, $355,724
and $224,546; Growth Fund-- $103,435, $75,713 and $59,969.
Under the terms of the applicable Advisory Contract, each Fund bears all
expenses incurred in its operation that are not specifically assumed by
Mitchell Hutchins. Expenses borne by each Fund include the following: (1) the
cost (including brokerage commissions) of securities purchased or sold by the
Fund and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees and officers who are not interested
persons (as defined in the 1940 Act) of the Fund or
23
<PAGE>
Mitchell Hutchins; (6) all expenses incurred in connection with the trustees'
services, including travel expenses; (7) taxes (including any income or
franchise taxes) and governmental fees; (8) costs of any liability,
uncollectable items of deposit and other insurance or fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages
or other relief asserted against the Trust or 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) fee, 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 a 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 a Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily
net assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended August 31, 1994, August 31, 1993 and August 31, 1992, no reimbursements
were required pursuant to such limitation for any Fund.
Under each Advisory Contract, Mitchell Hutchins will not be liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. Each Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the board of trustees or by vote of the holders of a majority of a
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to a Fund.
Under the Sub-Advisory Contract, the Sub-Adviser will not be liable for
any error of judgment or mistake of law or for any loss suffered by the
applicable Trust, Dividend Growth Fund, its shareholders or Mitchell Hutchins
in connection with the performance of the Sub-Advisory Contract, except to the
extent that such a loss results from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the Sub-Advisory Contract.
The Sub-Advisory Contract terminates automatically upon its assignment or the
termination of the Advisory Contract 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 the
Sub-Adviser, by Mitchell Hutchins on 60 days' written notice to the
Sub-Adviser, or by the Sub-Adviser on 60 days' written notice to Mitchell
Hutchins.
24
<PAGE>
The following table shows the approximate net assets as of November 30,
1994, sorted by category of investment objective, of the investment companies
as to which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
Net
Assets
Investment ----------
Category
---------------------------------------------------------------- ($ mil)
<S> <C>
Domestic (excluding Money Market)............................... $ 5,662.8
Global.......................................................... 3,257.6
Equity/Balanced................................................. 2,538.9
Fixed Income (excluding Money Market)........................... 6,381.5
Taxable Fixed Income....................................... 4,666.7
Tax-Free Fixed Income...................................... 1,714.8
Money Market Funds.............................................. 14,061.6
</TABLE>
Distribution Arrangements. Mitchell Hutchins acts as the distributor of
the Class C shares of each Fund under separate distribution contracts with
each Trust dated July 1, 1991 that require Mitchell Hutchins to use its best
efforts, consistent with its other business, to sell shares of the Funds.
Class C shares of the Funds are offered continuously. Under exclusive dealer
agreements between Mitchell Hutchins and PaineWebber dated July 1, 1991,
PaineWebber and its correspondent firms sell each Fund's Class C shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board of trustees of each Trust,
Mitchell Hutchins or (for Dividend Growth Fund) the Sub-Adviser is responsible
for the execution of each Fund's portfolio transactions and the allocation of
brokerage transactions. In executing portfolio transactions, Mitchell Hutchins
or the Sub-Adviser seeks to obtain the best net results for a Fund, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved. 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. Each 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 Mitchell Hutchins or the
Sub-Adviser 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. During the fiscal years ended
August 31, 1994, August 31, 1993 and August 31, 1992, respectively, the Funds
paid approximately the following amounts in brokerage commissions: Atlas
Fund--$4,545,604, $3,041,882 and $339,112; Dividend Growth Fund--$1,901,499,
$1,131,909 and $1,095,795; and Growth Fund--$222,490, $150,432 and $804,066.
No Fund has any obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Funds contemplate that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber. Each Trust's board of trustees has adopted procedures
in conformity with Rule 17e-1
25
<PAGE>
under the 1940 Act to ensure that all brokerage commissions paid to Mitchell
Hutchins or its affiliates are reasonable and fair. Specific provisions in
each Advisory Contract authorize Mitchell Hutchins and any of its affiliates
that is a member of a national securities exchange to effect portfolio
transactions for the Fund on such exchange and to retain compensation in
connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the fiscal year ended August 31, 1994, Dividend Growth Fund paid $47,142
and Growth Fund paid $9,326 to PaineWebber in brokerage commissions which
represented 2.48% and 4.19%, respectively, of the total brokerage commissions
paid by the Funds and 2.81% and 2.04%, respectively, of all portfolio
transactions involving payment of commissions. For the fiscal year ended
August 31, 1993, Atlas Fund paid $4,000, Dividend Growth Fund paid $108,080
and Growth Fund paid $3,500 to PaineWebber in brokerage commissions. For the
fiscal year ended August 31, 1992, Dividend Growth Fund paid $5,040 and Growth
Fund paid $5,260 to PaineWebber in brokerage commissions.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"). Each Fund's procedures in selecting FCMs to execute the
Fund's transactions in futures contracts, including procedures permitting the
use of Mitchell Hutchins and its affiliates, are similar to those in effect
with respect to brokerage transactions in securities.
Consistent with the interests of each Fund and subject to the review of
the board of trustees of each Trust, Mitchell Hutchins or (for Dividend Growth
Fund) the Sub-Adviser may cause a Fund to purchase and sell portfolio
securities through brokers who provide the Fund with research, analysis,
advice and similar services. In return for such services, the Fund may pay to
those brokers a higher commission than may be charged by other brokers,
provided that Mitchell Hutchins or the Sub-Adviser determines in good faith
that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins or the
Sub-Adviser 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. Research services furnished by brokers through which a
Fund effects securities transactions may be used by Mitchell Hutchins or the
Sub-Adviser in advising other funds or accounts it advises and, conversely,
research services furnished to Mitchell Hutchins or the Sub-Adviser in
connection with other funds or accounts Mitchell Hutchins or the Sub-Adviser
advises may be used by Mitchell Hutchins or the Sub-Adviser in advising a
Fund. Information and research received from brokers will be in addition to,
and not in lieu of, the services required to be performed by Mitchell Hutchins
or the Sub-Adviser under the Advisory Contracts. For Atlas Fund, Dividend
Growth Fund and Growth Fund, for the fiscal year ended August 31, 1994,
Mitchell Hutchins (and, for Dividend Growth Fund, the Sub-Adviser) directed
$67,049,373, $223,552,118 and $3,459,145, respectively, in portfolio
transactions to brokers chosen because they provided research services, for
which the Funds paid $297,369, $259,192 and $13,789, respectively, in
commissions. The Funds may purchase and sell portfolio securities to and from
dealers who provide the Funds with research services. Portfolio transactions
will not be directed by the Funds to dealers solely on the basis of research
services provided. The Funds will not purchase portfolio securities at a
higher price or sell such securities at a lower price in connection with
transactions effected with a dealer, acting as principal, who furnishes
research services to Mitchell Hutchins or the Sub-Adviser than would be the
case if no weight were given by Mitchell Hutchins or the Sub-Adviser to the
dealer's furnishing of such services. Research services furnished by the
dealers through which or with which the Funds effect securities transactions
may be used by Mitchell Hutchins or the Sub-Adviser in advising other funds or
accounts they advise and, conversely, research services furnished to Mitchell
Hutchins or the Sub-Adviser in
26
<PAGE>
connection with other funds or accounts that Mitchell Hutchins or the
Sub-Adviser advises may be used in advising the Funds.
Investment decisions for the Funds and for other investment accounts
managed by Mitchell Hutchins or (for Dividend Growth Fund) the Sub-Adviser are
made independently of each other in light of differing considerations for the
various accounts. However, the same investment decision may occasionally be
made for a Fund and one or more of such accounts. In such cases, simultaneous
transactions are inevitable. Purchases or sales are then averaged as to price
and allocated between the Fund involved 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 a 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.
No Fund will purchase securities that are offered in underwritings in
which Mitchell Hutchins or any of its affiliates is a member of the
underwriting or selling group, except pursuant to procedures adopted by the
board of trustees of each Trust 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 Mitchell Hutchins
or any affiliate thereof not participate in or benefit from the sale to a
Fund.
Portfolio Turnover. Each 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 a 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, 1994 and August 31, 1993, the respective portfolio
turnover rates for the Funds were as follows: Atlas Fund--176.16% and 258.05%;
Dividend Growth Fund--94.32% and 36.52%; Growth--24.41% and 35.81%. Atlas
Fund's high turnover rate in the fiscal year ended August 31, 1993 was
attributable to a realignment of its portfolio undertaken by a new portfolio
manager.
VALUATION OF SHARES
Each Fund determines the net asset value per share separately for each
Class of shares as of the close of regular trading (currently 4:00 p.m.,
eastern time) on the New York Stock Exchange, Inc. ("NYSE") on each Business
Day, which is defined as each Monday through Friday when the NYSE is open.
Currently the NYSE is closed on the observance of the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. and, in the case of Atlas Fund,
foreign stock exchanges are valued at the last sale price on the day the
securities are valued or, lacking any sales on such day, at the last available
bid price. In cases where securities are traded on more than one exchange, the
securities are generally valued on the exchange considered by Mitchell
Hutchins or (for Dividend Growth Fund) the Sub-Adviser as the primary market.
Securities traded in the OTC market and listed on Nasdaq are
27
<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 each 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
Atlas 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 Atlas 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 applicable board of trustees. The foreign currency exchange transactions
of Atlas 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.
28
<PAGE>
PERFORMANCE INFORMATION
Each 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 a Fund's Performance Advertisements are
calculated according to the following formula:
P(1 + T)n = ERV
where:
<TABLE>
<C> <S>
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.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. In calculating the ending redeemable value, for Class A shares,
the maximum 4.5% sales charge is deducted from the initial $1,000 payment and,
for Class B shares, the applicable contingent deferred sales charge imposed on
a redemption of Class B shares held for the period is deducted. All dividends
and other distributions are assumed to have been reinvested at net asset
value.
Each 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"). A Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standarized Return for Class B shares
for periods of over six years will reflect conversion of the Class B shares to
Class A shares at the end of the sixth year.
29
<PAGE>
The following table shows performance information for the Class A, Class
B, Class C and Class D shares of the Funds for the periods indicated. All
returns for periods of more than one year are expressed as an average return.
<TABLE>
<CAPTION>
Atlas Fund
------------------------------------------
Class Class Class Class
A B C D
------ ------ ------ ------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*................................... 4.44% 3.48% 9.59% 8.54%
Non-Standardized Return................................ 9.34% 8.48% 9.59% 8.54%
Five years ended August 31, 1994:
Standardized Return*................................... 5.02% NA NA NA
Non-Standardized Return................................ 5.98% NA NA NA
Ten years ended August 31, 1994:
Standardized Return*................................... 15.40% NA NA NA
Non-Standardized Return................................ 15.94% NA NA NA
Inception** to August 31, 1994:
Standardized Return*................................... 13.71% 7.22% 8.68% 10.45%
Non-Standardized Return................................ 14.20% 8.29% 8.68% 10.45%
<CAPTION>
Dividend Growth Fund
------------------------------------------
Class Class Class Class
A B C D
------ ------ ------ ------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*................................... (5.04)% (6.31)% (0.31)% (1.29)%
Non-Standardized Return................................ (0.58)% (1.31)% (0.31)% (1.29)%
Five years ended August 31, 1994:
Standardized Return*................................... 5.32% NA NA NA
Non-Standardized Return................................ 6.30% NA NA NA
Ten years ended August 31, 1994:
Standardized Return*................................... 10.25% NA NA NA
Non-Standardized Return................................ 10.76% NA NA NA
Inception** to August 31, 1994:
Standardized Return*................................... 10.26% 3.40% 0.58% 1.79%
Non-Standardized Return................................ 10.74% 4.56% 0.58% 1.79%
<CAPTION>
Growth Fund
------------------------------------------
Class Class Class Class
A B C D
------ ------ ------ ------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*................................... (2.27)% (3.45)% 2.67% 1.59%
Non-Standardized Return................................ 2.33% 1.55% 2.67% 1.59%
Five years ended August 31, 1994:
Standardized Return*................................... 9.40% NA NA NA
Non-Standardized Return................................ 10.40% NA NA NA
Inception** to August 31, 1994:
Standardized Return*................................... 13.42% 10.37% 9.92% 11.13%
Non-Standardized Return................................ 13.98% 11.38% 9.92% 11.13%
</TABLE>
- ---------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Until December 2, 1988, the maximum
sales charge imposed on purchases of Class A shares of the Funds was 8.5%.
This higher sales charge is not reflected in the Standardized Return set
forth above. 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 and Class D shares do not
impose an initial or contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.
** The inception dates for the Class A shares of the Funds are as follows:
Atlas Fund--December 30, 1983; Dividend Growth Fund--December 20, 1983;
Growth Fund--March 18, 1985. The inception date for the Class B shares of
each Fund is July 1, 1991. The inception dates for the Class C shares of
the Funds are as follows: Atlas Fund--August 26, 1991; Dividend Growth
Fund--February 12, 1992; Growth Fund--August 26, 1991. The inception date
for Class D shares of each Fund is July 2, 1992.
30
<PAGE>
Other Information. In Performance Advertisements, each 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 Services ("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. Each Fund also may refer in such materials
to mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of a
Fund and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER
LETTERS. Comparisons in Performance Advertisements may be in graphic form.
Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested
in additional Fund shares, any future income or capital appreciation of the
Fund would increase the value, not only of the original Fund investment, but
also of the additional Fund shares received through reinvestment. As a result,
the value of the Fund investment would increase more quickly than if dividends
or other distributions had been paid in cash.
Each Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index and
the averages of yields of CDs of major banks published by Banxquote(R) Money
Markets. In comparing a 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 Funds
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. The securities held by the Funds generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in a Fund involves greater risks than an
investment in either a money market fund or a CD.
A 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.
31
<PAGE>
[CHART TO COME]
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
any 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
Funds invest. 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, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and, for Atlas Fund, net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. Among these requirements are the following: (1) a 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) a Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities, or
any of the following, that were held for less than three months -- options,
futures or forward contracts (other than those on foreign currencies), or
32
<PAGE>
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 a 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 a Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January.
Dividends and interest received by Atlas 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.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Atlas Fund has invested, and may continue to invest, in the stock of
"passive foreign investment companies" ("PFICs") and Dividend Growth Fund and
Growth Fund may invest in the stock of PFICs if such stock is denominated in
U.S. dollars and otherwise 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, a Fund will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain from disposition of 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
a 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.
The "Tax Simplification and Technical Corrections Bill of 1993," passed
in May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corpora-
33
<PAGE>
tions, including eliminating the provisions described above dealing with the
PFICs and replacing them (and other provisions) with a regulatory scheme
involving entities called "passive foreign corporations." Three similar bills
were passed by Congress in 1991 and 1992 and vetoed. It is unclear at this
time whether, and in what form, the proposed modifications may be enacted into
law.
Pursuant to proposed regulations, open-end RICs, such as the Funds, 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 and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Income from foreign currencies (except certain gains
therefrom that may be excluded by future regulations), and income from
transactions in options, futures and forward currency contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
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 a 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 a 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. Each Fund will consider whether it should seek to qualify for this
treatment for its hedging transactions. To the extent a Fund does not qualify
for this treatment, it may be forced to defer the closing out of certain
options, futures and forward currency contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Fund to continue to
qualify as a RIC.
OTHER INFORMATION
Effective July 1, 1991, the names of Atlas Fund and Growth Fund were
changed from "PaineWebber Classic Atlas Fund" and "PaineWebber Classic Growth
Fund" to their current names. Dividend Growth Fund's name was changed from
"PaineWebber Classic Growth and Income Fund" to its current name effective May
17, 1991. Effective on that date, the Fund was combined in a tax-free
reorganization with PaineWebber Classic Dividend Growth Fund, which was at
that time another series of PaineWebber America Fund. As a result of the
reorganization, each shareholder of PaineWebber Classic Dividend Growth Fund
became a shareholder of Dividend Growth Fund.
Each Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a Fund could, under
certain circumstances, be held personally
34
<PAGE>
liable for the obligations of the Trust or Fund. However, each Declaration of
Trust disclaims shareholder liability for acts or obligations of the Trust or
its Funds 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. Each
Declaration of Trust provides for indemnification from a Fund's property for
all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
a 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 a Fund. The trustees intend to
conduct the operations of each Fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
Counsel. The law firm of Kirkpatrick & Lockhart, 1800 M Street, N.W.,
Washington, D.C., 20036-5891, counsel to each Fund, has passed upon the
legality of the shares offered by the Prospectus. Kirkpatrick & Lockhart also
acts as counsel to PaineWebber and Mitchell Hutchins in connection with other
matters.
Auditors. Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, serves as independent auditors for each Fund.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended August
31, 1994 is a separate document supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and reports of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
35
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc.'s ("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 "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 some time in the
future; Baa. Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well; Ba. Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class; B. Bonds which are rated B
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small; 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 Ratings Group ("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
36
<PAGE>
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 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.
37
<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 a Fund or its distributor. The Prospectus
and this Statement of Additional Information do not constitute an offering by
any Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
------------------
TABLE OF CONTENTS
Page
----
Investment Policies and
Restrictions....................... 1
Hedging Strategies................... 10
Trustees and Officers................ 18
Investment Advisory and Distribution
Arrangements....................... 23
Portfolio Transactions............... 25
Valuation of Shares.................. 27
Performance Information.............. 29
Taxes................................ 32
Other Information.................... 34
Financial Statements................. 35
Appendix............................. 36
(C)1995 PaineWebber Incorporated
Recycled
Paper
(LOGO)
PaineWebber
Atlas Global Growth Fund
PaineWebber
Dividend Growth Fund
PaineWebber
Growth Fund
Class C Shares
- ------------------------------------------------------
Statement of Additional Information
January 1, 1995
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PAINEWEBBER GLOBAL ENERGY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
The three funds named above (each a "Fund") are series of PaineWebber
Investment Series ("Trust"), a professionally managed mutual fund. PaineWebber
Europe Growth Fund ("Europe Growth Fund") and PaineWebber Global Energy Fund
("Global Energy Fund") are diversified funds, while PaineWebber Global Growth
and Income Fund ("Global Growth and Income Fund") is a non-diversified fund.
Europe Growth Fund seeks long-term capital appreciation; it invests principally
in equity securities of issuers based in Europe. Global Growth and Income Fund
seeks high total return; it invests in equity, debt and money market securities
of U.S. and foreign issuers. Global Energy Fund seeks high total return by
investing principally in debt and equity securities of U.S. and foreign energy
and energy service companies. The Funds' investment adviser, administrator and
distributor is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the Funds, Mitchell Hutchins has appointed PaineWebber to serve
as the exclusive dealer for the sale of Fund shares. This Statement of
Additional Information is not a prospectus and should be read only in
conjunction with the Funds' current Prospectus, dated March 1, 1995. A copy of
the Prospectus may be obtained by calling any PaineWebber investment executive
or correspondent firm or by calling toll-free 1-800-647-1568. This Statement of
Additional Information is dated March 1, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Many of the foreign
securities held by the Funds are not registered with the Securities and
Exchange Commission ("SEC"), nor are the issuers thereof subject to its
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Funds than is
available concerning U.S. companies. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory requirements comparable to those applicable to U.S. companies.
In addition to purchasing securities of foreign issuers in foreign markets,
the Funds may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
corporations based in foreign countries. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed
<PAGE>
for use in the U.S. securities markets and EDRs, in bearer form, may be
denominated in other currencies and are designed for use in European securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. For purposes of the Funds' investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR or EDR evidencing ownership
of common stock will be treated as common stock.
Each Fund anticipates that its brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment, may expose a
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although each Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than
in the United States.
Investment income on certain foreign securities in which each 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 Funds would be subject.
SOVEREIGN DEBT. Investment by a Fund in debt securities issued by foreign
governments and their political subdivisions or agencies ("Sovereign Debt")
involves special risks. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal and/or interest when due in accordance with the terms of such debt,
and the Fund may have limited legal recourse in the event of a default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event
of default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local
government or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect a Fund's
investments. Political changes or a deterioration of
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a country's domestic economy or balance of trade may affect the willingness of
countries to service their Sovereign Debt. While Mitchell Hutchins manages the
Funds' portfolios in a manner that is intended to minimize the exposure to such
risks, there can be no assurance that adverse political changes will not cause
a Fund to suffer a loss of interest or principal on any of its holdings.
FOREIGN CURRENCY TRANSACTIONS. Although each 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 Funds' foreign currencies may be held as
"foreign currency call accounts" at foreign branches of foreign or domestic
banks. These accounts bear interest at negotiated rates and are payable upon
relatively short demand periods. If a bank became insolvent, a Fund could
suffer a loss of some or all of the amounts deposited. The Funds may convert
foreign currency to U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a stated commission or fee for conversion, the
prices posted generally include a "spread," which is the difference between the
prices at which the dealers are buying and selling foreign currencies.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which a Fund has valued the
securities and includes, among other things, purchased over-the-counter ("OTC")
options, repurchase agreements maturing in more than seven days and restricted
securities other than those Mitchell Hutchins has determined are liquid
pursuant to guidelines established by the Trust's board of trustees. The assets
used as cover for OTC options written by a Fund will be considered illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund
may repurchase any OTC option it writes at a maximum price to be calculated by
a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure will be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. Illiquid restricted securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933
("1933 Act"). Illiquid securities include those that are subject to
restrictions contained in the securities laws of other countries. However,
securities that are freely marketable in the country where they are principally
traded, but would not be freely marketable in the United States, will not be
considered illiquid. Where registration is required, a Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time 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, a 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.
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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 a Fund, however, could affect adversely the marketability of
such portfolio securities and a Fund might be unable to dispose of such
securities promptly or at favorable prices.
The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how bids
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in each Fund's portfolio and reports
periodically on such decisions to the board of trustees.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of fixed income obligations. A description of
ratings assigned to corporate debt obligations and preferred stock by Moody's
and S&P is included in the Appendix to this Statement of Additional
Information. The Funds may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value
or the risks of changes in foreign currency exchange rates. Also, NRSROs may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than the
rating indicates. The rating assigned to a security by a NRSRO does not reflect
an assessment of the security's market value or of the liquidity of an
investment in the security. Subsequent to its purchase by a Fund, an issue of
debt obligations may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by that Fund. Mitchell Hutchins will
consider such an event in determining whether the Fund should continue to hold
the obligation but is not required to dispose of it.
In addition to ratings assigned to individual issues, Mitchell Hutchins
analyzes interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which the Funds invest are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial condition of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
is a wide variation in the quality of bonds, both within a particular
classification and between classifications. An issuer's obligations under its
bonds
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are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of bond holders or other creditors of an
issuer; litigation or other conditions may also adversely affect the power or
ability of issuers to meet their obligations for the payment of interest and
principal on their bonds.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. A Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price plus any agreed-
upon additional amount. The difference between the total amount to be received
upon repurchase of the securities and the price which was paid by the Fund upon
acquisition is accrued as interest and included in the Fund's net investment
income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to a Fund if the other party to
a repurchase agreement becomes insolvent. Each Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimum credit risks in accordance with guidelines
established by the Trust's board of trustees. Mitchell Hutchins will review and
monitor the creditworthiness of those institutions under the board's general
supervision.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its total assets. Such agreements involve the sale of
securities held by a Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes. While a reverse repurchase
agreement is outstanding, a Fund's custodian segregates assets to cover the
amount of the Fund's obligations under the reverse repurchase agreement. See
"Investment Policies and Restrictions--Segregated Accounts." The Funds have no
intention of entering into reverse repurchase agreements during the coming
year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each Fund may purchase securities on a "when-issued" or delayed delivery basis.
A security purchased on a when-issued or delayed delivery basis is recorded as
an asset on the commitment date and is subject to changes in market value
generally based upon changes in the level of interest rates. Thus, fluctuation
in the value of the security from the time of the commitment date will affect a
Fund's net asset value. When a Fund agrees to purchase securities on a when-
issued basis, its custodian segregates assets to cover the amount of the
commitment. See "Investment Policies and Restrictions--Segregated Accounts."
The Funds purchase when-issued securities only with the intention of taking
delivery, but may sell the right to acquire the security prior to delivery if
Mitchell Hutchins deems it advantageous to do so, which may result in capital
gain or loss to a Fund.
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LENDING OF PORTFOLIO SECURITIES. Although they have no intention of doing so
during the coming year, each Fund is authorized to lend up to 10% of the total
value of its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
with the Fund's custodian bank collateral either in cash or money market
instruments, marked to market daily, in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. Each Fund will retain authority to terminate
any loans at any time. A 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. A 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. A Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. The U.S. government securities in
which Global Growth and Income Fund may invest include mortgage-backed
securities issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation, which represent undivided ownership interests in pools of
mortgages. The mortgages backing these securities include both fixed and
adjustable rate mortgages. The U.S. government or the issuing agency guarantees
the payment of the interest on and principal of these securities. The
guarantees do not extend to the securities' value, however, which is likely to
vary inversely with fluctuations in interest rates, and the guarantees do not
extend to the yield or market value of the Fund's shares. These securities are
"pass-through" instruments through which the holders receive a share of the
interest and principal payments from the mortgages underlying the securities,
net of certain fees. The principal amounts of such underlying mortgages
generally may be prepaid in whole or in part by the mortgagees at any time
without penalty, and the prepayment characteristics of the underlying mortgages
may vary. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. The Fund
will reinvest prepaid amounts in other income producing securities, the yields
of which will reflect interest rates prevailing at the time. Accelerated
prepayments adversely affect yields for mortgage-backed securities purchased by
the Fund at a premium and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the
obligation is prepaid. The opposite is true for mortgage-backed securities
purchased by the Fund at a discount.
PRIVATE MORTGAGE-BACKED SECURITIES. The private mortgage-backed securities in
which Global Growth and Income Fund may invest include U.S. private
collateralized mortgage obligations or single- or multi-class pass-through
securities and foreign mortgage pass-through securities ("Foreign Pass-
Throughs"), which are structurally similar to the pass-through instruments
described above. Such securities generally are issued by originators of and
investors in mortgage loans, including savings associations, mortgage bankers,
commercial banks, investment bankers, specialized financial institutions and
special purpose entities. Foreign Pass-Throughs usually are backed by pools of
fixed rate or adjustable rate mortgage loans. The private mortgage-backed
securities in which Global
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Growth and Income Fund invests typically are not guaranteed by an entity having
the credit status of GNMA, but they generally utilize various types of credit
enhancement.
CONVERTIBLE SECURITIES. As described in the Prospectus, each Fund may invest
in convertible securities. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure but are
usually subordinated to comparable nonconvertible securities. The value of a
convertible security is a function of its "investment value" (determined by its
yield in comparison with the yields of other securities of comparable maturity
and quality that do not have a conversion privilege) and its "conversion value"
(the security's worth, at market value, if converted into the underlying common
stock). The investment value of a convertible security is influenced by changes
in interest rates, with investment value declining as interest rates increase
and increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value, and generally the conversion
value decreases as the convertible security approaches maturity. To the extent
the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
PRECIOUS METAL-RELATED SECURITIES. As disclosed in the Prospectus, Global
Growth and Income Fund may invest in securities of companies that explore for,
extract, process or deal in precious metals, i.e., gold, silver and platinum,
and in asset-based securities indexed to the value of such metals. Such
securities may be purchased when they are believed to be attractively priced in
relation to the value of a company's precious metal-related assets or when the
values of precious metals are expected to benefit from inflationary pressure or
other economic, political or financial uncertainty or instability.
The major producers of gold include the Republic of South Africa, Russia,
Canada, the United States, Brazil and Australia. Sales of gold by Russia are
largely unpredictable and often relate to political and economic considerations
rather than to market forces. Economic, social and political developments
within South Africa may significantly affect South African gold production.
While the market prices for an asset-based security and the related natural
resource asset generally are expected to move in the same direction, there may
not be perfect correlation in the two price movements. Asset-based securities
may not be secured by a security interest in or claim on the underlying natural
resource asset. The asset-based securities in which Global Growth and Income
Fund may invest may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Certain asset-based securities may be
payable in cash at maturity at a stated amount or, at the option of the holder,
the cash equivalent of a stated amount of the asset to which it is related. (As
an example, assume gold is selling at a market price of $300 per ounce and an
issuer sells a $1,000 face amount gold-related note with a seven-year maturity,
payable in cash at maturity at the greater of either $1,000 or the then-market
price of three ounces of gold. If, at maturity, the market price of gold is
$400 per ounce, the amount payable on the note would be
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$1,200.) In such instance, the Fund may sell the asset-based security in the
secondary market, to the extent one exists, prior to maturity if the value of
the stated amount of the asset exceeds the stated principal amount and thereby
realize the appreciation in the underlying asset.
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, including reverse
repurchase agreements or the purchase of securities on a when-issued or delayed
delivery basis, the Fund will maintain with an approved custodian in a
segregated account cash, U.S. government securities or other liquid high-grade
debt securities, marked to market daily, in an amount at least equal to the
Fund's obligation or commitment under such transaction. As described below
under "Hedging and Related Income Strategies," segregated accounts may also be
required in connection with certain transactions involving options or futures
contracts or forward currency contracts.
INVESTMENT LIMITATIONS OF THE FUNDS
EUROPE GROWTH FUND. Europe Growth Fund may not (1) issue senior securities or
borrow money, except from banks or through reverse repurchase agreements for
emergency or temporary purposes, and then in an aggregate amount not in excess
of 10% of the value of Europe Growth Fund's total assets at the time of such
borrowing, provided that Europe Growth Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of the
value of Europe Growth Fund's total assets are outstanding; (2) purchase
securities of any one issuer if as a result more than 5% of Europe Growth
Fund's total assets would be invested in such issuer or Europe Growth Fund
would own or hold 10% of the outstanding voting securities of that issuer,
except that up to 25% of Europe Growth Fund's total assets may be invested
without regard to this limitation and provided that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities; (3) make an investment in any one industry if doing so
would cause the value of investments in such industry at the time of purchase
to be 25% or more of Europe Growth Fund's total assets taken at market value;
(4) purchase securities on margin, except for short-term credits necessary for
clearance of portfolio transactions and except that Europe Growth Fund may make
margin deposits in connection with its use of options, futures contracts and
options on futures contracts; (5) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, Europe Growth Fund may be deemed an underwriter under federal
securities laws; (6) make short sales of securities or maintain a short
position, except that Europe Growth Fund may (a) make short sales and maintain
short positions in connection with its use of options, futures contracts and
options on futures contracts and (b) sell short "against the box"; (7) purchase
or sell real estate, provided that Europe Growth Fund may invest in securities
secured by, or issued by companies that invest in, real estate or interests
therein, including real estate investment trusts; (8) purchase or sell
commodities or commodity contracts, except that Europe Growth Fund may purchase
or sell stock index, interest rate and foreign currency futures contracts and
options thereon, may engage in transactions in foreign currencies and may
purchase or sell options on foreign currencies for hedging purposes; (9) invest
in oil, gas or mineral-related programs or leases, provided that Europe Growth
Fund may invest in securities issued by companies that engage in such
activities; (10) make loans, except through loans of portfolio securities as
described in this Statement of Additional Information and except through
repurchase agreements, provided that for purposes of this restriction the
acquisition of publicly distributed bonds, debentures or other corporate debt
securities and investment in government obligations, short-term commercial
paper, certificates of deposit and bankers'
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acceptances shall not be deemed to be the making of a loan; or (11) purchase
any securities issued by any other investment company, except by purchase in
the open market where no commission or profit, other than a customary broker's
commission, is earned by any sponsor or dealer associated with the investment
company whose shares are acquired as a result of such purchase, provided that
such securities in the aggregate do not represent more than 10% of Europe
Growth Fund's total assets, or except in connection with the merger,
consolidation or acquisition of all the securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of Europe Growth Fund or (2) 67% or more of the shares present at a
shareholders' meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. If a percentage restriction
is adhered to at the time of an investment or transaction, a later increase or
decrease in percentage resulting from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing limitations.
The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. Europe Growth Fund may
not (1) purchase or retain the securities of any issuer if, to the knowledge of
Europe Growth Fund's management, the officers and trustees of the Trust and the
officers and directors of Mitchell Hutchins (each owning beneficially more than
0.5% of the outstanding securities of the issuer) own in the aggregate more
than 5% of the securities of the issuer; (2) invest more than 10% of its net
assets in illiquid securities, a term that means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days; (3)
make investments in warrants, if such investments, valued at the lower of cost
or market, exceed 5% of the value of its net assets, which amount may include
warrants that are not listed on the New York Stock Exchange, Inc. ("NYSE") or
American Stock Exchange, Inc. ("AMEX"), provided that such warrants, valued at
the lower of cost or market, do not exceed 2% of its net assets, and further
provided that this restriction does not apply to warrants attached to, or sold
as a unit with, other securities; (4) purchase any security if as a result it
would have more than 5% of its total assets invested in securities of companies
that together with any predecessors have been in continuous operation for less
than three years; or (5) invest more than 35% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, comparably rated
by another NRSRO or determined by Mitchell Hutchins to be of comparable
quality. This non-fundamental policy (5) can be changed only upon 30 days
advance notice to shareholders.
Europe Growth Fund will continue to interpret fundamental investment
limitation (7) to prohibit investment in real estate limited partnerships.
GLOBAL GROWTH AND INCOME FUND. Global Growth and Income Fund may not (1)
issue senior securities or borrow money, except from banks or through reverse
repurchase agreements for emergency or temporary purposes, and then in an
aggregate amount not in excess of 10% of the value of Global Growth and Income
Fund's total assets at the time of such borrowing, provided that Global Growth
and Income Fund will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of the value of Global Growth
and Income Fund's total assets are outstanding; (2) purchase securities of any
one issuer if as a result more than 5% of Global
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Growth and Income Fund's total assets would be invested in such issuer or
Global Growth and Income Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 50% of Global
Growth and Income Fund's total assets may be invested without regard to this
limitation and provided that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities; (3) make an investment in any one industry if doing so would
cause the value of investments in such industry at the time of purchase to be
25% or more of Global Growth and Income Fund's total assets taken at market
value; (4) purchase securities on margin, except for short-term credits
necessary for clearance of portfolio transactions and except that Global Growth
and Income Fund may make margin deposits in connection with its use of options,
futures contracts and options on futures contracts; (5) underwrite securities
of other issuers, except to the extent that, in connection with the disposition
of portfolio securities, Global Growth and Income Fund may be deemed an
underwriter under federal securities laws; (6) make short sales of securities
or maintain a short position, except that Global Growth and Income Fund may (a)
make short sales and maintain short positions in connection with its use of
options, futures contracts and options on futures contracts and (b) sell short
"against the box"; (7) purchase or sell real estate, provided that Global
Growth and Income Fund may invest in securities secured by, or issued by
companies that invest in, real estate or interests therein, including real
estate investment trusts; (8) purchase or sell commodities or commodity
contracts, except that Global Growth and Income Fund may purchase or sell stock
index, interest rate and foreign currency futures contracts and options
thereon, may engage in transactions in foreign currencies and may purchase or
sell options on foreign currencies for hedging purposes; (9) invest in oil, gas
or mineral-related programs or leases, provided that Global Growth and Income
Fund may invest in securities issued by companies that engage in such
activities; (10) make loans, except through loans of portfolio securities as
described in this Statement of Additional Information and except through
repurchase agreements, provided that for purposes of this restriction the
acquisition of publicly distributed bonds, debentures or other corporate debt
securities and investment in government obligations, short-term commercial
paper, certificates of deposit and bankers' acceptances shall not be deemed to
be the making of a loan; or (11) purchase any securities issued by any other
investment company, except by purchase in the open market where no commission
or profit, other than a customary broker's commission, is earned by any sponsor
or dealer associated with the investment company whose shares are acquired as a
result of such purchase, provided that such securities in the aggregate do not
represent more than 10% of Global Growth and Income Fund's total assets, or
except in connection with the merger, consolidation or acquisition of all the
securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of Global Growth and Income Fund or (2) 67% or more of the shares
present at a shareholders' meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. If a percentage
restriction is adhered to at the time of an investment or transaction, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the foregoing limitations.
The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. Global Growth and
Income Fund may not (1) purchase or retain the securities of any issuer if, to
the knowledge of Global Growth and Income Fund's management, the officers and
trustees of the Trust and the officers and directors of Mitchell
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Hutchins (each owning beneficially more than 0.5% of the outstanding securities
of the issuer) own in the aggregate more than 5% of the securities of the
issuer; (2) invest more than 10% of its net assets in illiquid securities, a
term that means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which it has valued
the security and includes, among other things, repurchase agreements maturing
in more than seven days; (3) make investments in warrants, if such investments,
valued at the lower of cost or market, exceed 5% of the value of its net
assets, which amount may include warrants that are not listed on the NYSE or
AMEX, provided that such unlisted warrants, valued at the lower of cost or
market, do not exceed 2% of its net assets, and further provided that this
restriction does not apply to warrants attached to, or sold as a unit with,
other securities; (4) purchase securities of any one issuer if as a result it
would, as to 75% of its assets at the time of purchase, own or hold more than
10% of the outstanding voting securities of that issuer; (5) purchase any
security if as a result would have more than 5% of its total assets invested in
securities of companies that together with any predecessors have been in
continuous operation for less than three years; or (6) invest more than 35% of
its total assets in debt securities rated Ba or lower by Moody's or BB or lower
by S&P, comparably rated by another NRSRO or determined by Mitchell Hutchins to
be of comparable quality. This non-fundamental policy (6) can be changed only
upon 30 days' advance notice to shareholders.
Global Growth and Income Fund will continue to interpret fundamental
investment limitation (7) to prohibit investment in real estate limited
partnerships.
GLOBAL ENERGY FUND. Global Energy Fund may not (1) purchase securities of any
one issuer if as a result more than 5% of Global Energy Fund's total assets
would be invested in such issuer or the Fund would own or hold more than 10% of
the outstanding voting securities of that issuer, except that up to 25% of
Global Energy Fund's total assets may be invested without regard to this
limitation and provided that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies and
instrumentalities; (2) purchase securities on margin, except for short-term
credits necessary for clearance of portfolio transactions, and except that
Global Energy Fund may make margin deposits in connection with its use of
options, futures contracts and options on futures contracts; (3) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, Global Energy Fund may be deemed an
underwriter under federal securities laws; (4) make short sales of securities
or maintain a short position, except that Global Energy Fund may (a) make short
sales and may maintain short positions in connection with its use of options,
futures contracts and options on futures contracts and (b) sell short "against
the box"; (5) purchase or sell real estate, provided that Global Energy Fund
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein; (6) make loans,
except through loans of portfolio securities and except through repurchase
agreements, provided that for purposes of this restriction the acquisition of
bonds, debentures, or other corporate debt securities and investment in
government obligations, short-term commercial paper, certificates of deposit
and bankers' acceptances shall not be deemed to be the making of loans; (7)
issue senior securities or borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in an aggregate
amount not in excess of 10% of Global Energy Fund's total assets, provided that
Global Energy Fund will not purchase securities while borrowings in excess of
5% of its total assets are outstanding; (8) purchase any securities issued by
any other investment company, except in connection with the merger,
consolidation or acquisition of all the securities or assets of such an issuer;
(9) invest in oil, gas or mineral-related programs or leases, provided that
Global Energy Fund may invest in
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securities issued by companies that engage in such activities; and (10)
purchase or sell commodities or commodity contracts, except that Global Energy
Fund may purchase or sell stock index, interest rate and foreign currency
futures contracts and options thereon, may engage in transactions in foreign
currencies, may purchase and sell options on foreign currencies for hedging
purposes and may also purchase or sell options, futures contracts and options
on futures contracts on heating oil, gasoline, crude oil and other energy-
related products for hedging purposes.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of Global Energy Fund or (2) 67% or more of the shares present at a
shareholders' meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. If a percentage restriction
is adhered to at the time of an investment or transaction, a later increase or
decrease in percentage resulting from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing limitations.
The following investment restrictions may be changed by the vote of the
Trust's board of trustees without shareholder approval. Global Energy Fund may
not (1) purchase or retain the securities of any issuer if, to the knowledge of
Global Energy Fund's management, the officers and trustees of the Trust and the
officers and directors of Mitchell Hutchins (each owning beneficially more than
0.5% of the outstanding securities of the issuer) own in the aggregate more
than 5% of the securities of the issuer; (2) invest more than 10% of its net
assets in illiquid securities, a term that 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 it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days; (3)
make investments in warrants, if such investments, valued at the lower of cost
or market, exceed 5% of the value of its net assets, which amount may include
warrants that are not listed on the NYSE or AMEX, provided that such unlisted
warrants, valued at the lower of cost or market, do not exceed 2% of its net
assets, and further provided that this restriction does not apply to warrants
attached to, or sold as a unit with, other securities; (4) purchase any
security if as a result more than 5% of its total assets would be invested in
securities of companies which together with any predecessors have been in
continuous operation for less than three years, or (5) invest more than 35% of
its total assets in debt securities rated Ba or lower by Moody's or BB or lower
by S&P, comparably rated by another NRSRO or determined by Mitchell Hutchins to
be of comparable quality. This non-fundamental policy (5) can be changed only
upon 30 days' advance notice to shareholders.
Global Energy Fund will continue to interpret fundamental investment
limitation (5) to prohibit investment in real estate limited partnerships.
HEDGING AND RELATED INCOME STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures"), options on futures contracts and forward currency contracts,
to attempt to hedge the Funds' portfolios and, except for Europe Growth Fund,
to enhance income. The particular Hedging Instruments are described in the
Appendix to the Prospectus.
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EUROPE GROWTH FUND. As discussed in the Prospectus, Mitchell Hutchins may
engage in certain options and futures strategies in order to attempt to hedge
Europe Growth Fund's portfolio. Mitchell Hutchins may use forward currency
contracts, options on foreign currencies, options on equity and debt securities
in which Europe Growth Fund is authorized to invest, stock index options, stock
index futures contracts, interest rate futures contracts, foreign currency
futures contracts and options on futures contracts.
GLOBAL GROWTH AND INCOME FUND. As discussed in the Prospectus, Mitchell
Hutchins may engage in certain options strategies involving securities in which
Global Growth and Income Fund is authorized to invest in order to attempt to
enhance income or to hedge Global Growth and Income Fund's portfolio. Global
Growth and Income Fund may also purchase options on stocks and stock indices to
attempt to achieve capital appreciation. Mitchell Hutchins also may use forward
currency contracts, write covered put and call options on foreign currencies
and use stock index options, stock index futures contracts, interest rate
futures contracts and foreign currency futures contracts and options on futures
contracts.
GLOBAL ENERGY FUND. As discussed in the Prospectus, Mitchell Hutchins may
engage in certain options strategies involving securities in which Global
Energy Fund is authorized to invest in order to attempt to enhance income or to
hedge Global Energy Fund's portfolio. Mitchell Hutchins also may use forward
currency contracts, write covered put and call options on foreign currencies
and use options, futures contracts and options on futures contracts on foreign
currencies. Although it has no intention of doing so during the current fiscal
year, Mitchell Hutchins also may use stock index options, stock index futures,
interest rate futures and options thereon.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge a Fund takes a
position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example, a
Fund might purchase a put option on a security to hedge against a potential
decline in the value of that security. If the price of the security declined
below the exercise price of the put, the Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transaction
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, the Fund might be
able to close out the put option and realize a gain to offset the decline in
the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Fund intends to acquire. Thus, in a long
hedge a 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, a Fund might purchase a call option on a security it
intends to purchase in order to hedge against an increase in the cost of the
security. If the price of the security increased above the exercise price of
the call, the Fund could exercise the call and thus limit its acquisition cost
to the exercise price plus the premium paid and transaction costs.
Alternatively, the Fund might be able to offset the price increase by closing
out an appreciated call option and realizing a gain.
Each Fund may purchase and write (sell) covered straddles on securities and
stock or debt indices. A long straddle is a combination of a call and a put
option purchased on the same security
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or on the same futures contract, where the exercise price of the put is less
than or equal to the exercise price of the call. A Fund might enter into a long
straddle when Mitchell Hutchins believes it likely that interest rates will be
more volatile during the term of the option than the option pricing implies. A
short straddle is a combination of a call and a put option written on the same
security where the exercise price of the put is less than or equal to the
exercise price of the call. A Fund might enter into a short straddle when
Mitchell Hutchins believes it unlikely that interest rates will be as volatile
during the term of the option as the option pricing implies.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which the Fund has invested or expects to invest. Hedging
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with options, futures contracts, forward currency contracts and
other hedging techniques. These new opportunities may become available as
Mitchell Hutchins develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts,
forward currency contracts or other techniques are developed. Mitchell Hutchins
may utilize these opportunities to the extent that they are consistent with the
Funds' investment objectives and permitted by the Funds' investment limitations
and applicable regulatory authorities. The Funds' Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon Mitchell
Hutchins' ability to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. While Mitchell Hutchins is experienced
in the use of Hedging Instruments, there can be no assurance that any
particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded. The effectiveness of hedges using Hedging Instruments on indices will
depend on the degree of correlation between price movements in the index and
price movements in the securities being hedged.
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(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.
(4) As described below, a 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 a Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Hedging Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of a contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. Transactions using Hedging Instruments, other
than purchased options, expose a Fund to an obligation to another party. A Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, currencies or other options,
futures contracts or forward currency contracts or (2) cash and short-term
liquid debt securities, with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. Each
Fund will comply with SEC guidelines regarding cover for hedging transactions
and will, if the guidelines so require, set aside cash, U.S. government
securities or other liquid, high-grade debt securities in a segregated account
with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Funds may purchase put and call options, and write (sell)
covered put and call options, on equity and debt securities in which they are
authorized to invest, foreign currencies and stock or debt indices. The
purchase of call options serves as a long hedge, and the purchase of put
options serves as a short hedge. Writing covered put or call options can enable
a Fund to enhance income by reason of the premiums paid by the purchasers of
such options. However, if the market price of the security underlying a covered
put option declines to less than the exercise price on the option, minus the
premium received, the Fund would expect to suffer a loss. Writing covered call
options serves as a limited short hedge, because declines in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the
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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 instruments would be offset to the extent of the premiums
received for writing the options. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and a Fund will be obligated to purchase the
security at more than its market value. If the covered option is an OTC option,
the securities or other assets used as cover would be considered illiquid to
the extent described under "Investment Policies and Restrictions--Illiquid
Securities."
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Generally, the OTC debt and foreign currency options used by the Funds
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Conversely, a
Fund may terminate a position in a put or call option it had purchased by
writing an identical put or call option; this is known as a closing sale
transaction. Closing transactions permit a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
The Funds may purchase or write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when a 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.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each 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 a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.
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If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or
call option written by a Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.
A Fund may purchase and write put and call options on indices of equity or
debt securities in much the same manner as the more traditional options
discussed above, except the index options may serve as a hedge against overall
fluctuations in the equity or debt securities market (or market sectors) rather
than anticipated increases or decreases in the value of a particular security.
GUIDELINES FOR OPTIONS. Each 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) A Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums on
all other options held by the Fund, does not exceed 5% of the Fund's total
assets.
(2) The aggregate value of securities underlying put options written by a
Fund, determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by the Fund that are held at any time will not exceed 20%
of the Fund's net assets.
FUTURES. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve
as a limited short hedge, using a strategy similar to that used for writing
covered call options on securities or indices. Similarly, writing covered put
options on futures contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of the
debt portion of a Fund's portfolio. If Mitchell Hutchins wishes to shorten the
average duration of a Fund's debt portfolio, the Fund may sell a futures
contract or a call option thereon, or purchase a put option on that futures
contract. If Mitchell Hutchins wishes to lengthen the average duration of a
Fund's debt portfolio, the Fund may buy a futures contract or a call option
thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing an option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
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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 a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call option thereon, it is subject to
daily variation margin calls that could be substantial in the event of adverse
price movements. If 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.
Each 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 a Fund were unable to liquidate a futures or related options position due
to the absence of a liquid secondary market or the imposition of price limits,
it could incur substantial losses. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
GUIDELINES FOR FUTURES AND RELATED OPTIONS. Each Fund's use of futures and
related options is governed by the following guidelines, which can be changed
by the Trust's board of trustees without shareholder vote:
(1) To the extent a Fund enters into futures contracts, options on futures
positions and options on foreign currencies traded on a commodities exchange
that are not for bona fide hedging purposes
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(as defined by the CFTC), the aggregate initial margin and premiums on those
positions (excluding the amount by which options are "in-the-money") may not
exceed 5% of the Fund's net assets.
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by a Fund that are held at any time will not exceed 20% of
the Fund's net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by a Fund will not exceed 5%of the Fund's total
assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Funds 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 Funds' securities are
denominated. Such currency hedges can protect against price movements in a
security that a Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
The Funds might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, a Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another foreign
currency or a basket of currencies, the values of which Mitchell Hutchins
believes will have a positive correlation to the value of the currency being
hedged. The risk that movements in the price of the Hedging Instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.
The value of Hedging Instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, the Funds 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, a 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 Funds 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, a 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, a 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 Funds may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign currency or a
basket of currencies, the value of which Mitchell Hutchins believes will have a
positive correlation to the values of the currency being hedged. In addition,
the Funds may use forward currency contracts to shift exposure to foreign
currency fluctuations from one country to another. For example, if a Fund owns
securities denominated in a foreign currency and Mitchell Hutchins believes
that currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedging." Use of a
different foreign currency magnifies the risk that movements in the price of
the Hedging Instrument will not correlate or will correlate unfavorably with
the foreign currency being hedged.
The cost to the Funds 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 a Fund enters into a forward currency contract, it relies on the contra
party to make or take delivery of the underlying currency at the maturity of
the contract. Failure by the contra party to do so would result in the loss of
any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that a 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, a 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.
20
<PAGE>
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. Each Fund may enter
into forward currency contracts or maintain a net exposure to such contracts
only if (1) the consummation of the contracts would not obligate the Fund to
deliver an amount of foreign currency in excess of the value of the position
being hedged by such contracts or (2) the Fund maintains cash, U.S. government
securities or liquid, high-grade debt securities in a segregated account in an
amount not less than the value of its total assets committed to the
consummation of the contract and not covered as provided in (1) above, as
marked to market daily.
OTHER OPTIONS AND FUTURES STRATEGIES. Although it has no intention of doing
so during the coming year, Global Energy Fund may invest in certain energy-
related commodity options and futures, such as heating oil, gasoline and crude
oil options and futures, to hedge against changes in the market value of
securities held in its portfolio. Such investments may be made only for hedging
purposes and only as permitted by applicable federal and state law. Such
options and futures contracts would be subject to the same guidelines as
described above for other options and futures contracts. Global Energy Fund
will not invest in energy-related commodity options or futures until such
instruments have been sufficiently described in the Prospectus and Statement of
Additional Information.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their age, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of Paine
Jr.**; 68 Chairman of the Webber Group Inc. ("PW Group")
Board of Trustees (holding company of PaineWebber and
Mitchell Hutchins) and a consultant
to PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is also a director of Inter-
state Bakeries Corporation and a
director or trustee of 26 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of AMSCO
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
International Inc., Federated De-
partment Stores, Inc., Inco Homes
Corporation and New World Communi-
cations Group Incorporated and a
director or trustee of 18 other in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10117 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Paul B. Guenther**; 54 Trustee and President Mr. Guenther is a director of
PaineWebber and Mitchell Hutchins
and president and a director of PW
Group. Mr. Guenther is also presi-
dent of 26 and a director or
trustee of 17 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Cap-
901 15th Street, N.W. ital Partners (investment bank) and
Suite 300 a co-chairman and director of CB
Washington, D.C. 20005 Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 1992, he was campaign manager
of Bush-Quayle '92. From 1990 to
1992, he was vice chairman, and
from 1989 to 1990, he was president
of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA Inc.)
Prior to 1989, he was employed by
the Marriott
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
Corporation (hotels, restaurants,
airline catering and contract feed-
ing), where he most recently was an
exec-utive vice president and pres-
ident of Marriott Hotels and Re-
sorts. Mr. Malek is also a director
of American Management Systems,
Inc., Automatic Data Processing,
Inc., Avis, Inc., FPL Group, Inc.,
ICF International, Manor Care, Inc.
and National Education Corporation
and a director or trustee of 16
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Frank P.L. Minard**; 49 Trustee Mr. Minard is chairman and a direc-
tor of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins
Institutional Investors Inc. and a
director of PaineWebber. Prior to
1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in
New York and Director of Oppen-
heimer Capital Ltd. in London. Mr.
Minard is also president of 13 and
a director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Judith Davidson Moyers; 59 Trustee Mrs. Moyers is president of Public
Public Affairs Television Affairs Television, Inc., an educa-
356 W. 58th Street tional consultant and a home econo-
New York, New York 10019 mist. Mrs. Moyers is also a direc-
tor of Columbia Real Estate Invest-
ments, Inc. and Ogden Corporation
and a director or trustee of 16
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and fi-
400 Park Avenue nancial consultant. Mr. Murray is
New York, New York 10022 also a director and chairman of
American Continental Properties,
Inc., a trustee of Prudential Re-
alty Trust and a director or
trustee of 16 other investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Manage-
ment, Inc., an investment advisory
firm. Prior to April 1993, Ms.
Boyle was a vice president and man-
ager--legal administration of
Mitchell Hutchins. Ms. Boyle is
also a vice president of 26 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was an
associate at the law firm of Seward
& Kissel. Ms. Cohen is also a vice
president and assistant secretary
of 26 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic equity
strategist and a managing director
of Mitchell Hutchins. Ms. Harris is
also a vice president of 19 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frank Jennings; 47 Vice President Mr. Jennings is a managing director
and director of international equi-
ties of Mitchell Hutchins. Prior to
1992, he was managing director of
global investments of AIG Global
Investors. Mr. Jennings is also a
vice president of 3 other invest-
ment companies for which Mitchell
Hutchins serves as investment ad-
viser.
Clifford E. Kirsch; 35 Vice President and Mr. Kirsch is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to March
1994, he was an assistant director
in the Division of Investment Man-
agement at the SEC. Mr. Kirsch is
also a vice
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------- --------------------
<S> <C> <C>
president and assistant secretary
of 26 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president
and secretary of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
43 and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in
the law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld is
also a vice president of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992
to August 1994, he was a vice pres-
ident at BlackRock Financial Man-
agement, L.P. Prior to August 1992,
he was an audit manager with Ernst
& Young LLP. Mr. Schubert is also a
vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------------- --------------------
<S> <C> <C>
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a fund-
raising director for a U.S. Senate
campaign. Prior to September 1991,
she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a
vice president and assistant trea-
surer of 39 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance division of Mitchell
Hutchins. Prior to 1991, he was an
audit senior manager with Ernst &
Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Stuart Waugh; 39 Vice President Mr. Waugh is a managing director and
a portfolio manager of Mitchell
Hutchins responsible for global
fixed income investments and cur-
rency trading. Mr. Waugh is also a
vice president of 5 other invest-
ment companies for which Mitchell
Hutchins serves as investment ad-
viser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust $3,000
annually and $250 per meeting of the board or any committee thereof. Trustees
are reimbursed for any expenses incurred in attending meetings. Trustees and
officers of the Trust own in the aggregate less than
26
<PAGE>
1% of the shares of each 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees..... -- -- -- --
Meyer Feldberg,
Trustee................... $6,500 -- -- $86,050
George W. Gowen,
Trustee................... 6,000 -- -- 71,425
Paul B. Guenther,
Trustee and president..... -- -- -- --
Frederic V. Malek,
Trustee................... 6,500 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 5,750 -- -- 71,125
Thomas F. Murray,
Trustee................... 6,250 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended October
31, 1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.
27
<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Funds pursuant to a contract with the Trust
dated April 21, 1988, as supplemented by Fee Agreements for Europe Growth Fund
and Global Growth and Income Fund dated January 29, 1990 and May 19, 1989,
respectively ("Advisory Contract"). Under the Advisory Contract, the Funds pay
Mitchell Hutchins an annual fee, computed daily and paid monthly, according to
the following schedules:
EUROPE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $50 million.......... 0.90%
In excess of $50 million
up to $100 million........ 0.85
In excess of $100 million
up to $150 million........ 0.80
In excess of $150 million
up to $200 million........ 0.75
Over $200 million.......... 0.70
</TABLE>
GLOBAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million......... 0.900%
In excess of $500 million
up to $1.0 billion........ 0.875
In excess of $1.0 billion
up to $1.5 billion........ 0.850
In excess of $1.5 billion
up to $2.0 billion........ 0.825
Over $2.0 billion.......... 0.800
</TABLE>
GLOBAL ENERGY FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $250 million......... 0.85%
In excess of $250 million
up to $500 million......... 0.80
Over $500 million.......... 0.75
</TABLE>
For the fiscal year ended October 31, 1994, the Funds paid (or accrued) to
Mitchell Hutchins the following advisory and administrative fees: Europe Growth
Fund--$1,281,874; Global Growth and Income Fund--$986,716; and Global Energy
Fund--$284,559. For the fiscal year ended October 31, 1993, the Funds paid (or
accrued) to Mitchell Hutchins the following advisory and administrative fees:
Europe Growth Fund--$861,201; Global Growth and Income Fund--$617,119; and
Global Energy Fund--$318,543. For the fiscal year ended October 31, 1992, the
Funds paid (or accrued) to Mitchell Hutchins the following advisory and
administrative fees: Europe Growth Fund--$944,779; Global Growth and Income
Fund--$686,551; and Global Energy Fund--$388,669.
Under a service agreement pursuant to which PaineWebber provides certain
services to the Funds not otherwise provided by the Funds' transfer agent,
which agreement is reviewed by the Trust's board of trustees annually, during
the fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992,
respectively, the Funds paid (or accrued) the following service fees to
PaineWebber: Europe Growth Fund--$80,674, $67,681 and $80,187; Global Growth
and Income Fund--$49,245, $36,065 and $40,741; and Global Energy Fund--$17,999,
$20,167 and $24,634.
Under the terms of the Advisory Contract, each Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not
28
<PAGE>
readily identifiable as belonging to a Fund are allocated among the Funds and
the Trust's other series by or under the direction of the board of trustees in
such manner as the board deems to be fair and equitable. Expenses borne by each
Fund include the following (or a Fund's share of the following): (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith, (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins, (3)
organizational expenses, (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares and the Trust under federal
and state securities laws and maintenance of such registrations and
qualifications, (5) fees and salaries payable to trustees who are not
interested persons (as defined in the 1940 Act) of the Trust or Mitchell
Hutchins, (6) all expenses incurred in connection with the trustees' services,
including travel expenses, (7) taxes (including any income or franchise taxes)
and governmental fees, (8) costs of any liability, uncollectible items of
deposit and other insurance or fidelity bonds, (9) any costs, expenses or
losses arising out of a liability of or claim for damages or other relief
asserted against the Trust or the Fund for violation of any law, (10) legal,
accounting and auditing expenses, including legal fees of special counsel for
the independent trustees, (11) charges of custodians, transfer agents and other
agents, (12) costs of preparing share certificates, (13) expenses of setting in
type and printing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders, and costs of mailing such materials to existing
shareholders, (14) any extraordinary expenses (including fees and disbursements
of counsel) incurred by the Trust or the Fund, (15) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations, (16) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the board and any committees thereof, (17) the cost
of investment company literature and other publications provided to trustees
and officers and (18) costs of mailing, stationery and communications
equipment.
As required by state regulation, Mitchell Hutchins will reimburse a Fund if
and to the extent that the aggregate operating expenses of the Fund exceed
applicable limits in any fiscal year. Currently, the most restrictive such
limit applicable to a Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended October 31, 1994, October 31, 1993 and October 31, 1992, no
reimbursements were made pursuant to such limitation for any of the Funds.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon its assignment and is terminable at any time
without penalty by the Trust's board of trustees or by vote of the holders of a
majority of a Fund's outstanding voting securities, on 60 days' written notice
to Mitchell Hutchins or by Mitchell Hutchins on 60 days' written notice to the
Fund.
29
<PAGE>
The following table shows the approximate net assets as of January 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
------------------- ----------
<S> <C>
Domestic (excluding Money Market).............................. $ 5,512.8
Global......................................................... 3,003.4
Equity/Balanced................................................ 2,382.1
Fixed Income (excluding Money Market).......................... 6,134.1
Taxable Fixed Income......................................... 4,393.1
Tax-Free Fixed Income........................................ 1,741.0
Money Market Funds............................................. 17,685.9
</TABLE>
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class D shares of each Fund under separate distribution
contracts with the Trust dated July 7, 1993 (collectively, "Distribution
Contracts") that require Mitchell Hutchins to use its best efforts, consistent
with its other businesses, to sell shares of the Funds. Shares of the Funds are
offered continuously. Under separate exclusive dealer agreements between
Mitchell Hutchins and PaineWebber dated July 7, 1993 relating to the Class A,
Class B and Class D shares of each Fund (collectively, "Exclusive Dealer
Agreements"), PaineWebber and its correspondent firms sell each Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class D shares of each Fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class D
Plan," collectively, "Plans"), each Fund pays Mitchell Hutchins a service fee,
accrued daily and payable monthly, at the annual rate of 0.25% of the average
daily net assets of each Class of shares. Under the Class B Plan, each Fund
also pays Mitchell Hutchins a distribution fee, accrued daily and payable
monthly, at the annual rate of 0.75% of the average daily net assets of the
Class B shares. Under the Class D Plan, each Fund pays Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of
0.75% of the average daily net assets of the Class D shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the Trust's board of trustees at least quarterly, and the trustees will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect
only so long as it is approved at least annually, and any material amendment
thereto is approved, by the Trust's board of trustees, including those trustees
who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose, (3)
payments by a Fund under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the outstanding shares of the
relevant Class of that 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.
30
<PAGE>
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins will allocate expenses attributable to the sale of each Class of Fund
shares to such Class based on the ratio of sales of shares of such Class to the
sales of all three Classes of shares. The fees paid by one Class of Fund shares
will not be used to subsidize the sale of any other Class of Fund shares.
For the fiscal year ended October 31, 1994, the Funds paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class D
Plans:
<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Class A................................... $231,887 $168,336 $ 30,522
Class B................................... 403,753 308,330 200,830
Class D................................... 180,504 114,683 11,861
</TABLE>
Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Funds during the fiscal year ended October 31,
1994:
CLASS A
<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Marketing and advertising................ $ 39,248 $ 29,271 $ 5,665
Printing of prospectuses and statements
of additional information............... 168 119 6
Branch network costs allocated and
interest expense........................ 242,481 130,655 19,051
Service fees paid to PaineWebber
investment executives................... 104,350 75,751 13,736
</TABLE>
CLASS B
<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Marketing and advertising................ $ 47,691 $ 67,738 $ 18,090
Amortization of commissions.............. 177,963 119,627 76,662
Printing of prospectuses and statements
of additional information............... 279 373 24
Branch network costs allocated and
interest expense........................ 300,614 312,260 67,882
Service fees paid to PaineWebber
investment executives................... 45,422 34,688 122,594
</TABLE>
31
<PAGE>
CLASS D
<TABLE>
<CAPTION>
GLOBAL GROWTH
EUROPE AND GLOBAL
GROWTH FUND INCOME FUND ENERGY FUND
----------- ------------- -----------
<S> <C> <C> <C>
Marketing and advertising................ $ 48,601 $ 25,729 $ 49,883
Amortization of commissions.............. 60,747 34,214 3,760
Printing of prospectuses and statements
of additional information............... 436 73 170
Branch network costs allocated and
interest expense........................ 298,236 103,646 187,780
Service fees paid to PaineWebber
investment executives................... 20,306 12,902 1,334
</TABLE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network costs
allocated and interest expense" consist of an allocated portion of the expenses
of various PaineWebber departments involved in the distribution of each Fund's
shares, including the PaineWebber retail branch system.
In approving each Fund's overall Flexible PricingSM system of distribution,
the Trust's board of trustees considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby
encouraging current shareholders to make additional investments in the Fund and
attracting new investors and assets to the Fund to the benefit of the Fund and
its shareholders; (2) facilitate distribution of the Fund's shares; and (3)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution arrangements.
In approving the Class A Plan for each Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related
expenses and costs.
In approving the Class B Plan for each Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from Fund purchase payments and instead having the entire amount of
their purchase payments immediately invested in Fund shares, (3) Mitchell
Hutchins' belief that the ability of PaineWebber investment executives and
correspondent firms to receive sales commissions when Class B shares are sold
and continuing service fees thereafter while their customers invest
32
<PAGE>
their entire purchase payments immediately in Class B shares would prove
attractive to the investment executives and correspondent firms, resulting in
greater growth of the Fund than might otherwise be the case, (4) the advantages
to the shareholders of economies of scale resulting from growth in the Fund's
assets and potential continued growth, (5) the services provided to the Fund
and its shareholders by Mitchell Hutchins, (6) the services provided by
PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (7) Mitchell Hutchins' shareholder service- and distribution-related
expenses and costs. The trustees also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without
the concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.
In approving the Class D Plan for each Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors
in having no initial sales charges deducted from the Fund's purchase payments
and instead having the entire amount of their purchase payments immediately
invested in Fund shares, (2) the advantage to investors in being free from
contingent deferred sales charges upon redemption and paying for distribution
on an ongoing basis, (3) Mitchell Hutchins' belief that the ability of
PaineWebber investment executives and correspondent firms to receive sales
compensation for their sales of Class D shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class D shares and do not face contingent deferred
sales charges, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service- and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its investment executives, without the concomitant receipt by Mitchell Hutchins
of initial sales charges or contingent deferred sales charges upon redemption,
was conditioned upon its expectation of being compensated under the Class D
Plan.
With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees that
are calculated based upon a percentage of the average net assets of a Fund,
which fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.
33
<PAGE>
Under the Distribution Contract between the Trust and Mitchell Hutchins for
the Class A shares and similar prior distribution contracts, for the periods
set forth below, Mitchell Hutchins earned the following approximate amounts of
sales charges and retained the following approximate amounts, net of
concessions to PaineWebber as exclusive dealer:
EUROPE GROWTH FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Earned............................................ $206,967 $218,529 $110,740
Retained.......................................... 19,921 14,904 6,512
</TABLE>
GLOBAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Earned.............................................. $139,061 $78,195 $69,770
Retained............................................ 88,279 5,515 4,235
</TABLE>
GLOBAL ENERGY FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
----------------------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Earned................................................ $5,410 $10,651 $13,387
Retained.............................................. 302 5,496 761
</TABLE>
For the fiscal year ended October 31, 1994, Mitchell Hutchins earned and
retained the following contingent deferred sales charges paid upon certain
redemptions of Class B shares:
<TABLE>
<CAPTION>
GLOBAL GROWTH
AND GLOBAL
EUROPE GROWTH FUND INCOME FUND ENERGY FUND
------------------ ------------- -----------
<S> <C> <C>
$194,268 $92,409 $57,557
</TABLE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins is responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, Mitchell Hutchins seeks to obtain the best net results for each
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
34
<PAGE>
which the dealer is willing to purchase and sell a specific security at the
time. Each Fund may invest in securities traded in the OTC market and will
engage primarily in transactions with the dealers who make markets in such
securities, unless a better price or execution could be obtained by using a
broker. While Mitchell Hutchins generally seeks reasonably competitive
commission rates and dealer spreads, payment of the lowest commission or spread
is not necessarily consistent with obtaining the best net results. For the
fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992,
Europe Growth Fund paid $1,083,604, $1,338,699 and $357,883, respectively, in
brokerage commissions. For the fiscal years ended October 31, 1994, October 31,
1993 and October 31, 1992, Global Growth and Income Fund paid $720,898,
$752,315 and $186,174, respectively, in brokerage commissions. For the fiscal
years ended October 31, 1994, October 31, 1993 and October 31, 1992, Global
Energy Fund paid $174,269, $209,072 and $148,681, respectively, in brokerage
commissions.
No Fund has any obligation to deal with any broker or group of brokers in the
execution of portfolio transactions. Each Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may
be conducted through Mitchell Hutchins or its affiliates, including
PaineWebber. The Trust's board of trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for a 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 years ended October 31, 1994, October 31, 1993 and
October 31, 1992, Global Growth and Income Fund paid $0, $880 and $0,
respectively, and Global Energy Fund paid $0, $1,400 and $2,500, respectively,
to PaineWebber in brokerage commissions. During the last three fiscal years,
Europe Growth Fund paid no brokerage commissions to Mitchell Hutchins or any of
its affiliates.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. Each
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of Mitchell Hutchins
and its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Consistent with the interests of each Fund and subject to the review of the
board of trustees, Mitchell Hutchins may cause a 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, a Fund may pay to those brokers a higher commission than may be
charged by other brokers, provided that Mitchell Hutchins determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins to the Fund
and its other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. For
purchases or sales with broker-dealer firms which act as principal, Mitchell
Hutchins seeks best execution. Although Mitchell Hutchins may receive certain
research or execution services in connection with these transactions, Mitchell
Hutchins will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight was attributed to the
services provided by the executing dealer. Moreover, Mitchell Hutchins will not
enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services which could be purchased for hard dollars. Mitchell Hutchins may
engage in
35
<PAGE>
agency transactions in OTC equity and debt securities in return for research
and execution services. These transactions are entered into only in compliance
with procedures ensuring that the transaction (including commissions) is at
least as favorable as it would have been if effected directly with a market-
maker that did not provide research or execution services. These procedures
include Mitchell Hutchins receiving multiple quotes from dealers before
executing the transaction on an agency basis.
Research services furnished by brokers through which a Fund effects
securities transactions may be used by Mitchell Hutchins in advising other
funds or accounts, and, conversely, research services furnished to Mitchell
Hutchins by brokers in connection with other funds or accounts Mitchell
Hutchins advises may be used by Mitchell Hutchins in advising a Fund.
Information and research received from brokers will be in addition to, and not
in lieu of, the services required to be performed by Mitchell Hutchins under
the Advisory Contract. For Europe Growth Fund, Global Growth and Income Fund
and Global Energy Fund, for the fiscal year ended October 31, 1994, Mitchell
Hutchins directed $0, $9,573,436 and $4,633,191, respectively, in portfolio
transactions to brokers chosen because they provided research services, for
which these Funds paid $0, $38,902 and $5,750, respectively, in commissions.
The Funds may purchase and sell portfolio securities to and from dealers who
provide the Funds with research services. Portfolio transactions will not be
directed by the Funds to dealers solely on the basis of research services
provided. The Funds will not purchase portfolio securities at a higher price or
sell such securities at a lower price in connection with transactions effected
with a dealer, acting as principal, who furnishes research services to Mitchell
Hutchins than would be the case if no weight were given by Mitchell Hutchins to
the dealer's furnishing of such services. Research services furnished by the
dealers through which or with which the Funds effect securities transactions
may be used by Mitchell Hutchins in advising other funds or accounts and,
conversely, research services furnished to Mitchell Hutchins in connection with
other funds or accounts that Mitchell Hutchins advises may be used in advising
the Funds.
Investment decisions for each Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for a Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between 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 a 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 a Fund.
No Fund will purchase securities that are offered in underwritings in which
Mitchell Hutchins or any of its affiliates is a member of the underwriting or
selling group, except pursuant to procedures adopted by the Trust's board of
trustees pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that the purchase be at not more than the
public offering price prior to the end of the first business day after the date
of the public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to a Fund.
PORTFOLIO TURNOVER. The annual portfolio turnover rate is calculated by
dividing the lesser of a Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. For the fiscal years ended October
31, 1994 and October 31, 1993, respectively, the portfolio turnover rates for
the Funds were: Europe Growth Fund--173.58% and 252.23%; Global Growth and
Income Fund--172.13% and 205.86%; and Global Energy Fund--156.96% and 148.01%.
36
<PAGE>
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups of
related Fund investors may combine purchases of Class A shares of the Funds
with concurrent purchases of Class A shares of any other PaineWebber mutual
fund and thus take advantage of the reduced sales charges for Class A shares
indicated in the tables of sales charges in the Prospectus. The sales charge
payable on the purchase of Class A shares of the Funds and Class A shares of
such other funds will be at the rates applicable to the total amount of the
combined concurrent purchases.
An "eligible group of related Fund investors" can consist of any combination
of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by the individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse; or
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that other employer).
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Funds among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber mutual fund.
The purchaser must provide sufficient information to permit confirmation of his
or her holdings, and the acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.
WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only
to redemption of shares held at the time of death.
Certain PaineWebber mutual funds, including Global Energy Fund, offered
shares subject to contingent deferred sales charges before the implementation
of the Flexible Pricing system on July
37
<PAGE>
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 a 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 each Fund may be exchanged for shares of the
corresponding class of most other PaineWebber and Mitchell Hutchins/Kidder,
Peabody mutual funds. Shareholders will receive at least 60 days' notice of any
termination or material modification of the exchange offer, except no notice
need be given of an amendment whose only material effect is to reduce the
exchange fee, and no notice need be given if, under extraordinary
circumstances, either redemptions are suspended under the circumstances
described below or a Fund temporarily delays or ceases the sales of its shares
because it is unable to invest amounts effectively in accordance with the
Fund's investment objectives, policies and restrictions.
If conditions exist that make cash payments undesirable, each 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 a 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. A 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 a 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 a Fund of sufficient
shares to provide the withdrawal payment specified by participants in the
Funds' systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the plan at any time
without charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in the
plan, change the withdrawal amount or terminate participation in the plan will
not be effective until five business days after written
38
<PAGE>
instructions with signatures guaranteed are received by the Transfer Agent.
Shareholders may request the forms needed to establish a systematic withdrawal
plan from their PaineWebber investment executives, correspondent firms or the
Transfer Agent at 1-800-647-1568.
REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in a 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 five business days after the trade date, and
the purchase price of the shares is withdrawn from the investor's RMA account
on the settlement date from the following sources and in the following order:
uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to enrolling
in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may take
up to two weeks to become effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.
39
<PAGE>
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether though the
Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard (R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the five RMA money market funds--RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California
Municipal Money Fund and RMA New York Municipal Money Fund. Each money
market fund attempts to maintain a stable price per share of $1.00,
although there can be no assurance that it will be able to do so.
Investments in the money market funds are not insured or guaranteed by
the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $25 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
40
<PAGE>
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 each Fund will automatically convert to Class A shares,
based on the relative net asset values per share of each of the two Classes, as
of the close of business on the first Business Day (as defined below) of the
month in which the sixth anniversary of the initial issuance of such Class B
shares of the Fund occurs. For the purpose of calculating the holding period
required for conversion of Class B shares, the date of initial issuance shall
mean (1) the date on which such Class B shares were issued, or (2) for Class B
shares obtained through an exchange, or a series of exchanges, the date on
which the original Class B shares were issued. If the shareholder acquired
Class B shares of a Fund through an exchange of Class B shares of a CDSC Fund
that were acquired prior to July 1, 1991, the shareholder's holding period for
purposes of conversion will be determined based on the date the CDSC Fund
shares were initially issued. For purposes of conversion to Class A, Class B
shares purchased through the reinvestment of dividends and other distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
in the sub-account) convert to 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 each 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
Each 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 Monday through Friday when the NYSE is open.
Currently, the NYSE is closed on the observance of the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. and foreign stock exchanges are valued at
the last sale price on the day the securities are being valued or, lacking any
sales on such day, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are generally valued on
the exchange considered by Mitchell Hutchins as the primary market. Securities
traded in the OTC market and listed on Nasdaq are valued at the last available
sale price on Nasdaq at 4:00 p.m., eastern time; other OTC securities are
valued at the last bid price available prior to
41
<PAGE>
valuation. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Trust's board of trustees. It should be recognized that
judgment often plays a greater role in valuing non-investment grade debt
securities than is the case with respect to securities for which a broader
range of dealer quotations and last-sale information is available. All
investments quoted in foreign currency are valued daily in U.S. dollars on the
basis of the foreign currency exchange rate prevailing at the time such
valuation is determined by the Funds' custodian. The amortized cost method of
valuation generally is used to value debt obligations with 60 days or less
remaining until maturity, unless the board of trustees determines that this
does not represent fair value.
Foreign currency exchange rates are generally determined prior to the close
of trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events will not be
reflected in a computation of a 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 a 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
Each Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in a Fund's Performance Advertisements are calculated according
to the following formula:
P(1 + T) to the power of n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.
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<PAGE>
Each 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"). A Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
The following table shows performance information for the Class A, Class B
and Class D shares of each of the Funds for the periods indicated. All returns
for periods of more than one year are expressed as an annual average return.
<TABLE>
<CAPTION>
GLOBAL GROWTH AND
EUROPE GROWTH FUND INCOME FUND GLOBAL ENERGY FUND
-------------------------- ------------------------- ---------------------------
CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal year ended Octo-
ber 31, 1994:
Standardized Return*... (8.55)% (10.03)% (5.00)% (3.18)% (4.40)% 0.68% (10.03)% (11.56)% (6.59)%
Non-Standardized Re-
turn.................. (4.24)% (5.03)% (5.00)% 1.35% 0.60% 0.68% (5.79)% (6.56)% (6.59)%
Five years ended Octo-
ber 31, 1993:
Standardized Return*... NA NA NA 7.10% NA NA NA 4.80% NA
Non-Standardized Re-
turn.................. NA NA NA 8.09% NA NA NA 5.13% NA
Inception** to October
31, 1994:
Standardized Return.... (0.40)% 2.38% 4.30% 7.48% 9.18% 8.72% 5.10% 7.30% 5.13%
Non-Standardized Re-
turn.................. 0.57% 2.94% 4.30% 8.40% 9.66% 8.72% 6.57% 7.30% 5.13%
</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
charge imposed on a redemption of shares held for the period. Class D shares
do not impose an initial or a contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.
**The inception dates for the Class A shares of each Fund are as follows:
Europe Growth Fund--February 7, 1990; Global Energy Fund--July 1, 1991;
Global Growth and Income Fund--June 9, 1989. The inception dates for the
Class B shares of each Fund are as follows: Europe Growth Fund--July 1,
1991; Global Energy Fund--September 18, 1987; Global Growth and Income
Fund--July 1, 1991. The inception dates for the Class D shares of each Fund
are as follows: Europe Growth Fund--July 6, 1992; Global Energy Fund--July
8, 1992; and Global Growth and Income Fund--July 6, 1992.
OTHER INFORMATION. In Performance Advertisements, the Funds may compare their
Standardized Return and/or their Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper") for European region mutual funds
(Europe Growth Fund), global flexible portfolio funds (Global Growth and Income
Fund), and natural resources funds (Global Energy Fund), CDA Investment
Technologies, Inc. ("CDA"), Wiesenberger Investment
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<PAGE>
Companies Service ("Wiesenberger"), Investment Company Data, Inc. ("ICD"), or
Morningstar Mutual Funds ("Morningstar") or with the performance of recognized
stock and other indices, including the Standard & Poor's 500 Composite Stock
Price Index, the Dow Jones Industrial Average, the Wilshire 5000 Index, the
Morgan Stanley Capital International Perspective Indices, the Salomon Brothers
World Government Index, the Morgan Stanley Capital International Energy Sources
Index, the Standard & Poor's Oil Composite Index, the Salomon Brothers Non-U.S.
Dollar Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury Bonds
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. Each Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of a Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS.
Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested
in additional Fund shares, any future income or capital appreciation of the
Fund would increase the value, not only of the original Fund investment, but
also of the additional Fund shares received through reinvestment. As a result,
the value of the Fund investment would increase more quickly than if dividends
or other distributions had been paid in cash.
Each 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 a 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 Funds
are not insured or guaranteed by the U.S. government and returns thereon and
net asset value will fluctuate. The securities held by the Funds generally have
longer maturities than most CDs and may reflect interest rate fluctuations for
longer term securities. An investment in a Fund involves greater risks than an
investment in either a money market fund or a CD.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional requirements.
With respect to each Fund, these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward currency contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of
44
<PAGE>
its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three
months--options, futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward contracts
thereon) that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect to securities)
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. government securities, securities of other RICs
and other securities, with these other securities limited, in respect of any
one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the investment company taxable income of the
Funds (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 a Fund from
U.S. corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
Dividends and interest received by a 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 a
Fund's total assets at the close of its taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign
and U.S. possessions income taxes paid by it. Pursuant to the election, the
Fund would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as paid
by him or her, his or her proportionate share of those taxes, (2) treat his or
her share of those taxes and of any dividend paid by the Fund that represents
income from foreign or U.S. possessions sources as his or her own income from
those sources and (3) either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his or her federal
income tax. Each Fund will report to its shareholders shortly after each
taxable year their respective shares of
45
<PAGE>
the Fund's income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income
as a taxable dividend to its shareholders. The balance of the PFIC income will
be included in the Fund's investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders. If a 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 Funds, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses a Fund realizes
in connection therewith. Income from the disposition of foreign currencies, and
income from transactions in options, futures and forward currency contracts
derived by a Fund with respect to its business of investing in securities or
foreign currencies, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures (other
than those on foreign currencies) will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition of
foreign currencies, and options, futures and forward contracts on foreign
currencies, that are not directly related to a 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 a 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
46
<PAGE>
be included in gross income for purposes of that limitation. Each Fund will
consider whether it should seek to qualify for this treatment for its hedging
transactions. To the extent a Fund does not qualify for this treatment, it may
be forced to defer the closing out of certain options, futures and forward
currency contracts beyond the time when it otherwise would be advantageous to
do so, in order for the Fund to continue to qualify as a RIC.
Global Growth and Income Fund may acquire zero coupon Treasury securities
issued with original issue discount. As the holder of such securities, each
such Fund must include in its gross income the original issue discount that
accrues on the securities during the taxable year, even if the Fund receives no
corresponding payment on the securities during the year. Because each Fund
annually must distribute substantially all of its investment company taxable
income, including any accrued original issue discount to satisfy the
Distribution Requirement and avoid imposition of the 4% excise tax, it may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those distributions
will be made from a Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. A Fund may realize capital gains or losses
from those sales, which would increase or decrease the Fund's investment
company taxable income and/or net capital gain. In addition, any such gains may
be realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation, any such gains would reduce a Fund's
ability to sell other securities, or certain options, futures or forward
currency contracts, held for less than three months that it might wish to sell
in the ordinary course of its portfolio management.
OTHER INFORMATION
PAINEWEBBER INVESTMENT SERIES. Prior to May 1, 1991, the name of Global
Energy Fund was "PaineWebber Master Energy-Utility Fund." Prior to July 1,
1991, the name of Europe Growth Fund was "PaineWebber Classic Europe Growth
Fund."
PaineWebber Investment Series is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of a Fund
could, under certain circumstances, be held personally liable for the
obligations of the Trust or a Fund. However, the Trust's Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust or its
Funds and requires that notice of such disclaimer be given in each note, bond,
contract, instrument, certificate or undertaking made or issued by the trustees
or by any officers or officer by or on behalf of the Trust, the Funds, the
trustees or any of them in connection with the Trust. The Declaration of Trust
provides for indemnification from a Fund's property for all losses and expenses
of any Fund shareholder held personally liable for the obligations of a Fund.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund itself would
be unable to meet its obligations, a possibility which Mitchell Hutchins
believes is remote and not material. Upon payment of any liability incurred by
a shareholder solely by reason of being or having been a shareholder of a Fund,
the shareholder paying such liability will be entitled to reimbursement from
the general assets of the Fund. The trustees intend to conduct the operations
of the Funds in such a way as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Funds.
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<PAGE>
CLASS-SPECIFIC EXPENSES. Each Fund might determine to allocate certain of its
expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable, for example, Class B
shares bear higher transfer agency fees per shareholder account than those
borne by Class A or Class D shares. The higher fee is imposed due to the higher
costs incurred by the Transfer Agent in tracking shares subject to a contingent
deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined in order to determine the
applicable charge. Moreover, the tracking and calculations required by the
automatic conversion feature of the Class B shares will cause the Transfer
Agent to incur additional costs. Although the transfer agency fee will differ
on a per account basis as stated above, the specific extent to which the
transfer agency fees will differ between the Classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each Class and the relative
amounts of net assets in each Class.
COUNSEL. The law firm of Kirkpatrick & Lockhart, 1800 M Street, N.W.,
Washington, D.C. 20036-5891, counsel to the Funds, has passed upon the legality
of the shares offered by the Funds' Prospectus. Kirkpatrick & Lockhart also
acts as counsel to Mitchell Hutchins and PaineWebber in connection with other
matters.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Trust's independent accountants.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended October
31, 1994 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.
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<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS
Aaa. Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; Aa. Bonds which are
rated "Aa" are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the long-
term risks appear somewhat greater than the "Aaa" securities; A. Bonds which
are rated "A" possess many favorable investment attributes and are considered
as upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future; Baa. Bonds which are
rated "Baa" are considered as medium-grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated "B" generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "B" in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt
rated "AA" has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree; A. Debt rated "A"
has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories; BBB. Debt rated
"BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories; BB, B. Debt rated "BB" and "B" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will likely have
some quality and
49
<PAGE>
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions; BB. Debt rated "BB" has less near-
term vulnerability to default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB-"
rating; B. Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as matter of policy.
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
PRIME-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured sources of
alternate liquidity. PRIME-2. Issuers (or supporting institutions) rated Prime-
2 (P-2) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety. A-1 . This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2. Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1". A-3. Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the
higher designations. B. Issues rated "B" are regarded as having only an
adequate capacity for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
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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 A FUND OR ITS DISTRIBUTOR. THE PROSPECTUS AND
THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging and Related Income Strategies..................................... 12
Trustees and Officers..................................................... 21
Investment Advisory and Distribution Arrangements......................... 28
Portfolio Transactions.................................................... 34
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 37
Conversion of Class B Shares.............................................. 41
Valuation of Shares....................................................... 41
Performance Information................................................... 42
Taxes..................................................................... 44
Other Information......................................................... 47
Financial Statements...................................................... 48
Appendix.................................................................. 49
</TABLE>
(C)1995 PaineWebber Incorporated
LOGO Recycled
Paper
PaineWebber
Europe Growth Fund
PaineWebber
Global Growth and
Income Fund
PaineWebber
Global Energy Fund
- --------------------------------------------------------------------------------
Statement of Additional Information
March 1, 1995
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
DEAR SHAREHOLDER
- --------------------------------------------------------------------------------
We are pleased to provide you with this annual report on the Kidder, Peabody
Global Equity Fund. This report covers the twelve months ended August 31, 1994.
Performance and market highlights are summarized for your convenience below:
<TABLE>
Total Returns as of 8/31/94(1)
<CAPTION>
Class A Class B Class C
-------- -------- ---------
<S> <C> <C> <C>
Past 3 Months 3.98% 3.77% 3.97%
Past 6 Months 2.23% 1.88% 2.34%
Past 12 Months 18.23% 17.29% 18.49%
</TABLE>
The KP Global Equity Fund's (Class A shares) total return over the past three
months was 3.98%. In comparison, the MSCI Net World Index was up 4.47% over the
same time period. The difference in performance was the result of the portfolio
being invested more heavily in emerging market stocks than the percentage of the
index attributable to emerging market stocks. This same overweighting, however,
caused the Fund to outperform the index 18.23% vs. 8.27% over the 12-month
period covered by this report. The relative underperformance posted over the
past 6-month period was due to the Fund's significantly underweighted position
in Japan, which performed surprisingly well over this period.
Net asset values as of August 31, 1994, for the Fund's Classes A, B and C shares
were $16.98, $16.81 and $17.03, respectively. Please refer to the next page for
important additional information regarding the Fund's performance, including
SEC-required performance information, which reflects the deduction of the
initial sales charge on Class A shares.
MARKET REPORT
As we had anticipated, world equity markets have proved to be much more
difficult to navigate this year. 1993 was a strong year for international
markets, with virtually all foreign markets (with the exception of Japan)
significantly outpacing the United States. Since February, however, the U.S.
interest rate environment has set the stage for volatile market performance
worldwide. The Federal Reserve's decision to raise U.S. interest rates in the
hopes of heading off inflation sent reverberations through global equity
markets, particularly emerging markets which depend on developed market growth
for their economic well-being. The only exception has been Japan which, despite
all of its difficulties, has managed to post gains of 23% so far in 1994.
LOOKING AHEAD
Our outlook for world markets is more optimistic. It appears that growth in
Europe is going to accelerate much more quickly than we had originally
anticipated. In the first half of 1994, GDP growth and industrial production
showed very strong gains, led by the export sector. We added to our positions in
Europe on weakness earlier this year and believe that
(Continued)
(1) Data is based on historical investment results and is not indicative of
future performance. Total return includes the reinvestment of all dividends
and capital gains. The Fund's total return is net of any fees and expenses
incurred during the period and does not reflect the maximum sales charge of
5.75% on Class A shares.
<PAGE>
the earnings of these companies will begin to benefit from this cyclical
recovery soon. Our emerging markets exposure has been increased as well. Given
expectations of stronger developed country growth, the developing world should
have improved growth prospects going forward.
These are challenging times in equity markets but we believe this environment is
one in which our investment style emphasizing stock selection will become much
more important; as the operating environment becomes more competitive, we
believe that only the fittest companies will survive.
Thank you for your participation in the Kidder, Peabody Global Equity Fund.
Please contact your Kidder, Peabody Investment Executive if you have any
questions or if you require assistance with any other financial needs.
Sincerely,
<TABLE>
<S> <C>
George V. Grune, Jr. Ralph Layman
George V. Grune, Jr. Ralph Layman
Chairman Chief Investment Officer
</TABLE>
New York, New York
October 14, 1994
AVERAGE ANNUAL TOTAL RETURNS (UNAUDITED)
- --------------------------------------------------------------------------------
In accordance with Securities and Exchange Commission (SEC) regulations, the
following represent average annual returns with all distributions reinvested as
of June 30, 1994, the most recent calendar quarter. The returns on Class A
shares were computed assuming payment of a maximum 5.75% sales charge. Past
performance should not be taken as an indication of future results. The
investment return and principal value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
Inception One Life of
Date Year the Fund
--------- ------ --------
<S> <C> <C> <C>
Class A 11/14/91 11.80% 10.12%
Class B 5/10/93 17.69% 13.53%
Class C 5/10/93 18.85% 14.66%
</TABLE>
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND -- RESULTS OF A $10,000 INVESTMENT
(UNAUDITED)
- --------------------------------------------------------------------------------
The following graphs present an example of how $10,000 grew between the Fund's
inception and August 31, 1994. The results on Class A shares reflect a payment
of a 5.75% maximum sales charge. Thus, the net amount invested was $9,427. There
is no sales charge on Class B or Class C shares, nor on dividends or capital
gains reinvested in additional shares. Results shown do not take into account
income or capital gains taxes but do reflect deduction of applicable operating
expenses.
VALUE OF $10,000 INVESTED SINCE INCEPTION AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
Class A
Class B
Class C
[PERFORMANCE GRAPHS]
<TABLE>
<CAPTION>
KP GLOBAL KP GLOBAL KP GLOBAL
EQUITY MSCI WORLD EQUITY MSCI WORLD EQUITY MSCI WORLD
CLASS A FUND (NET) INDEX CLASS B FUND (NET) INDEX CLASS C FUND (NET) INDEX
- -------- --------- ----------- -------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/14/91 9,427 10,000 5/10/93 10,116 10,000 5/10/93 10,123 10,000
12/91 9,655 11,145 6/93 9,819 9,706 6/93 9,833 9,706
3/92 9,560 9,896 9/93 10,587 9,608 9/93 10,630 9,608
6/92 10,149 10,104 12/93 11,739 10,294 12/93 11,819 10,294
9/92 9,945 10,312 3/94 11,666 9,286 3/94 11,775 9,286
12/92 9,969 10,521 6/94 11,556 9,564 6/94 11,687 9,564
3/93 10,698 11,041 8/94 12,341 10,035 8/94 12,502 10,035
6/93 10,858 10,312
9/93 11,739 10,208
12/93 13,036 10,937
3/94 12,988 9,866
6/94 12,883 10,162
8/94 13,775 10,662
</TABLE>
ABOUT THE INDEX
- --------------------------------------------------------------------------------
The MSCI World (Net) Index measures the performance of global stock markets in
U.S. dollars with dividends reinvested net of withholding taxes. The index is
unmanaged and does not reflect the deduction of management fees and fund costs.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS (BASED ON VALUE) AS OF AUGUST 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Astra AB............................ (Sweden)
International Paper Co. ............ (United States)
Nippon Express Co., Ltd. ........... (Japan)
Veba AG............................. (Germany)
Allied Signal, Inc. ................ (United States)
Total............................... (France)
Petroleum Geo Serv. ................ (Norway)
Valeo............................... (France)
Hutchison Whampoa Ltd. ............. (Hong Kong)
Secom Company, Ltd. ................ (Japan)
</TABLE>
ASSET ALLOCATION BY REGION AS OF AUGUST 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
Percent of Total Equity Investments, at Value
[EQUITY INVESTMENT PIE CHART]
<TABLE>
<S> <C>
Europe 41.0%
Americas 29.5%
Pacific 16.5%
Japan 13.0%
</TABLE>
ASSET ALLOCATION BY COUNTRY AS OF AUGUST 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
Percent of Total Equity Investments, at Value
<TABLE>
<S> <C>
United States................................... 21.6%
Japan........................................... 13.0
France.......................................... 9.6
Germany......................................... 6.9
Hong Kong....................................... 6.4
Switzerland..................................... 6.2
United Kingdom.................................. 5.8
Australia....................................... 4.3
Mexico.......................................... 4.1
Argentina....................................... 3.8
Sweden.......................................... 3.8%
Malaysia........................................ 3.5
Norway.......................................... 2.3
Italy........................................... 2.2
Denmark......................................... 1.9
Thailand........................................ 1.5
Spain........................................... 1.4
Austria......................................... 0.9
New Zealand..................................... 0.8
</TABLE>
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ARGENTINA
Telecom Argentina(28).......................................... 43,492 $ 2,256,277 $ 3,174,916 1.3%
Telefonica de Argentina 1 (ADR)(28)............................ 57,869 2,265,967 4,217,203 1.7
Transportadora de Gas Del Sur.(31)............................. 138,900 1,875,150 1,916,820 0.8
------------ ------------ -----
Total Investments in Argentina....................... 6,397,394 9,308,939 3.8
- --------------------------------------------------------------------------------------------------------------------------
AUSTRIA
Creditanstalt Bank(2).......................................... 37,178 2,332,516 2,289,319 0.9
- --------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
Brambles Industries Ltd.(7).................................... 368,745 3,728,734 4,106,928 1.7
Burns, Philp & Company Ltd.(31)................................ 1,274,675 3,735,826 3,644,098 1.5
Pacific Dunlop Ltd.(9)......................................... 760,608 2,760,954 2,576,509 1.0
------------ ------------ -----
Total Investments in Australia....................... 10,225,514 10,327,535 4.2
- --------------------------------------------------------------------------------------------------------------------------
DENMARK
Den Danske Bank Aktieselskab(2)................................ 35,497 2,100,883 1,816,854 0.7
ISS International Service System A/S(6)........................ 100,814 3,163,967 2,846,894 1.2
------------ ------------ -----
Total Investments in Denmark......................... 5,264,850 4,663,748 1.9
- --------------------------------------------------------------------------------------------------------------------------
FRANCE
Banque Nationale de Paris(2)................................... 67,475 3,218,731 3,128,816 1.3
Carrefour SA(15)............................................... 7,458 1,822,691 3,006,835 1.2
Cie Generale des Eaux(26)...................................... 23,153 2,311,679 2,400,074 1.0
Coflexip(19)................................................... 175,249 2,976,297 3,811,666 1.6
Total(23)...................................................... 95,359 4,716,463 5,692,732 2.3
Valeo(1)....................................................... 103,538 3,509,263 5,481,446 2.2
------------ ------------ -----
Total Investments in France.......................... 18,555,124 23,521,569 9.6
- --------------------------------------------------------------------------------------------------------------------------
GERMANY
Ava Allegmeine Handelsgesellschaft der Verbraucher AG (27)..... 9,288 4,309,717 3,616,868 1.5
Gehe AG(16).................................................... 9,340 2,029,507 3,353,245 1.4
SAP AG(8)...................................................... 8,740 1,385,657 3,967,948 1.6
Veba AG(22).................................................... 16,695 4,431,211 5,894,467 2.4
------------ ------------ -----
Total Investments in Germany......................... 12,156,092 16,832,528 6.9
- --------------------------------------------------------------------------------------------------------------------------
HONG KONG
Giordano Holdings Ltd.(27)..................................... 9,220,000 4,802,559 5,034,926 2.0
Hutchison Whampoa Ltd.(9)...................................... 1,079,000 2,168,294 5,403,587 2.3
Television Broadcasts Ltd.(4).................................. 739,000 1,583,633 3,490,495 1.4
Varitronix International Ltd.(12).............................. 1,072,000 1,439,548 1,609,172 0.6
------------ ------------ -----
Total Investments in Hong Kong....................... 9,994,034 15,538,180 6.3
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ITALY
IMI(2)......................................................... 49,761 $ 394,324 $ 338,308 0.1%
Istituto Mobiliare Italian(2).................................. 44,497 899,028 889,940 0.4
Stet(28)....................................................... 894,000 1,481,790 2,872,207 1.2
Stet Saving (Non Convertible)(28).............................. 478,247 924,515 1,255,206 0.5
------------ ------------ -----
Total Investments in Italy........................... 3,699,657 5,355,661 2.2
- --------------------------------------------------------------------------------------------------------------------------
JAPAN
Canon, Inc.(25)................................................ 266,000 3,736,070 4,649,189 1.9
DDI Corp.(28).................................................. 491 3,325,248 5,050,986 2.0
Hoshiden Corp.(12)............................................. 101,000 2,432,497 2,370,537 1.0
Murata Manufacturing Company, Ltd.(12)......................... 43,000 1,512,301 1,863,870 0.8
Nintendo Company, Ltd.(30)..................................... 42,000 3,585,793 2,642,697 1.1
Nippon Express Company, Ltd.(31)............................... 569,000 5,252,830 6,080,699 2.4
Secom Company, Ltd.(7)......................................... 81,000 4,193,629 5,395,955 2.2
Suzuki Motor Corp.(1).......................................... 297,000 3,674,844 3,618,876 1.5
------------ ------------ -----
Total Investments in Japan........................... 27,713,212 31,672,809 12.9
- --------------------------------------------------------------------------------------------------------------------------
MALAYSIA
AMMB Holding BHD(2)............................................ 473,000 1,928,215 5,175,459 2.1
Telekom Malaysia Berhad(28).................................... 393,000 2,409,946 3,286,518 1.3
------------ ------------ -----
Total Investments in Malaysia........................ 4,338,161 8,461,977 3.4
- --------------------------------------------------------------------------------------------------------------------------
MEXICO
Grupo Financiero Bancomer (ADR)(2)............................. 144,060 4,285,998 3,911,906 1.6
Telefonos De Mexico(28)........................................ 884,478 2,180,905 2,819,469 1.1
Telefonos De Mexico S.A.(28)................................... 52,534 2,976,956 3,296,509 1.3
------------ ------------ -----
Total Investments in Mexico.......................... 9,443,859 10,027,884 4.0
- --------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND
Fisher & Paykel(17)............................................ 711,190 1,799,987 1,807,529 0.7
- --------------------------------------------------------------------------------------------------------------------------
NORWAY
Petroleum Geo Serv.(23)........................................ 292,680 3,110,818 5,622,202 2.3
- --------------------------------------------------------------------------------------------------------------------------
SPAIN
Argentaria(2).................................................. 71,956 3,312,346 3,018,787 1.2
Corporacion Bancaria de Espana(2).............................. 18,547 408,776 389,487 0.2
------------ ------------ -----
Total Investments in Spain........................... 3,721,122 3,408,274 1.4
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SWEDEN
Arjo AB(16).................................................... 82,205 $ 1,127,671 $ 1,277,302 0.5%
Astra AB(16)................................................... 300,858 5,867,615 6,817,318 2.9
Linjebuss AB(31)............................................... 76,644 1,239,118 1,260,364 0.5
------------ ------------ -----
Total Investments in Sweden.......................... 8,234,404 9,354,984 3.9
- --------------------------------------------------------------------------------------------------------------------------
SWITZERLAND
BBC Brown Boveri Ltd.(11)...................................... 4,005 2,116,838 3,629,155 1.5
Danzas Holdings(31)............................................ 2,823 1,668,882 3,560,541 1.4
Merkur Hldgs AG(27)............................................ 7,374 1,590,546 2,031,725 0.8
Nestle SA (Registered)(15)..................................... 2,085 1,302,447 1,920,642 0.8
Roche Hldgs AG(16)............................................. 864 2,298,489 3,956,757 1.6
------------ ------------ -----
Total Investments in Switzerland..................... 8,977,202 15,098,820 6.1
- --------------------------------------------------------------------------------------------------------------------------
THAILAND
International Cosmetics Ltd.(10)............................... 8,650 305,902 193,450 0.1
MDX Public Company Ltd.(13).................................... 184,170 1,109,284 956,154 0.4
Thai Farmers Bank(2)........................................... 323,020 634,177 2,605,832 1.0
------------ ------------ -----
Total Investments in Thailand........................ 2,049,363 3,755,436 1.5
- --------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
Airtours PLC(31)............................................... 182,712 1,340,308 1,276,823 0.5
BPB Industries PLC(5).......................................... 484,341 1,903,304 2,395,297 1.0
Medeva PLC(16)................................................. 1,172,628 2,539,788 2,340,213 1.0
Takare PLC(16)................................................. 892,586 3,048,691 2,837,741 1.2
Waste Management PLC(6)........................................ 393,528 3,394,512 3,807,751 1.5
Waste Management International PLC(6).......................... 80,585 1,353,486 1,581,481 0.6
------------ ------------ -----
Total Investments in United Kingdom.................. 13,580,089 14,239,306 5.8
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE % OF NET
COMMON STOCKS/(INDUSTRY) HELD COST (NOTE 1a) ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES
Allied Signal, Inc.(9)......................................... 153,894 $ 4,362,699 $ 5,751,788 2.4%
Chrysler Corp.(1).............................................. 91,492 5,037,115 4,403,053 1.8
Colgate Palmolive Co.(18)...................................... 48,991 2,668,219 2,804,735 1.2
Countrywide Credit Industries, Inc.(14)........................ 304,675 5,710,172 4,532,041 1.8
First Financial Management Corp.(8)............................ 35,328 1,366,387 2,146,176 0.9
Fruit Of The Loom, Inc.(29).................................... 144,017 4,475,143 3,798,448 1.5
Hayes Wheels Int'l., Inc.(1)................................... 79,925 2,026,045 1,958,163 0.8
Intel Corp.(12)................................................ 42,791 1,694,290 2,813,508 1.1
International Business Machines, Inc.(8)....................... 47,810 2,747,147 3,280,961 1.3
International Paper Co.(24).................................... 84,715 5,832,177 6,533,644 2.6
Morgan J.P.& Co., Inc.(2)...................................... 42,645 2,520,920 2,809,239 1.2
Sunrise Med., Inc.(20)......................................... 104,697 2,584,281 2,656,686 1.1
Toys-R-Us, Inc.(30)............................................ 102,247 3,459,601 3,770,358 1.5
Wheelabrator Technologies, Inc.(26)............................ 253,268 4,734,415 4,337,215 1.8
Zebra Technologies Corp., Cl. A(21)............................ 31,500 1,231,409 1,236,375 0.5
------------ ------------ -----
Total Investments in United States................... 50,450,020 52,832,390 21.5
------------ ------------ -----
Total Common Stocks.................................. 202,043,418 244,119,090 99.3
------------ ------------ -----
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION
Federal Home Loan Mortgage Corp.
Discount Notes 4.70%, 09/01/94............................... $ 200,000 200,000 200,000 0.1
------------ ------------ -----
TOTAL INVESTMENTS.............................................. $202,243,418 244,319,090 99.4
------------
------------
OTHER ASSETS LESS LIABILITIES.................................. 1,400,777 0.6
------------ -----
NET ASSETS..................................................... $245,719,867 100.0%
------------ -----
------------ -----
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
FORWARD FOREIGN EXCHANGE CONTRACTS AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT
BASIS CURRENT APPRECIATION
FOREIGN CURRENCY SELL CONTRACTS (PAYABLE) VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar, expiring 9/1/94................................................. $ 1,278 $ 1,282 $ (4)
Swiss Francs, expiring 9/1/94...................................................... 49,904 49,941 (37)
German Deutsche Marks, expiring 9/1/94............................................. 91,341 91,497 (156)
Danish Krone, expiring 9/1/94...................................................... 89 89 --
Spanish Pesetas, expiring 9/1/94................................................... 119,754 120,569 (815)
British Pounds, expiring 9/1/94.................................................... 42,449 42,515 (66)
Italian Lira, expiring 9/1/94...................................................... 32,010 32,229 (219)
Japanese Yen, expiring 9/1/94...................................................... 99,843 99,918 (75)
New Zealand Dollar, expiring 9/1/94................................................ 42,401 42,497 (96)
Hong Kong Dollar, expiring 9/1/94.................................................. 78,147 78,155 (8)
Malaysian Ringgit, expiring 9/1/94................................................. 5,328 5,330 (2)
Philippine Peso, expiring 9/1/94................................................... 2,483 2,516 (33)
Thailand Baht, expiring 9/1/94..................................................... 25,990 26,021 (31)
--------- -------- --------------
$ 591,017 $592,559 $ (1,542)
--------- -------- --------------
--------- -------- --------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
Percent of Net Assets
<TABLE>
<S> <C>
1. Automobiles................................. 6.3%
2. Banks....................................... 10.7
3. Beverages................................... 0.0
4. Broadcast -- Media.......................... 1.4
5. Building Materials.......................... 1.0
6. Commercial Services......................... 3.4
7. Communication Equipment..................... 3.9
8. Computers................................... 3.8
9. Conglomerates............................... 5.6
10. Cosmetics................................... 0.1
11. Electrical Equipment........................ 1.5
12. Electronics................................. 3.5
13. Engineering & Construction.................. 0.4
14. Finance..................................... 1.8
15. Foods....................................... 2.0
16. Healthcare.................................. 8.4
17. Home Furniture & Appliances................. 0.7%
18. Household Products.......................... 1.1
19. Machinery................................... 1.6
20. Medical Products & Supplies................. 1.1
21. Office Equipment & Supplies................. 0.5
22. Oil & Gas Drilling.......................... 2.4
23. Oil Well Equipment & Services............... 4.6
24. Paper & Forest Products..................... 2.7
25. Photography................................. 1.9
26. Pollution Control........................... 2.7
27. Retail...................................... 4.3
28. Telecommunications.......................... 10.6
29. Textile..................................... 1.5
30. Toys........................................ 2.6
31. Transportation.............................. 7.2
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (identified cost-$202,243,418) (Note 1a)............................ $244,319,090
Foreign cash, at value (identified cost-$777,604) (Note 1b)............................... 778,112
Cash...................................................................................... 8,580
Receivables:
Shares sold.......................................................................... $2,059,479
Dividends............................................................................ 151,715
Tax reclaim.......................................................................... 444,067
----------
2,655,261
Prepaid expenses (Note 1f)................................................................ 170,707
------------
TOTAL ASSETS.................................................... 247,931,750
------------
LIABILITIES
Payables:
Shares redeemed...................................................................... 1,698,167
Securities purchased................................................................. 27,294
Investment advisory fees (Note 2).................................................... 206,174
Service fees (Note 2)................................................................ 45,458
Distribution fees (Note 2)........................................................... 19,974
Net unrealized loss on forward currency contracts (Note 1c).......................... 1,542 1,998,609
----------
Accrued expenses.......................................................................... 213,274
------------
TOTAL LIABILITIES............................................... 2,211,883
------------
NET ASSETS
At value.................................................................................. $245,719,867
------------
------------
Net assets were comprised of:
Aggregate paid-in-capital............................................................ $185,311,853
Undistributed net investment income.................................................. 422,782
Undistributed net realized capital gains from investments and foreign currency
transactions........................................................................ 17,903,171
Net unrealized appreciation on investments and translation of foreign denominated
assets and liabilities (Note 3)..................................................... 42,082,061
------------
Net assets................................................................................ $245,719,867
------------
------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ----------- -----------
<S> <C> <C> <C>
Net assets.............................................................. $185,493,225 $31,837,013 $28,389,629
Outstanding shares of beneficial interest, ($.001 par value)............ 10,925,463 1,894,276 1,666,769
Net asset values per share.............................................. $16.98 $16.81 $17.03
Maximum offering price per share for Class A ($16.98[div].9425)......... $18.02 N/A N/A
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Interest and discounts earned (net of $1,296, amortization of premiums)...... $ 214,406
Dividends (net of $336,279 foreign tax withheld at source)................... 3,640,789
-----------
TOTAL INCOME....................................... $ 3,855,195
EXPENSES
Investment advisory (Note 2)................................................. 2,339,156
Distribution -- Class B (Note 2)............................................. 190,640
Servicing (Note 2):
Class A................................................................. $457,000
Class B................................................................. 63,546 520,546
--------
Custodian.................................................................... 285,200
Transfer agent............................................................... 132,000
Prospectus and shareholders' reports......................................... 80,596
Amortization of organization costs (Note 1e)................................. 62,627
Professional................................................................. 49,300
Pricing...................................................................... 47,998
Federal and state registration............................................... 34,422
Trustees' fees and expenses (Note 2)......................................... 9,890
Miscellaneous................................................................ 69,363
-----------
TOTAL EXPENSES..................................... 3,821,738
-----------
NET INVESTMENT INCOME........................................................ 33,457
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS (NOTE 3)
Realized gain from investment transactions (excluding short-term
investments):
Proceeds from sales..................................................... 115,986,245
Cost of investments sold................................................ (96,253,145)
-----------
NET REALIZED GAIN ON INVESTMENT TRANSACTIONS................................. 19,733,100
NET REALIZED CURRENCY LOSS ON INVESTMENT TRANSACTIONS (NOTE 1b).............. (22,678)
Change in unrealized appreciation:
Change in unrealized appreciation on investments and forward foreign
exchange contracts.................................................... 17,518,715
Change in unrealized appreciation due to translation of foreign
denominated assets and liabilities.................................... (9,002)
-----------
NET CHANGE IN UNREALIZED APPRECIATION........................................ 17,509,713
-----------
NET INCREASE IN NET ASSETS
Resulting from operations.................................................... $37,253,592
-----------
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1993 AUGUST 31, 1994
----------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income..................................................................... $ 356,691 $ 33,457
Net realized gain on investment transactions.............................................. 1,752,144 19,733,100
Net realized currency loss on investment transactions..................................... (821,600) (22,678)
Net change in unrealized appreciation..................................................... 19,701,077 17,509,713
----------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 20,988,312 37,253,592
----------------------------------
NET INVESTMENT INCOME INCLUDED IN PRICES OF SHARES SOLD AND REDEEMED (NOTE
1H)........................................................................... 10,888 1,018
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A................................................................................... (775,332) --
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED SHORT-TERM CAPITAL GAINS
Class A................................................................................... (1,549,170) (1,858,584)
Class B................................................................................... -- (230,113)
Class C................................................................................... -- (260,619)
----------------------------------
TOTAL DISTRIBUTIONS FROM NET REALIZED SHORT-TERM CAPITAL GAINS.................. (1,549,170) (2,349,316)
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED LONG-TERM CAPITAL GAINS
Class A................................................................................... -- (580,807)
Class B................................................................................... -- (71,910)
Class C................................................................................... -- (81,444)
----------------------------------
TOTAL DISTRIBUTIONS FROM NET REALIZED LONG-TERM CAPITAL GAINS................... -- (734,161)
----------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares.......................................................... 83,189,473 78,480,740
Net asset value of shares issued to shareholders in connection with the reinvestment of
dividends and distributions............................................................. 2,284,191 3,031,120
Cost of shares redeemed................................................................... (30,862,339) (56,319,218)
----------------------------------
NET INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS.............. 54,611,325 25,192,642
----------------------------------
TOTAL INCREASE IN NET ASSETS.................................................... 73,286,023 59,363,775
NET ASSETS
Beginning of year......................................................................... 113,070,069 186,356,092
----------------------------------
End of year............................................................................... $ 186,356,092 $ 245,719,867
----------------------------------
----------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------------------------------------------------
PERIOD PERIOD YEAR
ENDED ENDED ENDED
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31, AUGUST 31,
----------------------------------------------------------------------------------------
1992`D' 1993 1994 1993`D'`D' 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $12.00 $12.87 $14.55 $13.80 $14.52
----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss)........ 0.09 0.03 0.01 (0.02) (0.07)
Net realized and unrealized gains on
investments....................... 0.78 1.89 2.63 0.74 2.57
----------------------------------------------------------------------------------------
Total from investment operations.... 0.87 1.92 2.64 0.72 2.50
----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
(NOTE 1i)
Net investment income............... -- )(0.08 -- -- --
Net realized capital gains.......... -- )(0.16 )(0.21 -- (0.21)
----------------------------------------------------------------------------------------
Total distributions................. -- )(0.24 )(0.21 -- (0.21)
----------------------------------------------------------------------------------------
Net asset value, end of period...... $12.87 $14.55 $16.98 $14.52 $16.81
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Total return#....................... 7.25% 15.24% 18.23% 5.22% 17.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $113,070 $156,451 $185,493 $10,807 $31,837
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding distribution and
service fees...................... 1.43%* 1.28% 1.33% 1.28%* 1.33%
Expenses, including distribution and
service fees...................... 1.68%* 1.53% 1.58% 2.28%* 2.33%
Net investment income............... 0.93%* 0.22% 0.07% (0.53)%* (0.68)%
PORTFOLIO TURNOVER RATE............. 30.32% 56.35% 50.73% 56.35% 50.73%
<CAPTION>
CLASS C
-------------------------
PERIOD YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
-------------------------
1993`D'`D' 1994
-------------------------
<S> <C> <C>
Net asset value, beginning of
period............................ $13.80 $14.56
--------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss)........ 0.02 0.05
Net realized and unrealized gains on
investments....................... 0.74 2.63
--------------------
Total from investment operations.... 0.76 2.68
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
(NOTE 1i)
Net investment income............... -- --
Net realized capital gains.......... -- (0.21)
--------------------
Total distributions................. -- (0.21)
--------------------
Net asset value, end of period...... $14.56 $17.03
--------------------
--------------------
Total return#....................... 5.51% 18.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $19,098 $28,390
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding distribution and
service fees...................... 1.28%* 1.33%
Expenses, including distribution and
service fees...................... 1.28%* 1.33%
Net investment income............... 0.47%* 0.32%
PORTFOLIO TURNOVER RATE............. 56.35% 50.73%
</TABLE>
`D' From November 14, 1991 (Commencement of Operations), to August 31, 1992.
`D'`D' From May 10, 1993 (Commencement of Class Operations) to August 31, 1993.
# Total return does not reflect the effects of a sales charge, and is
calculated by giving effect to the reinvestment of dividends on the dividend
payment date.
* Annualized
See Notes to Financial Statements.
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. The Fund is a series of Kidder, Peabody Investment Trust, which is registered
under the Investment Company Act of 1940 as a diversified, open-end investment
management company. The Fund commenced operation on November 14, 1991. The
following is a summary of significant accounting policies consistently followed
by the Fund.
On May 10, 1993 the Fund adopted the Choice Pricing System'sm'. The System
offers three classes of shares having identical voting, dividend liquidation and
other rights. Class A Shares are sold subject to a front-end sales load and a
service fee of .25% per annum of average class net assets. Class B shares bear a
service fee of .25% per annum and a distribution fee of .75% per annum of
average class net assets. Class C shares, which are available exclusively to
employees of Kidder, Peabody, employee benefit plans of Kidder, Peabody and
participants of the Insight Investment Advisory Program, are sold at net asset
value without a sales load and bear no such distribution or service fees.
Classes A and B have exclusive voting rights as to matters relating to the 12b-1
Distribution Plan.
On May 10, 1993 all pre-existing shares of the Fund converted to class A
shares at net asset value, with the exception of shares eligible for Class C.
(a) Securities listed on national securities exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued or, lacking any sales, the last available bid price. Securities trade in
the over-the-counter market are valued on the basis of bid prices at the close
of trading on such a day by dealers that make markets in such securities.
Portfolio securities which are traded in both the over-the-counter market and on
a stock exchange are valued on the exchange designated by or under the authority
of the Trustees as the primary market. Short-term securities which mature in
more than 60 days are valued at current market quotations. Short-term securities
which mature in less than 60 days are valued at amortized cost which
approximates market. Options which are traded on exchanges are valued at their
last sale price as of the close of such exchanges or, lacking any sales, at the
last available bid price. Securities for which market quotations are not readily
available are determined in good faith by or under the direction of the Fund's
Trustees.
(b) The Fund's financial statements are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) Market value of investment securities, other assets and liabilities -- at
the closing rate of exchange.
(ii) Purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of securities held at fiscal year end. However, the
Fund does isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of portfolio securities
sold during the fiscal year.
Realized currency gain/loss on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency denominated assets and liabilities at
year end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with those of domestic origin as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
(c) The Fund is authorized to enter into forward currency contracts as a
hedge to fluctuations in foreign currency exchange rates on unsettled portfolio
transactions.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. Generally, the Fund
will enter into such forward contracts on the transaction's trade date with a
contracted date coinciding with the settlement date of the underlying security.
Should the underlying security fail to settle within the contracted period the
forward currency contract is renegotiated at a new exchange rate. The
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
gain or loss resulting from the difference between the original and renegotiated
settlement values is recognized and included in realized transaction gain/loss.
Premiums and/or discounts incurred in connection with the establishment of
such contracts are amortized over the lives of the contracts.
(d) It is the Fund's policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders. The
method of such distribution for purposes of maintaining regulated investment
company status is made on a fund level rather than a class level. Therefore, no
Federal income tax provision is required. Under the applicable foreign tax law,
a withholding tax may be imposed on interest, dividends and capital gains at
various rates. Such withholding taxes are netted against income and recorded as
a receivable when reclaim is deemed probable.
(e) Security transactions are recorded on the trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is earned from
settlement date and is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Organization costs are being amortized evenly over a sixty-month period.
Prepaid registration fees are charged to income as the related shares are
issued.
(g) Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
(h) The Fund utilizes an accounting method known as income equalization,
whereby a portion of proceeds from sales and costs of redemptions of capital
shares, equivalent to the amount of distributable net investment income on the
date of transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
redemptions of shares.
(i) Income and Fund level expenses are allocated to each class on a pro-rata
basis based upon each class' daily net assets. Class specific expenses are
charged directly to each class. Dividends from net investment income are
calculated by deducting class specific and allocated fund level expenses from
the gross dividend rate, which is equal to total income divided by total shares
outstanding of the Fund. Distributions from net realized gains are allocated
based upon the outstanding shares of each class.
The Fund's policy is to distribute substantially all of its net investment
income. Net realized capital gains, if any, will be distributed once a year.
2. The Fund has entered into a management agreement with Kidder Peabody Asset
Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody & Co.
Incorporated ('KP'). General Electric Capital Services, Inc., a wholly-owned
subsidiary of General Electric Company ('GE'), has a 100% interest in Kidder,
Peabody Group Inc., the parent company of KP. KPAM serves as the Fund's manager
and receives a fee, accrued daily and paid monthly at the annual rate of 1.00%
of the Fund's average daily net assets. KPAM in turn employs GE Investment
Management Incorporated ('GEIM'), a wholly owned subsidiary of GE, as the Fund's
investment adviser, in which capacity GEIM receives from KPAM a fee, paid
monthly, calculated and accrued daily at the annual rate of .70% of the Fund's
average daily net assets. As the Fund's manager, KPAM is generally responsible
for furnishing, or causing to be furnished to the Fund, investment management
and administrative services.
As the Fund's investment adviser, GEIM manages the Fund's portfolio, makes
decisions for the Fund, and places purchase and sale orders for the Fund's
portfolio transactions. GEIM also pays the salaries of all officers and
employees who are employed by both GEIM and the Fund, provides the Fund with
investment officers, and employs a professional staff of portfolio managers who
draw upon a variety of sources for research information for the Fund.
Total annual expenses of the Fund, exclusive of taxes, interest, all
brokers' commission and other normal charges incidental to the purchase and sale
of portfolio securities, but including fees paid to KPAM, are not expected to
exceed the limits prescribed by any state in which the Fund's shares are offered
for sale. KPAM will reimburse the Fund for any expenses in excess of such
limits. No expense reimbursement was required for the year ended August 31,
1994.
KP is the exclusive distributor of the Fund's shares. Its services include
payment of sale commissions to registered representatives and various other
promotional and sale-related expenses. KP receives monthly, from the Fund, the
distribution and service fees which are calculated and accrued daily. KP also
receives the proceeds of any front-
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
end sales load with respect to the purchase of shares of Class A.
Certain officers and/or Trustees of the Fund are officers and/or directors
of KPAM and/or GEIM. Each Trustee who is not an 'affiliated person' of either
KPAM or GEIM receives an annual fee of $1,000 and an attendance fee of $375 per
meeting.
3. Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1994, were $147,039,111 and $115,986,245, respectively.
As of August 31, 1994, net unrealized appreciation on investments and
foreign cash, for Federal income tax purposes, aggregated $42,076,180 of which
$49,288,985 related to appreciated securities and $7,212,805 related to
depreciated securities. The aggregate cost of investments at August 31, 1994,
for book and Federal income tax purposes was $202,243,418.
4. The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. Transactions totaling
$78,481,758 from net proceeds from sale of shares and $56,319,218, representing
cost of shares redeemed and $3,031,120 representing reinvestment of dividends
for the year ended August 31, 1994 were as follows for each class:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- --------------------------------------------------------------
<S> <C> <C>
Year Ended August 31, 1994:
Shares sold..................... 2,764,374 $43,492,060
Shares issued in reinvestment of
dividends and distributions... 149,182 2,394,380
Shares redeemed................. (2,738,250) (44,032,678)
--------------------------
NET INCREASE............... 175,306 $ 1,853,762
--------------------------
--------------------------
Year Ended August 31, 1993:
Shares sold..................... 4,102,023 $54,283,811
Shares issued in reinvestment of
dividends and distributions... 183,387 2,284,191
Shares redeemed................. (2,317,779) (30,547,445)
--------------------------
NET INCREASE............... 1,967,631 $26,020,557
--------------------------
--------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
- --------------------------------------------------------------
<S> <C> <C>
Year Ended August 31, 1994:
Shares sold..................... 1,520,043 $23,745,336
Shares issued in reinvestment of
dividends and distributions... 18,552 296,272
Shares redeemed................. (388,843) (6,218,957)
--------------------------
NET INCREASE............... 1,149,752 $17,822,651
--------------------------
--------------------------
May 10, 1993 to August 31, 1993:
Shares sold..................... 760,799 $10,520,920
Shares issued in reinvestment of
dividends and distributions... -- --
Shares redeemed................. (16,274) (229,347)
--------------------------
NET INCREASE............... 744,525 $10,291,573
--------------------------
--------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- --------------------------------------------------------------
<S> <C> <C>
Year Ended August 31, 1994:
Shares sold..................... 707,025 $11,244,362
Shares issued in reinvestment of
dividends and distributions... 21,173 340,468
Shares redeemed................. (372,775) (6,067,583)
--------------------------
NET INCREASE............... 355,423 $ 5,517,247
--------------------------
--------------------------
May 10, 1993 to August 31, 1993:
Shares sold..................... 1,317,517 $18,395,630
Shares issued in reinvestment of
dividends and distributions... -- --
Shares redeemed................. (6,171) (85,547)
--------------------------
NET INCREASE............... 1,311,346 $18,310,083
--------------------------
--------------------------
</TABLE>
<PAGE>
KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. The Fund takes possession of securities under repurchase agreements before
releasing any money to the counterparty under such agreement. Eligible
collateral for repurchase agreement transactions are the instruments that the
Fund is allowed to reinvest in, as stated in the Prospectus. The Fund attempts
to attain a short maturity (2 years or less), although that is not always
available. The value of the collateral must be a minimum of 102% of the market
value of the securities being loaned, allowing for minor variations arising from
marking to market of such collateral. If the issuer defaults or if bankruptcy or
regulatory proceeding are commenced with respect to the issuer, the realization
of the proceeds may be delayed or limited.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Trustees and Shareholders,
Kidder, Peabody Global Equity Fund
(one of the portfolios constituting the
Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets
and liabilities, including the schedule of investments, of Kidder, Peabody
Global Equity Fund as of August 31, 1994, the related statements of operations
for the year then ended and of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and the financial highlights present
fairly in all material respects, the financial position of Kidder, Peabody
Global Equity Fund as of August 31, 1994, the results of its operations, the
changes in its net assets and the financial highlights for each of the
respectively stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
October 14, 1994
<PAGE>
KIDDER FAMILY OF FUNDS
- --------------------------------------------------------------------------------
The Kidder Family of Funds provides a comprehensive selection of mutual funds.
Because successful investing may depend on the ability to diversify across asset
classes and geographic regions, the Kidder Family of Funds has been carefully
constructed to ensure that most major asset classes and geographic regions are
represented.
STOCK FUNDS
- ----------------------------------------------------------
KIDDER, PEABODY EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation by investing in the equity issues of
developing markets in Asia, Latin America, the Middle East, Southern and
Eastern Europe and Africa.
KIDDER, PEABODY EQUITY INCOME FUND, INC.
Seeks a combination of long-term capital appreciation and high current dividend
and interest income by investing in the common stocks of U.S. companies.
KIDDER, PEABODY GLOBAL EQUITY FUND
Seeks long-term capital growth by investing primarily in non-U.S. securities.
KIDDER, PEABODY SMALL CAP EQUITY FUND
Seeks long-term capital appreciation by investing primarily in the stocks of
small-capitalization companies.
BOND FUNDS
- ----------------------------------------------------------
KIDDER, PEABODY ADJUSTABLE RATE GOVERNMENT FUND
Seeks high current income with low net asset value volatility by investing
primarily in adjustable-rate mortgage-backed securities that are issued or
guaranteed by the U.S. government and its agencies (including FNMA and GNMA).
KIDDER, PEABODY INTERMEDIATE FIXED INCOME FUND
Seeks maximum total return consisting primarily of current income and,
secondarily, capital appreciation, by investing in intermediate-term U.S. debt
securities rated in the three highest categories by recognized rating agencies.
KIDDER, PEABODY GOVERNMENT INCOME FUND, INC.
Seeks high current income by investing primarily in fixed-income securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
KIDDER, PEABODY GLOBAL FIXED INCOME FUND
Seeks current income and capital appreciation by investing in fixed-income
securities primarily issued by U.S. and non-U.S. governments and authorities
and supranational organizations.
KIDDER, PEABODY MUNICIPAL BOND FUND
Seeks current income exempt from federal taxation consistent with the
preservation of capital by investing primarily in high-quality, tax-exempt
municipal securities.
FLEXIBLE FUNDS
- ----------------------------------------------------------
KIDDER, PEABODY ASSET ALLOCATION FUND
Seeks total return by investing in a strategically allocated portfolio of
common stocks included in the S&P 500 and/or U.S. treasury notes or U.S.
treasury bills.
MONEY MARKET FUNDS
- ----------------------------------------------------------
The following money markets funds all seek to maximize current income to the
extent possible consistent with preservation of capital and maintenance of
liquidity.
KIDDER, PEABODY PREMIUM ACCOUNT FUND
KIDDER, PEABODY CASH RESERVE FUND, INC.
KIDDER, PEABODY GOVERNMENT MONEY FUND, INC.
KIDDER, PEABODY TAX EXEMPT MONEY FUND, INC.
KIDDER, PEABODY CALIFORNIA TAX EXEMPT MONEY FUND
KIDDER, PEABODY MUNICIPAL MONEY MARKET SERIES:
CONNECTICUT, NEW YORK, NEW JERSEY
(Each state fund is available only to residents of the related state.)
PLEASE Note . . .
With respect to the Kidder, Peabody Adjustable Rate Government Fund, the Kidder,
Peabody Government Income Fund and the Kidder, Peabody money market funds,
the U.S. government guarantee applies to the timely payment of principal
and interest for the underlying securities, which are issued or guaranteed
by the U.S. government and not the fund itself. AN INVESTMENT IN ANY OF
THE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. EACH MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO DO SO AT ALL TIMES.
The return and principal value of an investment in any of the Kidder funds is
not guaranteed and will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
- -------------------------------------------------
KIDDER, PEABODY GLOBAL EQUITY FUND
60 Broad Street
New York, New York 10004
TRUSTEES
------------------------------------------------------------
<TABLE>
<S> <C>
George V. Grune, Jr. William W. Hewitt, Jr.
Chairman of the Trustees Trustee
and President Thomas R. Jordan
Russell H. Johnson Trustee
Trustee and Vice Chairman Carl W. Schafer
David J. Beaubien Trustee
Trustee
</TABLE>
MANAGER
------------------------------------------------------------
Kidder Peabody Asset Management, Inc.
60 Broad Street, New York, New York 10004
INVESTMENT ADVISER
------------------------------------------------------------
GE Investment Management Incorporated
3003 Summer Street, Stamford, Connecticut 06904
DISTRIBUTOR
------------------------------------------------------------
Kidder, Peabody & Co. Incorporated
10 Hanover Square, New York, New York 10005
CUSTODIAN & RECORDKEEPING AGENT
------------------------------------------------------------
State Street Bank & Trust Company
1776 Heritage Drive, A4E
North Quincy, Massachusetts 02171
TRANSFER & DIVIDEND AGENT
------------------------------------------------------------
Investors Fiduciary Trust Company
127 West 10th Street, Kansas City, Missouri 64105
INDEPENDENT AUDITORS
------------------------------------------------------------
Deloitte & Touche LLP
1633 Broadway, New York, New York 10019
LEGAL COUNSEL
------------------------------------------------------------
Willkie Farr & Gallagher
One Citicorp Center, 153 East 53rd Street
New York, New York 10022
This report is for the information of the shareholders of
the Kidder, Peabody Global Equity Fund, but it may
also be used as sales literature when preceded or accom-
panied by the current prospectus which gives details
about charges, expenses, and investment objectives of
the Fund.
KPGE-2
KIDDER,
PEABODY
GLOBAL
EQUITY
FUND
ANNUAL REPORT
AUGUST 31, 1994
IN AFFILIATION WITH
GE INVESTMENT MANAGEMENT
[LOGO]
STATEMENT OF DIFFERENCES
<TABLE>
<S> <C>
The division mark symbol shall be expressed as .......... [div]
The service mark symbol shall be expressed as .......... 'sm'
The dagger symbol shall be expressed as ................ 'D'
</TABLE>
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
08/31/94 02/28/94 08/31/93 ENDED 08/31/94 ENDED 08/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 16.33 $17.06 $15.57 9.34% -4.28%
- ------------------------------------------------------------------------
Class B Shares 16.01 16.80 15.36 8.48 -4.76
- ------------------------------------------------------------------------
Class D Shares 16.10 16.89 15.44 8.54 -4.68
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/30/83 - 12/31/84 $ 9.15 $ 8.47 -- $0.1825 -5.39%
- ------------------------------------------------------------------------------
1985 8.47 13.90 -- 0.1125 65.65
- ------------------------------------------------------------------------------
1986 13.90 15.95 $3.0402 0.0911 39.09
- ------------------------------------------------------------------------------
1987 15.95 12.85 3.7770 0.1914 6.60
- ------------------------------------------------------------------------------
1988 12.85 14.46 0.4815 0.4397 19.88
- ------------------------------------------------------------------------------
1989 14.46 15.50 1.6676 0.1138 19.96
- ------------------------------------------------------------------------------
1990 15.50 12.92 1.0440 0.3972 -7.60
- ------------------------------------------------------------------------------
1991 12.92 13.93 -- 0.1982 9.38
- ------------------------------------------------------------------------------
1992 13.93 12.72 -- -- -8.69
- ------------------------------------------------------------------------------
1993 12.72 17.34 0.5560 0.1649 42.12
- ------------------------------------------------------------------------------
01/01/94 -- 08/31/94 17.34 16.33 -- -- -5.82
- ------------------------------------------------------------------------------
Total: $10.5663 $1.8913
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 312.75%
- ------------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $13.09 $13.91 -- $0.1659 7.55%
- ----------------------------------------------------------------------------
1992 13.91 12.61 -- -- -9.35
- ----------------------------------------------------------------------------
1993 12.61 17.09 $ 0.5560 0.1245 41.05
- ----------------------------------------------------------------------------
01/01/94 - 08/31/94 17.09 16.01 -- -- -6.38
- ----------------------------------------------------------------------------
Total: $ 0.5560 $0.2904
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 28.76%
- ----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $13.51 $12.68 -- $ -- -6.14%
- ----------------------------------------------------------------------------
1993 12.68 17.18 $ 0.5560 0.1313 41.03
- ----------------------------------------------------------------------------
01/01/94 - 08/31/94 17.18 16.10 -- -- -6.29
- ----------------------------------------------------------------------------
Total: $ 0.5560 $0.1313
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 24.05%
- ----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results for Class A and Class B shares would be lower if sales charges were
included.
1
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
08/31/94 02/28/94 08/31/93 ENDED 08/31/94 ENDED 08/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $20.43 $20.93 $20.86 -0.58% -1.76%
- ------------------------------------------------------------------------
Class B Shares 20.37 20.86 20.78 -1.31 -2.14
- ------------------------------------------------------------------------
Class D Shares 20.42 20.91 20.83 -1.29 -2.13
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/20/83 - 12/31/84 $12.65 $13.21 -- $1.0800 13.72%
- -----------------------------------------------------------------------------
1985 13.21 14.97 $0.1950 0.8850 22.36
- -----------------------------------------------------------------------------
1986 14.97 15.04 1.1380 0.6830 12.68
- -----------------------------------------------------------------------------
1987 15.04 12.05 2.3027 0.7366 -3.16
- -----------------------------------------------------------------------------
1988 12.05 13.67 -- 0.5120 17.83
- -----------------------------------------------------------------------------
1989 13.67 16.32 0.1675 0.5178 24.59
- -----------------------------------------------------------------------------
1990 16.32 15.85 -- 0.3030 -1.01
- -----------------------------------------------------------------------------
1991 15.85 19.26 -- 0.0985 22.15
- -----------------------------------------------------------------------------
1992 19.26 21.74 -- 0.2432 3.90
- -----------------------------------------------------------------------------
1993 21.74 20.86 0.0310 0.2818 -2.59
- -----------------------------------------------------------------------------
01/01/94 - 08/31/94 20.86 20.43 -- 0.1263 -1.43
- -----------------------------------------------------------------------------
Total: $3.8342 $5.4672
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 197.90%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $18.04 $21.14 -- $0.1074 17.85%
- ----------------------------------------------------------------------------
1992 21.14 21.69 -- 0.0992 3.09
- ----------------------------------------------------------------------------
1993 21.69 20.81 $0.0310 0.1193 -3.94
- ----------------------------------------------------------------------------
01/01/94 - 08/31/94 20.81 20.37 -- 0.0424 -1.95
- ----------------------------------------------------------------------------
Total: $0.0310 $0.3683
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 15.18%
- ----------------------------------------------------------------------------
Performance Summary Class D Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $19.96 $21.75 -- $0.1160 9.58%
- ----------------------------------------------------------------------------
1993 21.75 20.87 $0.0310 0.1308 -3.93
- ----------------------------------------------------------------------------
01/01/94 - 08/31/94 20.87 20.42 -- 0.0435 -1.94
- ----------------------------------------------------------------------------
Total: $0.0310 $0.2903
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 3.91%
- ----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results for Class A and B shares would be lower if sales charges were
included.
2
<PAGE>
PAINEWEBBER GROWTH FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
08/31/94 02/28/94 08/31/93 ENDED 08/31/94 ENDED 08/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $20.04 $21.02 $20.60 2.33% -4.66%
- ------------------------------------------------------------------------
Class B Shares 19.53 20.56 20.25 1.55 -5.01
- ------------------------------------------------------------------------
Class D Shares 19.67 20.70 20.38 1.59 -4.98
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/18/85 - 12/31/85 $ 9.15 $10.55 -- $0.1275 16.87%
- -----------------------------------------------------------------------------
1986 10.55 10.86 $0.4063 0.1042 7.64
- -----------------------------------------------------------------------------
1987 10.86 9.81 1.4051 0.0847 4.34
- -----------------------------------------------------------------------------
1988 9.81 11.87 -- 0.1011 22.05
- -----------------------------------------------------------------------------
1989 11.87 14.79 1.1520 -- 34.27
- -----------------------------------------------------------------------------
1990 14.79 12.98 0.4625 0.1625 -7.72
- -----------------------------------------------------------------------------
1991 12.98 18.53 0.6003 0.0072 47.61
- -----------------------------------------------------------------------------
1992 18.53 18.66 0.6235 -- 4.15
- -----------------------------------------------------------------------------
1993 18.66 21.14 1.0734 -- 19.17
- -----------------------------------------------------------------------------
01/01/94 - 08/31/94 21.14 20.04 -- -- -5.20
- -----------------------------------------------------------------------------
Total: $5.7231 $0.5872
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 244.74%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $15.63 $18.47 $0.6003 $0.0037 22.18%
- ----------------------------------------------------------------------------
1992 18.47 18.44 0.6235 -- 3.30
- ----------------------------------------------------------------------------
1993 18.44 20.71 1.0734 -- 18.26
- ----------------------------------------------------------------------------
01/01/94 - 08/31/94 20.71 19.53 -- -- -5.70
- ----------------------------------------------------------------------------
Total: $2.2972 $0.0037
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 40.75%
- ----------------------------------------------------------------------------
Performance Summary Class D Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $17.04 $18.57 $0.6235 -- 12.73%
- ----------------------------------------------------------------------------
1993 18.57 20.85 1.0734 -- 18.19
- ----------------------------------------------------------------------------
01/01/94 - 08/31/94 20.85 19.67 -- -- -5.66
- ----------------------------------------------------------------------------
Total: $1.6969 --
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 08/31/94: 25.69%
- ----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates, and do not include sales charges;
results for Class A and Class B shares would be lower if sales charges were
included.
3
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 77.15%
UNITED STATES - 27.26%
<C> <S> <C>
Biotechnology - 8.01%
200,000 Biogen Inc.*....................................... $ 10,075,000
321,000 Calgne Inc*........................................ 3,892,125
365,500 Chiron Corporation*................................ 25,493,625
43,300 Isis Pharmaceuticals Inc*.......................... 205,675
------------
39,666,425
------------
Computer Systems - 2.91%
780,000 Borland International Inc*......................... 10,432,500
820,000 Maxtor Corporation*................................ 3,997,500
------------
14,430,000
------------
Datacommunication - 5.41%
600,000 Digital Equipment Corp*............................ 14,550,000
620,200 General Datacom Industries, Inc.*.................. 12,248,950
------------
26,798,950
------------
Electronics & Instrumentation - 9.71%
300,000 Analog Devices, Inc.*.............................. 9,675,000
505,000 National Semiconducter Corporation*................ 9,405,625
1,397,500 Westinghouse Electric.............................. 19,739,688
903,400 Zenith Electronics Corp*........................... 9,259,850
------------
48,080,163
------------
Foods - 0.73%
227,400 Wholesome & Hearty Foods, Inc*..................... 3,638,400
------------
Mining - 0.49%
200,000 Hecla Mining Co*................................... 2,450,000
------------
Total United States Common Stocks................................ 135,063,938
------------
ARGENTINA - 2.50%
Infrastructure - 2.50%
3,416,920 Commercial Del Plata............................... 12,407,763
------------
BRAZIL - 4.21%
Electric Utility - 3.24%
39,000,000 Electrobras ON..................................... 16,066,592
------------
Telephone - 0.97%
103,763,746 Telebras (ON)...................................... 4,801,708
------------
Total Brazil Common Stocks....................................... 20,868,300
------------
CANADA - 3.69%
Mining - 3.15%
605,600 Echo Bay Mines..................................... 7,721,400
227,300 Horsham Corp. ..................................... 3,352,675
200,000 Placer Dome Inc. .................................. 4,550,000
------------
15,624,075
------------
</TABLE>
4
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
CANADA - (CONTINUED)
<C> <S> <C>
Technology - 0.54%
778,800 Battery Technologies*.............................. $ 2,677,125
------------
Total Canada Common Stocks....................................... 18,301,200
------------
CHINA - 0.11%
Infrastructure - 0.11%
650,000 Shanghai Jinqiao Export B Shares*.................. 552,500
------------
FINLAND - 0.43%
Machinery - 0.43%
19,500 Kone Corp. B Shares................................ 2,112,220
------------
FRANCE - 0.86%
Construction - 0.62%
49,050 Legris Industries*................................. 3,059,837
------------
Industrial Holdings - 0.24%
39,250 Dynaction*......................................... 1,180,653
------------
Total France Common Stocks....................................... 4,240,490
------------
GERMANY - 2.55%
Auto - 2.55%
40,000 Volkswagenwerk..................................... 12,628,647
------------
HONG KONG - 10.40%
Aerospace - 2.17%
51,511,200 China Aerospace*................................... 10,731,917
------------
Holding Company - 1.25%
1,500,000 Jardine Strategic Holdings......................... 6,211,421
------------
Infrastructure - 4.99%
26,695,000 Hopewell Holdings.................................. 24,699,361
------------
Retailing - 1.99%
12,103,000 Dickson Concept International, Ltd................. 9,866,959
------------
Total Hong Kong Common Stocks.................................... 51,509,658
------------
INDONESIA - 2.27%
Consumer Products - 0.17%
219,800 Tigaraksa Satria................................... 819,036
------------
Food - 0.01%
5,679 Mayora Indah....................................... 28,738
------------
</TABLE>
5
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
INDONESIA - (CONTINUED)
<C> <S> <C>
Hotels - 1.22%
4,605,500 Jakarta International Hotels and Development...... $ 6,091,231
------------
Retail - 0.87%
2,333,500 Matahari Putra Prima*............................. 4,293,962
------------
Total Indonesia Common Stocks.................................... 11,232,967
------------
ITALY - 1.32%
Industrial Holdings - 1.32%
7,823,750 Cofide SPA*....................................... 6,539,388
------------
JAPAN - 0.05%
Electronics - 0.05%
38,000 Chinon Industries Inc............................. 252,523
------------
LUXEMBOURG - 1.04%
Mining - 1.04%
200,000 Minorco ADR....................................... 5,159,360
------------
MALAYSIA - 3.33%
Holding Company - 0.63%
1,000,000 Sime Darby Berhad................................. 3,126,221
------------
Mining - 2.70%
6,176,000 Malaysia Mining Berhad............................ 13,394,607
------------
Total Malaysia Common Stocks..................................... 16,520,828
------------
NORWAY - 2.23%
Machinery & Engineering - 1.73%
180,000 Kvaerner 'B'...................................... 8,555,186
------------
Oil Service - 0.50%
200,000 Aker A/S B Shares................................. 2,484,789
------------
Total Norway Common Stocks....................................... 11,039,975
------------
PAKISTAN - 1.65%
Banking - 1.65%
923,000 Askari Commercial Bank*........................... 1,922,497
768,200 Bank Al Habib*.................................... 1,325,056
512,700 Bank of Pujab*.................................... 1,142,978
678,000 Prime Commercial Bank*............................ 926,751
770,000 Soneri Bank Limited*.............................. 1,328,161
984,500 Union Bank Limited*............................... 1,521,926
------------
8,167,369
------------
</TABLE>
6
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
POLAND - 0.08%
<C> <S> <C>
Construction - 0.08%
60,000 Mostostal Export Bearer*.......................... $ 377,121
------------
SOUTH AFRICA - 2.04%
Investment Companies - 0.71%
71,000 ASA Limited....................................... 3,514,500
------------
Mining - 1.33%
187,100 Free State Cons Gold Mines Ord.................... 3,073,190
90,000 Goldfields Industrial Corp........................ 2,585,746
77,900 Randfontein Estates Goldmine...................... 927,687
------------
6,586,623
------------
Total South Africa Common Stocks................................. 10,101,123
------------
SWEDEN - 0.73%
Appliances - 0.51%
50,000 Electrolux Ab B Free.............................. 2,519,340
------------
Mining - 0.22%
85,000 Trelleborg Ab B Free*............................. 1,100,997
------------
Total Sweden Common Stocks....................................... 3,620,337
------------
THAILAND - 0.51%
Distribution - 0.51%
1,150,200 Saha Pathana International Holding Reg'd.......... 2,526,398
------------
TURKEY - 3.97%
Banking - 2.04%
14,942,500 Akbank............................................ 5,227,697
38,441,000 Yapi Kredi Bank................................... 4,931,207
------------
10,158,904
------------
Machinery - 1.29%
3,942,000 Koc Holdings...................................... 2,873,178
3,930,500 Koc Yatirim....................................... 3,495,051
------------
6,368,229
------------
Newspaper - 0.64%
9,449,600 Medya Holdings AS................................. 1,515,242
17,009,280 Medya Holdings New................................ 1,636,461
------------
3,151,703
------------
Total Turkey Common Stocks....................................... 19,678,836
------------
</TABLE>
7
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
UNITED KINGDOM - 5.92%
<C> <S> <C>
Holding Company - 3.30%
7,465,800 Lonrho Ord........................................ $ 16,403,284
------------
Mining - 0.98%
1,050,000 Antofagasta Holdings.............................. 4,839,817
------------
Retailing - 1.64%
1,610,000 Body Shop International........................... 5,392,633
1,000,000 Christies International........................... 2,719,516
------------
8,112,149
------------
Total United Kingdom Common Stocks............................... 29,355,250
------------
Total Common Stocks (cost - $363,842,116)........................ 382,256,191
------------
PREFERRED STOCK - 19.67%
BRAZIL - 14.90%
Bank - 4.75%
1,125,133,221 Banco Bradesco SA................................. 11,048,148
222,452,000 Banco de Brasil Preferred Reg'd NV................ 5,824,928
10,000,000 Investimentos Itau................................ 6,659,142
------------
23,532,218
------------
Beverage - 0.42%
6,830,000 Brahma............................................ 2,096,795
------------
Machinery - 1.22%
15,415,000 Brasmotor Preferred Reg'd......................... 6,045,951
------------
Mining - 3.51%
273,000,000 Paranapanema...................................... 4,794,447
81,000 Vale Do Rio Doce Pfd Reg'd........................ 12,616,254
------------
17,410,701
------------
Oil - 1.68%
47,000,000 Petrobras Preferred Reg'd......................... 8,328,442
------------
Paper - 2.43%
874,000 Aracruz Celulose S.A. ADR......................... 12,017,500
------------
Retail - 0.45%
10,338,000 Mesbla Preferred Reg'd............................ 2,251,957
------------
Steel - 0.43%
28,190,000 Acesita Cia Acos Espec Itab....................... 2,146,067
------------
Telephone - 0.01%
24,142 Telebras Pfd Reg'd................................ 1,425
------------
Total Brazil Preferred Stocks.................................... 73,831,056
------------
</TABLE>
8
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
PREFERRED STOCK - (CONTINUED)
GERMANY - 4.77%
<C> <S> <C>
Auto - 3.85%
35,500 Porsche AG Non Voting Preferred.................. $ 19,110,802
------------
Computer Systems - 0.92%
10,000 Sap AG Preferred................................. 4,540,992
------------
Total Germany Preferred Stocks.................................. 23,651,794
------------
Total Preferred Stocks (cost - $80,387,085)..................... 97,482,850
------------
STOCK RIGHTS - 0.27%
BRAZIL - 0.01%
Telephone - 0.01%
2,366,054 Telebras PN Rights............................... 11,323
------------
TURKEY - 0.26%
Banking - 0.26%
3,735,000 Akbank Non-Trading Certificates, Rights issue.... 1,306,705
------------
Total Stock Rights (cost - $1,276,578).......................... 1,318,028
------------
WARRANTS - 0.12%
HONG KONG - 0.12%
Aerospace - 0.12%
China Aero International Holding, expiring
8,728,320 12/31/95 (cost - $1,870,733).................... 598,627
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
--------- -------- --------
REPURCHASE AGREEMENT - 0.92%
<C> <S> <C> <C> <C>
$4,570 Repurchase Agreement dated 08/31/94
with Salomon Brothers Inc.
collateralized by $4,766,000 U.S.
Treasury Notes, 4.000% due
01/31/96; proceeds: $4,570,597
(cost - $4,570,000)............... 09/01/94 4.700% 4,570,000
------------
Total Investments (cost - $451,946,512)-
98.13%........................................ 486,225,696
Other assets in excess of liabilities-1.87%... 9,274,063
------------
Net Assets-100.00%............................ $495,499,759
============
</TABLE>
- -------
* Non-income producing security
ADR - American Depository Receipts
See accompanying notes to financial statements
9
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 96.91%
<C> <S> <C>
Aerospace - 3.09%
169,500 Martin Marietta Corporation........................... $ 8,623,313
27,000 McDonnell Douglas Corporation......................... 3,192,750
134,100 Loral Corporation..................................... 5,598,675
------------
17,414,738
------------
Auto - Truck - 0.25%
38,200 General Motors Corporation............................ 1,432,500
------------
Banking - 13.18%
166,600 Ahmanson H.F. and Co.................................. 3,727,675
184,912 Banc One Corporation.................................. 6,425,692
97,900 BankAmerica........................................... 4,833,813
53,900 Bank of New York...................................... 1,751,750
152,700 Central Fidelity Banks, Inc........................... 5,077,275
55,300 The Chase Manhattan Corporation....................... 2,087,575
282,000 Comerica Incorporated................................. 8,565,750
26,100 First Empire State Corporation........................ 4,110,750
87,200 First Union Corporation............................... 4,022,100
162,330 KeyCorp............................................... 5,336,599
495,900 Marshall and Ilsley Corporation....................... 10,041,975
24,500 Michigan National Corporation......................... 1,911,000
153,600 NationsBank Corporation............................... 8,563,200
56,800 Norwest Corporation................................... 1,512,300
24,600 Old Kent Financial Corporation........................ 867,150
26,900 Shawmut National Corporation.......................... 605,250
93,100 State Street Boston Corporation....................... 3,724,000
39,200 UJB Financial Corporation............................. 1,136,800
------------
74,300,654
------------
Chemical - 1.01%
335,200 Methanex Corporation.................................. 5,698,400
------------
Computer - 6.04%
184,200 COMPAQ Computer Corporation*+......................... 6,884,475
179,600 Computer Associates International Incorporated........ 7,206,450
167,400 Informix Corporation.................................. 3,954,825
126,100 International Business Machines Corporation+.......... 8,653,613
77,200 Micron Technology Inc................................. 3,107,300
99,300 Oracle Systems Corporation*........................... 4,238,869
------------
34,045,532
------------
Conglomerates - 1.33%
24,500 E.I. dupont de Nemours and Company+................... 1,482,250
97,200 General Electric Company.............................. 4,835,700
19,800 Proctor & Gamble Co.+................................. 1,205,325
------------
7,523,275
------------
</TABLE>
10
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Conglomerates - Diversified - 0.29%
198,000 Laidlaw Inc........................................... $ 1,608,750
------------
Construction & Engineering - 1.96%
80,500 Fluor Corporation..................................... 4,266,500
190,900 Louisiana Pacific Corporation......................... 6,776,950
------------
11,043,450
------------
Drugs & Medical Products - 5.49%
192,200 Abbott Laboratories................................... 5,766,000
110,300 American Cyanamid..................................... 10,643,950
76,000 American Home Products Corporation.................... 4,512,500
200,000 Johnson & Johnson..................................... 10,025,000
------------
30,947,450
------------
Electronics & Instrumentation - 4.91%
39,200 Altera Corporation.................................... 1,195,600
126,900 Circuit City Stores Inc............................... 3,013,875
28,900 Texas Instruments Incorporated........................ 2,250,588
140,700 Raytheon Company...................................... 9,514,838
102,600 Reliance Electric Co.................................. 2,629,125
185,900 Reynolds & Reynolds Co................................ 4,903,113
294,000 Westinghouse Electric Corporation..................... 4,152,750
------------
27,659,889
------------
Environmental Services - 2.70%
73,500 Molten Metal Technology Inc........................... 1,855,875
107,900 Safety Kleen Corporation.............................. 1,820,813
385,300 WMX Technologies, Inc................................. 11,559,000
------------
15,235,688
------------
Financial Services - 2.83%
39,500 Beneficial Corporation................................ 1,698,500
160,200 Federal National Mortgage Association................. 14,237,775
------------
15,936,275
------------
Foods - 1.37%
236,500 ConAgra, Inc.......................................... 7,745,375
------------
Healthcare - 2.93%
76,500 Foundation Health Corporation......................... 2,897,438
90,800 Humana Inc............................................ 1,929,500
317,100 National Medical Enterprises Inc...................... 5,787,075
136,900 U.S. Healthcare, Inc.................................. 5,920,925
------------
16,534,938
------------
</TABLE>
11
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Household & Consumer Products - 3.50%
63,700 The Gillette Company.................................. $ 4,610,288
70,966 Lancaster Colony Corporation.......................... 2,572,518
117,100 Nike Inc.............................................. 7,538,313
243,800 Rite Aid Corporation.................................. 5,028,375
------------
19,749,494
------------
Industrial & Electronic Products - 12.29%
20,600 AMP Incorporated...................................... 1,496,075
111,700 Atmel Corporation..................................... 3,071,750
77,500 Corning Inc........................................... 2,392,813
186,800 Donaldson Inc......................................... 4,786,750
125,000 Dover Corporation..................................... 7,234,375
117,600 Emerson Electric Co................................... 7,305,900
161,100 Federal Signal Corporation............................ 3,201,863
46,800 Foster Wheeler Corporation............................ 1,907,100
57,900 General Dynamics Corporation.......................... 2,612,738
50,000 Genuine Parts Co...................................... 1,837,500
107,200 Inland Steel Industries............................... 4,435,400
168,500 Integrated Device Technology.......................... 3,938,688
39,200 Molex Inc............................................. 1,675,800
91,800 Nucor Corporation..................................... 6,334,200
129,600 Pentair Inc........................................... 5,281,200
44,100 Symbol Technologies................................... 1,311,975
485,250 Worthington Industries, Inc........................... 10,432,875
------------
69,257,002
------------
Insurance - 6.99%
112,600 AFLAC Incorporated.................................... 4,039,525
63,700 American International Group Inc...................... 5,987,800
90,800 Equitable of Iowa Companies........................... 3,541,200
35,600 General Re Corporation................................ 3,973,850
85,800 Lincoln National Corporation.......................... 3,303,300
78,700 NWNL Companies........................................ 2,479,050
230,700 Providian Corporation................................. 7,757,288
103,400 St. Paul Companies, Inc............................... 4,472,050
62,800 The Progressive Corporation........................... 2,370,700
41,200 U.S. Life Corporation................................. 1,478,050
------------
39,402,813
------------
Machinery - Machine Tools - 1.03%
34,000 Illinois Tool Works Inc............................... 1,470,500
67,100 W.W. Grainger, Inc.................................... 4,361,500
------------
5,832,000
------------
</TABLE>
12
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Medical Equipment - 0.98%
56,100 Medtronic, Inc........................................ $ 5,539,875
------------
Metals & Mining - 0.63%
228,400 Echo Bay Mines Ltd.................................... 2,912,100
50,000 Hecla Mining.......................................... 612,500
------------
3,524,600
------------
Oil & Gas - 4.57%
78,200 Amoco Corporation..................................... 4,525,825
114,700 Chevron Corporation................................... 4,860,413
131,700 Duke Power Co......................................... 5,103,375
67,500 Mobil Corporation..................................... 5,686,875
29,400 Texaco Inc............................................ 1,815,450
311,700 Weatherford International............................. 3,779,363
------------
25,771,301
------------
Printing & Publishing - 2.07%
197,000 Banta Corporation..................................... 6,648,750
100,100 Gannett Company Inc................................... 5,005,000
------------
11,653,750
------------
Retail - 2.01%
235,700 American Stores Co.................................... 5,951,425
52,900 Caldor Corporation*................................... 1,686,188
198,600 Waban Inc............................................. 3,674,100
------------
11,311,713
------------
Retail Food Chains - 1.30%
176,300 Albertson's, Inc...................................... 5,090,663
79,200 McDonald's Corporation................................ 2,237,400
------------
7,328,063
------------
Security Services - 0.36%
73,000 Pittson Services Group................................ 2,034,875
------------
Specialty Chemicals - 2.79%
200,000 Hanna M.A. Co......................................... 5,425,000
166,800 Lubrizol Corporation.................................. 5,212,500
245,900 Pall Corporation...................................... 4,426,200
30,000 Praxair Inc........................................... 682,500
------------
15,746,200
------------
</TABLE>
13
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONCLUDED)
<C> <S> <C>
Specialty Retail - 6.91%
90,100 Dayton Hudson Corporation............................. $ 7,635,975
107,100 Diebold Incorporated.................................. 4,618,688
72,800 Leggett & Platt Inc................................... 2,693,600
80,400 Loctite Corporation................................... 3,648,150
23,900 Lowes Companies, Inc.................................. 863,388
107,700 Nordstrom Inc......................................... 5,061,900
286,100 The Pep Boys--Manny, Moe & Jack....................... 9,977,738
72,800 The Sherwin-Williams Company.......................... 2,411,500
92,900 United States Shoe Corporation........................ 2,043,800
------------
38,954,739
------------
Telecommunications - Services - 1.02%
101,900 Sprint Corporation.................................... 4,037,788
41,100 Tellabs............................................... 1,731,338
------------
5,769,126
------------
Telephone Companies - 1.16%
138,100 Century Telephone Enterprises Incorporated............ 4,160,263
38,000 Telefonos de Mexico, S.A. de C.V., ADS+............... 2,384,500
------------
6,544,763
------------
Tobacco - 1.55%
142,800 Philip Morris Companies Inc........................... 8,710,800
------------
Transportation - 0.37%
32,100 Norfolk Southern Corporation.......................... 2,062,425
------------
Total Common Stocks (cost - $520,423,286)........................ 546,320,453
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------------------- --------------
CORPORATE BOND - 0.42%
<C> <S> <C> <C> <C>
$2,400 Developers Diversified
Realty Corporation
(cost - $2,396,496).... 08/15/99 7.000% 2,370,000
------------
U.S. GOVERNMENT OBLIGATIONS - 4.43%
U.S. Treasury Bills
25,000 (cost - $24,971,417)... 09/08/94 to 09/22/94 4.125 to 4.300 24,971,417
------------
REPURCHASE AGREEMENT - 1.47%
8,265 Repurchase Agreement
dated 08/31/94 with
State Street Bank &
Trust Co.,
collateralized by
$8,334,000 U.S.
Treasury Notes, 5.875%,
due 05/31/96; proceeds:
$8,266,079 (cost -
$8,265,000)........... 09/01/94 4.700 8,265,000
------------
Total Investments (cost -
$556,056,199)-103.23%............. 581,926,870
Liabilities in excess of other
assets-(3.23%)..................... (18,227,407)
------------
Net Assets-100.00%................. $563,699,463
============
</TABLE>
14
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 1994
WRITTEN OPTIONS OPEN (SEE OPTIONS NOTE TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION EXERCISE UNREALIZED
OPTIONS UNDERLYING CONTRACT DATE PRICE GAIN/LOSS
--------- ------------------- ---------- -------- ----------
<C> <S> <C> <C> <C>
Call: 750 Compaq Computer Corporation........ Sep 94 $35 $(124,128)
Call: 97 Dover Corporation.................. Sep 94 60 1,654
Call: 245 E.I. dupont de Nemours and Company. Sep 94 60 (675)
International Business Machines
Call: 120 Corporation........................ Sep 94 65 (35,610)
Call: 23 Nucor Corporation.................. Sep 94 75 2,518
Call: 198 Proctor & Gamble Co................ Sep 94 60 (10,495)
Telefonos de Mexico, S.A. de C.V.,
Call: 290 ADS................................ Sep 94 65 36,284
Call: 28 Texas Instruments Incorporated..... Sep 94 85 4,529
---------
$(125,923)
=========
</TABLE>
- -------
* Non-income producing security
ADS - American Depository Shares
+ A portion of these securities are held in a segregated account in order to
cover the written call options.
See accompanying notes to financial statements
15
<PAGE>
PAINEWEBBER GROWTH FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 83.75%
<C> <S> <C>
Apparel & Footwear - 2.21%
149,000 Authentic Fitness Corporation*........................ $ 2,272,250
72,000 Bell Sports Corp.*.................................... 1,431,000
115,000 Jones Apparel Group, Inc.*............................ 2,875,000
------------
6,578,250
------------
Auto-Truck - 0.34%
100,000 Team Rental Group, Inc., Class A*..................... 1,000,000
------------
Banking - 4.44%
70,000 Bank of Boston Corporation............................ 1,837,500
70,000 Dauphin Deposit Corporation........................... 1,767,500
84,350 KeyCorp............................................... 2,773,006
60,000 Marshall and Ilsley Corporation....................... 1,215,000
60,000 Mercantile Bancorporation Inc......................... 2,295,000
180,000 Synovus Financial Corp................................ 3,330,000
------------
13,218,006
------------
Beverages & Bottling - 3.06%
100,000 The Coca-Cola Company................................. 4,600,000
50,000 Coca-Cola FEMSA, S.A. de CV, ADS...................... 1,743,750
120,000 Dr. Pepper/Seven-Up Companies, Inc.*.................. 2,775,000
------------
9,118,750
------------
Biotechnology - 0.82%
35,000 Chiron Corporation*................................... 2,441,250
------------
Broadcasting/Cable T.V. - 5.96%
105,000 Comcast Corporation, Class A.......................... 1,680,000
112,500 Comcast Corporation, Class A Special.................. 1,800,000
185,000 International CableTel Incorporated*.................. 5,133,750
87,000 QVC, Inc.*............................................ 3,915,000
100,000 Tele-Communications, Inc., Class A*................... 2,256,250
75,000 Turner Broadcasting System, Inc., Class B............. 1,359,375
48,000 Viacom Inc., Class B*................................. 1,584,000
------------
17,728,375
------------
Cellular & Paging Communications - 2.37%
50,000 McCaw Cellular Communications, Inc., Class A*......... 2,706,250
125,000 Mobile Telecommunications Technologies Corp.*......... 2,859,375
50,000 Rogers Cantel Mobile Communications Inc., Class B*.... 1,475,000
------------
7,040,625
------------
</TABLE>
16
<PAGE>
PAINEWEBBER GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Computer Software - 1.39%
340,000 Excalibur Technologies Corporation*................... $ 2,720,000
60,000 Landmark Graphics Corporation*........................ 1,440,000
------------
4,160,000
------------
Conglomerates - 1.58%
430,000 Noel Group, Inc.*..................................... 2,660,625
75,000 PEC Israel Economic Corporation*...................... 2,043,750
------------
4,704,375
------------
Construction & Engineering - 0.89%
90,000 Empresas ICA Sociedad Controladora, S.A. de C.V....... 2,655,000
------------
Containers & Packaging - 1.30%
110,000 Sealed Air Corporation*............................... 3,877,500
------------
Cosmetics & Toiletries - 0.95%
102,330 Maybelline, Inc....................................... 2,839,658
------------
Drugs & Medical Products - 7.60%
32,244 Advanced Therapeutic Systems*......................... 842,375
97,500 Elan Corporation, plc ADS*............................ 3,510,000
60,000 Forest Laboratories, Inc.*............................ 2,820,000
90,000 North American Vaccine Inc.*.......................... 1,147,500
120,000 Perrigo Company*...................................... 1,830,000
100,000 R.P. Scherer Corporation*............................. 4,050,000
107,000 Teva Pharmaceutical Industries Ltd., ADS.............. 3,076,250
130,354 VISX, Incorporated*................................... 2,378,961
130,000 Watson Pharmaceuticals, Inc.*......................... 2,973,750
------------
22,628,836
------------
Electronics & Instrumentation - 0.95%
150,000 Lattice Semiconductor Corporation*.................... 2,831,250
------------
Fertilizers - 1.55%
100,000 Potash Corporation of Saskatchewan Inc................ 3,425,000
75,000 The Scotts Company, Class A*.......................... 1,200,000
------------
4,625,000
------------
Financial Services - 4.15%
157,500 Countrywide Credit Industries, Inc.................... 2,342,813
45,000 Federal Home Loan Mortgage Corporation................ 2,795,625
40,000 Federal National Mortgage Association................. 3,555,000
75,000 First Data Corporation................................ 3,656,250
------------
12,349,688
------------
</TABLE>
17
<PAGE>
PAINEWEBBER GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Foods - 0.11%
168,000 Lincoln Snacks Company*............................... $ 315,000
------------
Forest Products - 0.38%
150,000 Universal Forest Products Inc......................... 1,125,000
------------
Healthcare - 3.57%
100,000 Humana Inc............................................ 2,125,000
20,000 PacifiCare Health Systems, Inc.*...................... 1,375,000
280,000 TDX Corporation*(1)................................... 630,000
70,000 United HealthCare Corporation*........................ 3,657,500
65,500 U.S. Healthcare, Inc.................................. 2,832,875
------------
10,620,375
------------
Hotel, Motel or Lodging - 1.48%
150,000 Hospitality Franchise Systems, Inc.*.................. 4,406,250
------------
Household & Consumer Products - 4.23%
70,000 Duracell International Inc............................ 3,220,000
165,000 The Forschner Group, Inc.*............................ 1,897,500
80,000 Luxottica Group S.p.A. ADS............................ 2,650,000
150,000 Sunbeam-Oster Company, Inc............................ 3,393,750
80,000 Syratech Corporation*................................. 1,430,000
------------
12,591,250
------------
Insurance - 0.79%
150,000 PennCorp Financial Group, Inc......................... 2,362,500
------------
Leisure & Entertainment - 7.06%
100,000 Blockbuster Entertainment Corporation................. 2,587,500
100,000 Gaylord Entertainment Company, Class A................ 2,275,000
120,000 International Game Technology......................... 2,805,000
250,000 Marker International.................................. 1,750,000
60,000 Marvel Entertainment Group, Inc.*..................... 1,260,000
175,000 Norwood Promotional Products, Inc.*................... 1,837,500
300,000 Savoy Pictures Entertainment, Inc.*................... 3,525,000
60,000 SweetWater, Inc.*..................................... 405,000
120,000 Time Warner Inc....................................... 4,575,000
------------
21,020,000
------------
Leisure: Gaming - 1.23%
105,000 Mirage Resorts, Incorporated*......................... 2,218,125
100,000 Rio Hotel & Casino, Inc.*............................. 1,437,500
------------
3,655,625
------------
</TABLE>
18
<PAGE>
PAINEWEBBER GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Medical Equipment - 0.60%
70,000 Sunrise Medical Inc.*................................. $ 1,776,250
------------
Metals & Mining - 1.33%
140,000 Madeco S.A............................................ 3,972,500
------------
Oil & Gas - 1.56%
193,235 Garnet Resources Corporation*......................... 628,014
90,000 Hugoton Energy Corporation*........................... 1,102,500
100,000 Louis Dreyfus Natural Gas Corp.*...................... 1,375,000
100,000 NUMAR Corporation*.................................... 1,525,000
------------
4,630,514
------------
Printing & Publishing - 0.55%
30,000 The News Corporation Limited.......................... 1,627,500
------------
Specialty Chemicals - 1.00%
175,000 Methanex Corporation.................................. 2,975,000
------------
Specialty Retail - 8.31%
180,000 General Nutrition Companies, Inc.*.................... 4,061,250
50,000 The Home Depot, Inc................................... 2,262,500
229,500 Rawlings Sporting Goods Company, Inc.................. 2,840,063
330,000 The Right Start, Inc.*(1)............................. 1,237,500
75,000 Spiegel, Inc., Class A................................ 1,453,125
159,750 Staples, Inc*......................................... 4,912,313
60,000 Toys "R' Us, Inc.*.................................... 2,212,500
200,000 Viking Office Products, Inc.*......................... 5,750,000
------------
24,729,251
------------
Steel - 1.05%
220,000 Northwestern Steel and Wire Company*.................. 1,567,500
130,000 Olympic Steel, Inc.*.................................. 1,560,000
------------
3,127,500
------------
Telecommunications - 1.08%
150,000 Cable and Wireless plc, ADS........................... 3,206,250
------------
Telecommunications-Equipment - 3.46%
80,000 ANTEC Corporation*.................................... 3,020,000
185,000 Belden, Inc........................................... 3,515,000
70,000 Motorola, Inc......................................... 3,780,000
------------
10,315,000
------------
Telecommunications-Services - 1.69%
25,000 AT & T Corp........................................... 1,368,750
151,875 IntelCom Group, Inc.*................................. 2,107,266
44,000 MFS Communications Company, Inc.*..................... 1,551,000
------------
5,027,016
------------
</TABLE>
19
<PAGE>
PAINEWEBBER GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONCLUDED)
<C> <S> <C>
Telephone Companies - 2.16%
45,000 Telefonica de Argentina, S.A., ADS..................... $ 3,279,375
50,000 Telefonos de Mexico, S.A. de C.V., ADS................. 3,137,500
-----------
6,416,875
-----------
Transportation - 2.55%
45,000 Burlington Northern Inc................................ 2,362,500
45,000 Conrail Inc............................................ 2,475,000
62,000 Johnstown America Industries, Inc.*.................... 1,581,000
50,000 Railtex Inc.*.......................................... 1,200,000
-----------
7,618,500
-----------
Total Common Stocks (cost - $191,963,086)......................... 249,314,719
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------- --------------
<C> <S> <C> <C> <C>
CORPORATE BONDS - 0.83%
Oil & Gas - 0.30%
Garnet Resources
$ 1,500 Corporation............... 12/21/98 9.500% 886,350
------------
Telecommunications-Services - 0.53%
IntelCom Group, Inc.-
2,080 Convertible............... 09/17/98 8.000 1,572,480
------------
Total Corporate Bonds (cost -
$3,580,000).......................... 2,458,830
------------
U.S. GOVERNMENT OBLIGATIONS - 13.38%
U.S. Treasury Bills (cost -
40,000 $39,834,917)............. 10/06/94 4.240 to 4.250 39,834,917
------------
REPURCHASE AGREEMENT - 3.38%
10,075 Repurchase Agreement dated
08/31/94 with Morgan
Stanley, collateralized by
$10,430,000 U.S. Treasury
Notes, 6.375%, due
01/15/00; proceeds:
$10,076,315 (cost -
$10,075,000).............. 09/01/94 4.700 10,075,000
------------
Total Investments (cost -
$245,453,003)-101.34%................ 301,683,466
Liabilities in excess of other assets-
(1.34%)............................... (3,986,771)
------------
Net Assets-100.00%.................... $297,696,695
============
</TABLE>
- -------
* Non-income producing security
ADS--American Depository Shares
(1) Investment in affiliated company-See notes to the financial statements.
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1994
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Investments at value (cost -
$451,946,512, $556,056,199 and
$245,453,003, respectively)........... $486,225,696 $581,926,870 $301,683,466
Cash................................... 1,696,130 -- --
Cash denominated in foreign currencies
(cost - $2,157,820)................... 2,162,243 -- --
Receivable for investments sold........ 78,708,726 39,197,307 630,713
Receivable for shares of beneficial
interest sold......................... 2,034,218 523,469 778,016
Dividends and interest receivable...... 987,591 1,381,695 285,853
Other assets........................... 86,207 83,215 49,267
------------ ------------ ------------
Total assets........................... 571,900,811 623,112,556 303,427,315
------------ ------------ ------------
Liabilities
Payable for investments purchased...... 73,463,410 54,104,047 3,791,573
Payable for shares of beneficial
interest repurchased.................. 2,102,868 3,939,157 1,407,278
Payable to affiliates.................. 551,392 670,109 327,942
Payable to custodian................... -- 13,210 --
Outstanding options written, at value
(premium received-$240,683)........... -- 366,606 --
Accrued expenses and other liabilities. 283,382 319,964 203,827
------------ ------------ ------------
Total liabilities...................... 76,401,052 59,413,093 5,730,620
------------ ------------ ------------
Net Assets
Beneficial interest shares of $0.001
par value outstanding (unlimited
amount authorized).................... 450,623,732 514,398,491 241,366,969
Accumulated undistributed
(overdistributed) net investment
income (loss)......................... (39,139) 816,845 --
Accumulated net realized gains from
investments, futures contracts and
other assets and liabilities
denominated in foreign currencies..... 10,713,772 22,739,394 99,263
Net unrealized appreciation of
investments, other assets, liabilities
and forward contracts denominated in
foreign currencies.................... 34,201,394 25,744,733 56,230,463
------------ ------------ ------------
Net assets............................. $495,499,759 $563,699,463 $297,696,695
============ ============ ============
Class A:
Net assets............................. $213,412,735 $222,432,020 $141,341,994
------------ ------------ ------------
Shares outstanding..................... 13,067,673 10,886,403 7,051,464
------------ ------------ ------------
Net asset value and redemption value
per share............................. $16.33 $20.43 $20.04
============ ============ ============
Maximum offering price per share (net
asset value plus sales charge of 4.50%
of offering price).................... $17.10 $21.39 $20.99
============ ============ ============
Class B:
Net assets............................. $166,038,652 $289,290,474 $ 97,272,378
------------ ------------ ------------
Shares outstanding..................... 10,374,074 14,200,805 4,980,331
------------ ------------ ------------
Net asset value and offering price per
share................................. $16.01 $20.37 $19.53
============ ============ ============
Class C:
Net assets............................. $ 38,912,003 $ 14,690,138 $ 30,520,964
------------ ------------ ------------
Shares outstanding..................... 2,371,031 719,186 1,509,546
------------ ------------ ------------
Net asset value, offering price and
redemption value per share............ $16.41 $20.43 $20.22
============ ============ ============
Class D:
Net assets............................. $ 77,136,369 $ 37,286,831 $ 28,561,359
------------ ------------ ------------
Shares outstanding..................... 4,792,503 1,825,598 1,452,038
------------ ------------ ------------
Net asset value, offering price and
redemption value per share............ $16.10 $20.42 $19.67
============ ============ ============
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
ATLAS
GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
FUND FUND FUND
----------- ------------ ----------
<S> <C> <C> <C>
Investment income:
Interest and dividends (net of foreign
withholding taxes)...................... $ 6,361,747 $ 17,328,492 $3,596,961
----------- ------------ ----------
Expenses:
Investment advisory and administration
fees.................................... 3,143,778 4,892,163 2,069,033
Distribution fees--Class A............... 398,327 637,190 294,533
Distribution fees--Class B............... 1,271,219 3,590,435 837,161
Distribution fees--Class D............... 631,019 476,859 259,279
Custody fees............................. 938,623 189,428 132,881
Transfer agency and service fees......... 441,359 911,264 274,152
Legal and audit fees..................... 141,975 158,567 93,806
Reports and notices to shareholders...... 105,508 467,045 79,070
Federal and state registration fees...... 91,469 82,534 59,658
Trustees' fees........................... 23,013 21,513 8,125
Other expenses........................... 80,935 16,243 23,234
----------- ------------ ----------
7,267,225 11,443,241 4,130,932
----------- ------------ ----------
Net investment income (loss)............. (905,478) 5,885,251 (533,971)
----------- ------------ ----------
Realized and unrealized gains (losses)
from investment activities:
Net realized gains (losses) from:
Investment transactions................. 46,878,125 39,114,080 5,195,790
Foreign currency transactions........... (26,960,620) -- --
Net change in unrealized
appreciation/depreciation on:
Investments............................. 100,618 (55,515,214) (2,125,984)
Other assets, liabilities and forward
contracts denominated in foreign
currencies............................. 1,495,014 -- --
----------- ------------ ----------
Net realized and unrealized gains (loss-
es) from investment activities.......... 21,513,137 (16,401,134) 3,069,806
----------- ------------ ----------
Net increase (decrease) in net assets re-
sulting from operations................. $20,607,659 $(10,515,883) $2,535,835
=========== ============ ==========
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
From operations:
Net investment income (loss)...................... $ (905,478) $ 696,751
Net realized gains from investment transactions
and forward currency contracts................... 46,878,125 9,773,326
Net realized gains (losses) from foreign currency
transactions..................................... (26,960,620) 4,292,432
Net change in unrealized appreciation/depreciation
of investments................................... 100,618 23,096,428
Net change in unrealized appreciation/depreciation
of other assets, liabilities and forward
contracts denominated in foreign currencies...... 1,495,014 1,214,881
------------- ------------
Net increase in net assets resulting from
operations....................................... 20,607,659 39,073,818
------------- ------------
Dividends and distributions to shareholders from:
Net investment income--Class A.................... (511,731) --
Net investment income--Class B.................... (31,390) --
Net investment income--Class C.................... (126,890) --
Net investment income--Class D.................... (37,463) --
Net realized gains from foreign currency
transactions--Class A............................ (1,343,285) --
Net realized gains from foreign currency
transactions--Class B............................ (728,746) --
Net realized gains from foreign currency
transactions--Class C............................ (187,552) --
Net realized gains from foreign currency
transactions--Class D............................ (376,145) --
Net realized gains from investment transactions--
Class A.......................................... (6,255,164) --
Net realized gains from investment transactions--
Class B.......................................... (3,393,492) --
Net realized gains from investment transactions--
Class C.......................................... (873,357) --
Net realized gains from investment transactions--
Class D.......................................... (1,751,563) --
------------- ------------
(15,616,778) --
------------- ------------
From beneficial interest transactions:
Net proceeds from sale of shares.................. 321,833,730 119,880,512
Cost of shares repurchased........................ (119,853,879) (53,634,780)
Proceeds from dividends reinvested................ 14,704,209 --
------------- ------------
Net increase in net assets derived from beneficial
interest transactions............................ 216,684,060 66,245,732
------------- ------------
Net increase in net assets........................ 221,674,941 105,319,550
Net assets:
Beginning of period............................... 273,824,818 168,505,268
------------- ------------
End of period (including undistributed net
investment income (loss) of ($39,139) and
$2,232,103, respectively)........................ $ 495,499,759 $273,824,818
============= ============
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
From operations:
Net investment income............................ $ 5,885,251 $ 8,312,022
Net realized gains (losses) from investment
transactions.................................... 39,114,080 (4,504,035)
Net change in unrealized appreciation
(depreciation) of investments................... (55,515,214) 12,485,667
------------- -------------
Net increase (decrease) in net assets resulting
from operations................................. (10,515,883) 16,293,654
------------- -------------
Dividends and distributions to shareholders from:
Net investment income--Class A................... (3,856,398) (4,917,875)
Net investment income--Class B................... (1,961,819) (2,409,908)
Net investment income--Class C................... (252,881) (216,900)
Net investment income--Class D................... (271,483) (287,189)
Net realized gains from investment transactions--
Class A......................................... (465,992) --
Net realized gains from investment transactions--
Class B......................................... (609,981) --
Net realized gains from investment transactions--
Class C......................................... (23,298) --
Net realized gains from investment transactions--
Class D......................................... (82,066) --
------------- -------------
(7,523,918) (7,831,872)
------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares............. 42,483,056 357,184,036
Cost of shares repurchased....................... (367,026,971) (242,079,223)
Proceeds from dividends reinvested............... 6,947,309 7,272,418
------------- -------------
Net increase (decrease) in net assets derived
from beneficial interest transactions........... (317,596,606) 122,377,231
------------- -------------
Net increase (decrease) in net assets............ (335,636,407) 130,839,013
Net assets:
Beginning of period.............................. 899,335,870 768,496,857
------------- -------------
End of period (including undistributed net
investment income of $816,845 and $1,272,598
respectively)................................... $ 563,699,463 $ 899,335,870
============= =============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
From operations:
Net investment income (loss)....................... $ (533,971) $ 270,567
Net realized gains from investment transactions.... 5,195,790 8,861,198
Net change in unrealized appreciation
(depreciation) of investments..................... (2,125,984) 34,948,942
------------ ------------
Net increase in net assets resulting from
operations........................................ 2,535,835 44,080,707
------------ ------------
Distributions to shareholders from:
Net realized gains from investment transactions--
Class A........................................... (6,987,744) (3,860,142)
Net realized gains from investment transactions--
Class B........................................... (3,876,826) (1,440,236)
Net realized gains from investment transactions--
Class C........................................... (1,187,915) (464,415)
Net realized gains from investment transactions--
Class D........................................... (1,156,865) (205,901)
------------ ------------
(13,209,350) (5,970,694)
------------ ------------
From beneficial interest transactions:
Net proceeds from sale of shares................... 136,624,359 73,392,257
Cost of shares repurchased......................... (68,709,767) (41,719,365)
Proceeds from dividends reinvested................. 12,642,821 5,667,071
------------ ------------
Net increase in net assets derived from beneficial
interest transactions............................. 80,557,413 37,339,963
------------ ------------
Net increase in net assets......................... 69,883,898 75,449,976
Net assets:
Beginning of period................................ 227,812,797 152,362,821
------------ ------------
End of period (including undistributed net
investment income of $0 and $143,539
respectively)..................................... $297,696,695 $227,812,797
============ ============
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Atlas Global Growth Fund ("Atlas Global Growth Fund"), PaineWebber
Dividend Growth Fund ("Dividend Growth Fund") and PaineWebber Growth Fund
("Growth Fund") (collectively, the "Funds") are diversified series of
PaineWebber Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund
(the "Trusts"), respectively. PaineWebber Olympus Fund also includes
PaineWebber Communications & Technology Growth Fund of which the financial
statements are not included herein. The three Trusts were organized under
separate Declarations of Trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended ("1940 Act"),
as diversified open-end investment companies. The trustees have authority to
issue an unlimited number of shares of beneficial interest of separate series
par value $0.001.
Prior to July 1, 1991, each Fund issued only Class A shares. Subsequent to that
date each Fund issued Class A and Class B shares. On August 25, 1991, Growth
Fund and Atlas Global Growth Fund and on February 12, 1992, Dividend Growth
Fund commenced issuing Class C Shares. Class C shares are available only to the
trustee of the PaineWebber Savings Investment Plan on behalf of that Plan. On
July 2, 1992, each Fund commenced issuing Class D shares. Each class represents
interests in the same assets of the applicable Fund and the classes are
identical except for differences in their sales charge structure, ongoing
distribution charges and transfer agency expenses. In addition, Class B shares,
along with their pro-rata reinvested dividends shares, automatically convert to
Class A shares approximately six years after initial issuance. All classes of
shares have equal rights as to voting privileges, except that each class has
exclusive voting rights with respect to its distribution plan.
Valuation of Investments - Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sales price on the day the securities
are being valued or, lacking any sales on such day, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are generally valued on the exchange designated by Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), an affiliate and wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Funds, and Mitchell Hutchins Institutional
Investors Inc., ("MHII") the Sub-Adviser to Dividend Growth Fund, as the
primary market. Securities traded in the over-the-counter ("OTC") market and
listed on the National Association of Securities Dealers Quotation System
("NASDAQ") are valued at the last trade price on NASDAQ prior to the time of
valuation; other OTC securities are valued at the last bid price available in
the OTC market prior to the time of valuation. The amortized cost method of
valuation is used to value short term debt instruments with sixty days or less
remaining to maturity. Securities and assets for which market quotations are
not
26
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
readily available (including restricted securities subject to limitations as to
their sale) are valued at fair value as determined in good faith by or under
the direction of each Trust's Board of Trustees. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is
determined by each Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange, Inc. ("NYSE"). Occasionally events affecting the
value of foreign investments and such exchange rates occur between the time at
which they are determined and the close of the NYSE, which in the case of Atlas
Global Growth Fund, would not be reflected in a computation of the Funds' net
asset value. If events materially affecting the value of such securities or
currency exchange rates occurred during such time period, the securities will
be valued at their fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments,
futures contracts and foreign exchange transactions are calculated using the
identified cost method. Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date (except in the case of
Atlas Global Growth Fund, for certain foreign securities which are recorded as
soon after the ex-date as the Fund becomes aware of such dividend).
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains (losses) are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class specific expenses are charged directly to the applicable class of shares.
Foreign Currency Translation - The books and records of Atlas Global Growth
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) market value of investment securities, other assets and liabilities--at
the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Atlas Global Growth Fund are
presented at the foreign exchange rates at the end of the period, Atlas Global
Growth Fund does not generally isolate the effect of unrealized fluctuations in
foreign exchange rates from the effect of the changes in market prices of
securities. However, Atlas Global Growth Fund does isolate the effect of
realized
27
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fluctuations in foreign exchange rates when determining the realized gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Foreign security and currency
transactions may involve certain considerations and risks not typically
associated with investing in U.S. companies and the U.S. Government. These
risks include re-evaluation of currencies and future adverse political and
economic developments, which could cause securities and their markets to be
less liquid and prices more volatile than those of comparable U.S. companies
and the U.S. Government.
Forward Foreign Currency Contracts - Atlas Global Growth Fund may enter into
forward foreign currency exchange contracts ("forward contracts") in connection
with planned purchases or sales of securities or to hedge the U.S. dollar value
of portfolio securities denominated in a particular currency.
Atlas Global Growth Fund has no specific limitation on the percentage of assets
which may be committed to such contracts. Atlas Global Growth Fund may enter
into forward contracts or maintain a net exposure to forward contracts only if
(1) the consummation of the contracts would not obligate Atlas Global Growth
Fund to deliver an amount of foreign currency in excess of the value of the
positions being hedged by such contracts or (2) Atlas Global Growth Fund
maintains cash, U.S. Government securities or liquid, high-grade debt
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the forward contracts.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Futures Contracts - Each of the Funds is permitted to use financial futures
contracts to hedge its portfolio. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash and/or
U.S. Government securities equal to a certain percentage of the contract
amount. This amount is known as the "initial margin." Subsequent payments,
known as "variation margin," are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying financial
futures contract. Such variation margin is recorded for financial statement
purposes on a daily basis as unrealized gain or loss, until the financial
futures contract is closed, at which time the gain or loss is reclassified to
realized.
Using financial futures contracts involves various market risks. The Fund is
subject to a number of guidelines which reduce this risk by seeking to ensure
that financial futures contracts are used solely for hedging purposes and not
for leverage. However, imperfect correlations between financial futures and the
instruments being hedged or market disruptions do not normally permit full
control of these risks at all times. Financial futures contracts in which the
Fund invests does not represent exposure to default or other credit risk.
28
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Option Writing - When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statements of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires
on its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put option which
the Fund has written is exercised, the amount of the premium originally
received reduces the cost of the security which the Fund purchases upon
exercise of the option.
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.
Repurchase Agreements - Each Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Each Fund occasionally
participates in joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
29
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Federal Tax Status - Each Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to any
federal excise tax.
During the fiscal year ended August 31, 1994, Dividend Growth Fund utilized all
prior fiscal year's carryover losses of $11,391,318 to offset a portion of net
realized gains during the year.
Dividends - The Funds record dividends and distributions to their shareholders
on the ex-date.
Change in Accounting for Distributions to Shareholders - During the year ended
August 31, 1994, the Funds adopted Statement of Position 93-2, Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital. For the year ended August 31, 1994 the effects of such
permanent differences totalled $1,126,972, $10,625 and $304,392 for the Atlas
Global Growth Fund, Dividend Growth Fund and Growth Fund, respectively.
INVESTMENT ADVISER AND ADMINISTRATOR
Each of the Funds has entered into an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins. In accordance with the
Advisory Contract each Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and paid monthly, in accordance with
the following schedule:
<TABLE>
<CAPTION>
ATLAS
GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
<S> <C> <C> <C>
As a % of Average Daily Net Assets.......... 0.750% 0.700% 0.750%
</TABLE>
At August 31, 1994, Atlas Global Growth Fund, Dividend Growth Fund and Growth
Fund owed Mitchell Hutchins $302,957, $331,372 and $186,949, respectively, in
investment advisory and administration fees.
30
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended August 31, 1994, Atlas Global Growth Fund paid $22,858,
Dividend Growth Fund paid $47,142 and Growth Fund paid $9,326 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Funds.
Under a separate contract Mitchell Hutchins (not the Fund) pays MHII, the Sub-
Adviser, a monthly fee, at an annual rate of 0.25% of the average daily net
assets.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Funds if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the year ended August
31, 1994, no reimbursements were required pursuant to the above limitation for
any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B and Class D
shares ("Class A Plan", "Class B Plan" and "Class D Plan", collectively
"Plans"), each class of shares of each Fund pays Mitchell Hutchins monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
of Class A, Class B and Class D shares and monthly distribution fees at the
annual rate of up to 0.75% of the average daily net assets on Class B and Class
D shares. At August 31, 1994, Atlas Global Growth Fund, Dividend Growth Fund
and Growth Fund owed Mitchell Hutchins $232,142, $317,151 and $131,464,
respectively, in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charges
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
each Fund that for the year ended August 31, 1994, it earned the following
amounts in sales charges:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ----------- -----------
<S> <C> <C> <C>
Initial sales charges--Class A............ $900,089 $ 186,333 $367,454
======== ========== ========
Contingent deferred sales charges--Class
B........................................ $345,680 $2,384,664 $235,285
======== ========== ========
</TABLE>
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services during the year ended August 31, 1994, PaineWebber
earned $169,521, $303,496 and $103,435 from Atlas Global Growth Fund, Dividend
31
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Growth Fund and Growth Fund, respectively. At August 31, 1994, PaineWebber was
owed $16,293, $21,586 and $9,529 by Atlas Global Growth Fund, Dividend Growth
Fund and Growth Fund, respectively, for transfer agency service fees.
TRANSACTION WITH AFFILIATED COMPANY
An affiliated company represents ownership of at least 5% of the voting
securities of the issuer during the period, as defined in the Investment
Company Act of 1940.
At August 31, 1994, Growth Fund owned 330,000 shares of common stock of The
Right Start, Inc. with an original cost of $1,679,943 and a market value of
$1,237,500. Additionally, Growth Fund owned 280,000 shares of common stock of
TDX Corporation with an original cost of $1,429,375 and a market value of
$630,000 at August 31, 1994.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1994, was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1994, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
<S> <C> <C> <C>
Gross appreciation (investments
having an excess of value over
cost)............................... $ 61,827,954 $32,579,873 $68,719,273
Gross depreciation (investments
having an excess of cost over
value).............................. (27,548,770) (6,835,140) (12,488,810)
------------ ------------ ------------
Net unrealized appreciation of
investments......................... $ 34,279,184 $25,744,733 $56,230,463
============ =========== ===========
For the year ended August 31, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
<S> <C> <C> <C>
Purchases............................ $885,073,201 $615,827,471 $115,515,291
Sales................................ $720,924,925 $884,095,619 $ 55,057,720
</TABLE>
WRITTEN OPTION ACTIVITY
Written option activity for the year ended August 31, 1994 for the Dividend
Growth Portfolio were as follows:
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
--------- ---------
<S> <C> <C>
Options outstanding at August 31, 1993..................... -- --
Options written during the year ended August 31, 1994...... 3,419 $(447,072)
Options cancelled in closing purchase transactions......... (794) 38,659
Options expired prior to exercise.......................... (52) 30,431
Options exercised.......................................... (822) 137,299
----- ---------
Options outstanding at August 31, 1994..................... 1,751 $(240,683)
----- ---------
</TABLE>
32
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount $.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------------------- ---------------------- ------------------ ----------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas Global Growth Fund
Shares sold............. 4,374,615 2,062,053 8,462,152 3,368,472 1,277,510 558,621 5,544,502 2,476,773
Shares repurchased...... (2,546,254) (3,252,930) (2,070,066) (354,428) (16,493) (15,300) (2,942,263) (446,313)
Shares converted from
Class B to Class A..... 234,710 73,207 (238,599) (73,969) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 447,367 -- 233,092 -- 69,872 -- 121,480 --
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. 2,510,438 (1,117,670) 6,386,579 2,940,075 1,330,889 543,321 2,723,719 2,030,460
========== ========== ========== ========== ========= ======= ========== ==========
Dividend Growth Fund
Shares sold............. 484,780 3,649,956 1,075,994 9,598,413 165,180 349,190 355,387 3,363,139
Shares repurchased...... (7,207,269) (5,129,795) (8,992,340) (5,457,981) (274,997) (59,757) (1,515,548) (1,042,586)
Shares converted from
Class B to Class A..... 199,102 969,178 (199,711) (972,092) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 193,794 216,385 116,857 107,714 13,616 10,374 16,282 12,903
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. (6,329,593) (294,276) (7,999,200) 3,276,054 (96,201) 299,807 (1,143,879) 2,333,456
========== ========== ========== ========== ========= ======= ========== ==========
Growth Fund
Shares sold............. 1,549,566 1,057,760 2,917,179 1,676,649 461,518 339,355 1,795,537 888,972
Shares repurchased...... (1,255,407) (1,274,682) (985,658) (700,517) (8,765) (53,240) (1,207,404) (226,889)
Shares converted from
Class B to Class A..... 106,274 227,587 (108,639) (230,281) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 322,249 201,137 180,416 75,417 57,056 25,434 55,665 10,332
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
Net increase in shares
outstanding............ 722,682 211,802 2,003,298 821,268 509,809 311,549 643,798 672,415
========== ========== ========== ========== ========= ======= ========== ==========
</TABLE>
33
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 15.57 $ 12.72 $ 13.62 $ 14.88 $ 16.02
-------- -------- -------- -------- --------
Income (loss) from
investment operations:
Net investment income
(loss)..................... 0.02 0.08 0.09 0.32 0.33
Net realized and unrealized
gains (losses) from
investment transactions.... 1.47 2.77 (0.79) (0.13) 0.31
-------- -------- -------- -------- --------
Total income (loss) from
investment operations...... 1.49 2.85 (0.70) 0.19 0.64
-------- -------- -------- -------- --------
Less dividends and
distributions:
Dividends from net
investment income.......... (0.05) -- (0.20) (0.45) (0.71)
Distributions from net
realized gains on
investments and foreign
currency transactions...... (0.68) -- -- (1.00) (1.07)
-------- -------- -------- -------- --------
Total dividends and
distributions.............. (0.73) -- (0.20) (1.45) (1.78)
-------- -------- -------- -------- --------
Net asset value, end of
period..................... $ 16.33 $ 15.57 $ 12.72 $ 13.62 $ 14.88
======== ======== ======== ======== ========
Total return(1)............. 9.34% 22.41% (5.25)% 1.46% 3.95%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period
(000's).................... $213,413 $164,378 $148,453 $208,161 $218,033
Ratio of expenses to average
net assets................. 1.39% 1.48% 1.72% 1.58% 1.49%
Ratio of net investment
income (loss) to average
net assets................. 0.11% 0.48% 0.44% 2.33% 2.21%
Portfolio turnover.......... 176.16% 258.05% 80.14% 47.34% 64.78%
</TABLE>
- -------------
* Annualized.
+ Commencement of offering of shares.
++ A per share breakdown for Class C shares has been omitted for the period
August 26, 1991 (commencement of operations) to August 31, 1991 due to
immaterial amounts.
# Based on average number of shares outstanding at each month end.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
34
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS B CLASS C++ CLASS D
- ---------------------------------------------- ------------------------ --------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE PERIOD
AUGUST 31, JULY 1, 1991+ AUGUST 31, AUGUST 31, JULY 2, 1992+
- ---------------------------- TO ------------------------ --------------------- TO
1994 1993 1992 AUGUST 31, 1991 1994 1993 1992 1994 1993 AUGUST 31, 1992
- -------- ------- ------- --------------- ------- ------- ------ --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15.36 $ 12.64 $ 13.61 $13.09 $ 15.64 $ 12.73 $13.62 $ 15.44 $ 12.70 $13.51
- -------- ------- ------- ------ ------- ------- ------ --------- --------- ------
(0.06) 0.09 0.00# (0.01) 0.04 0.09 0.19 (0.09) 0.01 (0.02)
1.40 2.63 (0.80) 0.53 1.49 2.82 (0.86) 1.44 2.73 (0.79)
- -------- ------- ------- ------ ------- ------- ------ --------- --------- ------
1.34 2.72 (0.80) 0.52 1.53 2.91 (0.67) 1.35 2.74 (0.81)
- -------- ------- ------- ------ ------- ------- ------ --------- --------- ------
(0.01) -- (0.17) -- (0.08) -- (0.22) (0.01) -- --
(0.68) -- -- -- (0.68) -- -- (0.68) -- --
- -------- ------- ------- ------ ------- ------- ------ --------- --------- ------
(0.69) -- (0.17) -- (0.76) -- (0.22) (0.69) -- --
- -------- ------- ------- ------ ------- ------- ------ --------- --------- ------
$ 16.01 $ 15.36 $ 12.64 $13.61 $ 16.41 $ 15.64 $12.73 $ 16.10 $ 15.44 $12.70
======== ======= ======= ====== ======= ======= ====== ========= ========= ======
8.48% 21.52% (6.00)% (0.51)% 9.59% 22.86% (5.10)% 8.54% 21.57% (6.00)%
======== ======= ======= ====== ======= ======= ====== ========= ========= ======
$166,039 $61,231 $13,239 $3,164 $38,912 $16,265 $6,327 $ 77,136 $31,952 $ 487
2.19% 2.13% 2.47% 2.51%* 1.13% 1.10% 1.45% 2.20% 1.90% 2.62%*
(0.65)% (0.20)% (0.07)% (0.58)%* 0.40% 0.87% 0.93% (0.68)% 0.04% (1.18)%*
176.16% 258.05% 80.14% 47.34% 176.16% 258.05% 80.14% 176.16% 258.05% 80.14%
</TABLE>
35
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $20.86 $20.48 $19.26 $15.87 $16.50
-------- -------- -------- -------- -------
Income (loss) from
investment operations:
Net investment income....... 0.28 0.28 0.24 0.19 0.51
Net realized and unrealized
gains (losses) from
investment transactions.... (0.41) 0.37 1.25 3.50 (0.61)
-------- -------- -------- -------- -------
Total income (loss) from
investment operations...... (0.13) 0.65 1.49 3.69 (0.10)
-------- -------- -------- -------- -------
Less dividends and
distributions:
Dividends from net
investment income.......... (0.27) (0.27) (0.27) (0.30) (0.53)
Distributions from net
realized gains on
investments................ (0.03) -- -- -- --
-------- -------- -------- -------- -------
Total dividends and
distributions.............. (0.30) (0.27) (0.27) (0.30) (0.53)
-------- -------- -------- -------- -------
Net asset value, end of
period..................... $20.43 $20.86 $20.48 $19.26 $15.87
======== ======== ======== ======== =======
Total return(1)............. (0.58)% 3.15% 7.78% 23.62% (0.72)%
======== ======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period
(000's).................... $222,432 $359,073 $358,643 $232,555 $58,649
Ratio of expenses to average
net assets................. 1.20% 1.13% 1.22% 1.42% 1.41%
Ratio of net investment
income to average net
assets..................... 1.29% 1.33% 1.26% 1.79% 3.11%
Portfolio turnover.......... 94.32% 36.52% 15.57% 52.00% 32.10%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
36
<PAGE>
PAINEWEBBER DIVIDEND GROWTH FUND
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D
- ----------------------------------------- ----------------------------------- ---------------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEARS ENDED JULY 1, FOR THE YEARS ENDED FEBRUARY 12, FOR THE YEARS ENDED JULY 2,
AUGUST 31, 1991+ TO AUGUST 31, 1992+ TO AUGUST 31, 1992+ TO
- ----------------------------- AUGUST 31, --------------------- AUGUST 31, --------------------- AUGUST 31,
1994 1993 1992 1991 1994 1993 1992 1994 1993 1992
- -------- -------- -------- ---------- --------- --------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$20.78 $20.41 $19.23 $18.04 $20.86 $20.48 $20.95 $20.83 $20.47 $20.95
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
0.10 0.12 0.13 0.02 0.33 0.33 0.16 0.11 0.11 0.02
(0.37) 0.36 1.20 1.17 (0.40) 0.37 (0.49) (0.38) 0.37 (0.44)
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
(0.27) 0.48 1.33 1.19 (0.07) 0.70 (0.33) (0.27) 0.48 (0.42)
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
(0.11) (0.11) (0.15) -- (0.34) (0.32) (0.14) (0.11) (0.12) (0.06)
(0.03) -- -- -- (0.03) -- -- (0.03) -- --
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
(0.14) (0.11) (0.15) -- (0.37) (0.32) (0.14) (0.14) (0.12) (0.06)
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
$20.37 $20.78 $20.41 $19.23 $20.42 $20.86 $20.48 $20.42 $20.83 $20.47
======== ======== ======== ======= ========= ========= ======= ========= ========= =======
(1.31)% 2.34% 6.99% 6.60% (0.31)% 3.44% (1.15)% (1.29)% 2.35% 2.85%
======== ======== ======== ======= ========= ========= ======= ========= ========= =======
$289,290 $461,389 $386,275 $57,539 $ 14,690 $ 17,005 $10,560 $ 37,287 $ 61,869 $13,019
1.97% 1.90% 1.97% 2.10%* 0.90% 0.86% 0.93%* 1.94% 1.87% 1.73%*
0.51% 0.57% 4.90% 1.18%* 1.60% 1.62% 1.56%* 0.54% 0.61% 0.94%*
94.32% 36.52% 15.57% 52.00% 94.32% 36.52% 15.57% 94.32% 36.52% 15.57%
</TABLE>
37
<PAGE>
PAINEWEBBER GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
----------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 20.60 $ 16.78 $ 17.50 $ 13.43 $ 15.57
-------- -------- -------- ------- -------
Income (loss) from
investment operations:
Net investment income
(loss).................... -- 0.07 -- 0.02 0.17
Net realized and unrealized
gains (losses) from
investment transactions... 0.51 4.37 (0.11) 4.68 (1.16)
-------- -------- -------- ------- -------
Total income (loss) from
investment operations..... 0.51 4.44 (0.11) 4.70 (0.99)
-------- -------- -------- ------- -------
Less dividends and
distributions:
Dividends from net
investment income......... -- -- (0.01) (0.17) --
Distributions from net
realized gains on
investments............... (1.07) (0.62) (0.60) (0.46) (1.15)
-------- -------- -------- ------- -------
Total dividends and
distributions............. (1.07) (0.62) (0.61) (0.63) (1.15)
-------- -------- -------- ------- -------
Net asset value, end of
period.................... $ 20.04 $ 20.60 $ 16.78 $ 17.50 $ 13.43
======== ======== ======== ======= =======
Total return(1)............ 2.33% 26.97% (0.85)% 37.02% (7.05)%
======== ======== ======== ======= =======
Ratios/Supplemental Data:
Net assets, end of period
(000's)................... $141,342 $130,353 $102,640 $96,796 $72,805
Ratio of expenses to
average net assets........ 1.21% 1.22% 1.43% 1.56% 1.59%
Ratio of net investment
income (loss) to average
net assets................ 0.06% 0.38% 0.00% 0.10% 2.96%
Portfolio turnover......... 24.41% 35.81% 32.49% 28.59% 39.16%
</TABLE>
- -------
* Annualized
+ Commencement of offering of shares.
++ A per share breakdown for Class C shares has been omitted for the period
August 26, 1991 (commencement of operations) to August 31, 1991 due to
immaterial amounts.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
38
<PAGE>
PAINEWEBBER GROWTH FUND
<TABLE>
<CAPTION>
CLASS B CLASS C++ CLASS D
- ---------------------------------------- ------------------------- ------------------------------
FOR THE FOR THE
PERIOD FOR THE PERIOD
FOR THE YEARS ENDED JULY 1, FOR THE YEARS ENDED YEARS ENDED JULY 2,
AUGUST 31, 1991+ TO AUGUST 31, AUGUST 31, 1992+ TO
- --------------------------- AUGUST 31, ------------------------- ----------------- AUGUST 31,
1994 1993 1992 1991 1994 1993 1992 1994 1993 1992
- ------- ------- ------- ---------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 20.25 $ 16.64 $ 17.48 $15.63 $ 20.71 $ 16.83 $ 17.50 $ 20.38 $ 16.75 $17.04
- ------- ------- ------- ------ ------- ------- ------- ------- ------- ------
(0.06) (0.05) (0.06) (0.02) 0.03 0.08 0.05 (0.08) (0.06) (0.01)
0.41 4.28 (0.18) 1.87 0.55 4.42 (0.11) 0.44 4.31 (0.28)
- ------- ------- ------- ------ ------- ------- ------- ------- ------- ------
0.35 4.23 (0.24) 1.85 0.58 4.50 (0.06) 0.36 4.25 (0.29)
- ------- ------- ------- ------ ------- ------- ------- ------- ------- ------
-- -- -- -- -- -- (0.01) -- -- --
(1.07) (0.62) (0.60) -- (1.07) (0.62) (0.60) (1.07) (0.62) --
- ------- ------- ------- ------ ------- ------- ------- ------- ------- ------
(1.07) (0.62) (0.60) -- (1.07) (0.62) (0.61) (1.07) (0.62) --
- ------- ------- ------- ------ ------- ------- ------- ------- ------- ------
$ 19.53 $ 20.25 $ 16.64 $17.48 $ 20.22 $ 20.71 $ 16.83 $ 19.67 $ 20.38 $16.75
======= ======= ======= ====== ======= ======= ======= ======= ======= ======
1.55% 25.91% (1.58)% 11.84% 2.67% 27.26% (0.52)% 1.59% 25.86% (2.95)%
======= ======= ======= ====== ======= ======= ======= ======= ======= ======
$97,272 $60,280 $35,867 $3,804 $30,521 $20,706 $11,581 $28,561 $16,474 $2,275
2.00% 2.02% 2.20% 2.24%* 0.94% 0.95% 1.12% 1.98% 2.06% 1.98%*
(0.66)% (0.46)% (0.70)% (0.81)%* 0.40% 0.60% 0.38% (0.65)% (0.69)% (0.65)%*
24.41% 35.81% 32.49% 28.59% 24.41% 35.81% 32.49% 24.41% 35.81% 32.49%
</TABLE>
39
<PAGE>
PAINEWEBBER REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
PaineWebber Atlas Global Growth Fund
PaineWebber Dividend Growth Fund
PaineWebber Growth Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the PaineWebber Atlas Global Growth
Fund, PaineWebber Dividend Growth Fund and PaineWebber Growth Fund as of August
31, 1994, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of each Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at August 31, 1994, by correspondence with the custodians and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
PaineWebber Atlas Global Growth Fund, PaineWebber Dividend Growth Fund and
PaineWebber Growth Fund as of August 31, 1994 and the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
October 26, 1994
40
<PAGE>
PAINEWEBBER TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended to advise you within 60 days of each Fund's fiscal year end (August 31,
1994) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the following
distributions paid during the fiscal year by the Funds were derived from the
following sources:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
PER SHARE DATA: FUND FUND FUND
- --------------- ------------ -------- -------
<S> <C> <C> <C>
Net investment income
Class A....................................... $0.0455 $0.2740 --
Class B....................................... $0.0051 $0.1057 --
Class C....................................... $0.0808 $0.3386 --
Class D....................................... $0.0119 $0.1100 --
Foreign currency gains*......................... $0.1194 -- --
Short-term capital gains*....................... -- -- $0.0479
Long-term capital gains......................... $0.5560 $0.0310 $1.0255
Percentage of ordinary income dividends
qualifying for the dividends received deduction
available to corporate shareholders............ -- 100% 100%
</TABLE>
- -------
* Taxable as ordinary income
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1994. Such notification, which will
reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1995. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each of
the Funds.
SPECIAL INFORMATION FOR PAINEWEBBER ATLAS GLOBAL GROWTH FUND
The Fund intends to make an election under Internal Revenue Code Section 853
to pass through foreign taxes paid by the Fund to its shareholders. The amount
of foreign taxes for the fiscal year ended August 31, 1994 is $0.0195 on a per
share basis. Accordingly, shareholders would report this amount as an
additional income dividend on a federal income tax return and would be entitled
to a foreign tax credit, or an itemized deduction, at their option, for this
amount in computing their U.S. income tax liability. Generally, it is more
advantageous to claim a credit rather than to take a deduction.
The following table identifies the foreign source income earned through
August 31, 1994 by its source on a per share basis. Since the Fund's fiscal
year is not the calendar year, shareholders should refer to their Form 1099 DIV
mailed in January 1995 to determine the amounts to be included on their
respective tax returns for 1994. Shareholders are advised to consult their own
tax advisers with respect to the tax consequences of their investment in the
Fund.
41
<PAGE>
PAINEWEBBER TAX INFORMATION (UNAUDITED) (CONCLUDED)
PAINEWEBBER ATLAS GROWTH FUND
<TABLE>
<CAPTION>
GROSS FOREIGN NET
COUNTRY AMOUNT TAX AMOUNT
- ------- ------ ------- ------
<S> <C> <C> <C>
Argentina 0.0088 0.0000 0.0088
Australia 0.0002 0.0000 0.0002
Brazil 0.0591 0.0087 0.0504
Canada 0.0023 0.0004 0.0020
China 0.0006 0.0000 0.0006
Germany 0.0117 0.0012 0.0105
Hong Kong 0.0458 0.0000 0.0458
Indonesia 0.0063 0.0008 0.0055
Korea 0.0016 0.0003 0.0013
<CAPTION>
GROSS FOREIGN NET
COUNTRY AMOUNT TAX AMOUNT
- ------- ------ ------- ------
<S> <C> <C> <C>
Luxembourg 0.0027 0.0000 0.0027
Malaysia 0.0033 0.0010 0.0023
Mexico 0.0018 0.0000 0.0018
Norway 0.0025 0.0004 0.0021
Sweden 0.0175 0.0026 0.0149
Thailand 0.0020 0.0002 0.0018
Turkey 0.0089 0.0000 0.0089
United Kingdom 0.0257 0.0039 0.0218
United States 0.0064 0.0000 0.0064
</TABLE>
42
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $8.99 $9.97 $9.75 -4.24% - 9.83%
- ------------------------------------------------------------------------
Class B Shares 8.81 9.81 9.62 -5.03 -10.19
- ------------------------------------------------------------------------
Class D Shares 8.86 9.87 9.67 -5.00 -10.23
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
02/07/90 - 12/31/90 $9.55 $8.48 $0.0500 $0.1200 -9.39%
- -----------------------------------------------------------------------------
1991 8.48 8.22 -- 0.2432 -0.18
- -----------------------------------------------------------------------------
1992 8.22 7.44 -- -- -9.49
- -----------------------------------------------------------------------------
1993 7.44 9.49 0.3454 0.0194 32.48
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 9.49 8.99 -- -- -5.27
- -----------------------------------------------------------------------------
Total: $0.3954 $0.3826
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 2.74%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $8.52 $8.21 -- $0.2231 - 1.00%
- -----------------------------------------------------------------------------
1992 8.21 7.38 -- -- -10.11
- -----------------------------------------------------------------------------
1993 7.38 9.36 $0.3454 -- 31.53
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 9.36 8.81 -- -- - 5.88
- -----------------------------------------------------------------------------
Total: $0.3454 $0.2231
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 10.17%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/06/92 - 12/31/92 $8.33 $7.42 -- -- -10.92%
- -----------------------------------------------------------------------------
1993 7.42 9.41 $0.3454 -- 31.49
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 9.41 8.86 -- -- - 5.84
- -----------------------------------------------------------------------------
Total: $0.3454 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 10.28%
- -----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.39 $11.43 $14.21 -5.79% -0.35%
- ------------------------------------------------------------------------
Class B Shares 11.38 11.46 14.19 -6.56 -0.70
- ------------------------------------------------------------------------
Class D Shares 11.28 11.37 14.09 -6.59 -0.79
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $11.20 $12.14 -- $0.0907 9.22%
- -----------------------------------------------------------------------------
1992 12.14 11.50 -- 0.2170 -3.77
- -----------------------------------------------------------------------------
1993 11.50 11.24 $1.8406 0.2079 15.78
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.24 11.39 -- -- 1.33
- -----------------------------------------------------------------------------
Total: $1.8406 $0.5156
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 23.67%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
09/18/87 - 12/31/87 $10.00 $ 9.25 -- $0.0820 -6.66%
- -----------------------------------------------------------------------------
1988 9.25 10.41 $0.0570 0.2805 16.24
- -----------------------------------------------------------------------------
1989 10.41 12.59 0.7290 0.2111 30.30
- -----------------------------------------------------------------------------
1990 12.59 11.25 0.6925 0.1100 -4.21
- -----------------------------------------------------------------------------
1991 11.25 12.16 -- 0.1277 9.28
- -----------------------------------------------------------------------------
1992 12.16 11.54 -- 0.1118 -4.42
- -----------------------------------------------------------------------------
1993 11.54 11.31 1.8406 0.0562 14.66
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.31 11.38 -- -- 0.62
- -----------------------------------------------------------------------------
Total: $3.3191 $0.9793
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 65.20%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/08/92 - 12/31/92 $11.95 $11.48 -- $0.1367 -2.93%
- ----------------------------------------------------------------------------
1993 11.48 11.22 $1.8406 0.1037 14.89
- ----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.22 11.28 -- -- 0.53
- ----------------------------------------------------------------------------
Total: $1.8406 $0.2404
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 12.29%
- ----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $11.20 $10.61 $11.31 1.35% 5.56%
- ------------------------------------------------------------------------
Class B Shares 11.03 10.49 11.20 0.60 5.15
- ------------------------------------------------------------------------
Class D Shares 11.05 10.51 11.22 0.68 5.14
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
06/09/89 - 12/31/89 $ 9.55 $10.23 $0.0600 $0.3135 11.03%
- ----------------------------------------------------------------------------
1990 10.23 8.99 0.4510 0.9190 1.34
- ----------------------------------------------------------------------------
1991 8.99 9.46 -- 0.4408 10.03
- ----------------------------------------------------------------------------
1992 9.46 8.90 -- 0.2520 -3.30
- ----------------------------------------------------------------------------
1993 8.90 11.74 -- -- 35.01
- ----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.74 11.20 -- 0.2710 -4.60
- ----------------------------------------------------------------------------
Total: $0.5110 $2.1963
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 54.84%
- ----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $ 8.58 $ 9.44 -- $0.1358 -11.62%
- -----------------------------------------------------------------------------
1992 9.44 8.87 -- 0.1937 - 4.04
- -----------------------------------------------------------------------------
1993 8.87 11.64 -- -- 34.06
- -----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.64 11.03 -- 0.2464 - 5.24
- -----------------------------------------------------------------------------
Total: -- $0.5759
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 36.07%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/06/92 - 12/31/92 $ 9.32 $ 8.89 -- $0.0263 -4.33%
- ----------------------------------------------------------------------------
1993 8.89 11.65 -- -- 33.90
- ----------------------------------------------------------------------------
01/01/94 - 10/31/94 11.65 11.05 -- 0.2561 -5.15
- ----------------------------------------------------------------------------
Total: -- $0.2824
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 21.56%
- ----------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost .
3
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
10/31/94 04/30/94 10/31/93 ENDED 10/31/94 ENDED 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $9.99 $10.29 $10.97 -3.10% 0.40%
- ------------------------------------------------------------------------
Class B Shares 9.96 10.27 10.95 -3.90 -0.09
- ------------------------------------------------------------------------
Class D Shares 9.98 10.28 10.96 -3.56 0.14
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
07/01/91 -
12/31/91 $10.40 $11.05 $0.0100 $0.4800 -- 11.11%
- ------------------------------------------------------------------------
1992 11.05 10.42 0.1644 0.6029 -- 1.22
- ------------------------------------------------------------------------
1993 10.42 10.97 0.1445 0.6092 -- 14.16
- ------------------------------------------------------------------------
01/01/94 -
10/31/94 10.97 9.99 -- 0.3263 $0.3178 -4.27
- ------------------------------------------------------------------------
Total: $0.3189 $2.0184 $0.3178
- ------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 22.92%
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/20/87 -
12/31/87 $10.00 $10.86 $0.1800 $0.6647 -- 17.58%
- -------------------------------------------------------------------------
1988 10.86 10.64 0.1489 1.3436 -- 12.15
- -------------------------------------------------------------------------
1989 10.64 10.25 -- 0.9200 -- 5.44
- -------------------------------------------------------------------------
1990 10.25 10.87 -- 1.1300 -- 17.72
- -------------------------------------------------------------------------
1991 10.87 11.05 0.0100 0.9100 -- 10.75
- -------------------------------------------------------------------------
1992 11.05 10.41 0.1644 0.5214 -- 0.38
- -------------------------------------------------------------------------
1993 10.41 10.96 0.1445 0.5545 -- 13.36
- -------------------------------------------------------------------------
01/01/94 -
10/31/94 10.96 9.96 -- 0.2884 $0.2810 -5.02
- -------------------------------------------------------------------------
Total: $0.6478 $6.3326 $0.2810
- -------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 98.68%
- -------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------
PERIOD CAPITAL GAINS DIVIDENDS PAID FROM TOTAL
COVERED BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN/1/
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
07/02/92 -
12/31/92 $10.94 $10.42 -- $0.5388 -- 0.10%
- ------------------------------------------------------------------------
1993 10.42 10.97 $0.1445 0.5736 -- 13.64
- ------------------------------------------------------------------------
01/01/94 -
10/31/94 10.97 9.98 -- 0.3016 $0.2938 -4.73
- ------------------------------------------------------------------------
Total: $0.1445 $1.4140 $0.2938
- ------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF 10/31/94: 8.38%
- ------------------------------------------------------------------------
</TABLE>
/1/ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable dates and do not include sales charges;
results for Class A and Class B would be lower if sales charges were
included.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Note: The Fund offers Class C shares to the trustee of the PaineWebber
Savings Investment Plan. For the one year ended October 31, 1994, and since
inception, August 26, 1991 through October 31, 1994, Class C shares have had a
total return of -2.86% and 22.38%, respectively. Class C shares do not have
initial or contingent sales charges or ongoing distribution and service fees.
4
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - 78.49%
AUSTRIA - 0.94%
Technology - 0.94%
16,400 Austrian Mikro Systeme International................... $ 1,215,829
------------
BELGIUM - 2.21%
Chemicals - 2.21%
5,800 Solvay et Cie.......................................... 2,878,712
------------
DENMARK - 0.90%
Retail - 0.90%
16,000 Danske Traelast........................................ 1,168,855
------------
FINLAND - 1.14%
Capital Goods - 0.32%
128,000 Tampella AB OY*........................................ 416,358
------------
Printing & Publishing - 0.82%
47,000 Aamulehti Yhtymae Bearer Series 2...................... 1,060,455
------------
Total Finland Common Stocks....................................... 1,476,813
------------
FRANCE - 8.12%
Capital Goods - 3.79%
39,950 Legris Industries...................................... 2,839,992
40,000 Technip SA Compagnie Francaise......................... 2,074,391
------------
4,914,383
------------
Health & Personal Care - 0.68%
10,375 Boiron................................................. 886,465
------------
Industrial Holdings - 1.38%
56,400 Dynaction*............................................. 1,796,562
------------
Leisure - 2.27%
34,450 Club Mediterranee...................................... 2,947,504
------------
Total France Common Stocks........................................ 10,544,914
------------
GERMANY - 13.20%
Automotive - 7.83%
6,000 Bayerische Motoren Werke AG............................ 3,091,653
24,100 Volkswagen AG.......................................... 7,074,333
------------
10,165,986
------------
</TABLE>
5
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
GERMANY - (CONTINUED)
Technology - 2.48%
5,000 SAP AG................................................. $ 3,221,302
------------
Textiles - 2.89%
6,446 Jil Sander AG.......................................... 3,750,042
------------
Total Germany Common Stocks....................................... 17,137,330
------------
ITALY - 1.49%
Machinery & Equipment - 1.49%
150,000 Danieli and Company.................................... 934,610
195,000 Sasib.................................................. 1,005,839
------------
Total Italy Common Stocks......................................... 1,940,449
------------
LUXEMBOURG - 1.54%
Mining - 1.54%
75,000 Minorco ADR............................................ 1,996,875
------------
NETHERLANDS - 1.54%
Infrastructure - 1.54%
79,000 IHC Caland N.V......................................... 2,005,432
------------
NORWAY - 7.59%
Machinery & Engineering - 4.23%
132,500 Kvaerner "B' Free...................................... 5,492,035
------------
Multi-Industry - 3.36%
370,500 Aker A/S "B' Free...................................... 4,363,420
------------
Total Norway Common Stocks........................................ 9,855,455
------------
SOUTH AFRICA - 1.49%
Mining - 1.49%
62,500 Kloof Gold Mining Ltd. ADR............................. 1,027,344
90,000 Vaal Reefs Exploration & Mining ADR.................... 911,250
------------
Total South Africa Common Stocks.................................. 1,938,594
------------
SWEDEN - 7.94%
Appliances - 2.92%
73,000 Electrolux Ab "B' Free................................. 3,793,274
------------
Automotive - 2.17%
142,500 Volvo Aktiebolaget "B' Free............................ 2,815,165
------------
Mining - 2.85%
240,000 Trelleborg Ab "B' Free................................. 3,706,252
------------
Total Sweden Common Stocks........................................ 10,314,691
------------
</TABLE>
6
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
SWITZERLAND - 11.98%
Biotechnology - 1.25%
3,000 Ares-Serono SA "B'..................................... $ 1,624,592
------------
Cement - 4.40%
7,400 Holderbank............................................. 5,710,440
------------
Electrical & Electronics - 3.97%
6,000 Brown Boveri........................................... 5,150,912
------------
Pharmaceutical - 2.36%
5,200 Ciba Geigy............................................. 3,068,567
------------
Total Switzerland Common Stocks................................... 15,554,511
------------
UNITED KINGDOM - 18.41%
Capital Goods - 1.91%
550,000 Weir Group............................................. 2,486,425
------------
Drugs - 2.81%
1,275,000 Medeva................................................. 3,650,698
------------
Holding Company - 4.70%
2,850,000 Lonrho................................................. 6,104,270
------------
Mining - 0.94%
220,000 Antofagasta Holdings................................... 1,222,980
------------
Non-Ferrous Metals - 3.80%
351,000 RTZ Corporation Reg'd.................................. 4,935,409
------------
Oil - 4.25%
775,000 British Petroleum...................................... 5,511,992
------------
Total United Kingdom Common Stocks................................ 23,911,774
------------
Total Common Stocks (cost - $92,465,196).......................... 101,940,234
------------
PREFERRED STOCK - 3.79%
GERMANY - 3.79%
Automotive - 3.79%
7,220 Porsche AG Non-Voting.................................. 3,081,839
4,512 Porsche AG (New)....................................... 1,838,939
------------
Total Germany Preferred Stocks (Cost - $5,154,471)................ 4,920,778
------------
</TABLE>
7
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS VALUE
--------- ------------
<C> <S> <C>
WARRANTS - 0.05%
SWITZERLAND - 0.05%
Cement - 0.05%
Holderbank Fin Glarus expiring 12/20/94 (cost -
50,000 $42,235)............................................ $ 69,682
------------
Total Investments (cost - $97,661,902)--82.33%................... 106,930,694
Other assets in excess of liabilities--17.67%.................... 22,943,531
------------
Net Assets--100.00%.............................................. $129,874,225
============
</TABLE>
- -------
ADR - American Depository Receipt
*Non-income producing
See accompanying notes to financial statements
8
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS - 88.14%
UNITED STATES - 88.14%
Exploration & Production - 27.91%
75,000 Cross Timbers Oil Co.................................... $ 1,200,000
100,000 Louis Dreyfus Natural Gas Corp.*........................ 1,462,500
75,000 Newfield Exploration Co.*............................... 1,809,375
80,000 Pogo Producing Co....................................... 1,790,000
25,000 Plains Petroleum........................................ 675,000
75,000 Vintage Petroleum Inc................................... 1,453,125
-----------
8,390,000
-----------
International Energy - 39.89%
20,000 British Petroleum PLC ADR............................... 1,700,000
55,555 Norsk Hydro AS ADR...................................... 2,236,089
50,000 Occidental Petroleum Corp............................... 1,093,750
50,000 Repsol ADR.............................................. 1,625,000
10,000 Royal Dutch Petroleum Co. NY Reg'd...................... 1,165,000
15,000 Shell Trans & Trading New ADR........................... 1,070,625
50,000 Total ADR............................................... 1,650,000
60,000 YPF ADR Repr Cl D....................................... 1,447,500
-----------
11,987,964
-----------
Natural Gas Transmission - 4.92%
60,000 K N Energy Inc.......................................... 1,477,500
-----------
Oil Services - 5.12%
50,000 Camco International Inc................................. 1,031,250
50,000 Numar Corp.*............................................ 506,250
-----------
1,537,500
-----------
Refining & Marketing - 10.30%
100,000 Horsham Corp............................................ 1,550,000
60,000 Ultramar Corp........................................... 1,545,000
-----------
3,095,000
-----------
Total Common Stocks (cost - $24,660,264)........................... 26,487,964
-----------
</TABLE>
9
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
000 MATURITY DATE RATES VALUE
--------- ------------- -------- -----------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 2.14%
UNITED STATES - 2.14%
Exploration & Production - 2.14%
Cross Timbers Oil Co. Conv
$750 Reg'd (cost - $750,000)...... 11/01/03 5.250% $ 645,000
-----------
SHORT-TERM GOVERNMENT SECURITIES - 1.66%
UNITED STATES - 1.66%
U.S. Treasury Bill (cost -
500 $498,785)................... 11/17/94 4.370@ 498,785
-----------
REPURCHASE AGREEMENT - 1.90%
570 Repurchase Agreement dated
10/31/94 with Brown Brothers
Harriman & Co.,
collateralized by $583,484
U.S. Treasury Notes, 4.250%
due 07/31/95; proceeds:
$570,068
(cost - $570,000)............ 11/01/94 4.313 570,000
-----------
Total Investments (cost - $26,479,049) -
93.84%................................. 28,201,749
Other assets in excess of liabilities -
6.16%.................................. 1,849,937
-----------
Net Assets - 100.00%..................... $30,051,686
===========
</TABLE>
- -------
* Non-income producing security.
ADR - American Depository Receipt
@ Yield to maturity.
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------------
<C> <S> <C>
COMMON STOCKS - 58.29%
ARGENTINA - 1.52%
Infrastructure - 1.52%
486,000 Comercial Del Plata................................... $ 1,638,230
------------
BRAZIL - 7.33%
Electric Utility - 3.11%
6,280,000 Electrobras........................................... 2,448,009
1,740,000 Iven*................................................. 751,169
1,680,000 Paulista Forca Luz*................................... 149,289
------------
3,348,467
------------
Food - 1.46%
97,900,000 Ceval Alimentos....................................... 1,565,936
------------
Paper - 2.01%
170,000 Aracruz Celulose ADR.................................. 2,167,500
------------
Telephone - 0.49%
12,942,018 Telebras.............................................. 525,961
18,846 Telebras Pro Rata..................................... 766
------------
526,727
------------
Tobacco - 0.26%
30,000 Souza Cruz Registered................................. 284,360
------------
Total Brazil Common Stocks........................................ 7,892,990
------------
CANADA - 3.32%
Mining - 3.03%
130,000 Echo Bay Mines........................................ 1,592,500
80,000 Horsham Corp. ........................................ 1,240,000
20,000 Placer Dome Inc. ..................................... 432,500
------------
3,265,000
------------
Technology - 0.29%
115,000 Battery Technologies*................................. 316,250
------------
Total Canada Common Stocks........................................ 3,581,250
------------
FINLAND - 0.37%
Capital Goods - 0.37%
122,000 Tampella AB OY*....................................... 396,841
------------
</TABLE>
11
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FRANCE - 2.27%
Construction - 0.99%
15,000 Legris Industries*..................................... $ 1,066,330
------------
Industrial Holdings - 0.30%
10,000 Dynaction*............................................. 318,539
------------
Infrastructure - 0.58%
12,000 Technip SA/Compagnie Francaise......................... 622,317
------------
Leisure - 0.40%
5,000 Club Mediterranee...................................... 427,795
------------
Total France Common Stocks........................................ 2,434,981
------------
GERMANY - 1.91%
Auto - 1.91%
7,000 Volkswagenwerk AG...................................... 2,054,785
------------
HONG KONG - 6.33%
Aerospace - 1.59%
8,310,000 China Aerospace*....................................... 1,709,855
------------
Infrastructure - 3.58%
3,780,000 Hopewell Holdings...................................... 3,864,380
------------
Retailing - 1.16%
1,600,000 Dickson Concept International, Ltd..................... 1,252,669
------------
Total Hong Kong Common Stocks..................................... 6,826,904
------------
JAPAN - 0.30%
Electronics - 0.30%
60,000 Chinon Industries Inc.................................. 328,309
------------
KOREA - 0.92%
Electric Utility - 0.92%
51,000 Korea Electric Power ADR............................... 994,500
------------
LUXEMBOURG - 1.36%
Mining - 1.36%
55,000 Minorco ADR............................................ 1,464,375
------------
</TABLE>
12
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
MALAYSIA - 2.03%
Mining - 2.03%
1,047,000 Malaysia Mining Berhad................................. $ 2,192,348
------------
NORWAY - 1.63%
Machinery & Engineering - 0.87%
22,500 Kvaerner "B' Free...................................... 932,610
------------
Oil Service - 0.76%
70,000 Aker A/S "B' Free...................................... 824,398
------------
Total Norway Common Stocks........................................ 1,757,008
------------
SOUTH AFRICA - 4.98%
Investment Companies - 1.11%
25,000 ASA Limited............................................ 1,200,000
------------
Mining - 3.21%
30,000 Driefontein Consolidated Ltd. ......................... 478,207
30,000 Free State Consolidated Gold Mines..................... 508,095
75,000 Gencor Ltd. ........................................... 275,529
30,000 Kloof Gold Mining Ltd, ADR............................. 511,831
50,000 Randfontein Estates Goldmine........................... 523,039
1,000,000 South African Iron & Steel/Iscor....................... 1,165,628
------------
3,462,329
------------
Petroleum - 0.66%
80,000 Sasol Ltd.............................................. 707,347
------------
Total South Africa Common Stocks.................................. 5,369,676
------------
SWEDEN - 1.15%
Appliances - 0.72%
15,000 Electrolux Ab "B' Free................................. 779,440
------------
Mining - 0.43%
30,000 Trelleborg Ab "B' Free*................................ 463,281
------------
Total Sweden Common Stocks........................................ 1,242,721
------------
SWITZERLAND - 0.85%
Technology - 0.85%
7,000 SMH AG Neuenberg (Reg'd)............................... 919,806
------------
</TABLE>
13
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
TURKEY - 0.36%
Banking - 0.16%
2,580,600 Yapi Kredi Bank(1)....................................... $ 172,399
----------
Newspaper - 0.20%
4,390,400 Medya Holdings AS........................................ 219,978
----------
Total Turkey Common Stocks.......................................... 392,377
----------
UNITED KINGDOM - 4.15%
Capital Goods - 0.84%
200,000 Weir Group............................................... 904,155
----------
Drugs - 0.78%
295,000 Medeva................................................... 844,671
----------
Holding Company - 2.14%
1,075,000 Lonrho Ord............................................... 2,302,488
----------
Mining - 0.39%
75,000 Antofagasta Holdings..................................... 416,925
----------
Total United Kingdom Common Stocks.................................. 4,468,239
----------
UNITED STATES - 17.51%
Biotechnology - 0.76%
25,000 Genzyme Corp............................................. 818,750
----------
Datacommunications - 4.23%
40,000 Digital Equipment Corp.*................................. 1,225,000
99,900 General Datacom Industries Inc.*......................... 3,334,163
----------
4,559,163
----------
Electronics & Instrumentation - 7.27%
72,000 Analog Devices, Inc. *................................... 2,574,000
129,600 National Semiconductor Corp.*............................ 2,284,200
70,000 Westinghouse Electric.................................... 988,750
142,000 Zenith Electronics Corp.*................................ 1,988,000
----------
7,834,950
----------
Foods - 0.50%
35,000 Wholesome & Hearty Foods, Inc.*.......................... 542,500
----------
Machinery - 1.02%
40,000 Cincinnati Milacron...................................... 1,095,000
----------
</TABLE>
14
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- ------------
<C> <S> <C>
COMMON STOCKS - (CONCLUDED)
UNITED STATES - (CONTINUED)
Mining - 0.72%
70,000 Battle Mountain Gold Co.............................. $ 778,750
------------
Oil & Gas Drilling - 3.01%
40,000 Baker Hughes......................................... 820,000
200,000 Global Marine Inc.*.................................. 950,000
60,000 Hecla Mining Co.*.................................... 675,000
130,000 Parker Drilling*..................................... 796,250
------------
3,241,250
------------
Total United States Common Stocks................................. 18,870,363
------------
Total Common Stocks (cost - $57,066,977).......................... 62,825,703
------------
PREFERRED STOCK - 13.74%
BRAZIL - 11.05%
Bank - 3.84%
223,641,013 Banco Bradesco ...................................... 2,093,321
9,970,000 Banco de Brasil Reg'd NV............................. 200,818
2,000,000 Investimentos Itau................................... 1,374,408
1,440,000 Itaubanco Reg'd...................................... 462,370
------------
4,130,917
------------
Beverage - 0.45%
1,375,000 Brahma............................................... 483,857
------------
Machinery - 1.38%
3,595,000 Brasmotor Reg'd...................................... 1,490,817
------------
Mining - 2.52%
12,500,000 Vale Do Rio Doce Reg'd .............................. 2,710,308
------------
Oil - 1.38%
9,666,666 Petrobras Reg'd...................................... 1,488,941
------------
Retailing - 0.25%
8,880,000 Lojas Americanas Reg'd............................... 273,555
------------
Steel - 1.04%
6,000,000 Acesita Cia Acos Espec Itab.......................... 568,720
9,600,000 Metalurg Gerdau ..................................... 557,460
------------
1,126,180
------------
</TABLE>
15
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- ------------
<C> <S> <C>
PREFERRED STOCK - (CONCLUDED)
BRAZIL - (CONTINUED)
Telephone - 0.00%
5,570 Telebras Reg'd...................................... $ 269
------------
Tools - 0.19%
220,000,000 Forjas Taurus....................................... 208,531
------------
Total Brazil Preferred Stock..................................... 11,913,375
------------
GERMANY - 2.69%
Auto - 1.35%
3,400 Porsche AG Non-Voting .............................. 1,451,282
------------
Computer Systems - 1.34%
2,500 Sap AG ............................................. 1,444,433
------------
Total Germany Preferred Stock.................................... 2,895,715
------------
Total Preferred Stocks (cost - $12,413,189)...................... 14,809,090
------------
<CAPTION>
NUMBER OF
CONTRACTS
-----------
<C> <S> <C>
WARRANTS - 0.08%
HONG KONG - 0.08%
Aerospace - 0.08%
China Aerospace Int'l Holding, expiring 12/31/95
1,698,000 (cost - $257,427).................................. 83,499
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)** DATES RATES
--------- -------------------- -----------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 19.18%
DENMARK - 4.60%
29,000 Government of Denmark... 11/15/00 9.000% 4,958,886
------------
FINLAND - 2.32%
12,000 Republic of Finland..... 03/15/04 9.500 2,504,653
------------
INDONESIA - 0.92%
Eka Guntama Mandiri
1,000 Convertible............ 10/04/97 4.000 990,000
------------
SOUTH AFRICA - 3.71%
Electrical Supply
Commission of South
23,000 Africa................. 06/01/08 11.000 3,998,506
------------
SPAIN - 4.59%
610,000 Government of Spain..... 03/25/00 to 01/15/02 11.300 to 12.250 4,948,758
------------
UNITED KINGDOM - 2.33%
1,300 United Kingdom Gilt..... 07/14/00 13.000 2,508,089
------------
VENEZUELA - 0.71%
Bariven Petroleos de
US$900 Venezuela.............. 03/17/02 10.625 766,125
------------
Total Long-Term Debt Securities
(cost - $22,018,278).............. 20,675,017
------------
</TABLE>
16
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) ** DATES RATES VALUE
--------- -------------------- ---------------- ------------
<C> <S> <C> <C> <C>
SHORT-TERM DEBT SECURITIES - 7.42%
UNITED STATES - 7.42%
U.S. Treasury Bills
8,000 (cost - $7,991,440).... 11/10/94 4.280%@ $ 7,991,440
------------
Total Investments (cost -
$99,747,311) - 98.71%............ 106,384,749
Other assets in excess of
liabilities - 1.29%............... 1,388,090
------------
Net Assets - 100.00%............... $107,772,839
============
</TABLE>
- -------
*Non-income producing security.
**In local currency unless otherwise indicated.
ADR - American Depository Receipts
@ - Yield to maturity
(1) - Non-trading Promissory Notes received as dividend which will be exchanged
into ordinary shares approximately 90 days after ex-date, 9/7/94.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE APPRECIATION
DELIVER FOR MATURITY DATES (DEPRECIATION)
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
British Pounds........ 3,500,000 US $ 5,430,075 11/29/94 $(292,423)
French Francs......... 28,500,000 US $ 5,388,237 11/29/94 (147,356)
German Deutschemarks.. 16,500,000 US $10,712,755 11/29/94 (257,625)
U.S. Dollars.......... 16,500,000 DEM 10,703,860 11/29/94 266,520
U.S. Dollars.......... 28,500,000 FRF 5,399,670 11/29/94 135,923
U.S. Dollars.......... 3,500,000 GBP 5,535,355 11/29/94 187,143
---------
$(107,818)
=========
</TABLE>
- -------
CURRENCY TYPE ABBREVIATIONS:
DEM-German Deutschemark
FRF-French Franc
GBP-British Pound
See accompanying notes to financial statements
17
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
----------- -------------------- ---------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 74.34%
Australia - 6.93%
New South Wales Treasury
66,591 Corp................... 07/01/99 to 12/01/01 11.500 to 12.000% $ 52,784,657
Queensland Treasury
60,670 Corp. Global Issue..... 08/15/01 to 05/15/03 10.500 to 12.000 47,228,559
--------------
100,013,216
--------------
Canada - 6.52%
10,000 Bell Canada............. 05/21/96 9.875 7,593,065
36,320 Government of Canada.... 06/01/08 to 06/01/21 9.750 to 10.000 28,224,344
10,000 Hydro Quebec............ 05/15/03 10.250 7,500,647
Ontario Hydro Global
72,013 Bonds.................. 04/11/07 to 04/11/11 10.502 to 10.551@ 13,764,689
Ontario Hydro Global
34,445 Bonds.................. 02/06/02 8.625 24,644,136
Province of British
Columbia Residual
31,914 Bonds.................. 01/09/12 9.061 to 9.115@ 4,518,525
10,100 Province of Ontario..... 05/01/96 10.750 7,782,500
--------------
94,027,906
--------------
Colombia - 0.43%
US$ 6,500 Republic of Colombia.... 05/11/98 7.125 6,158,750
--------------
Denmark - 6.70%
564,690 Government of Denmark... 11/15/96 to 11/15/00 9.000 96,725,781
--------------
Finland - 1.39%
Republic of Finland
89,000 Housing Bond........... 03/15/02 10.750 20,071,921
--------------
France - 4.20%
311,500 Government of France.... 04/25/03 to 10/25/19 8.500 60,579,208
--------------
Germany - 7.79%
Federal Republic of
156,180 Germany................ 01/22/96 to 01/04/24 6.250 to 8.875 102,267,704
Republic of Germany
15,000 Unity Bond............. 01/21/02 8.000 10,182,507
--------------
112,450,211
--------------
Greece - 1.02%
GBP 10,000 Bank of Greece.......... 06/30/03 9.750 14,684,339
--------------
Hungary - 2.08%
National Bank of
US$ 38,000 Hungary................ 11/01/03 to 11/01/13 7.950 to 8.875 29,994,000
--------------
Ireland - 2.75%
23,960 Republic of Ireland..... 11/15/97 to 07/15/01 9.000 to 11.500 39,746,058
--------------
</TABLE>
18
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
----------- -------------------- ---------------- --------------
<C> <S> <C> <C> <C>
LONG-TERM DEBT SECURITIES -
(CONCLUDED)
New Zealand - 2.38%
Government of New
39,230 Zealand................ 07/15/97 10.000% $ 24,779,905
14,230 International Bank for
Reconstruction and
Development(1)......... 07/25/97 12.500 9,481,149
--------------
34,261,054
--------------
Philippines - 0.70%
US$ 10,000 Republic of Philippines. 02/23/96 7.875 10,075,000
--------------
Spain - 10.87%
19,186,330 Government of Spain..... 04/15/96 to 08/30/03 10.900 to 13.450 156,769,995
--------------
Sweden - 2.99%
279,900 Government of Sweden.... 06/15/01 13.000 43,107,167
--------------
Turkey - 1.11%
US$ 17,000 Republic of Turkey...... 08/06/97 8.125 16,022,500
--------------
United Kingdom - 6.75%
Government of United
27,500 Kingdom Exchequer...... 05/15/96 13.250 48,685,941
25,268 United Kingdom Gilt..... 07/14/00 13.000 48,749,536
--------------
97,435,477
--------------
United States - 9.73%
18,000 Chase Manhattan Corp.... 12/01/97 7.500 17,946,054
16,000 Clorox Corporation...... 07/15/01 8.800 16,580,192
15,000 Ford Motor Credit Corp.. 07/01/01 9.500 15,920,430
General Motors
50,000 Acceptance Corp. MTN... 07/15/96 to 04/30/97 7.950 to 8.625 50,860,655
San Diego Gas & Electric
5,000 Co..................... 04/15/20 9.625 5,230,885
34,000 U.S. Treasury Notes..... 01/31/96 to 11/30/96 6.500 to 7.500 33,905,156
--------------
140,443,372
--------------
Total Long-Term Debt Securities
(cost - $1,107,939,474).............. 1,072,565,955
--------------
SHORT-TERM DEBT SECURITIES - 5.71%
Australia - 0.69%
New South Wales Treasury
13,200 Corp................... 04/01/95 12.100 9,988,466
--------------
Finland - 1.39%
90,000 Republic of Finland..... 06/15/95 11.000 20,020,310
--------------
United States - 3.46%
50,000 U.S. Treasury Bills..... 11/10/94 4.500@ 49,939,500
--------------
Uruguay - 0.17%
US$ 2,500 Republic of Uruguay..... 06/08/95 8.250 2,506,250
--------------
Total Short-Term Debt Securities
(cost - $81,607,933)................. 82,454,526
--------------
INDEXED SECURITY - 1.30%
Japan - 1.30%
US$ 19,000 Rabobank Nederland
Japanese Yen Linked CD
(cost - $19,000,000)... 02/02/95 15.400(2) 18,709,300
--------------
REPURCHASE AGREEMENTS - 11.01%
40,000 Repurchase Agreement
dated 10/31/94, with
Citicorp Securities
Inc. collateralized by
$41,590,000 U.S.
Treasury Notes, 6.375%
due 01/15/99; proceeds:
$40,005,300............ 11/01/94 4.770 40,000,000
</TABLE>
19
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) OCTOBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000)* DATES RATES VALUE
--------- -------- -------- --------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS - (CONTINUED)
28,829 Repurchase Agreement dated
10/31/94, with Daiwa Securities
(America) Inc., collateralized
by $31,965,000 U.S. Treasury
Bonds, 7.250% due 08/15/22;
proceeds: $28,832,804.......... 11/01/94 4.750% $ 28,829,000
45,000 Repurchase Agreement dated
10/31/94, with First Chicago
Capital Markets, Inc.,
collateralized by $46,580,000
U.S. Treasury Notes, 5.125% due
03/31/96; proceeds:
$45,005,963.................... 11/01/94 4.770 45,000,000
45,000 Repurchase Agreement dated
10/31/94, with Yamaichi
International (America) Inc.,
collateralized by $47,135,000
U.S. Treasury Bonds 7.500% due
11/15/16; proceeds:
$45,005,963.................... 11/01/94 4.770 45,000,000
--------------
Total Repurchase Agreements (cost -
$158,829,000)............................. 158,829,000
--------------
Total Investments (cost - $1,367,376,407) -
92.36%.................................... 1,332,558,781
Other assets in excess of liabilities -
7.64%..................................... 110,304,975
--------------
Net Assets - 100.00%....................... $1,442,863,756
==============
</TABLE>
- -------
Note:The Portfolio of Investments is listed by the issuer's country of origin.
*In local currency unless otherwise indicated.
@Yield to maturity for zero coupon bonds.
MTN-Medium term note.
(1) "Supranational" security denominated in New Zealand Dollars.
(2) The yield is not guaranteed. Only if certain economic conditions exist on
the maturity date will the Fund receive the yield as stated.
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO IN EXCHANGE MATURITY APPRECIATION
DELIVER FOR DATES (DEPRECIATION)
-------------- ---------------- -------------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...... 34,452,542 US$ 25,405,305 02/03/95 $ (134,128)
Belgian Francs.......... 985,000,000 US$ 30,251,843 11/08/94 (1,597,321)
Belgian Francs.......... 1,431,000,000 US$ 43,614,752 11/18/94 (2,617,716)
Belgian Francs.......... 738,000,000 US$ 24,065,157 01/27/95 184,916
British Pounds.......... 31,400,000 US$ 51,367,260 01/31/95 62,130
British Pounds.......... 23,550,000 US$ 38,556,060 01/30/95 81,960
Danish Kronas........... 145,214,515 US$ 24,646,048 01/23/95 32,177
Finnish Markkas......... 95,660,918 US$ 18,922,787 11/07/94 (1,820,389)
Finnish Markkas......... 102,214,120 US$ 18,326,153 03/27/95 (3,809,723)
Greek Drachmas.......... 24,521,063,024 US$ 101,311,093 01/26/95 to 02/24/95 (731,138)
Irish Punts............. 9,626,904 US$ 14,921,701 11/17/94 (546,044)
Spanish Pesetas......... 18,288,009,992 US$ 144,772,409 11/17/94 to 01/27/95 (964,889)
Spanish Pesetas......... 4,202,238,000 US$ 32,162,979 11/17/94 (1,355,075)
Spanish Pesetas......... 2,438,591,147 US$ 19,389,291 01/26/95 17,403
U.S. Dollars............ 30,220,861 Bfr 985,000,000 11/08/94 1,628,304
U.S. Dollars............ 2,214,379 FIM 10,875,038 11/07/94 143,906
------------
$(11,425,627)
============
</TABLE>
- -------
CURRENCY TYPE ABBREVIATIONS:
Bfr - Belgian Franc
FIM - Finnish Markka
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS
INVESTMENTS BY TYPE OF ISSUER ------------------------
LONG-TERM SHORT-TERM
--------- ------------
<S> <C> <C>
Government and other public issuers....... 62.67% 5.71%
Repurchase agreements..................... -- 11.01
Financial institutions.................... 4.63 --
Banks..................................... 5.00 1.30
Other..................................... 2.04 --
----- -----
74.34% 18.02%
===== =====
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1994
<TABLE>
<CAPTION>
GLOBAL
EUROPE GLOBAL GROWTH GLOBAL
GROWTH ENERGY AND INCOME INCOME
FUND FUND FUND FUND
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
Assets
Investments, at value
(cost - $97,661,902,
$26,479,049,
$99,747,311 and
$1,208,547,407,
respectively).......... $106,930,694 $28,201,749 $106,384,749 $1,173,729,781
Repurchase agreements
(cost - $158,829,000).. -- -- -- 158,829,000
Cash.................... 1,831,897 1,392,792 1,521,026 896
Cash denominated in
foreign currencies, at
value (cost--
$12,852,470, $0,
$1,142,649, and
$90,322,587,
respectively).......... 12,894,174 -- 1,138,885 90,033,789
Receivable for
investments sold....... 34,518,820 591,320 4,574,855 88,268,806
Receivable for shares of
beneficial interest
sold................... 77,089 159,981 198,972 269,947
Unrealized appreciation
on forward foreign
currency contracts..... -- -- 589,586 2,150,796
Dividends and interest
receivable............. 336,710 146,682 1,500,878 48,180,367
Other assets............ 65,335 17,327 41,947 96,471
------------ ----------- ------------ --------------
Total assets......... 156,654,719 30,509,851 115,950,898 1,561,559,853
------------ ----------- ------------ --------------
Liabilities
Payable for investments
purchased.............. 25,022,290 -- 6,445,819 86,443,980
Payable for shares of
beneficial interest
repurchased............ 1,348,013 226,584 698,533 15,663,052
Unrealized depreciation
on forward foreign
currency contracts..... -- -- 697,404 13,576,423
Payable to affiliates... 162,264 42,521 138,272 1,765,238
Accrued expenses and
other liabilities...... 247,927 189,060 198,031 1,247,404
------------ ----------- ------------ --------------
Total liabilities.... 26,780,494 458,165 8,178,059 118,696,097
------------ ----------- ------------ --------------
Net Assets
Beneficial interest
shares of $0.001 par
value outstanding
(unlimited amount
authorized)............ 123,361,598 30,183,886 98,033,331 1,512,481,390
Undistributed
(distribution in excess
of) net investment
income................. 16,800 18,000 106,332 (10,012,056)
Accumulated net realized
gains (losses) from
investments............ (2,879,157) (1,873,851) 3,072,828 (15,074,431)
Net unrealized
appreciation
(depreciation) of
investments, other
assets, liabilities and
forward contracts
denominated in foreign
currencies............. 9,374,984 1,723,651 6,560,348 (44,531,147)
------------ ----------- ------------ --------------
Net assets.............. $129,874,225 $30,051,686 $107,772,839 $1,442,863,756
============ =========== ============ ==============
Class A:
Net assets.............. $ 78,285,489 $11,229,639 $ 61,813,332 $ 611,855,127
------------ ----------- ------------ --------------
Shares outstanding...... 8,711,723 985,894 5,520,841 61,273,875
------------ ----------- ------------ --------------
Net asset value and
redemption value per
share.................. $8.99 $11.39 $11.20 $9.99
===== ====== ====== =====
Maximum offering price
per share (net asset
value plus sales charge
of 4.50%, 4.50%, 4.50%
and 4.00%,
respectively, of
offering price)........ $9.41 $11.93 $11.73 $10.41
===== ====== ====== ======
Class B:
Net assets.............. $ 37,524,789 $17,340,989 $ 34,467,507 $ 725,553,075
------------ ----------- ------------ --------------
Shares outstanding...... 4,261,129 1,523,497 3,125,000 72,827,577
------------ ----------- ------------ --------------
Net asset value and
offering price per
share.................. $8.81 $11.38 $11.03 $9.96
===== ====== ====== =====
Class C:
Net assets.............. $ 12,975,182
--------------
Shares outstanding...... 1,298,635
--------------
Net asset value,
offering price and
redemption value per
share.................. $9.99
=====
Class D:
Net assets.............. $ 14,063,947 $ 1,481,058 $ 11,492,000 $ 92,480,372
------------ ----------- ------------ --------------
Shares outstanding...... 1,588,239 131,354 1,040,466 9,267,815
------------ ----------- ------------ --------------
Net asset value,
offering price and
redemption value per
share.................. $8.86 $11.28 $11.05 $9.98
===== ====== ====== =====
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
GLOBAL
GROWTH
EUROPE GLOBAL AND GLOBAL
GROWTH ENERGY INCOME INCOME
FUND FUND FUND FUND
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investment income:
Dividends (net of foreign
withholding taxes)....... $ 1,664,734 $ 560,812 $ 1,017,935 $ --
Interest (net of foreign
withholding taxes)....... 332,124 179,424 2,136,456 142,626,149
----------- ----------- ----------- ------------
1,996,858 740,236 3,154,391 142,626,149
----------- ----------- ----------- ------------
Expenses:
Investment advisory and
administration fees...... 1,281,874 284,559 986,716 12,723,592
Distribution fees--Class
A........................ 231,887 30,522 168,336 1,664,223
Distribution fees--Class
B........................ 403,753 200,830 308,330 9,741,334
Distribution fees--Class
D........................ 180,503 11,861 114,683 905,849
Custody and accounting
fees..................... 381,410 82,604 327,620 1,487,197
Transfer agency and serv-
ice fees................. 212,022 56,925 136,577 1,328,234
Legal and audit fees...... 66,760 54,038 76,099 167,681
Reports and notices to
shareholders............. 57,595 50,875 35,992 365,614
Federal and state regis-
tration fees............. 53,809 58,802 43,842 186,047
Amortization of organiza-
tional expenses.......... 51,268 -- 55,732 --
Trustees' fees and ex-
penses................... 4,750 4,750 4,750 4,750
Other expenses............ 2,540 3,881 1,114 264,984
----------- ----------- ----------- ------------
2,928,171 839,647 2,259,791 28,839,505
----------- ----------- ----------- ------------
Net investment income
(loss)................... (931,313) (99,411) 894,600 113,786,644
----------- ----------- ----------- ------------
Realized and unrealized
gains (losses) from in-
vestment activities:
Net realized gains (loss-
es) from:
Investment transactions.. 24,878,615 (1,873,851) 8,863,363 (17,079,241)
Foreign currency transac-
tions................... (22,560,640) (12,394) (3,547,489) (59,719,415)
Net change in unrealized
appreciation (deprecia-
tion) of:
Investments.............. (14,026,063) (404,872) (6,077,963) (90,644,293)
Other assets, liabilities
and forward contracts
denominated in foreign
currencies.............. 4,467,567 11,461 (639,496) (15,050,480)
----------- ----------- ----------- ------------
Net realized and
unrealized losses from
investment activities.... (7,240,521) (2,279,656) (1,401,585) (182,493,429)
----------- ----------- ----------- ------------
Net decrease in net assets
resulting from opera-
tions.................... $(8,171,834) $(2,379,067) $ (506,985) $(68,706,785)
=========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
EUROPE GROWTH FUND GLOBAL ENERGY FUND
-------------------------- ------------------------
1994 1993 1994 1993
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
From operations:
Net investment income
(loss)................... $ (931,313) $ 11,208 $ (99,411) $ 300,317
Net realized gains
(losses) from investment
transactions............. 24,878,615 351,257 (1,873,851) 6,502,826
Net realized gains
(losses) from foreign
currency transactions.... (22,560,640) 8,946,418 (12,394) (2,499)
Net change in unrealized
appreciation/depreciation
of investments........... (14,026,063) 28,751,242 (404,872) 1,091,794
Net changes in unrealized
appreciation/depreciation
of other assets,
liabilities and forward
contracts denominated in
foreign currencies....... 4,467,567 (7,881,051) 11,461 (8,965)
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets resulting from
operations............... (8,171,834) 30,179,074 (2,379,067) 7,883,473
------------ ------------ ----------- -----------
Dividends and distribu-
tions to shareholders
from:
Net investment income--
Class A.................. (189,958) -- (92,910) (117,731)
Net investment income--
Class B.................. -- -- -- (404,245)
Net investment income--
Class D.................. -- -- (294) (7,492)
Net realized gains from
foreign currency
transactions--Class A.... (3,382,032) -- -- --
Net realized gains from
foreign currency
transactions--Class B.... (1,272,185) -- -- --
Net realized gains from
foreign currency
transactions--Class D.... (559,399) -- -- --
Net realized gains from
investments
transactions--Class A.... -- -- (1,668,385) --
Net realized gains from
investments
transactions--Class B.... -- -- (2,966,006) --
Net realized gains from
investments
transactions--Class D.... -- -- (138,983) --
------------ ------------ ----------- -----------
(5,403,574) -- (4,866,578) (529,468)
------------ ------------ ----------- -----------
From beneficial interest
transactions:
Net proceeds from the sale
of shares................ 68,815,455 73,343,985 22,625,132 15,845,293
Cost of shares
repurchased.............. (78,076,131) (40,636,256) (28,108,399) (24,123,229)
Proceeds from dividends
reinvested............... 5,029,677 -- 4,162,810 450,634
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets derived from
beneficial interest
transactions............. (4,230,999) 32,707,729 (1,320,457) (7,827,302)
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets............... (17,806,407) 62,886,803 (8,566,102) (473,297)
Net assets:
Beginning of period....... 147,680,632 84,793,829 38,617,788 39,091,085
------------ ------------ ----------- -----------
End of period (including
undistributed net
investment income of
$16,800, $849,063,
$18,000 and $327,326,
respectively)............ $129,874,225 $147,680,632 $30,051,686 $38,617,788
============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31,
(CONCLUDED)
<TABLE>
<CAPTION>
GLOBAL GROWTH
AND INCOME FUND GLOBAL INCOME FUND
-------------------------- ------------------------------
1994 1993 1994 1993
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
From operations:
Net investment income................. $ 894,600 $ 1,630,297 $ 113,786,644 $ 99,253,135
Net realized gains (losses) from
investment transactions.............. 8,863,363 3,636,939 (17,079,241) 20,177,944
Net realized gains (losses) from
foreign currency transactions........ (3,547,489) 1,390,840 (59,719,415) (25,636,675)
Net change in unrealized appreciation
(depreciation) of investments........ (6,077,963) 12,466,741 (90,644,293) 60,132,243
Net changes in unrealized appreciation
(depreciation) of other assets,
liabilities and forward contracts
denominated in foreign currencies.... (639,496) (234,432) (15,050,480) 22,822,390
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
resulting from operations............ (506,985) 18,890,385 (68,706,785) 176,749,037
------------ ------------ -------------- --------------
Dividends and distributions to share-
holders from:
Net investment income--Class A........ (956,383) (245,715) (20,955,179) (28,774,275)
Net investment income--Class B........ (264,496) (2,585) (25,638,320) (75,315,158)
Net investment income--Class C........ -- -- (429,608) (699,918)
Net investment income--Class D........ (109,921) (2,196) (3,358,807) (3,595,577)
Net realized gains from foreign
currency
transactions--Class A................ (663,491) -- -- --
Net realized gains from foreign
currency
transactions--Class B................ (216,832) -- -- --
Net realized gains from foreign
currency
transactions--Class D................ (84,089) -- -- --
Net realized gains from investment
transactions--Class A................ -- -- -- (6,794,486)
Net realized gains from investment
transactions--Class B................ -- -- -- (13,478,264)
Net realized gains from investment
transactions--Class C................ -- -- -- (158,613)
Net realized gains from investment
transactions--Class D................ -- -- -- (1,032,866)
Paid in capital--Class A.............. -- -- (20,613,399) --
Paid in capital--Class B.............. -- -- (25,220,157) --
Paid in capital--Class C.............. -- -- (422,602) --
Paid in capital--Class D.............. -- -- (3,304,025) --
------------ ------------ -------------- --------------
(2,295,212) (250,496) (99,942,097) (129,849,157)
------------ ------------ -------------- --------------
From beneficial interest transactions:
Net proceeds from the sale of shares.. 46,748,339 29,689,978 113,562,148 240,906,695
Net proceeds from the acquisition of
the PaineWebber Short-Term Global
Income Fund.......................... -- -- -- 358,091,633
Cost of shares repurchased............ (31,170,520) (21,336,446) (567,552,519) (422,240,131)
Proceeds from dividends reinvested.... 2,010,599 215,688 79,870,752 68,836,928
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
derived from beneficial interest
transactions......................... 17,588,418 8,569,220 (374,119,619) 245,595,125
------------ ------------ -------------- --------------
Net increase (decrease) in net assets. 14,786,221 27,209,109 (542,768,501) 292,495,005
Net assets:
Beginning of period................... 92,986,618 65,777,509 1,985,632,257 1,693,137,252
------------ ------------ -------------- --------------
End of period (including undistributed
(distributions in excess of) net
investment income (loss) of $106,332,
$3,743,326, $(10,012,056) and
$34,632,359, respectively)........... $107,772,839 $ 92,986,618 $1,442,863,756 $1,985,632,257
============ ============ ============== ==============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Investment Series ("Trust") was organized under Massachusetts law
by a Declaration of Trust dated December 22, 1986 and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Trustees have
authority to issue an unlimited number of shares of beneficial interest, par
value $0.001.
Organizational Matters - Prior to commencing investment operations, on February
7, 1990, September 18, 1987, June 9, 1989 and March 20, 1987, respectively,
PaineWebber Europe Growth Fund ("Europe Growth Fund"), PaineWebber Global
Energy Fund ("Global Energy Fund"), PaineWebber Global Growth and Income Fund
("Global Growth and Income Fund") and PaineWebber Global Income Fund ("Global
Income Fund") (collectively the "Funds") had no activities other than
organizational matters and activities related to the initial public offering
and the issuance, at net asset value, of one or more shares of each Fund to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Funds. Costs of $277,515, $215,000,
$382,000 and $310,306, respectively, incurred by each Fund in connection with
the organization and registration of shares, have been deferred and are being
amortized, using the straight-line method over the period of benefit, not to
exceed five years, beginning with the commencement of operations of each Fund.
Mitchell Hutchins has agreed that, in the event any Fund's initial shares are
redeemed or the Fund discontinues operations, that the Fund will be reimbursed
for its pro-rata share of unamortized organizational costs.
Prior to July 1, 1991, Europe Growth Fund and Global Growth and Income Fund
issued only Class A shares and Global Energy Fund and Global Income Fund issued
only Class B shares. Subsequent to that date, all Funds have been authorized to
issue Class A, Class B, and Class C shares. On July 2, 1992, each Fund
commenced issuing Class D shares (except Global Energy Fund and Europe Growth
Fund, which commenced issuing Class D shares on July 8, 1992 and July 6, 1992,
respectively). Each Class represents an interest in the same assets of the
applicable Fund and the Classes are identical except for differences in their
sales charge structure, ongoing distribution charges and transfer agency
expenses. In addition, Class B shares automatically convert to Class A shares
approximately six years after initial issuance. All classes of shares have
equal rights as to earnings, assets and voting privileges, except that each
class bears different distribution charges and transfer agency expenses and has
exclusive voting rights with respect to its distribution plan.
Valuation of Investments - Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sale price on the day the securities are
being
25
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
valued or, lacking any sales on such day, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated by Mitchell Hutchins as the primary market.
Securities traded in the over-the-counter ("OTC") market and listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") are valued at the last trade price on NASDAQ prior to the time of
valuation; other OTC securities are valued at the last bid price available in
the OTC market prior to the time of valuation. The amortized cost method of
valuation is used to value short-term debt instruments with sixty days or less
remaining to maturity. Securities and assets for which market quotations are
not readily available (including restricted securities subject to limitations
as to their sale) are valued at fair value as determined in good faith by or
under the direction of the Trust's board of trustees. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is
determined by each Fund's custodian.
The ability of the issuers of the debt securities held by the Funds to meet
their obligations may be affected by economic and political developments,
including those particular to a specific industry, country or region.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange, Inc. ("NYSE"). Occasionally, events affecting the
value of foreign investments and such exchange rates occur between the time at
which they are determined and the close of the NYSE, which will not be
reflected in a computation of the Fund's net asset value. If events materially
affecting the value of such securities or currency exchange rates occurred
during such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Trust's board of
trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments
and foreign exchange transactions are calculated using the identified cost
method. Interest income is recorded on an accrual basis and dividend income is
recorded on the ex-dividend date (except in the case of certain foreign
dividends which are recorded as soon after the ex-dividend date as the
respective Fund becomes aware of such dividend). Discounts are accreted as
adjustments to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses), and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class-specific expenses are charged directly to the applicable class of shares.
26
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Foreign Currency Translation - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) market value of investment securities, other assets and liabilities--at
the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market values of the Funds are presented at the
foreign exchange rates at the close of the period, the Funds do not generally
isolate the effect of fluctuations in foreign exchange rates from the effect of
the changes in market prices of securities. However, the Funds do isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Pursuant to federal income tax
regulations, certain foreign exchange gains/losses included in realized and
unrealized gain/loss are included in or are a reduction of ordinary income for
federal income tax purposes. Foreign security and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and U.S. government securities. These risks include
revaluation of currencies and future adverse political and economic
developments, which could cause securities and their markets to be less liquid
and prices more volatile than those of comparable U.S. companies and U.S.
government securities.
Forward Foreign Currency Contracts - Each Fund may enter into forward foreign
currency exchange contracts ("forward contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in a particular currency.
The Funds have no specific limitation on the percentage of assets which may be
committed to such contracts. Each Fund may enter into forward contracts or
maintain a net exposure to forward contracts only if (1) the consummation of
the contracts would not obligate the Fund to deliver an amount of foreign
currency in excess of the value of the position being hedged by such contracts
or (2) the Fund maintains cash, U.S. government securities or liquid, high-
grade debt securities in a segregated account in an amount not less than the
value of its total assets committed to the consummation of the forward
contracts and not covered as provided in (1) above, as marked-to-market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Funds. Realized gains and losses include
net gains and losses recognized by the Funds on contracts which have matured.
27
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Repurchase Agreements - The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligations. Under
certain circumstances, in the event of default or insolvency by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. Each of the Funds occasionally participates in joint
repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
Reverse Repurchase Agreements - Each Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 5% of its total assets (10% in the case of Global Income Fund). As of
October 31, 1994, the Funds had no reverse repurchase agreements outstanding.
Federal Tax Status - Each Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date. During the year ended
October 31, 1994, the Fund adopted Statement of Position 93-2, "Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies". Accordingly, the
amount of dividends and distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
Each of the Funds has entered into an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins. In accordance with the
28
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Advisory Contract, each Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and paid monthly, in accordance with
the following schedule:
EUROPE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $50 million....................................................... 0.900%
In excess of $50 million up to $100 million............................. 0.850
In excess of $100 million up to $150 million............................ 0.800
In excess of $150 million up to $200 million............................ 0.750
Over $200 million....................................................... 0.700
</TABLE>
GLOBAL ENERGY FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $250 million...................................................... 0.850%
In excess of $250 million up to $500 million............................ 0.800
Over $500 million....................................................... 0.750
</TABLE>
GLOBAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million...................................................... 0.900%
In excess of $500 million up to $1.0 billion............................ 0.875
In excess of $1.0 billion up to $1.5 billion............................ 0.850
In excess of $1.5 billion up to $2.0 billion............................ 0.825
Over $2.0 billion....................................................... 0.800
</TABLE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ------------------------ ------
<S> <C>
Up to $500 million...................................................... 0.750%
In excess of $500 million up to $1.0 billion............................ 0.725
In excess of $1.0 billion up to $1.5 billion............................ 0.700
In excess of $1.5 billion up to $2.0 billion............................ 0.675
Over $2.0 billion....................................................... 0.650
</TABLE>
29
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At October 31, 1994, Europe Growth Fund, Global Energy Fund, Global Growth and
Income Fund and Global Income Fund owed Mitchell Hutchins $94,885, $22,319,
$82,268 and $907,474, respectively, for investment advisory and administration
fees.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse each Fund if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the year ended
October 31, 1994, no reimbursements were required pursuant to the above
limitations for any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B and Class D
shares ("Class A Plan," "Class B Plan" and "Class D Plan," collectively
"Plans"), each Fund pays Mitchell Hutchins monthly service fees at the annual
rate of 0.25% of the average daily net assets of Class A, Class B and Class D
shares and monthly distribution fees at the annual rate of 0.75% of the average
daily net assets on Class B and Class D shares (0.50% for Global Income Fund--
Class D Shares). At October 31, 1994, Europe Growth Fund, Global Energy Fund,
Global Growth and Income Fund and Global Income Fund owed Mitchell Hutchins
$60,857, $18,826, $51,903 and $821,313, respectively, for service and
distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charge
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
each Fund that for the year ended October 31, 1994, it earned the following
amounts in sales charges:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GLOBAL GROWTH GLOBAL
GROWTH ENERGY AND INCOME INCOME
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Initial sales charges - Class A.......... $206,967 $ 5,410 $139,061 $ 193,492
Contingent deferred sales charges -
Class B................................. $194,268 $57,557 $ 92,409 $3,156,771
</TABLE>
30
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Funds' transfer
agent. For these services for the year ended October 31, 1994, PaineWebber
earned $80,674, $17,999, $49,245 and $487,859 for Europe Growth Fund, Global
Energy Fund, Global Growth and Income Fund and Global Income Fund,
respectively. At October 31, 1994, Europe Growth Fund, Global Energy Fund,
Global Growth and Income Fund and Global Income Fund owed PaineWebber $6,522,
$1,376, $4,101 and $36,451, respectively, for service fees.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at October 31,
1994 was substantially the same as the cost of securities for financial
statement purposes.
At October 31, 1994, the components of the net unrealized appreciation
(depreciation) of investments were as follows:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH
GROWTH GLOBAL ENERGY AND INCOME GLOBAL INCOME
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gross appreciation
(investments having an
excess of value over
cost).................. $10,784,430 $2,248,726 $11,775,078 $ 15,186,588
Gross depreciation
(investments having an
excess of cost over
value)................. (1,395,441) (526,026) (5,137,640) (50,004,214)
----------- ---------- ----------- ------------
Net unrealized
appreciation
(depreciation) of
investments............ $ 9,388,989 $1,722,700 $ 6,637,438 $(34,817,626)
=========== ========== =========== ============
</TABLE>
For the year ended October 31, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
GLOBAL
EUROPE GROWTH
GROWTH GLOBAL ENERGY AND INCOME GLOBAL INCOME
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Purchases................ $236,021,391 $45,963,346 $166,073,583 $1,384,489,794
Sales.................... $272,366,164 $46,827,700 $160,297,478 $1,420,656,655
</TABLE>
31
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAX STATUS
At October 31, 1994, the following Funds had net capital loss carryforwards
available as reductions, to the extent provided in the regulations, of any
future net gains realized before the end of the fiscal years indicated below.
<TABLE>
<CAPTION>
GLOBAL
EUROPE GLOBAL GROWTH AND GLOBAL
GROWTH ENERGY INCOME INCOME
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
2000............................... $2,744,747 -- -- --
2002............................... -- $1,873,851 -- $16,081,468
---------- ---------- ------ -----------
$2,744,747 $1,873,851 -- $16,081,468
========== ========== ====== ===========
</TABLE>
In addition, Global Income Fund has a net capital loss carryforward of
$1,285,400 available at October 31, 1994 pursuant to its reorganization with
PaineWebber Short-Term Global Income Fund. If unused, this carryover expires in
2001.
To the extent that such losses are used to offset future capital gains, it is
probable that the gains so offset will not be distributed.
During the year ended October 31, 1994, Europe Growth Fund and Global Growth
and Income Fund utilized net capital loss carryforwards of $23,951,313 and
$2,539,889, respectively.
At October 31, 1993, the cumulative effect of permanent book/tax
reclassifications resulted in increases (decreases) to the components of net
assets as follows:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED
INVESTMENT GAINS
INCOME (LOSSES) PAID-IN-CAPITAL
------------- ------------- ---------------
<S> <C> <C> <C>
Europe Growth Fund.................. $ 5,858,236 $ 66,516 $ (5,924,752)
Global Energy Fund.................. $ (327,327) $ 327,327 $ --
Global Growth and Income Fund....... $ (2,040,024) $ 2,179,781 $ (139,757)
Global Income Fund.................. $(50,002,950) $50,634,890 $ (631,940)
For the year ended October 31, 1994, the reclassification arising from
permanent book/tax differences resulted in increases (decreases) to the
components of net assets as follows:
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET NET REALIZED
INVESTMENT GAINS
INCOME (LOSSES) PAID-IN-CAPITAL
------------- ------------- ---------------
<S> <C> <C> <C>
Europe Growth Fund.................. $ (5,569,228) $27,774,257 $(22,205,029)
Global Energy Fund.................. $ 210,616 $ 16,501 $ (227,117)
Global Growth and Income Fund....... $ (1,159,639) $ 1,432,219 $ (272,580)
Global Income Fund.................. $(58,046,195) $60,712,453 $ (2,666,258)
</TABLE>
Permanent "book/tax" differences are primarily attributable to foreign currency
losses and net operating losses.
32
<PAGE>
PAINEWEBBER NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of
beneficial interest authorized. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------------------- ------------------------ ----------------- ----------------------
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EUROPE GROWTH FUND
Shares sold............. 1,638,650 2,267,461 2,684,476 3,693,312 -- -- 2,860,941 2,393,190
Shares repurchased...... (3,395,338) (3,328,925) (2,033,871) (736,410) -- -- (2,931,267) (882,812)
Shares converted from
Class B to Class A..... 85,947 142,628 (87,351) (144,101) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 358,842 -- 122,238 -- -- -- 53,293 --
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. (1,311,899) (918,836) 685,492 2,812,801 -- -- (17,033) 1,510,378
=========== ========== =========== =========== ======== ======= ========== ==========
GLOBAL ENERGY FUND
Shares sold............. 110,905 131,211 398,620 291,994 -- -- 1,447,759 744,561
Shares repurchased...... (398,295) (260,908) (559,337) (968,091) -- -- (1,454,001) (623,759)
Shares converted from
Class B to Class A..... 247,545 793,924 (246,989) (793,950) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 132,100 8,050 230,629 28,833 -- -- 11,539 435
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. 92,255 672,277 (177,077) (1,441,214) -- -- 5,297 121,237
=========== ========== =========== =========== ======== ======= ========== ==========
GLOBAL GROWTH AND INCOME
FUND
Shares sold............. 961,568 830,293 2,240,479 1,458,236 -- -- 912,439 664,585
Shares repurchased...... (1,607,199) (1,868,111) (722,448) (289,120) -- -- (516,302) (113,880)
Shares converted from
Class B to Class A..... 92,659 30,016 (93,641) (30,196) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 122,953 23,826 36,647 226 -- -- 15,050 211
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. (430,019) (983,976) 1,461,037 1,139,146 -- -- 411,187 550,916
=========== ========== =========== =========== ======== ======= ========== ==========
GLOBAL INCOME FUND
Shares sold............. 1,514,200 3,686,499 5,198,224 11,478,906 281,719 389,617 3,572,779 6,604,972
Shares issued in
connection with the
acquisition of
PaineWebber Short-Term
Global Income Fund..... -- 12,155,951 -- 15,301,066 -- -- -- 5,223,843
Shares repurchased...... (20,711,269) (7,804,347) (26,589,848) (28,295,950) (178,060) (37,884) (7,261,892) (3,113,193)
Shares converted from
Class B to Class A..... 18,303,275 39,390,405 (18,356,029) (39,467,277) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 3,010,952 1,665,683 3,993,779 4,407,497 97,310 64,558 567,607 232,500
----------- ---------- ----------- ----------- -------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. 2,117,158 49,094,191 (35,753,874) (36,575,758) 200,969 416,291 (3,121,506) 8,948,122
=========== ========== =========== =========== ======== ======= ========== ==========
</TABLE>
33
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 31, FEBRUARY 7, 1990+
------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990
------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 9.75 $ 7.19 $ 8.48 $ 8.94 $ 9.55
------- ------- ------- -------- --------
Income (loss) from
investment
operations:
Net investment
income (loss) .... (0.03) 0.02 0.08 0.06 0.12
Net realized and
unrealized gains
(losses) from
investment
and foreign
currency
transactions...... (0.36) 2.54 (1.13) (0.35) (0.73)
------- ------- ------- -------- --------
Total income (loss)
from investment
operations......... (0.39) 2.56 (1.05) (0.29) (0.61)
------- ------- ------- -------- --------
Less dividends and
distributions from:
Net investment
income............ (0.02) -- (0.06) (0.12) --
Net realized gains
on investments and
foreign currency
transactions...... (0.35) -- (0.18) (0.05) --
------- ------- ------- -------- --------
Total dividends and
distributions..... (0.37) -- (0.24) (0.17) --
------- ------- ------- -------- --------
Net asset value, end
of period.......... $ 8.99 $ 9.75 $ 7.19 $ 8.48 $ 8.94
======= ======= ======= ======== ========
Total Return (1).... (4.24)% 35.61% (12.69)% (3.21)% (6.39)%
======= ======= ======= ======== ========
Ratios/Supplemental
data:
Net assets, end of
period (000's).... $78,285 $97,773 $78,667 $128,888 $158,736
Ratio of expenses
to average net
assets............ 1.65 % 1.84% 2.05 % 1.78 % 1.85 %*
Ratio of net
investment income
(loss) to average
net assets........ (0.35)% 0.19% 0.82 % 0.64 % 1.92 %*
Portfolio turnover
rate.............. 173.58 % 252.23% 59.64 % 86.80 % 48.59 %
</TABLE>
- -------------
* Annualized
+ Commencement of operations
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
34
<PAGE>
PAINEWEBBER EUROPE GROWTH FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
- -------------------------------------------- ----------------------------------
FOR THE YEARS
FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+ OCTOBER 31, JULY 6, 1992+
- --------------------------- TO OCTOBER 31, ----------------- TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
- ------- ------- ------- -------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.62 $ 7.14 $ 8.45 $ 8.52 $ 9.67 $ 7.17 $ 8.33
- ------- ------- ------- ------ ------- ------- ------
(0.09) (0.03) 0.06 (0.02) (0.11) (0.02) (0.01)
(0.37) 2.51 (1.15) (0.05) (0.35) 2.52 (1.15)
- ------- ------- ------- ------ ------- ------- ------
(0.46) 2.48 (1.09) (0.07) (0.46) 2.50 (1.16)
- ------- ------- ------- ------ ------- ------- ------
-- -- (0.04) -- -- -- --
(0.35) -- (0.18) -- (0.35) -- --
- ------- ------- ------- ------ ------- ------- ------
(0.35) -- (0.22) -- (0.35) -- --
- ------- ------- ------- ------ ------- ------- ------
$ 8.81 $ 9.62 $ 7.14 $ 8.45 $ 8.86 $ 9.67 $ 7.17
======= ======= ======= ====== ======= ======= ======
(5.03)% 34.73 % (13.19)% (0.82)% (5.00)% 34.87 % (13.93)%
======= ======= ======= ====== ======= ======= ======
$37,525 $34,386 $ 5,446 $1,641 $14,064 $15,522 $ 681
2.40 % 2.46 % 2.79 % 2.60 %* 2.39 % 2.39 % 3.26 %*
(1.05)% (0.77)% 0.39 % (1.36)%* (1.00)% (0.74)% (0.94)%*
173.58 % 252.23 % 59.64 % 86.80 % 173.58 % 252.23 % 59.64 %
</TABLE>
35
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------
FOR THE YEARS ENDED
OCTOBER 31, FOR THE PERIOD
-------------------------- JULY 1, 1991+ TO
1994 1993 1992 OCTOBER 31, 1991
------- ------- ------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 14.21 $ 11.63 $12.18 $11.20
------- ------- ------ ------
Income (loss) from investment
operations:
Net investment income (loss).... 0.03 0.16 0.25 0.01
Net realized and unrealized
gains (losses) from investment
and foreign currency
transactions................... (0.91) 2.69 (0.66) 0.97
------- ------- ------ ------
Total income (loss) from
investment operations........... (0.88) 2.85 (0.41) 0.98
------- ------- ------ ------
Less dividends and distributions
from:
Net investment income........... (0.10) (0.27) (0.14) --
Net realized gains on
investments and foreign
currency transactions.......... (1.84) -- -- --
------- ------- ------ ------
Total dividends and
distributions.................. (1.94) (0.27) (0.14) --
------- ------- ------ ------
Net asset value, end of period... $ 11.39 $ 14.21 $11.63 $12.18
======= ======= ====== ======
Total Return (1)................. (5.79)% 24.90 % (3.44)% 8.84%
======= ======= ====== ======
Ratios/Supplemental Data:
Net assets, end of period
(000's)........................ $11,230 $12,702 $2,575 $ 80
Ratio of expenses to average net
assets......................... 1.99 % 2.05 % 2.05 % 1.83%*
Ratio of net investment income
(loss) to average net assets... 0.20 % 1.21 % 2.89 % 0.26%*
Portfolio turnover rate......... 156.96 % 148.01 % 89.00 % 50.98%
</TABLE>
- -------------
* Annualized
+ Commencement of offering of shares
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
36
<PAGE>
PAINEWEBBER GLOBAL ENERGY FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
- ----------------------------------------------- ----------------------------------
FOR THE
YEARS ENDED
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31 FOR THE PERIOD
- ----------------------------------------------- --------------- JULY 8, 1992+ TO
1994 1993 1992 1991 1990 1994 1993 OCTOBER 31, 1992
- ------- ------- ------- ------- ------- ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14.19 $ 11.60 $ 12.16 $ 12.45 $ 12.05 $14.09 $11.60 $11.95
- ------- ------- ------- ------- ------- ------ ------ ------
(0.05) 0.19 0.13 0.17 0.08 (0.04) 0.26 0.02
(0.92) 2.56 (0.64) 0.36 1.16 (0.93) 2.47 (0.37)
- ------- ------- ------- ------- ------- ------ ------ ------
(0.97) 2.75 (0.51) 0.53 1.24 (0.97) 2.73 (0.35)
- ------- ------- ------- ------- ------- ------ ------ ------
-- (0.16) (0.05) (0.13) (0.11) -- (0.24) --
(1.84) -- -- (0.69) (0.73) (1.84) -- --
- ------- ------- ------- ------- ------- ------ ------ ------
(1.84) (0.16) (0.05) (0.82) (0.84) (1.84) (0.24) --
- ------- ------- ------- ------- ------- ------ ------ ------
$ 11.38 $ 14.19 $ 11.60 $ 12.16 $ 12.45 $11.28 $14.09 $11.60
======= ======= ======= ======= ======= ====== ====== ======
(6.56)% 23.80 % (4.09)% 4.89 % 10.37 % (6.59)% 23.84 % (2.93)%
======= ======= ======= ======= ======= ====== ====== ======
$17,341 $24,140 $36,460 $53,506 $58,748 $1,481 $1,777 $ 56
2.82 % 2.82 % 3.04 % 2.50 % 2.48 % 2.74 % 2.76 % 2.13 %*
(0.59)% 0.72 % 0.76 % 1.39 % 1.01 % (0.49)% 0.24 % 1.39 %*
156.96 % 148.01 % 89.00 % 50.98 % 76.57 % 156.96 % 148.01 % 89.00 %
</TABLE>
37
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 11.31 $ 8.73 $ 9.26 $ 10.09 $ 10.02
------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income............ 0.17 0.30 0.50 0.49 0.58
Net realized and unrealized gains
(losses) from investment and
foreign currency transactions... (0.01) 2.32 (0.66) 0.02 0.18
------- ------- ------- ------- -------
Total income (loss) from
investment operations............ 0.16 2.62 (0.16) 0.51 0.76
------- ------- ------- ------- -------
Less dividends and distributions
from:
Net investment income............ (0.16) (0.04) (0.37) (0.54) (0.55)
Net realized gains on investments
and foreign currency
transactions.................... (0.11) -- -- (0.80) (0.14)
------- ------- ------- ------- -------
Total dividends and
distributions................... (0.27) (0.04) (0.37) (1.34) (0.69)
------- ------- ------- ------- -------
Net asset value, end of period.... $ 11.20 $ 11.31 $ 8.73 $ 9.26 $ 10.09
======= ======= ======= ======= =======
Total Return (1).................. 1.35% 30.10% (1.90)% 5.90% 7.73%
======= ======= ======= ======= =======
Ratio/Supplemental data:
Net assets, end of period
(000's)......................... $61,813 $67,284 $60,540 $83,431 $98,354
Ratio of expenses to average net
assets.......................... 1.76% 2.02% 1.72% 1.95% 2.04%
Ratio of net investment income to
average net assets.............. 1.10% 2.54% 4.76% 5.04% 5.50%
Portfolio turnover rate.......... 172.13% 205.86% 59.27% 65.26% 141.75%
</TABLE>
- -------------
* Annualized
+ Commencement of operations
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charge; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
38
<PAGE>
PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
CLASS B CLASS D
- ----------------------------------------- -------------------------------
FOR THE YEARS
FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+ OCTOBER 31, JULY 2, 1992+
- ------------------------ TO OCTOBER 31, --------------- TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
- ------- ------- ------ -------------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.20 $ 8.68 $ 9.23 $ 8.58 $ 11.22 $ 8.71 $9.32
- ------- ------- ------ ------ ------- ------ -----
0.04 0.03 0.35 0.05 0.05 0.03 0.06
0.04 2.50 (0.58) 0.60 0.04 2.51 (0.67)
- ------- ------- ------ ------ ------- ------ -----
0.08 2.53 (0.23) 0.65 0.09 2.54 (0.61)
- ------- ------- ------ ------ ------- ------ -----
(0.14) (0.01) (0.32) -- (0.15) (0.03) --
(0.11) -- -- -- (0.11) -- --
- ------- ------- ------ ------ ------- ------ -----
(0.25) (0.01) (0.32) -- (0.26) (0.03) --
- ------- ------- ------ ------ ------- ------ -----
$ 11.03 $ 11.20 $ 8.68 $ 9.23 $ 11.05 $11.22 $8.71
======= ======= ====== ====== ======= ====== =====
0.60% 29.11% (2.61)% 7.58% 0.68% 29.20% (6.55)%
======= ======= ====== ====== ======= ====== =====
$34,468 $18,639 $4,554 $1,947 $11,492 $7,063 $ 683
2.54% 2.74% 2.50% 2.52%* 2.55% 2.72% 2.82%*
0.38% 1.52% 4.07% 3.32%* 0.34% 1.40% 3.92%*
172.13% 205.86% 59.27% 65.26% 172.13% 205.86% 59.27%
</TABLE>
39
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD
OCTOBER 31, JULY 1, 1991+
------------------------------- TO OCTOBER 31,
1994 1993 1992 1991
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.97 $ 10.64 $ 10.75 $ 10.40
-------- -------- -------- -------
Income (loss) from
investment operations:
Net investment income... 0.72 0.59 0.83 0.20
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions.. (1.05) 0.68 (0.12) 0.40
-------- -------- -------- -------
Total income (loss) from
investment operations... (0.33) 1.27 0.71 0.60
-------- -------- -------- -------
Less dividends and
distributions from:
Net investment income... (0.33) (0.80) (0.64) (0.23)
Net realized gains on
investments and foreign
currency
transactions........... -- (0.14) (0.18) (0.02)
Paid in capital......... (0.32) -- -- --
-------- -------- -------- -------
Total dividends and
distributions........... (0.65) (0.94) (0.82) (0.25)
-------- -------- -------- -------
Net asset value, end of
period.................. $ 9.99 $ 10.97 $ 10.64 $ 10.75
======== ======== ======== =======
Total return (1)......... (3.10)% 12.41% 6.70% 5.79%
======== ======== ======== =======
Ratio/Supplemental Data:
Net assets, end of
period (000's)......... $611,855 $648,853 $107,033 $16,501
Ratio of expenses to
average net assets..... 1.17 % 1.32%** 1.21% 1.35%*
Ratio of net investment
income to average net
assets................. 6.94 % 6.82%** 7.84% 8.59%*
Portfolio turnover rate. 108.48 % 89.65% 91.72% 53.32%
<CAPTION>
CLASS B
------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.95 $ 10.62 $ 10.74 $ 11.07 $ 10.08
---------- ------------- ----------- ----------- -----------
Income (loss) from
investment operations:
Net investment income... 0.86 0.78 0.94 0.85 1.01
Net realized and
unrealized gains
(losses) from
investment and foreign
currency transactions.. (1.28) 0.40 (0.32) (0.09) 0.96
---------- ------------- ----------- ----------- -----------
Total income (loss) from
investment operations... (0.42) 1.18 0.62 0.76 1.97
---------- ------------- ----------- ----------- -----------
Less dividends and
distributions from:
Net investment income... (0.29) (0.71) (0.56) (0.97) (0.98)
Net realized gains on
investments and foreign
currency
transactions........... -- (0.14) (0.18) (0.12) --
Paid in capital......... (0.28) -- -- -- --
---------- ------------- ----------- ----------- -----------
Total dividends and
distributions........... (0.57) (0.85) (0.74) (1.09) (0.98)
---------- ------------- ----------- ----------- -----------
Net asset value, end of
period.................. $ 9.96 $ 10.95 $ 10.62 $ 10.74 $ 11.07
========== ============= =========== =========== ===========
Total return (1)......... (3.90)% 11.45% 5.93% 7.39% 20.32%
========== ============= =========== =========== ===========
Ratio/Supplemental Data:
Net assets, end of
period (000's)......... $725,553 $1,188,890 $1,542,255 $1,593,814 $1,323,495
Ratio of expenses to
average net assets..... 1.94 % 2.11%** 1.98% 1.94% 1.90%
Ratio of net investment
income to average net
assets................. 6.05 % 5.97%** 7.11% 8.09% 9.88%
Portfolio turnover rate. 108.48 % 89.65% 91.72% 33.32% 126.31%
</TABLE>
- -------------
* Annualized
** Includes 0.15% of interest expense related to the reverse repurchase
agreement transactions entered into during the fiscal year.
+ Commencement of operations.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charge; results of Class A and Class B would be lower if
sales charges were included. Total return information for periods less than
one year is not annualized.
40
<PAGE>
PAINEWEBBER GLOBAL INCOME FUND
<TABLE>
<CAPTION>
CLASS C CLASS D
------------------------------------------------------------------------------------
FOR THE YEARS
FOR THE YEARS ENDED FOR THE PERIOD ENDED FOR THE PERIOD
OCTOBER 31, AUGUST 26, 1991+ OCTOBER 31, JULY 2, 1992+
----------------------------- TO OCTOBER 31, ------------------ TO OCTOBER 31,
1994 1993 1992 1991 1994 1993 1992
------- ------- ------ ---------------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.97 $ 10.64 $10.76 $10.53 $ 10.96 $ 10.64 $ 10.94
------- ------- ------ ------ ------- -------- -------
0.75 0.71 0.81 0.17 0.70 0.68 0.20
(1.06) 0.58 (0.08) 0.32 (1.09) 0.52 (0.13)
------- ------- ------ ------ ------- -------- -------
(0.31) 1.29 0.73 0.49 (0.39) 1.20 0.07
------- ------- ------ ------ ------- -------- -------
(0.34) (0.82) (0.67) (0.24) (0.30) (0.74) (0.21)
-- (0.14) (0.18) (0.02) -- (0.14) (0.16)
(0.33) -- -- -- (0.29) -- --
------- ------- ------ ------ ------- -------- -------
(0.67) (0.96) (0.85) (0.26) (0.59) (0.88) (0.37)
------- ------- ------ ------ ------- -------- -------
$9.99 $10.97 $10.64 $10.76 $ 9.98 $10.96 $10.64
======= ======= ====== ====== ======= ======== =======
(2.86)% 12.60% 6.98% 4.63% (3.56)% 11.64% 0.61%
======= ======= ====== ====== ======= ======== =======
$12,975 $12,043 $7,252 $2,565 $92,480 $135,847 $36,598
0.88 % 1.06%** 0.94% 1.09%* 1.68 % 1.83%** 1.75%*
7.23 % 7.00%** 8.15% 8.79%* 6.34 % 6.17%** 7.02%*
108.48 % 89.65% 91.72% 53.32% 108.48 % 89.65% 91.72%
</TABLE>
41
<PAGE>
PAINEWEBBER REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
PaineWebber Investment Series
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of PaineWebber Europe
Growth Fund, PaineWebber Global Energy Fund, PaineWebber Global Growth and
Income Fund and PaineWebber Global Income Fund (each a separate series of
PaineWebber Investment Series and hereafter referred to collectively as the
"Funds") at October 31, 1994, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at October 31, 1994 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 13, 1994
42
<PAGE>
PAINEWEBBER TAX INFORMATION--(UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (October
31, 1994) as to the federal tax status of distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that the
following distributions paid during the fiscal year by the Funds were derived
from the following sources:
<TABLE>
<CAPTION>
EUROPE GLOBAL GLOBAL GROWTH GLOBAL
GROWTH ENERGY AND INCOME INCOME
PER SHARE DATA: FUND FUND FUND FUND
- -------------------------------------- ------- ------- ------------- -------
<S> <C> <C> <C> <C>
Net investment income
Class A............................. $0.0194 $0.1025 $0.1600 $0.3263
Class B............................. -- -- 0.1354 0.2884
Class C............................. N/A N/A N/A 0.3394
Class D............................. -- 0.0039 0.1451 0.3016
Foreign currency gains*............... 0.3454+ -- 0.1077+ --
Short-term capital gains*............. -- 1.6720+ -- 0.0009+
Long-term capital gains............... -- 0.1686+ 0.0033+ --
Nontaxable distribution
Class A............................. -- -- -- 0.3178
Class B............................. -- -- -- 0.2810
Class C............................. -- -- -- 0.3306
Class D............................. -- -- -- 0.2938
Percentage of ordinary income divi-
dends qualifying for the dividends
received deduction available to
corporate shareholders............... -- 97.82% 3.77% --
</TABLE>
- -------
*Taxable as ordinary income.
+For all applicable classes.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1994. Such notification, which will
reflect the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1995. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each of
the Funds.
43
<PAGE>
PAINEWEBBER AND MITCHELL
HUTCHINS/KIDDER, PEABODY
MUTUAL FUNDS
PAINEWEBBER OFFERS A FAMILY OF 35 MUTUAL FUNDS WHICH ENCOMPASS A DIVERSIFIED
RANGE OF INVESTMENT GOALS. INVESTORS MAY EXCHANGE THEIR FUND SHARES WITH OTHER
FUNDS WITHIN THE FAMILY.
INCOME FUNDS
o MH/KP ADJUSTABLE RATE GOVERNMENT FUND
o MH/KP GLOBAL INCOME FUND
o MH/KP GOVERNMENT INCOME FUND
o MH/KP INTERMEDIATE FIXED INCOME FUND
o PW GLOBAL INCOME FUND
o PW HIGH INCOME FUND
o PW INVESTMENT GRADE INCOME FUND
o PW SHORT-TERM U.S. GOVERNMENT INCOME FUND
o PW SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
o PW STRATEGIC INCOME FUND
o PW U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
o MH/KP MUNICIPAL BOND FUND
o PW CALIFORNIA TAX-FREE INCOME FUND
o PW MUNICIPAL HIGH INCOME FUND
o PW NATIONAL TAX-FREE INCOME FUND
o PW NEW YORK TAX-FREE INCOME FUND
GROWTH FUNDS
o MH/KP EMERGING MARKETS EQUITY FUND
o MH/KP GLOBAL EQUITY FUND
o MH/KP SMALL CAP GROWTH FUND
o PW ATLAS GLOBAL GROWTH FUND
o PW BLUE CHIP GROWTH FUND
o PW CAPITAL APPRECIATION FUND
o PW COMMUNICATIONS & TECHNOLOGY GROWTH FUND
o PW EUROPE GROWTH FUND
o PW GROWTH FUND
o PW REGIONAL FINANCIAL GROWTH FUND
o PW SMALL CAP VALUE FUND
GROWTH AND INCOME FUNDS
o MH/KP ASSET ALLOCATION FUND
o MH/KP EQUITY INCOME FUND
o PW ASSET ALLOCATION FUND
o PW GROWTH AND INCOME FUND
o PW GLOBAL ENERGY FUND
o PW GLOBAL GROWTH AND INCOME FUND
o PW UTILITY INCOME FUND
PAINEWEBBER MONEY MARKET FUND
- ------------------
(COPYRIGHT)1995 PAINEWEBBER INCORPORATED
<PAGE>
PRINTED ON
RECYCLED PAPER
MITCHELL HUTCHINS/
KIDDER, PEABODY
GLOBAL EQUITY FUND
SEMI-ANNUAL REPORT
February 28, 1995
- --------------------------------------------------------------------------------
April 15, 1995
Dear Shareholder,
During the six months ended February 28, 1995, the United States economy
exhibited steady growth. In a series of monetary tightenings that began early in
1994, the Federal Reserve Board raised the benchmark Federal Funds rate, the
rate banks charge each other for overnight borrowing, six times in 1994 for a
total increase of 2.5%. These increases, which were implemented to moderate
economic expansion and forestall inflation, triggered stock and bond market
volatility throughout most of 1994. The Federal Reserve tightened another 0.5%
on February 1, 1995, increasing the Federal Funds rate to 6.0%.
Productivity gains in the workplace and the increased competitiveness of United
States corporations in the global marketplace contributed to the low inflation
and steady growth which characterized the economy during the six months ended
February 28, 1995. Unemployment continued to decline, and retail sales remained
brisk, sparked by strengthened consumer confidence and an upward trend in
personal income. However, side effects of higher interest rates, including a
decline in single family housing starts, crept into economic data during the
latter half of 1994. As we move into the second quarter of 1995, the economy
remains healthy--although it is not yet clear what impact higher interest rates
will have on growth.
Effective February 13, 1995, as a result of an asset purchase transaction by and
among Kidder, Peabody Group Inc., its parent, General Electric Company, and
Paine Webber Group Inc., the investment management for the Fund was transferred
to Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'). Mitchell
Hutchins' appointment as the Fund's investment adviser and administrator was
approved by shareholders on April 13, 1995. Mitchell Hutchins, a wholly owned
investment management subsidiary of PaineWebber Incorporated, provides
investment advisory and portfolio management services to individuals, pension
and endowment funds, trusts and institutions. As of February 28, 1995, Mitchell
Hutchins was adviser or subadviser to 42 investment companies with 77 separate
portfolios and aggregate assets of approximately $22 billion. Although the name
has been changed to Mitchell Hutchins/Kidder, Peabody Global Equity Fund, the
investment objective remains the same: to seek long-term capital growth by
investing primarily in foreign equity securities. GE Investment Management
Incorporated ('GEIM') remains as the Fund's sub-adviser and Ralph Layman of GEIM
remains the Fund's portfolio manager, responsible for the day-to-day management
of the Fund.
<PAGE>
PORTFOLIO REVIEW
During the six months ended February 28, 1995, Fund performance was hampered by
the poor showing of many of the dollar-earning companies in the portfolio, and
the Fund's weightings in the Mexican and Italian equity markets. The Fund's
total return for the period without deducting sales charges was (8.67)% for
Class A shares, (9.01)% for Class B shares and (8.52)% for Class C shares. The
Fund's total return for this period after deducting the maximum applicable sales
charges was (13.94)% for Class A shares, (9.01)% for Class B shares and (8.52)%
for Class C shares. In
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
comparison, the MSCI World Index returned (3.23)% during the period. The World
Index performance was largely driven by local currency, in particular the weak
dollar.
Because several companies in the portfolio derive a significant portion of their
revenue in U.S. dollars, the Fund declined during the period with the dollar's
continuing weakness relative to the Yen, Deutschemark and other major
currencies. Examples of global companies held in the portfolio whose earnings
were impacted by the dollar's decline include Nestle (2.0% of net assets as of
February 28, 1995), Total (2.2)% and Canon (1.2)%. The weakness of the dollar
has had a significant impact in Europe, where equity markets have fallen due to
the expectation of lower corporate earnings and growth estimates. The German
equity market provides a good illustration of this phenomenon. When the
Deutschemark rose versus the dollar during the period, German stocks sold off,
as exports account for 30% of the German GDP and have been the main driver of
recent growth. Other factors exerting pressure on the Fund's total return were
the disappointing performances of the Mexican and Italian markets. As of
February 28, 1995, 1.7% of the Fund's net assets were invested in Mexico and
2.1% in Italy. The Mexican Government's decision in December 1994 to devalue its
currency triggered a financial crisis and led to steep declines in the Mexican
stock market. In Italy, the perception of instability at the highest levels of
government has continued to cloud investor confidence, and Italian equities
remain at depressed levels.
During the six months ended February 28, 1995, the Fund added OMV (0.5% of net
assets as of February 28, 1995) to its holdings. OMV is an Austrian energy
company involved in the distribution and storage of natural gas for Central and
Western Europe. Natural gas demand in this region continues to grow at a rate of
5% per year, and we believe pricing will continue to improve. The Fund reduced
its position in Astra, the Swedish pharmaceutical company (1.7)%, due to
long-term concern over its product portfolio. While sales of Losec, the
company's star drug, continue to grow at double digit rates around the world, we
are concerned that the current line of products will not be able to compensate
for the eventual slowing of Losec growth. The Fund has reduced the size of its
position in Astra from a 'top ten' to a 'core' holding. In Japan, the perceived
impact of the Yen's appreciation depressed shares of the country's most globally
competitive and reasonably priced blue chip stocks. However, we believe the
companies we own, like Murata (0.7)% and Suzuki (1.8)%, have unique competitive
<PAGE>
advantages and should outperform in the long run.
OUTLOOK
1995 has begun with violent swings in currencies. We believe that the currency
chaos experienced in the first months of the year could push world economies
toward slower growth. Countries with weakening currencies, including the U.S.,
Italy, Sweden, Spain and Mexico, should experience improving trade balances, but
lower than expected growth. European countries with weakening currencies and
onerous public sector deficits might experience 'stagflation' as inflation
builds and weak economic conditions continue. Those countries that witnessed
strong upward moves in currencies such as Germany, Japan and Switzerland are
likely to be impacted by lower growth as well. Both Germany and Japan owe their
recent economic turnarounds to strong export growth, which might be curbed in
the near future by their appreciating currencies. In the coming months, our
investment strategy will be to seek quality companies with solid growth
fundamentals whose prices have fallen due to market turbulence and negative
sentiment. We remain committed to our
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
stock picking discipline, and stand ready to take advantage of opportunities
afforded by volatile markets.
Thank you for your participation in the Mitchell Hutchins/Kidder, Peabody Global
Equity Fund. We value you as a shareholder and as a client and welcome any
comments or questions you may have.
Sincerely,
FRANK P.L. MINARD RALPH R. LAYMAN
Chairman, Portfolio Manager,
Mitchell Hutchins Asset Management Mitchell Hutchins/Kidder, Peabody
Inc. Global Equity Fund
- --------------------------------------------------------------------------------
3
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Recent Performance Results (unaudited)
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN1
--------------------------------
NET ASSET VALUE 12 MONTHS 6 MONTHS
--------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
2/28/95 8/31/94 2/28/94 ENDED 2/28/95 ENDED 2/28/95
Class A Shares $14.26 $16.98 $16.61 -6.64% -8.67%
Class B Shares 14.05 16.81 16.50 -7.30 -9.01
Class C Shares 14.33 17.03 16.64 -6.38 -8.52
</TABLE>
PERFORMANCE SUMMARY CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
<S> <C> <C> <C> <C> <C>
11/14/91-12/31/91 $ 12.00 $12.29 -- -- 2.42 %
1992 12.29 12.45 $ 0.2410 -- 3.26
1993 12.45 16.07 0.2100 -- 30.77
1994 16.07 14.43 1.2530 -- -2.35
01/01/95-02/28/95 14.43 14.26 -- -- -1.18
Total: $ 1.7040 $ 0.0000
CUMULATIVE TOTAL RETURN AS OF 2/28/95: 33.45%
</TABLE>
PERFORMANCE SUMMARY CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
<S> <C> <C> <C> <C> <C>
05/10/93-12/31/93 $ 13.80 $15.99 $ 0.2100 -- 17.39 %
1994 15.99 14.23 1.2530 -- -3.12
01/01/95-02/28/95 14.23 14.05 -- -- -1.26
Total: $ 1.4630 $ 0.0000
CUMULATIVE TOTAL RETURN AS OF 2/28/95: 12.30%
</TABLE>
PERFORMANCE SUMMARY CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
----------------------- CAPITAL GAINS DIVIDENDS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED PAID RETURN1
<S> <C> <C> <C> <C> <C>
05/10/93-12/31/93 $ 13.80 $16.10 $ 0.2100 -- 18.19 %
1994 16.10 14.49 1.2530 -- -2.16
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
01/01/95-02/28/95 14.49 14.33 -- -- -1.10
Total: $ 1.4630 $ 0.0000
CUMULATIVE TOTAL RETURN AS OF 2/28/95: 14.36%
</TABLE>
(1) Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not include sales charges;
results would be lower if sales charges were included.
AVERAGE ANNUAL RETURN
<TABLE>
<CAPTION>
% RETURN WITHOUT SALES CHARGE % RETURN WITH SALES CHARGE
-------------------------------- -----------------------------------------
CLASS CLASS
-------------------------------- -----------------------------------------
A* B** C*** A* B** C***
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended 3/31/95 0.46% -0.25% 0.72% -5.33% -0.25% 0.72%
Five Years Ended 3/31/95 N/A N/A N/A N/A N/A N/A
Commencement of Operations+
Through 3/31/95 10.10 8.35 9.44 8.19 8.35 9.44
</TABLE>
* Maximum sales charge for Class A shares is 5.75% of the public offering
price. Class A shares bear ongoing 12b-1 service fees.
** Class B shares are sold without initial or contingent deferred sales
charges, but bear ongoing 12b-1 distribution and service fees.
*** Class C shares are sold without initial or contingent deferred sales charges
and are available exclusively to PaineWebber employees.
+ Commencement of operations dates are November 14, 1991, May 10, 1993 and May
10, 1993 for Class A, Class B and Class C, respectively.
The data above represent past performance of the Fund's shares, which is no
guarantee of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
4
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995
- --------------------------------------------------------------------------------
COMMON STOCKS--90.67%
- ------------------------------------------------------
<PAGE>
NUMBER OF
SHARES VALUE
- ------------- ------------
UNITED STATES--24.05%
- -------------------------------------------------------
AUTOMOTIVE--2.04%
94,134 Chrysler Corp............ $ 4,094,829
------------
BANKING--1.23%
38,380 J.P. Morgan & Co.,
Inc...................... 2,475,510
------------
COMMERCIAL SERVICES--1.89%
69,081 Ecolab, Inc.............. 1,597,498
31,795 First Financial
Management Corp.......... 2,197,829
------------
3,795,327
------------
COMPUTER SYSTEMS--2.04%
40,723 International Business
Machines Corp............ 3,064,406
28,350 Zebra Technologies Corp.
Class A.................. 1,031,231
------------
4,095,637
------------
CONGLOMERATES--DIVERSIFIED--2.36%
124,654 Allied Signal, Inc....... 4,736,852
------------
CONSUMER PRODUCTS--4.42%
49,114 Colgate-Palmolive Co..... 3,167,853
129,615 Fruit of the Loom, Inc.
Class A.................. 3,029,751
95,581 Toys 'R' Us Inc.*........ 2,664,320
------------
8,861,924
------------
DRUGS & MEDICAL PRODUCTS--2.30%
133,462 Sunrise Medical, Inc.*... 4,604,439
------------
ELECTRONICS & ELECTRICAL
EQUIPMENT--1.38%
34,661 Intel Corp............... 2,764,215
------------
ENVIRONMENTAL SERVICES--1.56%
227,941 Wheelabrator
Technologies, Inc........ 3,134,189
------------
FINANCIAL SERVICES--3.07%
246,786 Countrywide Credit
Industries, Inc.......... 4,010,272
<PAGE>
55,108 Travelers, Inc........... 2,142,324
------------
6,152,596
------------
FOREST PRODUCTS & PAPER--1.76%
46,333 International Paper
Co....................... 3,538,683
------------
Total United States Common Stocks....... 48,254,201
------------
NUMBER OF
SHARES VALUE
- ------------- ------------
ARGENTINA--0.45%
- -------------------------------------------------------
OIL & GAS--0.03%
7,703 Transportadora de Gas del
Sur S.A. ADR............. $ 66,438
------------
TELECOMMUNICATIONS--0.42%
23,279 Telecom Argentina STET--
France Telecom S.A.
ADR...................... 832,224
------------
Total Argentina Common Stocks........... 898,662
------------
AUSTRALIA--2.68%
- -------------------------------------------------------
FOODS--1.27%
1,063,724 Burns, Philp & Co.,
Ltd. .................... 2,552,498
------------
TRANSPORTATION--1.41%
298,683 Brambles Industries
Ltd...................... 2,831,578
------------
Total Australia Common Stocks........... 5,384,076
------------
AUSTRIA--1.60%
- -------------------------------------------------------
ENGINEERING & CONSTRUCTION--1.07%
19,928 VA Technologie AG*....... 2,142,088
------------
OIL & GAS--0.53%
11,079 OMV AG................... 1,074,712
------------
Total Austria Common Stocks............. 3,216,800
------------
DENMARK--2.08%
- -------------------------------------------------------
BANKING--0.82%
28,752 Den Danske Bank A/S...... 1,657,405
<PAGE>
------------
COMMERCIAL SERVICES--1.26%
81,660 ISS International Service
System A/S 'B'........... 2,522,763
------------
Total Denmark Common Stocks............. 4,180,168
------------
FRANCE--9.84%
- -------------------------------------------------------
AUTOMOTIVE--2.23%
93,612 Valeo SA................. 4,481,183
------------
BANKING--1.36%
61,435 Banque Nationale de
Paris.................... 2,725,253
------------
OIL & GAS--4.42%
175,249 Coflexip SA ADR.......... 4,425,037
80,302 Compagnie Francaise de
Petroleum Total Class
B........................ 4,442,172
------------
8,867,209
------------
5
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- ------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------- ------------
RETAIL/GROCERY--1.83%
8,966 Carrefour SA............. $ 3,662,625
------------
Total France Common Stocks.............. 19,736,270
------------
GERMANY--4.92%
- -------------------------------------------------------
DRUGS & MEDICAL PRODUCTS--1.09%
5,592 Gehe AG.................. 2,182,965
------------
RETAIL--1.25%
7,523 AVA Allgemeine
Handelsgesellschaft der
<PAGE>
Verbraucher AG........... 2,505,428
------------
UTILITY--2.58%
14,396 Veba AG.................. 5,179,911
------------
Total Germany Common Stocks............. 9,868,304
------------
HONG KONG--5.92%
- -------------------------------------------------------
BROADCAST--1.36%
723,600 Television Broadcasts
Ltd. .................... 2,723,503
------------
CONGLOMERATES--DIVERSIFIED--1.58%
748,800 Hutchison Whampoa
Ltd. .................... 3,176,698
------------
INSURANCE--0.49%
1,514,000 National Mutual Asia
Ltd. .................... 979,111
------------
RETAIL--2.49%
8,088,000 Giordano Holdings
Ltd. .................... 4,995,176
------------
Total Hong Kong Common Stocks........... 11,874,488
------------
INDONESIA--0.48%
- -------------------------------------------------------
AUTOMOTIVE--0.48%
572,000 P.T. Astra
International............ 967,742
------------
ITALY--2.07%
- -------------------------------------------------------
BANKING--0.46%
44,785 Istituto Mobiliare
Italiano SPA............. 244,404
40,047 Istituto Mobiliare
Italiano SPA ADR......... 675,793
------------
920,197
------------
TELECOMMUNICATIONS--1.61%
804,600 Stet-Societa Finanziaria
Telefonica SPA........... 2,236,474
NUMBER OF
SHARES VALUE
- ------------- ------------
430,422 Stet-Societa Finanziaria
Telefonica SPA
(non-convertible savings
<PAGE>
shares).................. $ 989,906
------------
3,226,380
------------
Total Italy Common Stocks............... 4,146,577
------------
JAPAN--10.56%
- -------------------------------------------------------
AUTOMOTIVE--1.82%
388,000 Suzuki Motor Co., Ltd.... 3,656,397
------------
ELECTRONICS & ELECTRICAL
EQUIPMENT--4.95%
168,000 Canon Inc................ 2,505,256
91,000 Hoshiden Corp............ 1,460,674
42,000 Murata Manufacturing Co.,
Ltd...................... 1,387,459
62,000 Omron Corp............... 969,502
68,000 Secom Co., Ltd........... 3,605,447
------------
9,928,338
------------
TELECOMMUNICATIONS--1.74%
470 DDI Corp................. 3,489,774
------------
TRUCK & LEASING--2.05%
462,000 Nippon Express Co.,
Ltd. .................... 4,114,534
------------
Total Japan Common Stocks............... 21,189,043
------------
MALAYSIA--2.29%
- -------------------------------------------------------
BANKING--1.05%
228,000 AMMB Holdings Berhad..... 2,116,983
------------
TELECOMMUNICATIONS--1.24%
354,000 Telekom Malaysia
Berhad................... 2,482,507
------------
Total Malaysia Common Stocks............ 4,599,490
------------
MEXICO--1.72%
- -------------------------------------------------------
FINANCIAL SERVICES--0.23%
129,654 Grupo Financiero
Bancomer, S.A. de C.V.
ADR+..................... 453,789
------------
HOLDING COMPANY--0.11%
30,533 Grupo Carso, S.A. de C.V.
ADR*+.................... 213,731
------------
IRON/STEEL--0.06%
<PAGE>
32,580 Grupo Simec, S.A. de C.V.
ADR *.................... 130,320
------------
6
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS--(continued)
- ------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------- ------------
TELECOMMUNICATIONS--1.32%
716,030 Telefonos de Mexico S.A.,
Class L.................. $ 985,812
60,262 Telefonos de Mexico S.A.,
Class L ADR.............. 1,664,738
------------
2,650,550
------------
Total Mexico Common Stocks.............. 3,448,390
------------
NEW ZEALAND--0.52%
- -------------------------------------------------------
HOUSEHOLD APPLIANCES--0.52%
408,248 Fisher & Paykel
Industries Ltd. ......... 1,047,851
------------
NORWAY--2.31%
- -------------------------------------------------------
COMMERCIAL SERVICES--2.31%
207,232 Petroleum
Geo-Services*............ 4,627,221
------------
SOUTH AFRICA--1.05%
- -------------------------------------------------------
IRON/STEEL--1.05%
1,967,683 Iscor Ltd. .............. 2,083,134
149,400 Iscor Ltd. Rights........ 16,007
------------
Total South Africa Common Stocks........ 2,099,141
------------
SWEDEN--2.98%
- -------------------------------------------------------
DRUGS & MEDICAL PRODUCTS--2.38%
82,205 Arjo AB.................. 1,435,876
<PAGE>
135,045 Astra AB 'B'............. 3,344,751
------------
4,780,627
------------
TRANSPORTATION--0.60%
76,644 Linjebuss AB 'A' Free.... 1,208,005
------------
Total Sweden Common Stocks.............. 5,988,632
------------
SWITZERLAND--8.28%
- -------------------------------------------------------
DRUGS & MEDICAL PRODUCTS--2.64%
956 Roche Holding AG......... 5,307,234
------------
ELECTRONICS & ELECTRICAL
EQUIPMENT--2.47%
5,676 BBC Brown Boveri Ltd. ... 4,957,869
------------
FOODS--1.97%
4,083 Nestle SA-Registered..... 3,953,854
------------
NUMBER OF
SHARES VALUE
- ------------- ------------
TRANSPORTATION--1.20%
2,631 Danzas Holding AG........ $ 2,400,547
------------
Total Switzerland Common Stocks......... 16,619,504
------------
THAILAND--0.90%
- -------------------------------------------------------
BANKING--0.89%
215,230 Thai Farmers Bank,
Ltd. .................... 1,777,762
------------
CONSUMER PRODUCTS--0.01%
950 International Cosmetics
Ltd. .................... 13,332
------------
Total Thailand Common Stocks............ 1,791,094
------------
UNITED KINGDOM--5.97%
- -------------------------------------------------------
BUILDING MATERIALS--1.42%
614,965 BPB Industries PLC....... 2,858,151
------------
DRUGS & MEDICAL PRODUCTS--1.49%
1,063,421 Medeva PLC............... 2,980,610
------------
ENVIRONMENTAL SERVICES--1.33%
354,175 Waste Management
International PLC........ 1,794,711
<PAGE>
83,562 Waste Management
International PLC, ADR... 877,401
------------
2,672,112
------------
HEALTHCARE--1.19%
803,327 Takare PLC............... 2,391,536
------------
LEISURE--0.54%
164,441 Airtours PLC............. 1,089,763
------------
Total United Kingdom Common Stocks...... 11,992,172
------------
Total Common Stocks
(cost--$163,386,850).................. 181,929,826
------------
PREFERRED STOCK--3.34%
- -------------------------------------------------------
AUSTRIA--1.06%
- -------------------------------------------------------
BANKING--1.06%
35,083 Creditanstalt-Bankverein... 2,129,133
------------
GERMANY--2.28%
- -------------------------------------------------------
COMPUTER SYSTEMS--2.28%
5,540 SAP AG................... 4,584,014
------------
Total Preferred Stocks
(cost--$3,052,852).................... 6,713,147
------------
7
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS--9.86%
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------------------- --------- ----------- -------------
<S> <C> <C> <C>
$ 8,600 Federal Farm Credit Bank Discount Notes.............. 03/14/95 5.890% $ 8,581,708
1,800 Federal Home Loan Mortgage Corp. Discount Notes...... 03/01/95 5.950 1,800,000
1,800 Federal Home Loan Mortgage Corp. Discount Notes...... 03/02/95 5.780 1,799,711
7,600 Federal National Mortgage Association Discount
Notes................................................ 03/07/95 5.860 7,592,578
-------------
Total U.S. Government Obligations (cost--$19,773,997)................... 19,773,997
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--2.87%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5,750 Repurchase Agreement dated 2/28/95, with State Street
Bank and Trust Company, collateralized by $5,505,000
U.S. Treasury Notes, 8.875% due 02/15/99;
proceeds:$5,750,958.................................. 03/01/95 6.00% $ 5,750,000
-------------
Total Repurchase Agreements (cost--$5,750,000).......................... 5,750,000
-------------
TOTAL INVESTMENTS (cost--$191,963,699)--106.74%................................. $ 214,166,970
Liabilities in excess of other assets--(6.74%).................................. (13,532,351)
-------------
NET ASSETS--100.00%............................................................. $ 200,634,619
-------------
-------------
</TABLE>
- ------------
* Non-income producing security.
+ Security restricted as to resale.
ADR--American Depository Receipts
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
- -----------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACTS TO MATURITY APPRECIATION
DELIVER IN EXCHANGE FOR DATES (DEPRECIATION)
------------ -------------------- ----------- ---------------
<S> <C> <C> <C> <C>
U.S. Dollars....................... 850,726 ATS 8,798,206 03/06/95 $ 3,593
U.S. Dollars....................... 198,755 ATS 2,033,461 03/06/95 (1,302)
Hong Kong Dollars.................. 85,380 US$ 11,042 03/01/95 (1)
New Zealand Dollars................ 50,285 US$ 31,755 03/01/95 (114)
New Zealand Dollars................ 77,639 US$ 49,037 03/02/95 (167)
New Zealand Dollars................ 460,809 US$ 291,830 03/03/95 (209)
------
$ 1,800
------
------
</TABLE>
- ------------
CURRENCY TYPE ABBREVIATIONS:
ATS--Austrian Schillings CHF--Swiss Francs HKD--Hong Kong Dollar NZD--New
Zealand Dollar
See accompanying notes to financial statements.
8
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<PAGE>
February 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost--$191,963,699)....................................... $214,166,970
Cash denominated in foreign currencies, at value (cost--$708,496).............................. 698,024
Receivable for investments sold................................................................ 1,157,375
Dividends and interest receivable (cost--$340,862)............................................. 353,552
Receivable for shares of beneficial interest sold.............................................. 220,371
Receivable from transfer agent................................................................. 188,130
Unrealized appreciation on forward foreign currency contracts.................................. 2,291
Other assets................................................................................... 137,850
------------
Total assets............................................................................... 216,924,563
------------
LIABILITIES
Payable to custodian........................................................................... 11,625,034
Payable for investments purchased.............................................................. 2,306,528
Payable for shares of beneficial interest repurchased.......................................... 1,948,094
Unrealized depreciation on forward foreign currency contracts.................................. 491
Payable to affiliates.......................................................................... 209,767
Accrued expenses and other liabilities......................................................... 200,030
------------
Total liabilities.......................................................................... 16,289,944
------------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding (unlimited amount authorized)....... 179,169,400
Accumulated undistributed net investment income................................................ 25,316
Accumulated net realized losses from investment and foreign currency activities................ (773,514)
Net unrealized appreciation of investments, other assets, liabilities and forward contracts
denominated in foreign currencies............................................................. 22,213,417
------------
Net assets................................................................................. $200,634,619
------------
------------
CLASS A:
Net assets..................................................................................... $145,103,774
------------
Shares outstanding............................................................................. 10,173,570
------------
Net asset value and redemption value per share................................................. $14.26
------------
------------
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering
price)........................................................................................ $15.13
------------
------------
CLASS B:
Net assets..................................................................................... $ 27,483,775
------------
Shares outstanding............................................................................. 1,955,883
------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Net asset value, offering price and redemption value per share................................. $14.05
------------
------------
CLASS C:
Net assets..................................................................................... $ 28,047,070
------------
Shares outstanding............................................................................. 1,956,969
------------
Net asset value, offering price and redemption value per share................................. $14.33
------------
------------
</TABLE>
See accompanying notes to financial statements.
9
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended February 28, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes)............. $1,296,296
Interest and discounts earned............................ 242,208
----------
1,538,504
----------
EXPENSES:
Investment advisory...................................... 1,128,151
Distribution fees--Class B............................... 101,036
Service fees--Class A.................................... 208,129
Service fees--Class B.................................... 49,764
Custody and accounting fees.............................. 158,630
Transfer agency fees..................................... 74,643
Reports and notices to shareholders...................... 40,925
Amortization of organizational expenses.................. 30,262
Federal and state registration fees...................... 16,486
Legal and audit fees..................................... 13,536
Trustees' fees and expenses.............................. 4,989
----------
1,826,551
----------
NET INVESTMENT LOSS......................................... (288,047)
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT AND
FOREIGN CURRENCY ACTIVITIES:
Net realized gains (losses) from:
<PAGE>
Investment activities................................. (3,655,729)
Foreign currency activities........................... 2,622,172
Net change in unrealized appreciation/depreciation of:
Investments........................................... (19,872,401)
Other assets, liabilities and forward contracts
denominated in
foreign currencies.................................. 3,757
----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT AND
FOREIGN CURRENCY ACTIVITIES............................... (20,902,201)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(21,190,248)
----------
----------
See accompanying notes to financial statements.
10
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Year
Months Ended Ended
February 28, August 31,
1995 1994
------------ ------------
FROM OPERATIONS:
Net investment income (loss)................... $ (288,047 ) $ 33,457
Net realized gains (losses) from investment
activities................................... (3,655,729 ) 19,733,100
Net realized gains (losses) from foreign
currency activities.......................... 2,622,172 (22,678 )
Net changes in unrealized
appreciation/depreciation of investments,
other assets, liabilities and forward
contracts denominated in foreign
currencies................................... (19,868,644 ) 17,509,713
------------ ------------
Net increase (decrease) in net assets resulting
from operations.............................. (21,190,248 ) 37,253,592
------------ ------------
Net investment income included in prices of
shares sold and redeemed..................... -- 1,018
------------ ------------
<PAGE>
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized short-term gains from investment
activities--Class A.......................... (2,549,751 ) (1,858,584 )
Net realized short-term gains from investment
activities--Class B.......................... (475,944 ) (230,113 )
Net realized short-term gains from investment
activities--Class C.......................... (487,977 ) (260,619 )
Net realized long-term gains from investment
activities--Class A.......................... (10,332,659 ) (580,807 )
Net realized long-term gains from investment
activities--Class B.......................... (1,928,726 ) (71,910 )
Net realized long-term gains from investment
activities--Class C.......................... (1,977,490 ) (81,444 )
------------ ------------
(17,752,547 ) (3,083,477 )
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares........... 24,460,567 78,480,740
Cost of shares repurchased..................... (48,085,104 ) (56,319,218 )
Proceeds from dividends reinvested............. 17,482,084 3,031,120
------------ ------------
Net increase (decrease) in net assets derived
from beneficial interest transactions........ (6,142,453 ) 25,192,642
------------ ------------
Net increase (decrease) in net assets.......... (45,085,248 ) 59,363,775
NET ASSETS:
Beginning of period............................ 245,719,867 186,356,092
------------ ------------
End of period (including undistributed net
investment income of $25,316 and $422,782,
respectively)................................ $200,634,619 $245,719,867
------------ ------------
------------ ------------
See accompanying notes to financial statements.
11
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Global Equity Fund (formerly Kidder,
Peabody Global Equity Fund) (the 'Fund') is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as an
open-end, diversified investment company.
<PAGE>
Organizational Matters--On May 10, 1993, the Fund adopted the Choice
Pricing SystemSM. Prior to May 10, 1993, the Fund issued only Class A shares;
subsequent to that date the Fund issued Class A, Class B and Class C shares.
Each class represents interests in the same assets of the Fund and the classes
are identical except for differences in their sales charge structure and ongoing
service and distribution charges. All classes of shares have equal rights as to
voting privileges, except that each class has exclusive voting rights with
respect to its distribution plan.
Organization costs are being amortized evenly over a sixty month period.
Prepaid registration fees are charged to income as the related shares are
issued.
Valuation of Investments--Securities listed on national securities
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued, or lacking any sales, at the mean between
closing bid and asked prices. Over-the-counter securities are valued on the
basis of the last sale, if available, or on the basis of the bid price at the
close of business on each day, or, if market quotations for those securities are
not readily available, at fair value, as determined in good faith by the Fund's
Trustees. Short-term obligations with maturities of 60 days or less are valued
at amortized cost.
Investment Transactions and Investment Income--Investment transactions are
recorded as of the trade date. Realized gains and losses on sales of investments
and foreign exchange transactions are calculated using the identified cost
method. Dividend income is recorded on the ex-dividend date. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
on straight line basis as adjustments to interest income and the identified cost
of investments.
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
12
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
Foreign Currency Translation--The Fund's financial statements are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(1) Market value of investment securities, other assets and
liabilities--at the closing rate of exchange.
<PAGE>
(2) Purchases and sales of investment securities, income and
expenses--at the rate of exchange prevailing on the respective dates of
such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates from the fluctuations
arising from changes in the market prices of securities held at fiscal year end.
However, the Fund does isolate the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the fiscal year.
Realized currency gain/loss on investment transactions includes realized
foreign exchange gains and losses from the sale of portfolio securities, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts received or paid. Gains and
losses from translating foreign currency-denominated assets and liabilities at
year-end exchange rates are included in change in unrealized appreciation due to
translation of foreign denominated assets and liabilities.
Foreign security and currency transactions may involve certain risks not
typically associated with domestic transactions as a result of other factors
including the possibility of political and economic instability and the level of
governmental supervision and regulation of foreign securities markets.
Forward Foreign Currency Contracts--The Fund is authorized to enter into
forward foreign currency exchange contracts in connection with planned purchases
or sales of securities or to hedge the U.S. dollar value of portfolio securities
denominated in a particular currency.
A forward currency contract is a commitment to purchase or sell foreign
currency at a future date at a negotiated exchange rate. Generally, the Fund
will enter into such forward contracts on the transaction's trade date with a
contracted date coinciding with the settlement date of the underlying security.
Certain risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar. During the period between the forward currency contract's trade date and
settlement date movements in the value of foreign currencies relative to the
U.S. dollar are recognized as unrealized gains or losses. On a daily basis the
Fund records an unrealized gain or loss to recognize the U.S. dollar value of
the foreign currency contract at the end of each day's trading. Should the
underlying security fail to settle within the contracted period the
13
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
forward currency contract is renegotiated at a new exchange rate. The gain or
loss resulting from the difference between the original and renegotiated
<PAGE>
settlement values is recognized and included in realized transaction gain/loss.
Repurchase Agreements--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The value of the collateral must
be a minimum of 100% of the market value of the securities being loaned,
allowing for minor variations arising from marking to market of such collateral.
If the issuer defaults or if bankruptcy or regulatory proceedings are commenced
with respect to the issuer, the realization of the proceeds may be delayed or
limited.
Federal Tax Status--The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
Dividends and Distributions--Dividends and distributions to shareholders
are recorded on ex-dividend date. The Fund declares dividends from net
investment income annually. Net capital gains, if any, will be distributed at
least annually, but the Fund may make more frequent distributions of such gains,
if necessary, to avoid income or excise taxes.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an Investment Advisory and Administrative
Contract with Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
wholly owned subsidiary of PaineWebber Incorporated. Mitchell Hutchins serves as
the Fund's investment adviser and administrator and receives a fee, accrued
daily and paid monthly, at the annual rate of 1.00% of the Fund's average daily
net assets. Mitchell Hutchins in turn employs GE Investment Management
Incorporated ('GEIM'), a wholly owned subsidiary of General Electric Company
('GE'), as the Fund's sub-adviser, in which capacity GEIM receives from Mitchell
Hutchins (not the Fund) a fee, paid monthly, calculated and accrued daily at the
annual rate of .70% of the Fund's average daily net assets. At February 28,
1995, the Fund owed Kidder Peabody Asset Management, Inc. ('KPAM'), the Fund's
predecessor investment adviser and administrator, $67,344 in investment advisory
and administration fees.
14
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements-- (continued)
- --------------------------------------------------------------------------------
<PAGE>
At a special meeting of shareholders that took place on April 13, 1995,
Mitchell Hutchins was appointed as investment adviser and administrator of the
Fund and GEIM was appointed as the Fund's sub-adviser. The Fund pays the same
fee for investment advisory and administration services to Mitchell Hutchins as
previously paid to KPAM, as described in the Fund's prospectus. Mitchell
Hutchins and GEIM continue to manage the Fund in accordance with the Fund's
investment objective, policies and restrictions as stated in the Fund's
prospectus.
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc., its parent, GE, and Paine
Webber Group Inc. ('PW Group'). That period began on February 13, 1995 and ended
on April 13, 1995.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest, brokerage fees, distribution fees
and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitations applicable to the Fund
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. No expense reimbursement
was required for the six months ended February 28, 1995.
DISTRIBUTION PLANS
Effective February 13, 1995, Mitchell Hutchins serves as the exclusive
distributor of the Fund's shares. Under separate plans of distribution, Class A
shares are sold subject to a front-end sales load and bear a service fee of
0.25% per annum of average class net assets. Class B shares are sold at net
asset value without a sales load and bear a distribution fee of 0.75% per annum
and a service fee of 0.25% per annum of average class net assets. The Fund pays
Mitchell Hutchins the service and distribution fees monthly. For these services
for the period ended February 13, 1995, Kidder, Peabody & Co. Incorporated, the
Fund's predecessor distributor, earned $330,637 in fees. At February 28, 1995,
$28,292 was payable to Mitchell Hutchins for the period from February 13 to
February 28, 1995. Mitchell Hutchins also receives the proceeds of any front-end
sales loads with respect to the purchase of Class A shares.
15
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February
28, 1995 was substantially the same as the cost of securities for financial
statement purposes.
<PAGE>
At February 28, 1995, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost)...... $40,109,125
Gross depreciation (investments having an excess of cost
over value)............................................................. (17,905,854)
-----------
Net unrealized appreciation of investments................................ $22,203,271
-----------
-----------
</TABLE>
For the six months ended February 28, 1995, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<S> <C>
Purchases................................................................. $37,941,577
Sales..................................................................... $69,993,499
</TABLE>
BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest, par value $.001 per share. Transactions in
shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended February 28, 1995:
Shares sold......................... 785,130 $ 12,750,893 232,017 $ 3,741,367 482,574 $ 7,968,307
Dividends and distributions
reinvested in additional
Fund shares....................... 884,650 12,668,188 168,250 2,377,378 169,482 2,436,518
Shares repurchased.................. (2,421,673) (37,397,415) (338,660) (5,145,444) (361,856) (5,542,245)
---------- ------------ --------- ----------- -------- -----------
Net increase (decrease)............... (751,893) $(11,978,334) 61,607 $ 973,301 290,200 $ 4,862,580
---------- ------------ --------- ----------- -------- -----------
---------- ------------ --------- ----------- -------- -----------
Year ended August 31, 1994:
Shares sold......................... 2,764,374 $ 43,492,060 1,520,043 $23,745,336 707,025 $11,244,362
Dividends and distributions
reinvested in additional
Fund shares....................... 149,182 2,394,380 18,552 296,272 21,173 340,468
Shares repurchased.................. (2,738,250) (44,032,678) (388,843) (6,218,957) (372,775) (6,067,583)
---------- ------------ --------- ----------- -------- -----------
Net increase.......................... 175,306 $ 1,853,762 1,149,752 $17,822,651 355,423 $ 5,517,247
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
---------- ------------ --------- ----------- -------- -----------
---------- ------------ --------- ----------- -------- -----------
</TABLE>
16
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
For the Six For the Years Ended For the Period
Months Ended August 31, November 14, 1991+
February 28, -------------------- to August 31,
1995 1994 1993 1992
------------ -------- -------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 16.98 $ 14.55 $ 12.87 $ 12.00
Income (loss) from investment operations:
Net investment income (loss)........................... (0.02) 0.01 0.03 0.09
Net realized and unrealized gains (losses) from
investment and foreign currency activities........... (1.44) 2.63 1.89 0.78
------------ -------- -------- ----------
Total income (loss) from investment operations........... (1.46) 2.64 1.92 0.87
------------ -------- -------- ----------
Dividends and distributions:
Dividends from net investment income................... -- -- (0.08) --
Distributions from net realized gains.................. (1.26) (0.21) (0.16) --
------------ -------- -------- ----------
Total dividends and distributions...................... (1.26) (0.21) (0.24) --
------------ -------- -------- ----------
Net asset value, end of period........................... $ 14.26 $ 16.98 $ 14.55 $ 12.87
------------ -------- -------- ----------
------------ -------- -------- ----------
Total return (1)......................................... (8.67)% 18.23% 15.24% 7.25%
------------ -------- -------- ----------
------------ -------- -------- ----------
Ratios/Supplemental data:
Net assets, end of period (000's)........................ $145,104 $185,493 $156,451 $113,070
Ratios of expenses to average net assets................. 1.65%* 1.58% 1.53% 1.68%*
Ratio of net investment income (loss) to average
net assets............................................. (0.28)%* 0.07% 0.22% 0.93%*
Portfolio turnover....................................... 32.45% 50.73% 56.35% 30.32%
</TABLE>
<PAGE>
- ------------------
* Annualized
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. The figures do not
include sales charges; results of Class A would be lower if sales charges
were included. Total returns for periods less than one year are not
annualized.
17
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights--(continued)
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class B
-------------------------------------------
For the
For the Six For the Period
Months Ended Year Ended May 10, 1993+
February 28, August 31, to August 31,
1995 1994 1993
------------ ---------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period.................................... $ 16.81 $ 14.52 $ 13.80
Income (loss) from investment operations:
Net investment income (loss).......................................... 0.04 (0.07) (0.02)
Net realized and unrealized gains (losses) from investment and foreign
currency activities................................................. (1.55) 2.57 0.74
------------ ---------- -------------
Total income (loss) from investment operations.......................... (1.51) 2.50 0.72
------------ ---------- -------------
Dividends and distributions:
Dividends from net investment income.................................. -- -- --
Distributions from net realized gains................................. (1.25) (0.21) --
------------ ---------- -------------
Total dividends and distributions..................................... (1.25) (0.21) --
------------ ---------- -------------
Net asset value, end of period.......................................... $ 14.05 $ 16.81 $ 14.52
------------ ---------- -------------
------------ ---------- -------------
Total return (1)........................................................ (9.01)% 17.29% 5.22%
------------ ---------- -------------
------------ ---------- -------------
Ratios/Supplemental data:
Net assets, end of period (000's)....................................... $ 27,484 $ 31,837 $10,807
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Ratios of expenses to average net assets................................ 2.40%* 2.33% 2.28%*
Ratio of net investment income (loss) to average
net assets............................................................ (1.03)%* (0.68)% (0.53)%*
Portfolio turnover...................................................... 32.45% 50.73% 56.35%
</TABLE>
- ------------------
* Annualized
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. Total returns for
periods less than one year are not annualized.
18
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights--(concluded)
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Class C
-------------------------------------------
For the
For the Six For the Period
Months Ended Year Ended May 10, 1993+
February 28, August 31, to August 31,
1995 1994 1993
------------ ---------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period.................................... $ 17.03 $ 14.56 $ 13.80
Income (loss) from investment operations:
Net investment income (loss).......................................... 0.00 0.05 0.02
Net realized and unrealized gains (losses) from
investment and foreign currency activities.......................... (1.45) 2.63 0.74
------------ ---------- -------------
Total income (loss) from investment operations.......................... (1.45) 2.68 0.76
------------ ---------- -------------
Dividends and distributions:
Dividends from net investment income.................................. -- -- --
Distributions from net realized gains................................. (1.25) (0.21) --
------------ ---------- -------------
Total distributions................................................... (1.25) (0.21) --
------------ ---------- -------------
Net asset value, end of period.......................................... $ 14.33 $ 17.03 $ 14.56
------------ ---------- -------------
------------ ---------- -------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total return (1)........................................................ (8.52)% 18.49% 5.51%
------------ ---------- -------------
------------ ---------- -------------
Ratios/Supplemental data:
Net assets, end of period (000's)....................................... $ 28,047 $ 28,390 $19,098
Ratios of expenses to average net assets................................ 1.40%* 1.33% 1.28%*
Ratio of net investment income (loss) to average
net assets............................................................ (0.03)%* 0.32% 0.47%*
Portfolio turnover...................................................... 32.45% 50.73% 56.35%
</TABLE>
- ------------------
* Annualized
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment in Fund shares on
the first day of each period reported, reinvestment of all dividends and
capital gain distributions at net value on the payable date, and a sale at
net asset value on the last day of each period reported. Total returns for
periods less than one year are not annualized.
19
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Mitchell Hutchins/Kidder, Peabody Global Equity Fund
(one of the portfolios constituting the Mitchell Hutchins/
Kidder, Peabody Investment Trust):
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Mitchell Hutchins/Kidder, Peabody
Global Equity Fund as of February 28, 1995, and the related statements of
operations and of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
February 28, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
<PAGE>
In our opinion, such financial statements and financial highlights present
fairly in all material respects, the financial position of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund as of February 28, 1995, the results
of its operations, the changes in its net assets and the financial highlights
for each of the periods presented in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
April 21, 1995
20
- ---------------------------------------------------------
TRUSTEES
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
- ---------------------------------------------------------
PRINCIPAL OFFICERS
Frank P. L. Minard
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
- ---------------------------------------------------------
INVESTMENT ADVISER,
ADMINISTRATOR AND
DISTRIBUTOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
- ---------------------------------------------------------
INVESTMENT SUB-ADVISER
GE Investment Management Incorporated
3003 Summer Street
<PAGE>
Stamford, Connecticut 06904
- ---------------------------------------------------------
A Prospectus containing more complete information for any of the funds listed on
the back cover can be obtained from a PaineWebber investment executive or
correspondent firm. Read the prospectus carefully before investing.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective prospectus.
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/95 08/31/94 02/28/94 ENDED 02/28/95 ENDED 02/28/95
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $13.24 $16.33 $17.06 -19.96% -16.40%
- ------------------------------------------------------------------------
Class B Shares 12.92 16.01 16.80 -20.65 -16.68
- ------------------------------------------------------------------------
Class D Shares 13.00 16.10 16.89 -20.60 -16.70
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/30/83 - 12/31/84 $ 9.15 $ 8.47 -- $0.1825 -5.39%
- -----------------------------------------------------------------------------
1985 8.47 13.90 -- 0.1125 65.65
- -----------------------------------------------------------------------------
1986 13.90 15.95 $3.0402 0.0911 39.09
- -----------------------------------------------------------------------------
1987 15.95 12.85 3.7770 0.1914 6.60
- -----------------------------------------------------------------------------
1988 12.85 14.46 0.4815 0.4397 19.88
- -----------------------------------------------------------------------------
1989 14.46 15.50 1.6676 0.1138 19.96
- -----------------------------------------------------------------------------
1990 15.50 12.92 1.0440 0.3972 -7.60
- -----------------------------------------------------------------------------
1991 12.92 13.93 -- 0.1982 9.38
- -----------------------------------------------------------------------------
1992 13.93 12.72 -- -- -8.69
- -----------------------------------------------------------------------------
1993 12.72 17.34 0.5560 0.1649 42.12
- -----------------------------------------------------------------------------
1994 17.34 14.68 0.4487 -- -12.71
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 14.68 13.24 -- -- -9.81
- -----------------------------------------------------------------------------
Total: $11.0150 $1.8913
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 245.05%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $13.09 $13.91 -- $0.1659 7.55%
- -----------------------------------------------------------------------------
1992 13.91 12.61 -- -- -9.35
- -----------------------------------------------------------------------------
1993 12.61 17.09 $ 0.5560 0.1245 41.05
- -----------------------------------------------------------------------------
1994 17.09 14.34 0.4487 -- -13.42
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 14.34 12.92 -- -- -9.90
- -----------------------------------------------------------------------------
Total: $ 1.0047 $0.2904
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 7.28%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class D Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $13.51 $12.68 -- $ -- -6.14%
- -----------------------------------------------------------------------------
1993 12.68 17.18 $ 0.5560 0.1313 41.03
- -----------------------------------------------------------------------------
1994 17.18 14.43 0.4487 -- -13.35
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 14.43 13.00 -- -- -9.91
- -----------------------------------------------------------------------------
Total: $ 1.0047 $0.1313
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 3.33%
- -----------------------------------------------------------------------------
</TABLE>
1
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED) (CONTINUED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN WITHOUT SALES DEDUCTING
CHARGE MAXIMUM SALES CHARGE
--------------------------- ----------------------------
CLASS CLASS
--------------------------- ----------------------------
A B D*** A* B** D
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months
Ended 03/31/95 -11.97% -12.63% -12.63% -15.91% -17.63% -12.63%
- -------------------------------------------------------------------------------
Five Years
Ended 03/31/95 2.10 N/A N/A 1.17 N/A N/A
- -------------------------------------------------------------------------------
Commencement of
Operations+ Ended
03/31/95 11.68 2.02 1.37 --11.23 1.51 1.37
- -------------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable, and do not include sales
charges; results would be lower if sales charge was included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 services fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and is
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1
distribution and service fees.
*** Class D shares are sold without initial or contingent deferred sales
charge but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates are December 30, 1983, July 1, 1991 and
July 2, 1992 for Class A, Class B and Class D shares, respectively.
NOTE: The Fund offers Class C shares to the Trustee of the PaineWebber Savings
Investment Plan. For the one year ended March 31, 1995, and since inception,
August 26, 1991 through March 31, 1995, Class C shares had an average annual
total return of 11.67% and 2.23%. Class C shares do not have initial or
contingent sales charges or ongoing distribution and service fees.
The investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
2
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/95 08/31/94 02/28/94 ENDED 02/28/95 ENDED 02/28/95
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $19.15 $20.43 $20.93 -1.13% 0.65%
- ------------------------------------------------------------------------
Class B Shares 19.10 20.37 20.86 -1.92 0.22
- ------------------------------------------------------------------------
Class D Shares 19.15 20.42 20.91 -1.87 0.26
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/20/83 - 12/31/84 $12.65 $13.21 -- $1.0800 13.72%
- -----------------------------------------------------------------------------
1985 13.21 14.97 $0.1950 0.8850 22.36
- -----------------------------------------------------------------------------
1986 14.97 15.04 1.1380 0.6830 12.68
- -----------------------------------------------------------------------------
1987 15.04 12.05 2.3027 0.7366 -3.16
- -----------------------------------------------------------------------------
1988 12.05 13.67 -- 0.5120 17.83
- -----------------------------------------------------------------------------
1989 13.67 16.32 0.1675 0.5178 24.59
- -----------------------------------------------------------------------------
1990 16.32 15.85 -- 0.3030 -1.01
- -----------------------------------------------------------------------------
1991 15.85 19.26 -- 0.0985 22.15
- -----------------------------------------------------------------------------
1992 19.26 21.74 -- 0.2432 3.90
- -----------------------------------------------------------------------------
1993 21.74 20.86 0.0310 0.2818 -2.59
- -----------------------------------------------------------------------------
1994 20.86 18.18 1.2111 0.2417 -6.62
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 18.18 19.15 -- -- 5.30
- -----------------------------------------------------------------------------
Total: $5.0453 $5.5826
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 199.82%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $18.04 $21.14 -- $0.1074 17.85%
- ----------------------------------------------------------------------------
1992 21.14 21.69 -- 0.0992 3.09
- ----------------------------------------------------------------------------
1993 21.69 20.78 $0.0310 0.1193 -3.94
- ----------------------------------------------------------------------------
1994 20.78 18.15 1.2111 0.0768 -1.94
- ----------------------------------------------------------------------------
01/01/95 - 02/28/95 18.15 19.10 -- -- 5.23
- ----------------------------------------------------------------------------
Total: $1.2421 $0.4027
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 15.43%
- ----------------------------------------------------------------------------
Performance Summary Class D Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $19.96 $21.75 -- $0.1160 9.58%
- ----------------------------------------------------------------------------
1993 21.75 20.83 $0.0310 0.1308 -3.93
- ----------------------------------------------------------------------------
1994 20.83 18.20 1.2111 0.0756 -1.94
- ----------------------------------------------------------------------------
01/01/95 - 02/28/95 18.20 19.15 -- -- 5.27
- ----------------------------------------------------------------------------
Total: $1.2421 $0.3224
- ----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 4.18%
- ----------------------------------------------------------------------------
</TABLE>
3
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED) (CONTINUED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN WITHOUT DEDUCTING
SALES CHARGE MAXIMUM SALES CHARGE
-------------------------------- --------------------------------
CLASS CLASS
-------------------------------- --------------------------------
A B D*** A* B** D
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months
Ended 03/31/95 7.14% 6.30% 6.33% 2.31% 1.30% 6.33%
- --------------------------------------------------------------------------------------------
Five Years
Ended 03/31/95 7.83 N/A N/A 6.84 N/A N/A
- --------------------------------------------------------------------------------------------
Commencement of
Operations+ Ended
03/31/95 10.52 4.74 2.63 10.07 4.27 2.63
- --------------------------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable, and do not include sales
charges; results would be lower for Class A and Class B shares if sales
charge were included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 services fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without initial or contingent deferred sales charge
but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates were December 30, 1983, July 1, 1991 and
July 2, 1992 for Class A, Class B and Class D shares, respectively.
NOTE The Fund offers Class C shares to the Trustee of the PaineWebber Savings
Investment Plan. For the one year ended March 31, 1995, and since inception,
February 12, 1991, through March 31, 1995, Class C shares had an average
annual total return of 7.50% and 1.75%. Class C shares do not have initial
or contingent sales charges or ongoing distribution and service fees.
The investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
4
<PAGE>
GROWTH FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE TOTAL RETURN/1/
-------------------------- -----------------------------
12 MONTHS 6 MONTHS
02/28/95 08/31/94 02/28/94 ENDED 02/28/95 ENDED 02/28/95
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $19.21 $20.04 $21.02 -8.48% -4.01%
- ------------------------------------------------------------------------
Class B Shares 18.65 19.53 20.56 -9.16 -4.37
- ------------------------------------------------------------------------
Class D Shares 18.78 19.67 20.70 -9.15 -4.39
- ------------------------------------------------------------------------
</TABLE>
Performance Summary Class A Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/18/85 - 12/31/85 $ 9.15 $10.55 -- $0.1275 16.87%
- -----------------------------------------------------------------------------
1986 10.55 10.86 $0.4063 0.1042 7.64
- -----------------------------------------------------------------------------
1987 10.86 9.81 1.4051 0.0847 4.34
- -----------------------------------------------------------------------------
1988 9.81 11.87 -- 0.1011 22.05
- -----------------------------------------------------------------------------
1989 11.87 14.79 1.1520 -- 34.27
- -----------------------------------------------------------------------------
1990 14.79 12.98 0.4625 0.1625 -7.72
- -----------------------------------------------------------------------------
1991 12.98 18.53 0.6003 0.0072 47.61
- -----------------------------------------------------------------------------
1992 18.53 18.66 0.6235 -- 4.15
- -----------------------------------------------------------------------------
1993 18.66 21.14 1.0734 -- 19.17
- -----------------------------------------------------------------------------
1994 21.14 18.81 0.0258 -- -10.90
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 18.81 19.21 -- -- 2.13
- -----------------------------------------------------------------------------
Total: $5.7489 $0.5872
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 230.92%
- -----------------------------------------------------------------------------
</TABLE>
Performance Summary Class B Shares
<TABLE>
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/01/91 - 12/31/91 $15.63 $18.47 $0.6003 $0.0037 22.18%
- -----------------------------------------------------------------------------
1992 18.47 18.44 0.6235 -- 3.30
- -----------------------------------------------------------------------------
1993 18.44 20.71 1.0734 -- 18.26
- -----------------------------------------------------------------------------
1994 20.71 18.28 0.0258 -- -11.61
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 18.28 18.65 -- -- 2.02
- -----------------------------------------------------------------------------
Total: $2.3230 $0.0037
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 34.60%
- -----------------------------------------------------------------------------
Performance Summary Class D Shares
<CAPTION>
NET ASSET VALUE
---------------- CAPITAL GAINS TOTAL
PERIOD COVERED BEGINNING ENDING DISTRIBUTED DIVIDENDS PAID RETURN/1/
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/02/92 - 12/31/92 $17.04 $18.57 $0.6235 -- 12.73%
- -----------------------------------------------------------------------------
1993 18.57 20.85 1.0734 -- 18.19
- -----------------------------------------------------------------------------
1994 20.85 18.41 0.0258 -- -11.58
- -----------------------------------------------------------------------------
01/01/95 - 02/28/95 18.41 18.78 -- -- 2.01
- -----------------------------------------------------------------------------
Total: $1.7227 --
- -----------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN AS OF
02/28/95: 20.17%
- -----------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GROWTH FUND
PAINEWEBBER
RECENT PERFORMANCE RESULTS (UNAUDITED) (CONTINUED)
Average Annual Return
<TABLE>
<CAPTION>
% RETURN AFTER
% RETURN WITHOUT DEDUCTING
SALES CHARGE MAXIMUM SALES CHARGE
---------------------------- ----------------------------
CLASS CLASS
---------------------------- ----------------------------
A B D*** A* B** D
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months
Ended 03/31/95 0.75% -0.07% 0.04% -3.80% -5.07% 0.04%
- ----------------------------------------------------------------------------------
Five Years
Ended 03/31/95 10.37 N/A N/A 9.37 N/A N/A
- ----------------------------------------------------------------------------------
Commencement of
Operations+ Ended
03/31/95 12.99 9.05 8.02 12.47 8.20 8.02
- ----------------------------------------------------------------------------------
</TABLE>
/1/Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable, and do not include sales
charges; results would be lower for Class A and Class B shares if sales
charge were included.
* Maximum sales charge for Class A shares is 4.5% of the public offering
price. Class A shares bear ongoing 12b-1 services fees.
** Maximum contingent deferred sales charge for Class B shares is 5.0% and
reduced to 0% after 6 years. Class B shares bear ongoing 12b-1 distribution
and service fees.
*** Class D shares are sold without initial or contingent deferred sales charge
but bear ongoing 12b-1 distribution and service fees.
+ Commencement of operations dates were March 18, 1985, July 1, 1991 and July
2, 1992 for Class A, Class B and Class D shares, respectively.
Note: The Fund offers Class C shares to the Trustee of the PaineWebber Savings
Investment Plan. For the one year ended March 31, 1995, and since inception,
August 26, 1991 through March 31, 1995, Class C shares had an average annual
total return of 1.10% and 7.95%. Class C shares do not have initial or
contingent sales charges or ongoing distribution and service fees.
The investment return and principal value of an investment in the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
6
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS -- 95.86% FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 82.45%
UNITED STATES - 27.67%
<S> <C>
Biotechnology - 2.77%
116,000 Amgen Inc.*........................................ $ 8,004,000
177,000 Liposome Inc....................................... 1,924,875
27,000 Genzyme Corp. Tissue............................... 108,000
------------
10,036,875
------------
Business Services - 1.19%
200,000 Ogden Corp......................................... 4,275,000
------------
Datacommunication - 2.54%
230,000 Digital Equipment Corp*............................ 7,705,000
300,000 Mitel Corporation.................................. 1,500,000
------------
9,205,000
------------
Electronics & Instrumentation - 6.98%
264,050 Analog Devices, Inc.*.............................. 6,634,256
400,000 National Semiconducter Corporation*................ 6,750,000
100,000 RF Monolithics Inc.*............................... 1,025,000
50,000 Texas Instruments, Inc............................. 3,937,500
853,700 Zenith Electronics Corp*........................... 6,936,313
------------
25,283,069
------------
Foods - 0.72%
209,900 Wholesome & Hearty Foods, Inc*..................... 2,623,750
------------
Investment Companies - 0.19%
16,000 ASA Limited........................................ 692,000
------------
Machine Tools - 1.45%
250,000 Cincinnati Milacron................................ 5,250,000
------------
Mining - 4.27%
400,000 Battle Mountain Gold Co............................ 3,800,000
80,000 Driefontein Consolidated Ltd Spsd ADR.............. 1,050,000
400,000 Hecla Mining Co*................................... 3,750,000
80,000 Kloof Gold Mining Ltd ADR.......................... 950,000
276,800 Minorco Sponsored ADR.............................. 5,916,600
------------
15,466,600
------------
Miscellaneous - 3.75%
280,000 General Division................................... 10,850,000
160,000 Giddings & Lewis, Inc.............................. 2,720,000
------------
13,570,000
------------
Oil & Gas Drilling - 3.81%
250,000 Baker Hughes....................................... 4,812,500
1,101,000 Global Marine Inc.................................. 4,541,625
904,600 Parker Drilling.................................... 4,409,925
------------
13,764,050
------------
Total United States Common Stocks................................ 100,166,344
------------
</TABLE>
7
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS - (CONTINUED)
ARGENTINA - 1.82%
<S> <C>
Infrastructure - 1.82%
3,730,300 Commercial Del Plata............................... $ 6,599,331
-----------
BRAZIL - 9.37%
Bank - 2.39%
1,100,133,221 Banco Bradeso SA................................... 8,655,936
-----------
Electric Utility - 3.12%
100,000,000 Copel On/Companhia Paranaense...................... 829,211
35,600,000 Electrobras ON..................................... 8,050,883
3,510,000 Iven SA............................................ 1,790,141
12,320,000 Paulista Forza Luz................................. 616,726
-----------
11,286,961
-----------
Food - 0.86%
222,000,000 Ceva/Ceval Alimentos SA............................ 3,098,587
-----------
Paper - 0.65%
194,800 Aracruz Celulose ADR............................... 2,337,600
-----------
Steel - 0.66%
930,000 Sider Tubarao PN B Shares.......................... 733,922
52,000 Tubarao Sponsors ADR 144A.......................... 1,641,458
-----------
2,375,380
-----------
Telephone - 1.42%
154,682,080 Telebras (ON)...................................... 3,716,743
20,590,000 Telecomunicacoes Do Rio............................ 1,428,446
-----------
5,145,189
-----------
Tobacco - 0.27%
153,900 Souza Cruz Ord. Registered......................... 1,015,124
-----------
Total Brazil Common Stocks........................................ 33,914,777
-----------
CANADA - 3.91%
Mining - 3.60%
100,000 Brascan Ltd Class A Conv........................... 1,327,831
83,100 Cameco Corp........................................ 2,027,920
207,100 Echo Bay Mines..................................... 1,863,900
300,000 Horsham Corp. ..................................... 3,750,000
200,000 Placer Dome Inc. .................................. 4,075,000
-----------
13,044,651
-----------
Technology - 0.31%
528,800 Battery Technologies*.............................. 1,123,700
-----------
Total Canada Common Stocks........................................ 14,168,351
-----------
</TABLE>
8
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
CHINA - 0.00%
<S> <C>
Infrastructure - 0.00%
16,000 Shanghai Jinqiao Export B Sh.*..................... $ 10,112
------------
FINLAND - 0.81%
Capital Goods - 0.67%
999,067 Tampella OY AB..................................... 2,425,475
------------
Printing & Publishing - 0.14%
28,000 Aamulehti Yhtymae.................................. 523,234
------------
Total Finland Common Stocks...................................... 2,948,709
------------
FRANCE - 5.19%
Capital Goods - 2.68%
54,050 Legris Industries*................................. 3,562,231
25,000 Lyonnaise Des Eaux................................. 2,125,378
80,000 Technip SA Compagnie Francaise..................... 4,055,767
------------
9,743,376
------------
Health & Personal Care - 0.06%
2,300 Boiron............................................. 201,813
------------
Industrial Holdings - 0.27%
39,250 Dynaction*......................................... 964,317
------------
Leisure - 1.13%
50,000 Club Mediterranee.................................. 4,075,266
------------
Utilities - 1.05%
31,000 Generale Des Eaux.................................. 2,871,210
15,100 Geophysique, Cie Generale.......................... 949,547
------------
3,820,757
------------
Total France Common Stocks....................................... 18,805,529
------------
GERMANY - 0.85%
Capital Goods - 0.85%
10,600 Mannesmann AG...................................... 3,086,177
------------
HONG KONG - 7.75%
Consumer Goods - 2.03%
52,105,200 China Aerospace*................................... 7,345,880
------------
Infrastructure - 4.20%
19,945,000 Hopewell Holdings.................................. 15,220,268
------------
Retailing - 1.52%
10,103,000 Dickson Concept International, Ltd................. 5,488,275
------------
Total Hong Kong Common Stocks.................................... 28,054,423
------------
</TABLE>
9
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
ITALY - 1.62%
<S> Chemicals - 1.62% <C>
8,000,000 Montedison SPA........................................ $ 5,857,999
------------
MALAYSIA - 1.54%
Conglomerate - 1.54%
3,509,000 Malaysia Mining Berhad................................ 5,581,406
------------
NORWAY - 2.22%
Machinery & Engineering - 0.96%
80,000 Kvaerner 'B'.......................................... 3,473,285
------------
Multi-Industry - 1.26%
356,900 Aker A/S B Shares..................................... 4,565,549
------------
Total Norway Common Stocks....................................... 8,038,834
------------
PAKISTAN - 0.31%
Banking - 0.31%
192,100 Bank Al Habib*........................................ 209,430
20,900 Bank of Pujab*........................................ 24,980
31,200 Prime Commercial Bank*................................ 29,983
766,810 Soneri Bank Limited*.................................. 848,373
2,800 Union Bank Limited*................................... 2,849
------------
1,115,615
------------
POLAND - 0.60%
Construction - 0.60%
360,000 Mostostal Export Bearer*.............................. 2,163,013
------------
SOUTH AFRICA - 8.62%
Infrastructure - 0.96%
191,800 Barlow Ltd............................................ 1,773,661
70,000 Murray & Roberts Holdings Ltd......................... 1,696,429
------------
3,470,090
------------
Mining - 4.10%
210,000 Driefontein Consolidated Ltd.......................... 2,705,357
200,000 Free State Cons Gold Mines Ord........................ 2,321,429
1,087,200 Gencor Ltd............................................ 3,466,837
90,000 Goldfields Industrial Corp............................ 2,043,367
200,000 Kloof Gold Mining Ltd, ADR............................ 2,321,429
280,000 Randfontein Estates Goldmine.......................... 1,982,143
------------
14,840,562
------------
</TABLE>
10
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
SOUTH AFRICA - (CONTINUED)
<S> <C>
Petroleum - 1.25%
530,000 Sasol Ltd............................................ $ 3,954,719
80,000 Sasol Ltd., Unsec Debt Stock Conv Shares............. 571,429
------------
4,526,148
------------
Steel - 1.32%
4,400,000 South African Iron & Steel/Iscor..................... 4,804,082
------------
Tobacco - 0.99%
534,950 Rembrandt Group Ltd. ORD............................. 3,582,254
------------
Total South Africa Common Stocks................................. 31,223,136
------------
SWEDEN - 0.88%
Mining - 0.88%
230,000 Trelleborg Ab B Free*................................ 3,184,732
SWITZERLAND - 2.26% ------------
Cement - 1.03%
5,000 Holderbank........................................... 3,714,668
------------
Pharmaceutical - 1.23%
7,000 Ciba Geigy........................................... 4,451,113
------------
Total Switzerland Common Stocks.................................. 8,165,781
------------
TURKEY - 2.78%
Banking - 1.67%
9,600,000 Akbank............................................... 2,198,650
835,400 Akbank Prom Notes.................................... 191,328
42,596,100 Yapi Kredi Bank...................................... 3,645,520
------------
6,035,498
------------
Conglomerate - 0.98%
4,000,000 Koc Holdings......................................... 2,314,368
2,133,000 Koc Yatirim.......................................... 1,259,848
------------
3,574,216
------------
Newspaper - 0.13%
14,833,880 Medya Holdings AS.................................... 455,959
------------
Total Turkey Common Stocks....................................... 10,065,673
------------
UNITED KINGDOM - 4.25%
Capital Goods - 1.22%
1,250,000 Weir Group........................................... 4,453,597
------------
Drugs - 1.01%
1,300,000 Medeva............................................... 3,643,636
------------
</TABLE>
11
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
UNITED KINGDOM - (CONTINUED)
<S> <C>
1,600,800 Lonrho Ord........................................ $ 3,675,560
------------
Mining - 1.00%
850,000 Antofagasta Holdings.............................. 3,634,135
------------
Total United Kingdom Common Stocks............................... 15,406,928
------------
Total Common Stocks (cost - $339,442,197)........................ 298,556,870
------------
PREFERRED STOCK - 13.12%
BRAZIL - 10.88%
Bank - 2.74%
149,052,000 Banco de Brasil Preferred Reg'd NV................ 1,931,180
10,000,000 Investimentos Itau................................ 4,711,425
12,140,000 Itaubanco Pfd Reg'd............................... 3,288,810
------------
9,931,415
------------
Beverage - 0.67%
7,930,000 Brahma............................................ 2,409,823
------------
Food - 0.42%
851,200,000 Perdigao Comercio E Indus Pfd..................... 1,533,965
------------
Machinery - 1.04%
11,415,000 Brasmotor Preferred Reg'd......................... 3,159,629
1,108,000 Weg Preferred Reg'd............................... 601,635
------------
3,761,264
------------
Mining - 1.82%
45,000,000 Vale Do Rio Doce Pfd Reg'd........................ 6,572,438
------------
Oil - 1.78%
63,000,000 Petrobras Preferred Reg........................... 6,419,470
------------
Paper - 0.32%
2,625,570 Melpaper SA Pfd................................... 1,175,167
------------
Retailing - 0.36%
61,780,000 Lojas Americanas Pfd Reg'd........................ 1,309,823
------------
Steel - 1.18%
28,190,000 Acesita Cia Acos Espec Itab....................... 1,892,615
47,300,000 Metalurg Gerdau Preferred......................... 2,362,214
------------
4,254,829
------------
Telephone - 0.18%
5,527 Telebras Pfd Reg'd................................ 163
262,396 Telecom Do Rio De Janero.......................... 11,744
2,700,000 Telepar Preferred Reg'd........................... 651,975
------------
663,882
------------
</TABLE>
12
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONCLUDED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
PREFERRED STOCK - (CONTINUED)
<S> <C>
Tools - 0.37%
2,480,000,000 Forjas Tauras Preferred Shares.................... $ 1,343,699
-----------
Total Brazil Preferred Stocks.................................... 39,375,775
-----------
GERMANY - 2.24%
Auto - 2.24%
18,500 Porsche AG Non Voting Preferred................... 8,130,194
-----------
Total Preferred Stocks (cost - $53,701,905)...................... 47,505,969
-----------
STOCK RIGHTS - 0.00%
BRAZIL - 0.00%
Telephone - 0.00%
81,666 Telebras ON Rights................................ 1,962
18,615 Telebras PN Rights................................ 550
-----------
Total Stock Rights (cost - $6,792)............................... 2,512
-----------
WARRANTS - 0.03%
HONG KONG - 0.03%
Aerospace - 0.03%
China Aero International Holding, expiring
8,728,320 12/31/95 (cost - $1,870,733)..................... 101,604
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
---------- -------- --------
LONG-TERM DEBT SECURITIES - 0.24%
UNITED STATES - 0.24%
<S> <C> <C> <C>
$1,000,000 EKA Guntama Mandiri Con (cost -
$1,000,000)..................... 10/04/97 4.000% 870,000
REPURCHASE AGREEMENT - 0.02%
75 Repurchase Agreement dated
02/28/95 with Brown
Brothers Harriman & Co.
collateralized by $75,959
U.S. Treasury Notes, 8.500% due
08/15/95;
proceeds: $75,011 (cost -
$75,000)........................ 03/01/95 5.500 75,000
------------
Total Investments (cost - $396,096,627)-
95.86%....................................... 347,111,955
Other assets in excess of liabilities-4.14%.. 14,991,939
------------
Net Assets-100.00%........................... $362,103,894
============
</TABLE>
- -------
* Non-income producing security
ADR - American Depository Receipts
See accompanying notes to financial statements
13
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 97.32%
<S> <C>
Aerospace - 5.12%
90,900 General Dynamics Corporation.......................... $ 4,283,663
134,100 Loral Corporation..................................... 5,481,337
169,500 Martin Marietta Corporation New....................... 8,093,625
84,300 Raytheon Company...................................... 5,943,150
------------
23,801,775
------------
Air Transportation - 1.13%
63,900 AMR Corporation Delaware.............................. 3,905,888
23,000 Delta Airlines Incorporated........................... 1,334,000
------------
5,239,888
------------
Apparel - 1.21%
78,300 Nike Incorporated..................................... 5,627,813
------------
Automobiles - 1.60%
145,000 Donaldson Incorporated................................ 3,643,125
173,600 Fleetwood Enterprises Incorporated.................... 3,797,500
------------
7,440,625
------------
Banking - 4.14%
26,100 First Empire State Corporation........................ 4,319,550
348,900 Marshall and Ilsley Corporation....................... 7,239,685
153,600 NationsBank Corporation............................... 7,660,800
------------
19,220,035
------------
Business Services - 1.69%
47,900 Computer Associates International Incorporated........ 2,730,300
185,900 Reynolds & Reynolds Company, Class A.................. 5,135,488
------------
7,865,788
------------
Chemicals - 1.80%
19,400 Bordon Chemicals & Plastics Limited................... 339,500
166,700 Lubrizol Corporation.................................. 5,584,450
132,900 R.P.M. Incorporated Ohio.............................. 2,442,037
------------
8,365,987
------------
Computer - 5.61%
177,100 Bay Networks Incorporated............................. 5,556,512
55,700 BMC Software Incorporated............................. 3,578,725
137,400 Cisco Systems Incorporated............................ 4,637,250
59,300 Concord Efs Incorporated.............................. 2,468,650
85,400 International Business Machines Corporation........... 6,426,350
116,900 Legent Corporation.................................... 3,390,100
------------
26,057,587
------------
</TABLE>
14
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<S> <C>
Conglomerates - 0.70%
42,400 General Electric Company.............................. $ 2,326,700
9,700 ITT Corporation....................................... 945,750
------------
3,272,450
------------
Cosmetics & Soaps - 1.66%
77,800 International Flavours................................ 3,744,125
60,000 Procter & Gamble Company.............................. 3,990,000
------------
7,734,125
------------
Drugs & Medical Products - 13.48%
108,900 Abbott Laboratories................................... 3,865,950
44,000 Allergan Incorporated................................. 1,270,500
75,000 American Home Products Corporation.................... 5,362,500
75,200 Amgen Inc. ........................................... 5,188,800
96,500 Becton Dickinson & Company............................ 5,066,250
67,300 Bristol Myer Squibb Company........................... 4,172,600
200,000 Johnson & Johnson..................................... 11,350,000
58,800 Lilly Eli & Company................................... 3,939,600
60,300 Medtronic, Incorporated............................... 3,618,000
122,500 Merck & Company....................................... 5,190,937
196,000 Mylan Labs Incorporated............................... 6,125,000
296,800 National Medical Enterprises Incorporated............. 4,600,400
136,600 Ventritex Incorporated................................ 2,868,600
------------
62,619,137
------------
Healthcare - 3.09%
101,200 Healthcare Compare Corporation........................ 3,213,100
102,800 Smithkline Beecham, PLC............................... 3,996,350
166,300 U.S. Healthcare, Inc. ................................ 7,150,900
------------
14,360,350
------------
Industrial & Electronic Products - 10.94%
28,600 AMP Incorporated ..................................... 2,145,000
148,200 Cadence Design Systems Incorporated................... 3,797,625
58,100 Diebold, Incorporated................................. 2,055,288
80,800 Dover Corporation..................................... 4,807,600
90,200 DSC Communications Corporation........................ 3,247,200
46,800 Eastman Kodak Company ................................ 2,386,800
262,900 E M C Corporation Massachusetts....................... 4,502,162
84,500 Emerson Electric Company.............................. 5,587,563
79,700 General Instruments Corporation*...................... 2,530,475
24,600 Hewlett-Packard Company............................... 2,829,000
146,400 Lam Research Corporation.............................. 5,856,000
70,900 Network Equipment Technologies ....................... 1,799,088
78,300 Newbridge Networks Corporation........................ 2,652,413
56,800 Tellabs Incorporated.................................. 2,953,600
68,045 United States Robotics Incorporated................... 3,674,430
------------
50,824,244
------------
</TABLE>
15
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<S> <C>
Energy & Utilities - 2.77%
70,500 Consolidated Edison Company New York Incorporated..... $ 1,947,563
69,900 DPL Incorporated ..................................... 1,459,163
151,300 Duke Power Company.................................... 5,938,525
214,400 SCE Corporation....................................... 3,510,800
------------
12,856,051
------------
Environmental Services - 2.24%
394,300 WMX Technologies, Inc................................. 10,399,662
------------
Financial Services - 0.13%
14,600 Paychex............................................... 598,600
------------
Food & Agriculture - 5.44%
283,600 Archer Daniels Midland Company........................ 5,388,400
89,900 Campbell Soup Company................................. 4,079,212
149,600 Con Agra, Inc......................................... 4,899,400
96,000 Pepsico, Incorporated................................. 3,756,000
124,400 Potash Corporation of Saskatchewan Inc. .............. 4,447,300
103,000 Sara Lee Corporation.................................. 2,703,750
------------
25,274,062
------------
Gold - 0.55%
49,700 Barrick Gold Corporation.............................. 1,080,975
155,000 Battle Mtn Gold Company............................... 1,472,500
------------
2,553,475
------------
Insurance - 4.92%
112,600 AFLAC Incorporated.................................... 4,250,650
56,800 American International Group Inc...................... 5,893,000
100,600 Equitable of Iowa Companies........................... 3,344,950
115,700 St. Paul Companies, Incorporated...................... 5,625,912
97,000 The Progressive Corporation........................... 3,770,875
------------
22,885,387
------------
Machinery - Machine Tools - 0.88%
67,100 W.W. Grainger, Incorporated........................... 4,101,488
------------
Oil & Gas - 3.91%
131,900 Chevron Corporation................................... 6,265,250
60,500 Mobil Corporation..................................... 5,263,500
59,500 Placer Dome Incorporated.............................. 1,212,313
63,700 Texaco Incorporated................................... 4,060,875
48,500 Unocal Corporation.................................... 1,376,188
------------
18,178,126
------------
</TABLE>
16
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<S> <C>
Paper & Forest Product - 4.28%
83,700 Champion International Corporation.................... $ 3,442,163
208,600 Louisiana Pacific Corporation......................... 5,892,950
139,400 Pentair Incorporated.................................. 5,985,488
234,200 Repap Enterprises Incorporated........................ 1,646,719
29,200 Scott Paper Company................................... 2,314,100
27,000 Stone Container Corporation........................... 631,125
------------
19,912,545
------------
Printing & Publishing - 1.38%
2,500 Banta Corporation..................................... 80,625
114,800 Gannett Company, Incorporated......................... 6,314,000
------------
6,394,625
------------
Producer Goods - 2.07%
100,000 Caterpillar Incorporated.............................. 5,162,500
153,300 Federal Signal Corporation............................ 3,142,650
73,500 Molten Metal Technologies Incorporated................ 1,304,625
------------
9,609,775
------------
Retail - 3.42%
123,100 American Stores Company............................... 3,015,950
347,600 Bruno's Incorporated.................................. 3,541,175
209,000 Rite Aid Corporation.................................. 5,172,750
84,600 Sears Roebuck and Company............................. 4,166,550
------------
15,896,425
------------
Retail Food Chains - 1.17%
176,300 Albertson's, Inc...................................... 5,421,225
------------
Specialty Chemicals - 0.69%
305,000 Methanex Corporation.................................. 3,202,500
------------
Specialty Retail - 4.48%
63,200 Dayton Hudson Corporation............................. 4,455,600
18,300 Leggett & Platt Inc................................... 748,013
80,400 Loctite Corporation .................................. 3,698,400
133,500 Nordstrom Inc......................................... 5,640,375
85,100 The Home Depot, Inc. ................................. 3,818,863
72,800 The Sherwin-Williams Company.......................... 2,447,900
------------
20,809,151
------------
</TABLE>
17
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONCLUDED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONCLUDED)
<S> <C>
Steel - 2.68%
69,700 Inland Steel Industry Incorporated.................... $ 1,863,000
91,800 Nucor Corporation..................................... 5,152,275
269,450 Worthington Industries, Incorporation................. 5,422,667
------------
12,437,942
------------
Telephone Companies - 0.97%
99,300 Telephone & Data Systems Incorporated................. 4,530,562
------------
Tobacco - 2.86%
119,600 American Brands Incorporated.......................... 4,470,050
144,800 Philip Morris Companies Incorporated.................. 8,796,600
------------
13,266,650
------------
Travel & Recreation - 0.31%
34,000 American Express Company.............................. 1,147,500
9,400 Callaway Golf Company................................. 317,250
------------
1,464,750
------------
Total Common Stocks (cost - $437,679,045)........................ 452,222,805
------------
PREFERRED STOCKS -- 0.26%
Retail - 0.26%
19,600 Sears Roebuck and Company (cost - $1,152,676)......... 1,210,300
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------- --------
CONVERTIBLE BONDS - 0.48%
<S> <C> <C> <C> <C>
$2,400 Developers Diversified Realty
Corporation (cost - $2,400,000)... 08/15/99 7.000% 2,232,000
------------
REPURCHASE AGREEMENT - 1.60%
7,444 Repurchase Agreement dated 02/28/95
with State Street
Bank & Trust Co., collateralized
by $7,917,000
U.S. Treasury Notes, 7.250%, due
08/15/22;
proceeds: $7,445,247 (cost -
$7,444,000)...................... 03/01/95 6.030 7,444,000
------------
Total Investments (cost - $448,675,721) -
99.66%........................................ 463,109,105
Other assets in excess of liabilities-0.34%... 1,562,548
------------
Net Assets - 100.00%.......................... $464,671,653
============
</TABLE>
18
<PAGE>
GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 81.40%
<S> <C>
Apparel & Footwear - 0.86%
149,000 Authentic Fitness Corporation*........................ $ 2,216,375
------------
Banking - 2.81%
84,350 KeyCorp............................................... 2,446,150
60,000 Marshall and Ilsley Corporation....................... 1,245,000
180,000 Synovus Financial Corp. .............................. 3,555,000
------------
7,246,150
------------
Beverages & Bottling - 1.60%
75,000 The Coca-Cola Company................................. 4,125,000
------------
Biotechnology - 0.44%
18,833 Chiron Corporation*................................... 1,144,105
------------
Broadcasting/Cable T.V. - 6.33%
80,000 British Sky Broadcasting Group, PLC*.................. 1,930,000
105,000 Comcast Corporation, Class A.......................... 1,680,000
112,500 Comcast Corporation, Class A Special.................. 1,771,875
185,000 International CableTel Incorporated*.................. 5,920,000
100,000 Tele-Communications, Inc., Class A*................... 2,275,000
60,615 Viacom Inc., Class B*................................. 2,712,521
------------
16,289,396
------------
Cellular & Paging Communications - 1.58%
125,000 Mobile Telecommunications Technologies Corp.*......... 2,765,625
50,000 Rogers Cantel Mobile Communications Inc., Class B*.... 1,293,750
------------
4,059,375
------------
Computer Software - 1.49%
75,000 EMC Corporation....................................... 1,284,375
340,000 Excalibur Technologies Corporation*................... 2,550,000
------------
3,834,375
------------
Conglomerates - 1.56%
430,000 Noel Group, Inc.*..................................... 2,418,750
75,000 PEC Israel Economic Corporation*...................... 1,603,125
------------
4,021,875
------------
Containers & Packaging - 1.14%
70,000 Sealed Air Corporation*............................... 2,931,250
------------
Drugs & Medical Products - 8.53%
32,244 Advanced Therapeutic Systems*......................... 894,771
97,500 Elan Corporation, plc ADS*............................ 3,436,875
</TABLE>
19
<PAGE>
GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
Drugs & Medical Products - (continued)
<S> <C>
60,000 Forest Laboratories, Inc.*............................ $ 3,045,000
40,000 Ivax Corporation...................................... 865,000
100,000 R.P. Scherer Corporation*............................. 4,587,500
107,000 Teva Pharmaceutical Industries Ltd., ADS.............. 2,775,313
222,854 VISX, Incorporated*................................... 3,008,529
130,000 Watson Pharmaceuticals, Inc.*......................... 3,355,625
------------
21,968,613
------------
Electronics & Instrumentation - 1.54%
150,000 Lattice Semiconductor Corporation*.................... 3,956,250
------------
Fertilizers - 1.93%
100,000 Potash Corporation of Saskatchewan Inc. .............. 3,575,000
75,000 The Scotts Company, Class A*.......................... 1,387,500
------------
4,962,500
------------
Financial Services - 4.77%
157,500 Countrywide Credit Industries, Inc. .................. 2,559,375
45,000 Federal Home Loan Mortgage Corporation................ 2,610,000
40,000 Federal National Mortgage Association................. 3,085,000
75,000 First Data Corporation................................ 4,031,250
------------
12,285,625
------------
Foods - 0.16%
168,000 Lincoln Snacks Company*............................... 399,000
------------
Forest Products - 0.34%
125,000 Universal Forest Products Inc. ....................... 875,000
------------
Healthcare - 4.48%
100,000 Humana Inc. .......................................... 2,375,000
200,000 North American Vaccine Inc.*.......................... 1,600,000
20,000 PacifiCare Health Systems, Inc.*...................... 1,405,000
280,000 TDX Corporation*(1)................................... 315,000
70,000 United HealthCare Corporation*........................ 3,010,000
65,500 U.S. Healthcare, Inc. ................................ 2,816,500
------------
11,521,500
------------
Hotel, Motel or Lodging - 1.65%
150,000 Hospitality Franchise Systems, Inc.*.................. 4,256,250
------------
Household & Consumer Products - 5.16%
75,436 Belding Hemingway Co. ................................ 584,629
70,000 Duracell International Inc. .......................... 2,913,750
165,000 The Forschner Group, Inc.*............................ 1,773,750
80,000 Luxottica Group S.p.A. ADS............................ 3,110,000
150,000 Sunbeam-Oster Company, Inc. .......................... 3,656,250
80,000 Syratech Corporation*................................. 1,240,000
------------
13,278,379
------------
</TABLE>
20
<PAGE>
GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<S> <C>
Insurance - 0.93%
150,000 PennCorp Financial Group, Inc......................... $ 2,400,000
------------
Leisure & Entertainment - 5.83%
80,000 Bolle America, Inc.*.................................. 680,000
50,000 Cyrk Incorporated..................................... 1,200,000
275,000 Marker International*................................. 2,045,312
175,000 Norwood Promotional Products, Inc.*................... 2,143,750
300,000 Savoy Pictures Entertainment, Inc.*................... 2,081,250
250,000 Sports Club Incorporated.............................. 1,812,500
60,000 SweetWater, Inc.*..................................... 420,000
120,000 Time Warner Inc....................................... 4,635,000
------------
15,017,812
------------
Leisure: Gaming - 1.45%
105,000 Mirage Resorts, Incorporated*......................... 2,506,875
100,000 Rio Hotel & Casino, Inc.*............................. 1,237,500
------------
3,744,375
------------
Medical Equipment - 0.94%
70,000 Sunrise Medical Inc.*. ............................... 2,415,000
------------
Metals & Mining - 1.29%
140,000 Madeco S.A............................................ 3,325,000
------------
Oil & Gas - 0.88%
193,235 Garnet Resources Corporation*......................... 519,319
100,000 Louis Dreyfus Natural Gas Corp.*...................... 1,187,500
60,000 NUMAR Corporation*.................................... 555,000
------------
2,261,819
------------
Oil Services - 0.50%
70,000 Camco International Inc............................... 1,295,000
------------
Printing & Publishing - 0.61%
60,000 The News Corporation Limited.......................... 1,087,500
30,000 The News Corporation Limited ADR...................... 483,750
------------
1,571,250
------------
Rails - 3.17%
45,000 Burlington Northern Inc............................... 2,520,000
45,000 Conrail Inc. ......................................... 2,486,250
62,000 Johnstown America Industries, Inc.*................... 775,000
101,000 Railtex Inc.*......................................... 2,373,500
------------
8,154,750
------------
Services - 0.29%
150,000 Staffing Resources.................................... 742,500
------------
Specialty Retail - 9.22%
180,000 General Nutrition Companies, Inc.*.................... 4,320,000
50,000 The Home Depot, Inc. ................................. 2,243,750
229,500 Rawlings Sporting Goods Company, Inc.*................ 2,754,000
330,000 The Right Start, Inc.*(1)............................. 928,125
</TABLE>
21
<PAGE>
GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONCLUDED)
Specialty Retail - (continued)
<S> <C>
239,625 Staples, Inc.*........................................ $ 5,810,906
60,000 Toys 'R' Us, Inc.*.................................... 1,672,500
200,000 Viking Office Products, Inc.*......................... 6,000,000
------------
23,729,281
------------
Steel - 1.08%
220,000 Northwestern Steel and Wire Company*.................. 1,402,500
130,000 Olympic Steel, Inc.*.................................. 1,365,000
------------
2,767,500
------------
Telecommunications - 1.04%
150,000 Cable and Wireless plc, ADS........................... 2,681,250
------------
Telecommunications - Equipment - 3.75%
80,000 ANTEC Corporation*.................................... 1,740,000
185,000 Belden, Inc. ......................................... 3,885,000
70,000 Motorola, Inc......................................... 4,025,000
------------
9,650,000
------------
Telecommunications - Services - 3.40%
75,000 AT & T Corp........................................... 3,881,250
102,000 IntelCom Group, Inc.*................................. 1,275,000
44,000 MFS Communications Company, Inc.*..................... 1,529,000
71,000 TeleWest Communications, plc, ADS*.................... 2,076,750
------------
8,762,000
------------
Telephone Companies - 0.65%
90,000 Telefonica de Argentina, S.A., ADS.................... 1,676,250
------------
Total Common Stocks (cost - $163,486,889)........................ 209,564,805
------------
</TABLE>
22
<PAGE>
GROWTH FUND
PAINEWEBBER
PORTFOLIO OF INVESTMENTS (CONCLUDED) FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS - 0.85%
Oil & Gas - 0.28%
Garnet Resources
$ 1,500 Corporation............ 12/21/98 9.500% $ 732,900
------------
Telecommunications - Services - 0.57%
IntelCom Group, Inc.-
2,160 Convertible............ 09/17/98 8.000 1,471,176
------------
Total Corporate Bonds (cost -
$3,660,000)....................... 2,204,076
------------
U.S. GOVERNMENT OBLIGATIONS - 13.57%
U.S. Treasury Bills
35,000 (cost - $34,926,739)... 03/02/95 to 04/06/95 5.020 to 5.410 34,925,913
------------
REPURCHASE AGREEMENT - 4.08%
10,516 Repurchase agreement
dated 02/28/95 with
Salomon Brothers, Inc.,
collateralized by
$10,000,000
U.S. Treasury Notes,
8.750%, due 08/15/00;
proceeds: $10,517,761
(cost - $10,516,000)... 03/01/95 6.030 10,516,000
------------
Total Investments (cost -
$212,589,628) - 99.90%............ 257,210,794
Other assets in excess of
liabilities - 0.10%................ 234,008
------------
Net Assets - 100.00%............... $257,444,802
============
</TABLE>
- -------
* Non-income producing security
ADR--American Depository Receipts
ADS--American Depository Shares
(1) Investment in affiliated company-See notes to the financial statements.
See accompanying notes to financial statements
23
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Investments at value (cost -
$396,096,627, $448,675,721 and
$212,589,628, respectively)......... $347,111,955 $463,109,105 $257,210,794
Cash................................. 406,097 592 98
Receivable for investments sold...... 36,767,827 21,981,758 3,008,317
Receivable for shares of beneficial
interest sold....................... 1,030,204 149,089 226,526
Dividends and interest receivable.... 681,022 1,239,837 236,366
Other assets......................... 103,120 60,689 61,681
------------ ------------ ------------
Total assets......................... 386,100,225 486,541,070 260,743,782
------------ ------------ ------------
Liabilities
Payable for investments purchased.... 17,704,435 16,761,725 591,000
Payable for shares of beneficial
interest repurchased................ 4,519,457 4,120,956 2,220,898
Payable to affiliates................ 397,885 510,228 263,609
Accrued expenses and other
liabilities......................... 1,374,554 476,508 223,473
------------ ------------ ------------
Total liabilities.................... 23,996,331 21,869,417 3,298,980
------------ ------------ ------------
Net Assets
Beneficial interest shares of $0.001
par value outstanding (unlimited
amount authorized).................. 407,395,064 448,788,925 213,743,193
Accumulated undistributed
(overdistributed) net investment
income (loss)....................... (699,690) 326,098 183,472
Accumulated net realized gains
(losses) from investments, futures
contracts and other assets and
liabilities denominated in foreign
currencies.......................... 4,435,841 1,123,246 (1,103,029)
Net unrealized appreciation
(depreciation) of investments, other
assets, liabilities and forward
contracts denominated in foreign
currencies.......................... (49,027,321) 14,433,384 44,621,166
------------ ------------ ------------
Net assets........................... $362,103,894 $464,671,653 $257,444,802
============ ============ ============
Class A:
Net assets........................... $155,965,070 $180,816,735 $120,933,807
------------ ------------ ------------
Shares outstanding................... 11,780,519 9,441,600 6,294,685
------------ ------------ ------------
Net asset value and redemption value
per share........................... $13.24 $19.15 $19.21
============ ============ ============
Maximum offering price per share (net
asset value plus sales charge of
4.50% of offering price)............ $13.86 $20.05 $20.12
============ ============ ============
Class B:
Net assets........................... $119,843,249 $239,383,165 $ 83,636,897
------------ ------------ ------------
Shares outstanding................... 9,276,566 12,533,576 4,485,279
------------ ------------ ------------
Net asset value and offering price
per share........................... $12.92 $19.10 $18.65
============ ============ ============
Class C:
Net assets........................... $ 32,992,059 $ 14,543,879 $ 29,937,919
------------ ------------ ------------
Shares outstanding................... 2,474,090 759,803 1,542,616
------------ ------------ ------------
Net asset value, offering price and
redemption value per share.......... $13.34 $19.14 $19.41
============ ============ ============
Class D:
Net assets........................... $ 53,303,516 $ 29,927,874 $ 22,936,179
------------ ------------ ------------
Shares outstanding................... 4,100,804 1,562,497 1,221,271
------------ ------------ ------------
Net asset value, offering price and
redemption value per share.......... $13.00 $19.15 $18.78
============ ============ ============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ATLAS
GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Investment income:
Interest and dividends (net of foreign
withholding taxes)................... $ 3,435,570 $ 5,345,990 $ 2,234,793
------------ ------------ ------------
Expenses:
Investment advisory and administration
fees................................. 1,646,724 1,719,741 1,010,817
Distribution fees--Class A............ 207,254 221,203 142,528
Distribution fees--Class B............ 741,805 1,266,487 441,247
Distribution fees--Class D............ 334,528 160,442 124,963
Custody fees.......................... 624,975 88,983 64,926
Transfer agency and service fees...... 253,711 340,676 143,745
Reports and notices to shareholders... 78,662 125,092 36,443
Federal and state registration fees... 68,987 55,645 32,291
Legal and audit fees.................. 67,905 58,425 38,251
Trustees' fees........................ 11,412 10,668 4,029
Other expenses........................ 60,158 11,719 12,081
------------ ------------ ------------
4,096,121 4,059,081 2,051,321
------------ ------------ ------------
Net investment income (loss).......... (660,551) 1,286,909 183,472
------------ ------------ ------------
Realized and unrealized gains (losses)
from investment activities:
Net realized gains (losses) from:
Investment transactions.............. 7,832,344 8,385,502 (840,133)
Foreign currency transactions........ (1,127,101) -- --
Net change in unrealized
appreciation/depreciation on:
Investments.......................... (83,263,856) (11,300,725) (11,609,297)
Other assets, liabilities and forward
contracts denominated in foreign
currencies.......................... 35,142 -- --
------------ ------------ ------------
Net realized and unrealized losses
from investment activities........... (76,523,471) (2,915,223) (12,449,430)
------------ ------------ ------------
Net decrease in net assets resulting
from operations...................... $(77,184,022) $ (1,628,314) $(12,265,958)
============ ============ ============
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
FEBRUARY 28, 1995 ENDED
(UNAUDITED) AUGUST 31, 1994
------------------ ---------------
<S> <C> <C>
From operations:
Net investment loss........................ $ (660,551) $ (905,478)
Net realized gains from investment
transactions and forward currency
contracts................................. 7,832,344 46,878,125
Net realized losses from foreign currency
transactions.............................. (1,127,101) (26,960,620)
Net change in unrealized
appreciation/depreciation of investments.. (83,263,856) 100,618
Net change in unrealized
appreciation/depreciation of other assets,
liabilities and forward contracts
denominated in foreign currencies......... 35,142 1,495,014
------------ ------------
Net increase (decrease) in net assets
resulting from operations................. (77,184,022) 20,607,659
------------ ------------
Dividends and distributions to shareholders
from:
Net investment income--Class A............. -- (511,731)
Net investment income--Class B............. -- (31,390)
Net investment income--Class C............. -- (126,890)
Net investment income--Class D............. -- (37,463)
Net realized gains from foreign currency
transactions--Class A..................... -- (1,343,285)
Net realized gains from foreign currency
transactions--Class B..................... -- (728,746)
Net realized gains from foreign currency
transactions--Class C..................... -- (187,552)
Net realized gains from foreign currency
transactions--Class D..................... -- (376,145)
Net realized gains from investment
transactions--Class A..................... (5,518,829) (6,255,164)
Net realized gains from investment
transactions--Class B..................... (4,452,971) (3,393,492)
Net realized gains from investment
transactions--Class C..................... (1,032,339) (873,357)
Net realized gains from investment
transactions--Class D..................... (1,979,035) (1,751,563)
------------ ------------
(12,983,174) (15,616,778)
------------ ------------
From beneficial interest transactions:
Net proceeds from sale of shares........... 48,966,759 321,833,730
Cost of shares repurchased................. (92,195,428) (119,853,879)
Proceeds from dividends reinvested......... -- 14,704,209
------------ ------------
Net increase (decrease) in net assets
derived from beneficial interest
transactions.............................. (43,228,669) 216,684,060
------------ ------------
Net increase (decrease) in net assets...... (133,395,865) 221,674,941
Net assets:
Beginning of period........................ 495,499,759 273,824,818
------------ ------------
End of period.............................. $362,103,894 $495,499,759
============ ============
</TABLE>
See accompanying notes to financial statements
26
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR
FEBRUARY 28, 1995 ENDED
(UNAUDITED) AUGUST 31, 1994
------------------ ---------------
<S> <C> <C>
From operations:
Net investment income....................... $ 1,286,909 $ 5,885,251
Net realized gains from investment
transactions............................... 8,385,502 39,114,080
Net change in unrealized
appreciation/(depreciation) of investments. (11,300,725) (55,515,214)
------------- -------------
Net decrease in net assets resulting from
operations................................. (1,628,314) (10,515,883)
------------- -------------
Dividends and distributions to shareholders
from:
Net investment income--Class A.............. (1,163,754) (3,856,398)
Net investment income--Class B.............. (457,553) (1,961,819)
Net investment income--Class C.............. (102,452) (252,881)
Net investment income--Class D.............. (53,897) (271,483)
Net realized gains from investment
transactions--Class A...................... (11,701,555) (465,992)
Net realized gains from investment
transactions--Class B...................... (15,518,597) (609,981)
Net realized gains from investment
transactions--Class C...................... (828,242) (23,298)
Net realized gains from investment
transactions--Class D...................... (1,953,255) (82,066)
------------- -------------
(31,779,305) (7,523,918)
------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares........ 9,968,916 42,483,056
Cost of shares repurchased.................. (105,217,269) (367,026,971)
Proceeds from dividends reinvested.......... 29,628,162 6,947,309
------------- -------------
Net decrease in net assets derived from
beneficial interest transactions........... (65,620,191) (317,596,606)
------------- -------------
Net decrease in net assets.................. (99,027,810) (335,636,407)
Net assets:
Beginning of period......................... 563,699,463 899,335,870
------------- -------------
End of period (including undistributed net
investment income of $326,098 and $816,845
respectively).............................. $ 464,671,653 $ 563,699,463
============= =============
</TABLE>
See accompanying notes to financial statements
27
<PAGE>
GROWTH FUND
PAINEWEBBER
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
FEBRUARY 28, 1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
From operations:
Net investment income (loss)................. $ 183,472 $ (533,971)
Net realized gains (losses) from investment
transactions................................ (840,133) 5,195,790
Net change in unrealized
appreciation/(depreciation) of investments.. (11,609,297) (2,125,984)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................... (12,265,958) 2,535,835
------------ ------------
Distributions to shareholders from:
Net realized gains from investment
transactions--Class A....................... (170,322) (6,987,744)
Net realized gains from investment
transactions--Class B....................... (120,995) (3,876,826)
Net realized gains from investment
transactions--Class C....................... (37,136) (1,187,915)
Net realized gains from investment
transactions--Class D....................... (33,706) (1,156,865)
------------ ------------
(362,159) (13,209,350)
------------ ------------
From beneficial interest transactions:
Net proceeds from sale of shares............. 18,330,639 136,624,359
Cost of shares repurchased................... (46,299,805) (68,709,767)
Proceeds from dividends reinvested........... 345,390 12,642,821
------------ ------------
Net increase (decrease) in net assets derived
from beneficial interest transactions....... (27,623,776) 80,557,413
------------ ------------
Net increase (decrease) in net assets........ (40,251,893) 69,883,898
Net assets:
Beginning of period.......................... 297,696,695 227,812,797
------------ ------------
End of period (including undistributed net
investment income of $183,472 at February
28, 1995)................................... $257,444,802 $297,696,695
============ ============
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PAINEWEBBER
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Atlas Global Growth Fund ("Atlas Global Growth Fund"), PaineWebber
Dividend Growth Fund ("Dividend Growth Fund") and PaineWebber Growth Fund
("Growth Fund") (collectively, the "Funds") are diversified series of
PaineWebber Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund
(the "Trusts"), respectively. PaineWebber Olympus Fund also includes
PaineWebber Communications & Technology Growth Fund of which the financial
statements are not included herein. The three Trusts were organized under
separate Declarations of Trust and are registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended ("1940
Act"), as diversified open-end investment companies. The trustees have
authority to issue an unlimited number of shares of beneficial interest of
separate series par value $0.001.
Prior to July 1, 1991, each Fund issued only Class A shares. Subsequent to that
date each Fund issued Class A and Class B shares. On August 25, 1991, Growth
Fund and Atlas Global Growth Fund and on February 12, 1992, Dividend Growth
Fund commenced issuing Class C Shares. Class C shares are available only to the
trustee of the PaineWebber Savings Investment Plan on behalf of that Plan. On
July 2, 1992, each Fund commenced issuing Class D shares. Each class represents
interests in the same assets of the applicable Fund and the classes are
identical except for differences in their sales charge structure, ongoing
distribution charges and transfer agency expenses. In addition, Class B shares,
along with their pro-rata reinvested dividends shares, automatically convert to
Class A shares approximately six years after initial issuance. All classes of
shares have equal rights as to voting privileges, except that each class has
exclusive voting rights with respect to its distribution plan.
Valuation of Investments - Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sales price on the day the securities
are being valued or, lacking any sales on such day, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are generally valued on the exchange designated by Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), an affiliate and wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Funds, and Mitchell Hutchins Institutional
Investors Inc., ("MHII") the Sub-Adviser to Dividend Growth Fund, as the
primary market. Securities traded in the over-the-counter ("OTC") market and
listed on the National Association of Securities Dealers Quotation System
("NASDAQ") are valued at the last trade price on NASDAQ prior to the time of
valuation; other OTC securities are valued at the last bid price available in
the OTC market prior to the time of valuation. The amortized cost method of
valuation is used to value short term debt instruments with sixty days or less
remaining to maturity. Securities and assets for which market quotations are
not readily available
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
(including restricted securities subject to limitations as to their sale) are
valued at fair value as determined in good faith by or under the direction of
each Trust's Board of Trustees. All investments quoted in foreign currencies
will be valued daily in U.S. dollars on the basis of the foreign currency
exchange rates prevailing at the time such valuation is determined by each
Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange, Inc. ("NYSE"). Occasionally events affecting the
value of foreign investments and such exchange rates occur between the time at
which they are determined and the close of the NYSE, which in the case of Atlas
Global Growth Fund, would not be reflected in a computation of the Funds' net
asset value. If events materially affecting the value of such securities or
currency exchange rates occurred during such time period, the securities will
be valued at their fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments,
futures contracts and foreign exchange transactions are calculated using the
identified cost method. Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date (except in the case of
Atlas Global Growth Fund, for certain foreign securities which are recorded as
soon after the ex-date as the Fund becomes aware of such dividend).
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains (losses) are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class specific expenses are charged directly to the applicable class of shares.
Foreign Currency Translation - The books and records of Atlas Global Growth
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) market value of investment securities, other assets and liabilities--at
the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Atlas Global Growth Fund are
presented at the foreign exchange rates at the end of the period, Atlas Global
Growth Fund does not generally isolate the effect of unrealized fluctuations in
foreign exchange rates from the effect of the changes in market prices of
securities. However, Atlas Global Growth Fund does isolate the effect of
realized
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
fluctuations in foreign exchange rates when determining the realized gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Foreign security and currency
transactions may involve certain considerations and risks not typically
associated with investing in U.S. companies and the U.S. Government. These
risks include re-evaluation of currencies and future adverse political and
economic developments, which could cause securities and their markets to be
less liquid and prices more volatile than those of comparable U.S. companies
and the U.S. Government.
Forward Foreign Currency Contracts - Atlas Global Growth Fund may enter into
forward foreign currency exchange contracts ("forward contracts") in connection
with planned purchases or sales of securities or to hedge the U.S. dollar value
of portfolio securities denominated in a particular currency.
Atlas Global Growth Fund has no specific limitation on the percentage of assets
which may be committed to such contracts. Atlas Global Growth Fund may enter
into forward contracts or maintain a net exposure to forward contracts only if
(1) the consummation of the contracts would not obligate Atlas Global Growth
Fund to deliver an amount of foreign currency in excess of the value of the
positions being hedged by such contracts or (2) Atlas Global Growth Fund
maintains cash, U.S. Government securities or liquid, high-grade debt
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the forward contracts.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Futures Contracts - Each of the Funds is permitted to use financial futures
contracts to hedge its portfolio. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash and/or
U.S. Government securities equal to a certain percentage of the contract
amount. This amount is known as the "initial margin." Subsequent payments,
known as "variation margin," are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying financial
futures contract. Such variation margin is recorded for financial statement
purposes on a daily basis as unrealized gain or loss, until the financial
futures contract is closed, at which time the gain or loss is reclassified to
realized.
Using financial futures contracts involves various market risks. The Fund is
subject to a number of guidelines which reduce this risk by seeking to ensure
that financial futures contracts are used solely for hedging purposes and not
for leverage. However, imperfect correlations between financial futures and the
instruments being hedged or market disruptions do not normally permit full
control of these risks at all times. Financial futures contracts in which the
Fund invests does not represent exposure to default or other credit risk.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
Option Writing - When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statements of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires
on its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put option which
the Fund has written is exercised, the amount of the premium originally
received reduces the cost of the security which the Fund purchases upon
exercise of the option.
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.
Repurchase Agreements - Each Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Each Fund occasionally
participates in joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
Federal Tax Status - Each Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to any
federal excise tax.
During the fiscal year ended August 31, 1994, Dividend Growth Fund utilized all
prior fiscal year's carryover losses of $11,391,318 to offset a portion of net
realized gains during the year.
Dividends - The Funds record dividends and distributions to their shareholders
on the ex-date. The amount of dividends and distributions from net investment
income and net realized capital gains are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassifications. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
Each of the Funds has entered into an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins. In accordance with the
Advisory Contract each Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and paid monthly, in accordance with
the following schedule:
<TABLE>
<CAPTION>
ATLAS
GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
<S> <C> <C> <C>
As a % of Average Daily Net Assets.......... 0.750% 0.700% 0.750%
</TABLE>
At February 28, 1995, Atlas Global Growth Fund, Dividend Growth Fund and Growth
Fund owed Mitchell Hutchins $216,495, $251,294 and $149,898, respectively, in
investment advisory and administration fees.
For the six months ended February 28, 1995, Atlas Global Growth Fund paid
$22,956 and Dividend Growth Fund paid $27,485 in brokerage commissions to
PaineWebber for transactions executed on behalf of the Funds.
Under a separate contract Mitchell Hutchins (not the Fund) pays MHII, the Sub-
Adviser, a monthly fee, at an annual rate of 0.25% of the average daily net
assets.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Funds if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the six months ended
February 28, 1995, no reimbursements were required pursuant to the above
limitation for any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under
separate plans of distribution pertaining to the Class A, Class B and Class D
shares ("Class A Plan", "Class B Plan" and "Class D Plan", collectively
"Plans"), each class of shares of each Fund pays Mitchell Hutchins monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
of Class A, Class B and Class D shares and monthly distribution fees at the
annual rate of up to 0.75% of the average daily net assets on Class B and Class
D shares. At February 28, 1995, Atlas Global Growth Fund, Dividend Growth Fund
and Growth Fund owed Mitchell Hutchins $166,376, $240,480 and $104,847,
respectively, in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charges
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
each Fund that for the six months ended February 28, 1995, it earned the
following amounts in sales charges:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ----------- -----------
<S> <C> <C> <C>
Initial sales charges--Class A............ $ 51,422 $ 24,829 $ 34,659
======== ======== ========
Contingent deferred sales charges--Class
B........................................ $444,841 $948,830 $277,750
======== ======== ========
</TABLE>
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services during the six months ended February 28, 1995,
PaineWebber earned $94,132, $118,255 and $54,906 from Atlas Global Growth Fund,
Dividend
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAINEWEBBER
Growth Fund and Growth Fund, respectively. At February 28, 1995, PaineWebber
was owed $15,014, $18,454 and $8,864 by Atlas Global Growth Fund, Dividend
Growth Fund and Growth Fund, respectively, for transfer agency service fees.
TRANSACTION WITH AFFILIATED COMPANY
An affiliated company represents ownership of at least 5% of the voting
securities of the issuer during the period, as defined in the Investment
Company Act of 1940.
At February 28, 1995, Growth Fund owned 330,000 shares of common stock
representing 5.2% of The Right Start, Inc. with an original cost of $1,679,943
and a market value of $928,125. Additionally, Growth Fund owned 280,000 shares
of common stock representing 7.3% of TDX Corporation with an original cost of
$1,429,375 and a market value of $315,000 at February 28, 1995.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at February 28,
1995, was substantially the same as the cost of securities for financial
statement purposes.
At February 28, 1995, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
<S> <C> <C> <C>
Gross appreciation (investments
having an excess of value over
cost)............................... $ 10,841,735 $ 32,058,072 $ 61,333,476
Gross depreciation (investments
having an excess of cost over
value).............................. (59,826,407) (17,624,688) (16,712,310)
------------ ------------ ------------
Net unrealized appreciation/
(depreciation) of investments....... $(48,984,672) $ 14,433,384 $ 44,621,166
============ ============ ============
</TABLE>
For the six months ended February 28, 1995, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
<S> <C> <C> <C>
Purchases............................ $330,832,223 $305,985,790 $28,181,233
Sales................................ $390,019,452 $387,577,355 $55,720,348
</TABLE>
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
PAINEWEBBER
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount $.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------ ------------------------ ------------------------ ------------------------
FOR THE SIX FOR THE SIX FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED FOR THE MONTHS ENDED FOR THE
FEBRUARY 28, YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28, YEAR ENDED
1995 AUGUST 31, 1995 AUGUST 31, 1995 AUGUST 31, 1995 AUGUST 31,
(UNAUDITED) 1994 (UNAUDITED) 1994 (UNAUDITED) 1994 (UNAUDITED) 1994
------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas Global Growth
Fund
Shares sold.......... 735,775 4,374,615 1,153,220 8,462,152 377,722 1,277,510 1,036,397 5,544,502
Shares repurchased... (2,116,464) (2,546,254) (2,155,110) (2,070,066) (274,663) (16,493) (1,728,096) (2,942,263)
Shares converted from
Class B to Class A.. 93,535 234,710 (95,618) (238,599) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares......... -- 447,367 -- 233,092 -- 69,872 -- 121,480
---------- ---------- ---------- ---------- -------- --------- ---------- ----------
Net increase
(decrease) in shares
outstanding......... (1,287,154) 2,510,438 (1,097,508) 6,386,579 103,059 1,330,889 (691,699) 2,723,719
========== ========== ========== ========== ======== ========= ========== ==========
Dividend Growth Fund
Shares sold.......... 119,765 484,780 267,431 1,075,994 80,718 165,180 51,828 355,387
Shares repurchased... (2,261,031) (7,207,269) (2,713,922) (8,992,340) (91,295) (274,997) (420,653) (1,515,548)
Shares converted from
Class B to Class A.. 42,586 199,102 (42,693) (199,711) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares......... 653,877 193,794 821,955 116,857 51,194 13,616 105,724 16,282
---------- ---------- ---------- ---------- -------- --------- ---------- ----------
Net increase
(decrease) in shares
outstanding......... (1,444,803) (6,329,593) (1,667,229) (7,999,200) 40,617 (96,201) (263,101) (1,143,879)
========== ========== ========== ========== ======== ========= ========== ==========
Growth Fund
Shares sold.......... 200,136 1,549,566 456,952 2,917,179 197,191 461,518 107,198 1,795,537
Shares repurchased... (1,010,912) (1,255,407) (911,698) (985,658) (166,096) (8,765) (339,758) (1,207,404)
Shares converted from
Class B to Class A.. 45,299 106,274 (46,582) (108,639) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares......... 8,698 322,249 6,276 180,416 1,975 57,056 1,793 55,665
---------- ---------- ---------- ---------- -------- --------- ---------- ----------
Net increase
(decrease) in shares
outstanding......... (756,779) 722,682 (495,052) 2,003,298 33,070 509,809 (230,767) 643,798
========== ========== ========== ========== ======== ========= ========== ==========
</TABLE>
36
<PAGE>
[This Page Intentionally Left Blank]
37
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED CLASS A
FEBRUARY 28, FOR THE YEARS ENDED AUGUST 31,
1995 -------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 16.33 $ 15.57 $ 12.72 $ 13.62 $ 14.88 $ 16.02
-------- -------- -------- -------- -------- --------
Income (loss) from
investment operations:
Net investment income
(loss)................. 0.01 0.02 0.08 0.09 0.32 0.33
Net realized and
unrealized gains
(losses) from
investment
transactions........... (2.65) 1.47 2.77 (0.79) (0.13) 0.31
-------- -------- -------- -------- -------- --------
Total income (loss) from
investment operations.. (2.64) 1.49 2.85 (0.70) 0.19 0.64
-------- -------- -------- -------- -------- --------
Less dividends and
distributions from:
Net investment income... -- (0.05) -- (0.20) (0.45) (0.71)
Net realized gains on
investments and foreign
currency transactions.. (0.45) (0.68) -- -- (1.00) (1.07)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.45) (0.73) -- (0.20) (1.45) (1.78)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 13.24 $ 16.33 $ 15.57 $ 12.72 $ 13.62 $ 14.88
======== ======== ======== ======== ======== ========
Total return(1)......... (16.40)% 9.34% 22.41% (5.25)% 1.46% 3.95%
======== ======== ======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $155,965 $213,413 $164,378 $148,453 $208,161 $218,033
Expenses to average net
assets................. 1.50%* 1.39% 1.48% 1.72% 1.58% 1.49%
Net investment income
(loss) to average net
assets................. 0.06%* 0.11% 0.48% 0.44% 2.33% 2.21%
Portfolio turnover...... 77.87% 176.16% 258.05% 80.14% 47.34% 64.78%
</TABLE>
- -------------
* Annualized.
+ Commencement of offering of shares.
++ A per share breakdown for Class C shares has been omitted for the period
August 26, 1991 (Commencement of operations) to August 31, 1991 due to
immaterial amounts.
# Based on average number of shares outstanding at each month end.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
38
<PAGE>
ATLAS GLOBAL GROWTH FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS C++
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS FOR THE YEARS PERIOD SIX MONTHS FOR THE YEARS SIX MONTHS
ENDED ENDED JULY 1, ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, 1991+ TO FEBRUARY 28, AUGUST 31, FEBRUARY 28,
1995 ---------------------------- AUGUST 31, 1995 ------------------------ 1995
(UNAUDITED) 1994 1993 1992 1991 (UNAUDITED) 1994 1993 1992 (UNAUDITED)
- ------------ -------- ------- ------- ---------- ------------ ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 16.01 $ 15.36 $ 12.64 $ 13.61 $13.09 $ 16.41 $ 15.64 $ 12.73 $13.62 $ 16.10
-------- -------- ------- ------- ------ ------- ------- ------- ------ -------
(0.09) (0.06) 0.09 0.00# (0.01) 0.08 0.04 0.09 0.19 (0.09)
(2.55) 1.40 2.63 (0.80) 0.53 (2.70) 1.49 2.82 (0.86) (2.56)
-------- -------- ------- ------- ------ ------- ------- ------- ------ -------
(2.64) 1.34 2.72 (0.80) 0.52 (2.62) 1.53 2.91 (0.67) (2.65)
-------- -------- ------- ------- ------ ------- ------- ------- ------ -------
-- (0.01) -- (0.17) -- -- (0.08) -- (0.22) --
(0.45) (0.68) -- -- -- (0.45) (0.68) -- -- (0.45)
-------- -------- ------- ------- ------ ------- ------- ------- ------ -------
(0.45) (0.69) -- (0.17) -- (0.45) (0.76) -- (0.22) (0.45)
-------- -------- ------- ------- ------ ------- ------- ------- ------ -------
$ 12.92 $ 16.01 $ 15.36 $ 12.64 $13.61 $13.34 $ 16.41 $ 15.64 $12.73 $13.00
======== ======== ======= ======= ====== ======= ======= ======= ====== =======
(16.68)% 8.48% 21.52% (6.00)% (0.51)% (16.20)% 9.59% 22.86% (5.10)% (16.70)%
======== ======== ======= ======= ====== ======= ======= ======= ====== =======
$119,843 $166,039 $61,231 $13,239 $3,164 $32,992 $38,912 $16,265 $6,327 $53,304
2.30%* 2.19% 2.13% 2.47% 2.51%* 1.21%* 1.13% 1.10% 1.45% 2.27%*
(0.74)%* (0.65)% (0.20)% (0.07)% (0.58)%* 0.35%* 0.40% 0.87% 0.93% (0.70)%*
77.87% 176.16% 258.05% 80.14% 47.34% 77.87% 176.16% 258.05% 80.14% 77.87%
<CAPTION>
CLASS D
FOR THE FOR THE
SIX MONTHS FOR THE YEARS PERIOD
ENDED ENDED JULY 2,
FEBRUARY 28, AUGUST 31, 1992+ TO
1995 ------------------ AUGUST 31,
(UNAUDITED) 1994 1993 1992
- ------------- --------- -------- -----------
<S> <C> <C> <C>
$ 16.01 $ 15.44 $ 12.70 $13.51
- ------------- --------- -------- -----------
(0.09) (0.09) 0.01 (0.02)
(2.55) 1.44 2.73 (0.79)
- ------------- --------- -------- -----------
(2.64) 1.35 2.74 (0.81)
- ------------- --------- -------- -----------
-- (0.01) -- --
(0.45) (0.68) -- --
- ------------- --------- -------- -----------
(0.45) (0.69) -- --
- ------------- --------- -------- -----------
$ 12.92 $ 16.10 $ 15.44 $12.70
============= ========= ======== ===========
(16.68)% 8.54% 21.57% (6.00)%
============= ========= ======== ===========
$119,843 $77,136 $31,952 $ 487
2.30%* 2.20% 1.90% 2.62%*
(0.74)%* (0.68)% 0.04% (1.18)%*
77.87% 176.16% 258.05% 80.14%
</TABLE>
39
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 20.43 $20.86 $20.48 $19.26 $15.87 $16.50
-------- -------- -------- -------- -------- -------
Income (loss) from
investment operations:
Net investment income... 0.10 0.28 0.28 0.24 0.19 0.51
Net realized and
unrealized gains
(losses) from
investment
transactions........... (0.05) (0.41) 0.37 1.25 3.50 (0.61)
-------- -------- -------- -------- -------- -------
Total income (loss) from
investment operations.. 0.05 (0.13) 0.65 1.49 3.69 (0.10)
-------- -------- -------- -------- -------- -------
Less dividends and
distributions from:
Net investment income... (0.12) (0.27) (0.27) (0.27) (0.30) (0.53)
Net realized gains on
investments............ (1.21) (0.03) -- -- -- --
-------- -------- -------- -------- -------- -------
Total dividends and
distributions.......... (1.33) (0.30) (0.27) (0.27) (0.30) (0.53)
-------- -------- -------- -------- -------- -------
Net asset value, end of
period................. $ 19.15 $20.43 $20.86 $20.48 $19.26 $15.87
======== ======== ======== ======== ======== =======
Total return(1)......... 0.65% (0.58)% 3.15% 7.78% 23.62% (0.72)%
======== ======== ======== ======== ======== =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $180,817 $222,432 $359,073 $358,643 $232,555 $58,649
Expenses to average net
assets................. 1.21%* 1.20% 1.13% 1.22% 1.42% 1.41%
Net investment income to
average net assets..... 0.97%* 1.29% 1.33% 1.26% 1.79% 3.11%
Portfolio turnover...... 65.25% 94.32% 36.52% 15.57% 52.00% 32.10%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
40
<PAGE>
DIVIDEND GROWTH FUND
PAINEWEBBER
- ------------------------------------------------ ------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
FOR THE FOR THE FOR THE FOR THE FOR THE
SIX MONTHS FOR THE YEARS PERIOD SIX MONTHS FOR THE YEARS PERIOD SIX MONTHS
ENDED ENDED JULY 1, ENDED ENDED FEBRUARY 12, ENDED
FEBRUARY 28, AUGUST 31, 1991+ TO FEBRUARY 28, AUGUST 31, 1992+ TO FEBRUARY 28,
1995 ----------------------------- AUGUST 31, 1995 ----------------- AUGUST 31, 1995
(UNAUDITED) 1994 1993 1992 1991 (UNAUDITED) 1994 1993 1992 (UNAUDITED)
- ------------ -------- -------- -------- ---------- ------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 20.37 $ 20.78 $ 20.41 $19.23 $ 18.04 $ 20.42 $20.86 $20.48 $20.95 $ 20.42
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
0.02 0.10 0.12 0.13 0.02 0.13 0.33 0.33 0.16 0.02
(0.05) (0.37) 0.36 1.20 1.17 (0.05) (0.40) 0.37 (0.49) (0.05)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
(0.03) (0.27) 0.48 1.33 1.19 0.08 (0.07) 0.70 (0.33) (0.03)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
(0.03) (0.11) (0.11) (0.15) -- (0.15) (0.34) (0.32) (0.14) (0.03)
(1.21) (0.03) -- -- -- (1.21) (0.03) -- -- (1.21)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
(1.24) (0.14) (0.11) (0.15) -- (1.36) (0.37) (0.32) (0.14) (1.24)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
$ 19.10 $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 19.14 $20.42 $ 20.86 $ 20.48 $ 19.15
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
0.22% (1.31)% 2.34% 6.99% 6.60% 0.81% (0.31)% 3.44% (1.15)% 0.26%
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
$239,383 $289,290 $461,389 $386,275 $57,539 $14,544 $14,690 $17,005 $10,560 $29,928
1.99%* 1.97% 1.90% 1.97% 2.10%* 0.90%* 0.90% 0.86% 0.93%* 2.00%*
0.19%* 0.51% 0.57% 4.90% 1.18%* 1.29%* 1.60% 1.62% 1.56%* 0.18%*
65.25% 94.32% 36.52% 15.57% 52.00% 65.25% 94.32% 36.52% 15.57% 65.25%
<CAPTION>
CLASS D
FOR THE FOR THE
SIX MONTHS FOR THE YEARS PERIOD
ENDED ENDED JULY 2,
FEBRUARY 28, AUGUST 31, 1992+ TO
1995 ------------------ AUGUST 31,
(UNAUDITED) 1994 1993 1992
- ------------- --------- -------- -----------
<S> <C> <C> <C>
$ 20.37 $ 20.83 $ 20.47 $ 20.95
- ------------- --------- -------- -----------
0.02 0.11 0.11 0.02
(0.05) (0.38) 0.37 (0.44)
- ------------- --------- -------- -----------
(0.03) (0.27) 0.48 (0.42)
- ------------- --------- -------- -----------
(0.03) (0.11) (0.12) (0.06)
(1.21) (0.03) -- --
- ------------- --------- -------- -----------
(1.24) (0.14) (0.12) (0.06)
- ------------- --------- -------- -----------
$ 19.10 $ 20.42 $ 20.83 $ 20.47
============= ========= ======== ===========
0.22% (1.29)% 2.35% 2.85%
============= ========= ======== ===========
$239,383 $37,287 $61,869 $13,019
1.99%* 1.94% 1.87% 1.73%*
0.19%* 0.54% 0.61% 0.94%*
65.25% 94.32% 36.52% 15.57%
</TABLE>
41
<PAGE>
GROWTH FUND
PAINEWEBBER
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
FEBRUARY 28, FOR THE YEARS ENDED AUGUST 31,
1995 ----------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
------------ -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 20.04 $ 20.60 $ 16.78 $ 17.50 $ 13.43 $ 15.57
-------- -------- -------- -------- ------- -------
Income (loss) from
investment operations:
Net investment income
(loss)................. 0.06 -- 0.07 -- 0.02 0.17
Net realized and
unrealized gains
(losses) from
investment
transactions........... (0.86) 0.51 4.37 (0.11) 4.68 (1.16)
-------- -------- -------- -------- ------- -------
Total income (loss) from
investment operations.. (0.80) 0.51 4.44 (0.11) 4.70 (0.99)
-------- -------- -------- -------- ------- -------
Less dividends and
distributions from:
Net investment income... -- -- -- (0.01) (0.17) --
Net realized gains on
investments............ (0.03) (1.07) (0.62) (0.60) (0.46) (1.15)
-------- -------- -------- -------- ------- -------
Total dividends and
distributions.......... (0.03) (1.07) (0.62) (0.61) (0.63) (1.15)
-------- -------- -------- -------- ------- -------
Net asset value, end of
period................. $ 19.21 $ 20.04 $ 20.60 $ 16.78 $ 17.50 $ 13.43
======== ======== ======== ======== ======= =======
Total return(1)......... (8.48)% 2.33% 26.97% (0.85)% 37.02% (7.05)%
======== ======== ======== ======== ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $120,934 $141,342 $130,353 $102,640 $96,796 $72,805
Expenses to average net
assets................. 1.23%* 1.21% 1.22% 1.43% 1.56% 1.59%
Net investment income
(loss) to average net
assets................. 0.43%* 0.06% 0.38% 0.00% 0.10% 2.96%
Portfolio turnover...... 12.44% 24.41% 35.81% 32.49% 28.59% 39.16%
</TABLE>
- -------
* Annualized
+ Commencement of offering of shares.
++ A per share breakdown for Class C shares has been omitted for the period
August 26, 1991 (commencement of operations) to August 31, 1991 due to
immaterial amounts.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
42
<PAGE>
GROWTH FUND
PAINEWEBBER
<TABLE>
<CAPTION>
CLASS B CLASS C++
- ----------------------------------------------------- -------------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE YEARS PERIOD SIX MONTHS FOR THE YEARS
ENDED ENDED JULY 1, ENDED ENDED
FEBRUARY AUGUST 31, 1991+ TO FEBRUARY AUGUST 31,
28, 1995 --------------------------- AUGUST 31, 28, 1995 -------------------------
(UNAUDITED) 1994 1993 1992 1991 (UNAUDITED) 1994 1993 1992
- ----------- ------- ------- ------- ---------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 19.53 $ 20.25 $ 16.64 $ 17.48 $15.63 $ 20.22 $ 20.71 $ 16.83 $ 17.50
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.05) (0.06) (0.05) (0.06) (0.02) 0.06 0.03 0.08 0.05
(0.80) 0.41 4.28 (0.18) 1.87 (0.84) 0.55 4.42 (0.11)
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.85) 0.35 4.23 (0.24) 1.85 (0.78) 0.58 4.50 (0.06)
------- ------- ------- ------- ------ ------- ------- ------- -------
-- -- -- -- -- -- -- -- (0.01)
(0.03) (1.07) (0.62) (0.60) -- (0.03) (1.07) (0.62) (0.60)
------- ------- ------- ------- ------ ------- ------- ------- -------
(0.03) (1.07) (0.62) (0.60) -- (0.03) (1.07) (0.62) (0.61)
------- ------- ------- ------- ------ ------- ------- ------- -------
$ 18.65 $ 19.53 $ 20.25 $ 16.64 $17.48 $ 19.41 $ 20.22 $ 20.71 $ 16.83
======= ======= ======= ======= ====== ======= ======= ======= =======
(9.16)% 1.55% 25.91% (1.58)% 11.84% (8.19)% 2.67% 27.26% (0.52)%
======= ======= ======= ======= ====== ======= ======= ======= =======
$83,637 $97,272 $60,280 $35,867 $3,804 $29,938 $30,521 $20,706 $11,581
2.01%* 2.00% 2.02% 2.20% 2.24%* 0.93%* 0.94% 0.95% 1.12%
(0.35)%* (0.66)% (0.46)% (0.70)% (0.81)%* 0.73%* 0.40% 0.60% 0.38%
12.44% 24.41% 35.81% 32.49% 28.59% 12.44% 24.41% 35.81% 32.49%
<CAPTION>
CLASS B CLASS D
- ------------------------------------------------------ --------------------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS SIX MONTHS FOR THE YEARS PERIOD
ENDED ENDED ENDED JULY 2,
FEBRUARY FEBRUARY AUGUST 31, 1992+ TO
28, 1995 28, 1995 ------------------- AUGUST 31,
(UNAUDITED) (UNAUDITED) 1994 1993 1992
- ------------ ------------ --------- --------- -----------
<S> <C> <C> <C> <C>
$ 19.53 $ 19.67 $ 20.38 $ 16.75 $17.04
- ------------ ------------ --------- --------- -----------
(0.05) (0.06) (0.08) (0.06) (0.01)
(0.80) (0.80) 0.44 4.31 (0.28)
- ------------ ------------ --------- --------- -----------
(0.85) (0.86) 0.36 4.25 (0.29)
- ------------ ------------ --------- --------- -----------
-- -- -- -- --
(0.03) (0.03) (1.07) (0.62) --
- ------------ ------------ --------- --------- -----------
(0.03) (0.03) (1.07) (0.62) --
- ------------ ------------ --------- --------- -----------
$ 18.65 $ 18.78 $ 19.67 $ 20.38 $16.75
============ ============ ========= ========= ===========
(9.16)% (9.15)% 1.59% 25.86% (2.95)%
============ ============ ========= ========= ===========
$83,637 $22,936 $28,561 $16,474 $2,275
2.01%* 1.99%* 1.98% 2.06% 1.98%*
(0.35)%* (0.34)%* (0.65)% (0.69)% (0.65)%*
12.44% 12.44% 24.41% 35.81% 32.49%
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Number of Shares
in all funds
- -------------------------
COMMON STOCKS------- 82.77%
UNITED STATES----- 20.77%
Automotive-- 0.54%
94,134 Chrysler Corp. $4,094,829 $4,094,829
------------ ------------ ------------ ----------- ------------
Banking-- 0.32%
38,380 J.P. Morgan & Co., Inc. 2,475,510 2,475,510
------------ ------------ ------------ ----------- ------------
Biotechnology-- 1.57%
136,400 Amgen Inc.* $8,004,000 $1,407,600 9,411,600
204,040 Liposome Inc. 1,924,875 294,060 2,218,935
31,050 Genzyme Corp. Tissue 108,000 16,200 124,200
------------ ------------ ------------ ----------- ------------
10,036,875 1,717,860 11,754.735
------------ ------------ ------------ ----------- ------------
Business Services-- 0.65%
230,000 Ogden Corp. 4,275,000 641,250 4,916,250
------------ ------------ ------------ ----------- ------------
Commercial Services- 0.51%
69,081 Ecolab, Inc. 1,597,498 1,597,498
31,795 First Financial Management
Corp. 2,197,829 2,197,829
------------ ------------ ------------ ----------- ------------
3,795,327 3,795,327
------------ ------------ ------------ ----------- ------------
Computer Systems-- 0.55%
40,723 International Business Machines
Corp. 3,064,406 3,064,406
28,350 Zebra Technologies Corp. Class A 1,031,231 1,031,231
------------ ------------ ------------ ----------- ------------
4,095,637 4,095,637
------------ ------------ ------------ ----------- ------------
Conglomerates- 0.63%
124,654 Allied Signal, Inc. 4,736,852 4,736,852
------------ ------------ ------------ ----------- ------------
Consumer Products-- 0.83%
49,114 Colgate-Palmolive Co. 3,167,853 3,167,853
129,615 Fruit of the Loom, Inc. Class A 3,029,751 3,029,751
------------ ------------ ------------ ----------- ------------
6,197,604 6,197,604
------------ ------------ ------------ ----------- ------------
Datacommunication-- 1.44%
270,000 Digital Equipment Corp.* 7,705,000 1,340,000 9,045,000
350,000 Mitel Corporation 1,500,000 250,000 1,750,000
------------ ------------ ------------ ----------- ------------
9,205,000 1,590,000 10,795,000
------------ ------------ ------------ ----------- ------------
Drugs & Medical
Products- 0.61%
133,462 Sunrise Medical, Inc.* 4,604,439 4,604,439
------------ ------------ ------------ ----------- ------------
Electronics &
Instrumentation- 4.28%
309,050 Analog Devices, Inc.* 6,634,256 1,130,625 7,764,881
34,661 Intel Corp. 2,764,215 2,764,215
465,000 National Semiconductor
Corporation* 6,750,000 1,096,875 7,846,875
110,000 RF Monolithics Inc.* 1,025,000 102,500 1,127,500
55,000 Texas Instruments Inc. 3,937,500 393,750 4,331,250
1,020,000 Zenith Electronics Corp.* 6,936,313 1,351,188 8,287,501
------------ ------------ ------------ ----------- ------------
2,764,215 25,283,069 4,074,938 32,122,222
------------ ------------ ------------ ----------- ------------
Environmental
Services-- 0.42%
227,941 Wheelabrator Technologies,
Inc. 3,134,189 3,134,189
------------ ------------ ------------ ----------- ------------
Financial Services-- 0.82%
246,786 Countrywide Credit Industries,
Inc. 4,010,272 4,010,272
55,108 Travelers, Inc. 2,142,324 2,142,324
------------ ------------ ------------ ----------- ------------
6,152,596 6,152,596
------------ ------------ ------------ ----------- ------------
Foods-- 0.40%
241,100 Wholesome & Hearty Foods, Inc.* 2,623,750 390,000 3,013,750
------------ ------------ ------------ ----------- ------------
Forest Products &
Paper-- 0.47%
46,333 International Paper Co. 3,538,683 3,538,683
------------ ------------ ------------ ----------- ------------
Investment Companies-- 0.11%
18,300 ASA Limited 692,000 99,475 791,475
------------ ------------ ------------ ----------- ------------
Machine Tools-- 0.84%
300,000 Cincinnati Milacron 5,250,000 1,050,000 6,300,000
------------ ------------ ------------ ----------- ------------
Mining-- 1.17%
470,000 Battle Mountain Gold Co. 3,800,000 665,000 4,465,000
460,000 Hecla Mining Co.* 3,750,000 562,500 4,312,500
------------ ------------ ------------ ----------- ------------
7,550,000 1,227,500 8,777,500
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Number of Shares
in all funds
- -------------------------
CCOMMON STOCKS-(continued)
UNITED STATES-(continued)
Miscellaneous-- 2.08%
322,000 General Division $10,850,000 $1,627,500 $12,477,500
185,000 Giddings & Lewis, Inc. 2,720,000 425,000 3,145,000
------------ ------------ ------------ ----------- ------------
13,570,000 2,052,500 15,622,500
------------ ------------ ------------ ----------- ------------
Oil & Gas Drilling-- 2.15%
290,000 Baker Hughes 4,812,500 770,000 5,582,500
1,301,000 Global Marine Inc. 4,541,625 825,000 5,366,625
1,059,600 Parker Drilling* 4,409,925 755,625 5,165,550
------------ ------------ ------------ ----------- ------------
13,764,050 2,350,625 16,114,675
------------ ------------ ------------ ----------- ------------
Specialty Retail 0.35%
95,581 Toys "R" Us Inc.* $2,664,320 2,664,320
------------ ------------ ------------ ----------- ------------
Technology-- 0.03%
90,000 Battery Technologies 191,250 191,250
------------ ------------ ------------ ----------- ------------
Total United States Common Stocks 48,254,201 92,249,744 15,385,398 155,889,343
------------ ------------ ------------ ----------- ------------
ARGENTINA--------- 1.12%
Infrastructure-- 1.00%
4,263,310 Commercial Del Plata 6,599,331 942,956 7,542,287
------------ ------------ ------------ ----------- ------------
Oil & Gas-- 0.01%
7,703 Transportadora de Gas del Sur
S.A. ADR 66,438 66,438
------------ ------------ ------------ ----------- ------------
Telecommunications-- 0.11%
23,279 Telecom Argentina STET-France
Telecom S.A. ADR 832,224 832,224
------------ ------------ ------------ ----------- ------------
Total Argentina Common Stocks 898,662 6,599,331 942,956 8,440,949
------------ ------------ ------------ ----------- ------------
AUSTRALIA--------- 0.72%
Foods-- 0.34%
1,063,724 Burns, Philp & Co., Ltd. 2,552,498 2,552,498
------------ ------------ ------------ ----------- ------------
Transportation- 0.38%
298,683 Brambles Industries Ltd. 2,831,578 2,831,578
------------ ------------ ------------ ----------- ------------
Total Australia Common Stocks 5,384,076 5,384,076
------------ ------------ ------------ ----------- ------------
AUSTRIA----------- 0.91%
Engineering &
Construction 0.29%
19,928 VA Technologie AG* 2,142,088 2,142,088
------------ ------------ ------------ ----------- ------------
Oil & Gas-- 0.44%
34,079 OMV AG 1,074,712 $2,241,638 3,316,350
------------ ------------ ------------ ----------- ------------
Technology-- 0.18%
16,400 Austrian Mikro Systeme
International 1,383,987 1,383,987
------------ ------------ ------------ ----------- ------------
Total Austria Common Stocks 3,216,800 3,625,625 6,842,425
------------ ------------ ------------ ----------- ------------
BELGIUM----------- 0.40%
Chemicals-- 0.40%
5,800 Solvay et Cie 3,006,282 3,006,282
------------ ------------ ------------ ----------- ------------
BRAZIL------------ 5.11%
Banking -- 1.15%
1,100,133,221 Banco Bradeso SA 8,655,936 8,655,936
------------ ------------ ------------ ----------- ------------
Electric Utility-- 1.76%
100,000,000 Copel On/Companhia Paranaense 829,211 829,211
39,940,000 Electrobras ON 8,050,883 981,484 9,032,367
5,250,000 Iven SA 1,790,141 887,420 2,677,561
14,000,000 Paulista Forza Luz 616,726 84,099 700,825
------------ ------------ ------------ ----------- ------------
11,286,961 1,953,003 13,239,964
------------ ------------ ------------ ----------- ------------
Food-- 0.51%
272,900,000 Ceva/Ceval Alimentos SA 3,098,587 710,442 3,809,029
------------ ------------ ------------ ----------- ------------
Paper-- 0.35%
215,900 Aracruz Celulose ADR 2,337,600 253,200 2,590,800
------------ ------------ ------------ ----------- ------------
Steel-- 0.37%
930,000 Sider Tubarao PN B Shares 733,922 733,922
65,000 Tubarao Sponsors ADR 144A 1,641,458 410,365 2,051,823
------------ ------------ ------------ ----------- ------------
2,375,380 410,365 2,785,745
Telephone- 0.82%
173,642,944 Telebras (ON) 3,716,743 455,597 4,172,340
28,090,000 Telecomunicacoes Do Rio 1,428,446 520,318 1,948,764
------------ ------------ ------------ ----------- ------------
5,145,189 975,915 6,121,104
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS-(continued)
BRAZIL-(continued)
Tobacco - 0.15%
173,600 Souza Cruz Ord. Registered $1,015,124 $129,941 $1,145,065
------------ ------------ ------------ ----------- ------------
Total Brazil Common Stocks 33,914,777 4,432,866 38,347,543
------------ ------------ ------------ ----------- ------------
CANADA ----------- 2.24%
Mining-- 2.09%
130,000 Brascan Ltd Class A Conv. 1,327,831 398,349 1,726,180
98,100 Cameco Corp. 2,027,920 366,051 2,393,971
285,100 Echo Bay Mines 1,863,900 702,000 2,565,900
345,000 Horsham Corp. 3,750,000 562,500 4,312,500
230,000 Placer Dome Inc. 4,075,000 611,250 4,686,250
------------ ------------ ------------ ----------- ------------
13,044,651 2,640,150 15,684,801
------------ ------------ ------------ ----------- ------------
Technology-- 0.15%
528,800 Battery Technologies* 1,123,700 1,123,700
------------ ------------ ------------ ----------- ------------
Total Canada Common Stocks 14,168,351 2,640,150 16,808,501
------------ ------------ ------------ ----------- ------------
CHINA ------------ 0.00%
Infrastructure - 0.00%
16,000 Shanghai Jinqiao Export B Sh.* 10,112 10,112
------------ ------------ ------------ ----------- ------------
DENMARK----------- 0.74%
Banking-- 0.22%
28,752 Den Danske Bank A/S $1,657,405 1,657,405
------------ ------------ ------------ ----------- ------------
Commercial
Services-- 0.34%
81,660 ISS International Service
System A/S 'B' 2,522,763 2,522,763
------------ ------------ ------------ ----------- ------------
Retail-- 0.18%
16,000 Danske Traelast $1,380,418 1,380,418
------------ ------------ ------------ ----------- ------------
Total Denmark Common Stocks 4,180,168 1,380,418 5,560,586
------------ ------------ ------------ ----------- ------------
FINLAND----------- 0.72%
Capital Goods-- 0.53%
1,648,927 Tampella OY AB 2,425,475 1,213,870 363,821 4,003,166
------------ ------------ ------------ ----------- ------------
Printing &
Publishing-- 0.19%
75,000 Aamulehti Yhtymae 523,234 878,285 1,401,519
------------ ------------ ------------ ----------- ------------
Total Finland Common Stocks 2,948,709 2,092,155 363,821 5,404,685
------------ ------------ ------------ ----------- ------------
FRANCE------------ 7.15%
Automotive-- 0.60%
93,612 Valeo SA 4,481,183 4,481,183
------------ ------------ ------------ ----------- ------------
Banking-- 0.36%
61,435 Banque Nationale de Paris 2,725,253 2,725,253
------------ ------------ ------------ ----------- ------------
Capital Goods-- 2.20%
104,000 Legris Industries* 3,562,231 2,632,953 659,062 6,854,246
29,000 Lyonnaise Des Eaux 2,125,378 340,060 2,465,438
142,000 Technip SA Compagnie Francaise 4,055,767 2,534,854 608,365 7,198,986
------------ ------------ ------------ ----------- ------------
9,743,376 5,167,807 1,607,487 16,518,670
------------ ------------ ------------ ----------- ------------
Health & Personal
Care-- 0.15%
13,075 Boiron 201,813 910,354 35,098 1,147,265
------------ ------------ ------------ ----------- ------------
Industrial
Holdings-- 0.35%
105,650 Dynaction* 964,317 1,385,668 245,686 2,595,671
------------ ------------ ------------ ----------- ------------
Leisure-- 1.00%
92,450 Club Mediterranee 4,075,266 2,807,858 652,043 7,535,167
------------ ------------ ------------ ----------- ------------
Oil & Gas-- 1.18%
175,249 Coflexip SA ADR 4,425,037 4,425,037
80,302 Compagnie Francaise de Petroleum
Total Class B 4,442,172 4,442,172
------------ ------------ ------------ ----------- ------------
8,867,209 8,867,209
------------ ------------ ------------ ----------- ------------
Retail/Grocery-- 0.49%
8,966 Carrefour SA 3,662,625 3,662,625
------------ ------------ ------------ ----------- ------------
Utilities-- 0.82%
54,930 Generale Des Eaux 2,871,210 1,845,910 370,479 5,087,599
17,300 Geophysique, Cie Generale 949,547 138,345 1,087,892
------------ ------------ ------------ ----------- ------------
3,820,757 1,845,910 508,824 6,175,491
------------ ------------ ------------ ----------- ------------
Total France Common Stocks 19,736,270 18,805,529 12,117,597 3,049,138 53,708,534
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Number of
Shares in all
Funds
- -------------
COMMON STOCKS-(continued)
GERMANY----------- 3.73%
Automotive-- 0.52%
14,500 Volkswagen AG $3,937,891 $3,937,891
------------ ------------ ------------ ----------- ------------
Capital Goods-- 0.78%
19,600 Mannesmann AG $3,086,177 2,038,042 $582,298 5,706,517
------------ ------------ ------------ ----------- ------------
Drugs & Medical
Products-- 0.29%
5,592 Gehe AG $2,182,965 2,182,965
------------ ------------ ------------ ----------- ------------
Technology-- 0.61%
5,000 SAP AG 4,542,333 4,542,333
------------ ------------ ------------ ----------- ------------
Retail-- 0.33%
7,523 AVA Algemeine Handelsgesellschaft
der Verbraucher AG 2,505,428 2,505,428
------------ ------------ ------------ ----------- ------------
Textiles-- 0.53%
6,446 Jill Sander AG 3,983,657 3,983,657
------------ ------------ ------------ ----------- ------------
Utilities-- 0.69%
14,396 Veba AG 5,179,911 5,179,911
------------ ------------ ------------ ----------- ------------
Total Germany Common Stocks 9,868,304 3,086,177 14,501,923 582,298 28,038,702
------------ ------------ ------------ ----------- ------------
HONG KONG--------- 5.97%
Broadcast-- 0.37%
723,600 Television Broadcasts Ltd. 2,723,503 2,723,503
------------ ------------ ------------ ----------- ------------
Conglomerates-
Diversified-- 0.42%
748,800 Hutchison Whampoa Ltd. 3,176,698 3,176,698
------------ ------------ ------------ ----------- ------------
Consumer Goods-- 1.13%
60,415,200 China Aerospace* 7,345,880 1,171,558 8,517,438
------------ ------------ ------------ ----------- ------------
Infrastructure-- 2.41%
23,725,000 Hopewell Holdings 15,220,268 2,884,563 18,104,831
------------ ------------ ------------ ----------- ------------
Insurance-- 0.13%
1,514,000 National Mutual Asia Ltd. 979,111 979,111
------------ ------------ ------------ ----------- ------------
Retailing-- 1.51%
11,703,000 Dickson Concept International,
Ltd. 5,488,275 869,172 6,357,447
8,088,000 Giordano Holdings Ltd. 4,995,176 4,995,176
------------ ------------ ------------ ----------- ------------
4,995,176 5,488,275 869,172 11,352,623
------------ ------------ ------------ ----------- ------------
Total Hong Kong Common Stocks 11,874,488 28,054,423 4,925,293 44,854,204
------------ ------------ ------------ ----------- ------------
INDONESIA--------- 0.13%
Automotive-- 0.13%
572,000 P.T. Astra International 967,742 967,742
------------ ------------ ------------ ----------- ------------
ITALY------------- 2.14%
Banking-- 0.12%
44,785 Istituto Mobiliare Italiano SPA 244,404 244,404
40,047 Istituto Mobiliare Italiano
SPA ADR 675,793 675,793
------------ ------------ ------------ ----------- ------------
920,197 920,197
------------ ------------ ------------ ----------- ------------
Chemicals-- 1.13%
11,600,000 Montedison SPA 5,857,999 1,757,400 878,700 8,494,099
------------ ------------ ------------ ----------- ------------
Machinery-- 0.45%
223,000 Danieli and Company 1,597,477 1,597,477
390,000 Sasib 1,812,633 1,812,633
------------ ------------ ------------ ----------- ------------
3,410,110 3,410,110
------------ ------------ ------------ ----------- ------------
Telecommunications-- 0.44%
804,600 Stet-Societa Finanziaria Tele-
fonica SPA 2,236,474 2,236,474
430,422 Stet-Societa Finanziaria Tele-
fonica SPA (non-convertible
savings shares) 989,906 989,906
------------ ------------ ------------ ----------- ------------
3,226,380 3,226,380
------------ ------------ ------------ ----------- ------------
Total Italy Common Stocks 4,146,577 5,857,999 5,167,510 878,700 16,050,786
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Number of
Shares in all
Funds
- -------------
COMMON STOCKS-(continued)
JAPAN------------- 2.82%
Automotive-- 0.49%
388,000 Suzuki Motor Co., Ltd. $3,656,397 $3,656,397
------------ ------------ ------------ ----------- ------------
Electronics &
Electrical Equipment-- 1.32%
168,000 Canon Inc. 2,505,256 2,505,256
91,000 Hoshiden Corp. 1,460,674 1,460,674
42,000 Murata Manufacturing Co., Ltd. 1,387,459 1,387,459
62,000 Omron Corp. 969,502 969,502
68,000 Secom Co., Ltd. 3,605,447 3,605,447
------------ ------------ ------------ ----------- ------------
9,928,338 9,928,338
------------ ------------ ------------ ----------- ------------
Telecommunications-- 0.48%
470 DDI Corp. 3,489,774 3,489,774
------------ ------------ ------------ ----------- ------------
Truck & Leasings-- 0.55%
462,000 Nippon Express Co., Ltd. 4,114,534 4,114,534
------------ ------------ ------------ ----------- ------------
Total Japan Common Stocks 21,189,043 21,189,043
------------ ------------ ------------ ----------- ------------
LUXEMBOURG-------- 1.12%
Mining-- 1.12%
392,000 Minorco ADR $5,916,600 $1,603,125 $859,275 8,379,000
------------ ------------ ------------ ----------- ------------
MALAYSIA---------- 1.51%
Banking-- 0.28%
228,000 AMMB Holdings Berhad 2,116,983 2,116,983
------------ ------------ ------------ ----------- ------------
Conglomerate-- 0.90%
4,254,000 Malaysia Mining Berhad 5,581,406 1,184,995 6,766,401
------------ ------------ ------------ ----------- ------------
Telecommunications-- 0.33%
354,000 Telekom Malaysia Berhad 2,482,507 2,482,507
------------ ------------ ------------ ----------- ------------
Total Malaysia Common Stocks 4,599,490 5,581,406 1,184,995 11,365,891
------------ ------------ ------------ ----------- ------------
MEXICO------------ 0.48%
Financial Services-- 0.06%
129,654 Grupo Financiero Bancomer, S.A.
de C.V ADR+ 453,789 453,789
------------ ------------ ------------ ----------- ------------
Holding Company-- 0.03%
30,533 Grupo Carso, S.A. de C.V. ADR*+ 213,731 213,731
------------ ------------ ------------ ----------- ------------
Iron/Steel-- 0.02%
32,580 Grupo Simec, S.A. de C.V. ADR* 130,320 130,320
------------ ------------ ------------ ----------- ------------
Telecommunications-- 0.35%
716,030 Telefonos de Mexico S.A., Class L 985,812 985,812
60,262 Telefonos de Mexico S.A., Class
L ADR 1,664,738 1,664,738
------------ ------------ ------------ ----------- ------------
2,650,550 2,650,550
------------ ------------ ------------ ----------- ------------
Total Mexico Common Stocks 3,448,390 3,448,390
------------ ------------ ------------ ----------- ------------
NETHERLANDS------- 0.68%
Electronics-- 0.42%
95,000 Philips Electronics 3,152,629 3,152,629
------------ ------------ ------------ ----------- ------------
Infrastructure-- 0.26%
79,000 IHC Caland N.V. 1,934,804 1,934,804
------------ ------------ ------------ ----------- ------------
Total Netherlands Common Stocks 5,087,433 5,087,433
------------ ------------ ------------ ----------- ------------
NEW ZEALAND------- 0.14%
Household Appliances-- 0.14%
408,248 Fisher & Paykel Industries Ltd. 1,047,851 1,047,851
------------ ------------ ------------ ----------- ------------
NORWAY------------ 2.77%
Commercial Services-- 0.61%
207,232 Petroleum Geo-Services* 4,627,221 4,627,221
------------ ------------ ------------ ----------- ------------
Machinery & Engineer-
ing-- 0.96%
166,000 Kvaerner 'B' Free 3,473,285 3,017,417 716,365 7,207,067
------------ ------------ ------------ ----------- ------------
Multi-Industry-- 1.20%
702,200 Aker A/S 'B' Free 4,565,549 3,613,806 803,352 8,982,707
------------ ------------ ------------ ----------- ------------
Total Norway Common Stocks 4,627,221 8,038,834 6,631,223 1,519,717 20,816,995
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Number of Shares Fund Growth Fund Growth Fund & Income Fund Combined
in all funds Value Value Value Value Value
---------------- ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS-(continued)
PAKISTAN---------- 0.15%
Banking-- 0.15%
192,100 Bank Al Habib* $209,430 $209,430
20,900 Bank of Pujab* 24,980 24,980
31,200 Prime Commercial Bank* 29,983 29,983
766,810 Soneri Bank Limited* 848,373 848,373
2,800 Union Bank Limited* 2,849 2,849
------------ ------------ ------------ ----------- ------------
1,115,615 1,115,615
------------ ------------ ------------ ----------- ------------
POLAND------------ 0.33%
Construction-- 0.33%
410,000 Mostostal Export Bearer* 2,163,013 $300,419 2,463,432
------------ ------------ ------------ ----------- ------------
SOUTH AFRICA------ 5.55%
Infrastucture-- 0.52%
220,600 Barlow Ltd 1,773,661 266,327 2,039,988
78,000 Murray & Roberts Holdings Ltd 1,696,429 193,878 1,890,307
------------ ------------ ------------ ----------- ------------
3,470,090 460,205 3,930,295
------------ ------------ ------------ ----------- ------------
Iron/Steel-- 0.39%
2,775,683 Iscor Ltd. $2,083,134 882,204 2,965,338
------------ ------------ ------------ ----------- ------------
Mining-- 2.76%
240,000 Driefontein Consolidated Ltd. 2,705,357 386,480 3,091,837
92,000 Driefontein Consolidated Ltd
Spsd ADR 1,050,000 157,500 1,207,500
230,000 Free State Cons Gold Mines Ord. 2,321,429 348,214 2,669,643
1,312,200 Gencor Ltd. 3,466,837 717,474 4,184,311
90,000 Goldfields Industrial Corp. 2,043,367 2,043,367
154,500 Kloof Gold Mining Ltd ADR 950,000 $742,188 142,500 1,834,688
230,000 Kloof Gold Mining Company 2,321,429 348,214 2,669,643
342,000 Randfontein Estates Goldmine 1,982,143 438,903 2,421,046
90,000 Vaal Reefs Explorations & Mining
ADR 618,750 618,750
------------ ------------ ------------ ----------- ------------
16,840,562 1,360,938 2,539,285 20,740,785
------------ ------------ ------------ ----------- ------------
Petroleum-- 0.68%
592,000 Sasol Ltd. 3,954,719 462,628 4,417,347
92,000 Sasol Ltd., Unsec Debt Stock
Conv Shares 571,429 85,714 657,143
------------ ------------ ------------ ----------- ------------
4,526,148 548,342 5,074,490
------------ ------------ ------------ ----------- ------------
Steel-- 0.64%
4,400,000 South African Iron & Steel/Iscor 4,804,082 4,804,082
------------ ------------ ------------ ----------- ------------
Tobacco-- 0.55%
617,950 Rembrandt Group Ltd. ORD 3,582,254 555,804 4,138,058
------------ ------------ ------------ ----------- ------------
Total South Africa Common Stocks 2,083,134 33,223,136 1,360,938 4,985,840 41,653,048
------------ ------------ ------------ ----------- ------------
SPAIN------------- 0.13%
Tobacco-- 0.13%
33,000 Tabacalera SA Series A 969,875 969,875
------------ ------------ ------------ ----------- ------------
SWEDEN------------ 2.10%
Automotive-- 0.38%
142,500 Volvo Aktiebolaget 'B' Free 2,857,665 2,857,665
------------ ------------ ------------ ----------- ------------
Drugs & Medical
Products-- 0.64%
82,205 Arjo AB 1,435,876 1,435,876
135,045 Astra AB "B" 3,344,751 3,344,751
------------ ------------ ------------ ----------- ------------
4,780,627 4,780,627
------------ ------------ ------------ ----------- ------------
Mining-- 0.92%
500,000 Trelleborg Ab 'B' Free* 3,184,732 3,323,199 415,400 6,923,331
------------ ------------ ------------ ----------- ------------
Transportation-- 0.16%
76,644 Linjebuss AB "A" Free 1,208,005 1,208,005
------------ ------------ ------------ ----------- ------------
Total Sweden Common Stocks 5,988,632 3,184,732 6,180,864 415,400 15,769,628
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Number of
Shares in all
Funds
- -------------
COMMON STOCKS-(continued)
SWITZERLAND------- 4.90%
Biotechnology-- 0.24%
3,000 Ares-Serono SA 'B' $1,783,527 $1,783,527
------------ ------------ ------------ ----------- ------------
Cement-- 1.33%
13,400 Holderbank $3,714,668 5,497,709 $742,934 9,955,311
------------ ------------ ------------ ----------- ------------
Electronics & Elec-
trical Equipment-- 0.66%
5,676 BBC Brown Boveri Ltd. $4,957,869 4,957,869
------------ ------------ ------------ ----------- ------------
Foods-- 0.53%
4,083 Nestle SA-Registered 3,953,854 3,953,854
------------ ------------ ------------ ----------- ------------
Pharmaceutical-- 1.82%
13,200 Ciba Geigy 4,451,113 3,306,541 635,873 8,393,527
956 Roche Holding AG 5,307,234 5,307,234
------------ ------------ ------------ ----------- ------------
5,307,234 4,451,113 3,306,541 635,873 13,700,761
------------ ------------ ------------ ----------- ------------
Transportation-- 0.32%
2,631 Danzas Holding AG 2,400,547 2,400,547
------------ ------------ ------------ ----------- ------------
Total Switzerland Common Stocks 16,619,504 8,165,781 10,587,777 1,378,807 36,751,869
------------ ------------ ------------ ----------- ------------
THAILAND---------- 0.24%
Banking-- 0.24%
215,230 Thai Farmers Bank, Ltd. 1,777,762 1,777,762
------------ ------------ ------------ ----------- ------------
Consumer Products-- 0.00%
950 International Cosmetics Ltd. 13,332 13,332
------------ ------------ ------------ ----------- ------------
Total Thailand Common Stocks 1,791,094 1,791,094
------------ ------------ ------------ ----------- ------------
TURKEY------------ 1.59%
Banking-- 0.97%
14,040,000 Akbank 2,198,650 687,078 329,797 3,215,525
931,750 Akbank Prom Notes 191,328 22,067 213,395
45,176,700 Yapi Kredi Bank 3,645,520 220,857 3,866,377
------------ ------------ ------------ ----------- ------------
6,035,498 687,078 572,721 7,295,297
------------ ------------ ------------ ----------- ------------
Conglomerate-- 0.56%
4,600,000 Koc Holdings 2,314,368 347,155 2,661,523
2,572,000 Koc Yatirim 1,259,848 259,294 1,519,142
------------ ------------ ------------ ----------- ------------
3,574,216 606,449 4,180,665
------------ ------------ ------------ ----------- ------------
Newspaper-- 0.06%
14,833,880 Medya Holdings AS 455,959 455,959
------------ ------------ ------------ ----------- ------------
Total Turkey Common Stock 10,065,673 687,078 1,179,170 11,931,921
------------ ------------ ------------ ----------- ------------
UNITED KINGDOM---- 6.43%
Building Materials-- 0.37%
614,965 BPB Industries PLC 2,858,151 2,858,151
------------ ------------ ------------ ----------- ------------
Capital Goods-- 0.96%
2,030,000 Weir Group 4,453,597 1,959,583 819,462 7,232,642
------------ ------------ ------------ ----------- ------------
Drugs & Medical
Products-- 1.45%
3,873,421 Medeva 2,980,610 3,643,636 3,573,566 658,657 10,856,469
------------ ------------ ------------ ----------- ------------
Environmental
Services-- 0.36%
354,175 Waste Management International
PLC 1,794,711 1,794,711
83,562 Waste Management International
PLC, ADR 877,401 877,401
------------ ------------ ------------ ----------- ------------
2,672,112 2,672,112
------------ ------------ ------------ ----------- ------------
Healthcare-- 0.32%
803,327 Takare PLC 2,391,536 2,391,536
------------ ------------ ------------ ----------- ------------
Holding Company-- 1.68%
400,000 B.A.T. Industries Ord 2,634,946 2,634,946
4,350,800 Lonrho Ord 3,675,560 5,625,388 688,823 9,989,771
------------ ------------ ------------ ----------- ------------
3,675,560 8,260,334 688,823 12,624,717
------------ ------------ ------------ ----------- ------------
Leisure-- 0.15%
164,441 Airtours PLC 1,089,763 1,089,763
------------ ------------ ------------ ----------- ------------
Mining-- 0.65%
1,145,000 Antofagasta Holdings 3,634,135 940,600 320,659 4,895,394
------------ ------------ ------------ ----------- ------------
Non-Ferrous Metals-- 0.39%
251,000 RTZ Corp. Ord 2,927,284 2,927,284
------------ ------------ ------------ ----------- ------------
Restaurants-- 0.10%
100,000 J.D. Wetherspoon 747,413 747,413
------------ ------------ ------------ ----------- ------------
Total United Kingdom Common Stocks 11,992,172 15,406,928 16,406,780 2,487,601 46,295,481
------------ ------------ ------------ ----------- ------------
Total Common Stocks (cost - $644,252,170) 181,913,819 298,556,870 93,408,603 47,511,844 21,391,136
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Global Growth Pro forma
Fund Growth Fund Growth Fund & Income Fund Combined
Value Value Value Value Value
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Number of
Shares in all
Funds
- -------------
PREFERRED STOCK----- 8.84%
AUSTRIA----------- 0.28%
Banking-- 0.28%
35,083 Creditanstalt-Bankverein $2,129,133 $2,129,133
------------ ------------ ------------ ----------- ------------
BRAZIL------------ 6.15%
Banking-- 1.60%
130,641,013 Banco Bradesco $1,027,893 1,027,893
159,022,000 Banco de Brasil Preferred Reg'd
NV $1,931,181 129,175 2,060,356
11,200,000 Investimentos Itau 4,711,425 565,371 5,276,796
13,580,000 Itaubanco Preferred Reg'd 3,288,810 390,106 3,678,916
------------ ------------ ------------ ----------- ------------
9,931,416 2,112,545 12,043,961
------------ ------------ ------------ ----------- ------------
Beverage-- 0.38%
9,305,000 Brahma 2,409,823 417,845 2,827,668
------------ ------------ ------------ ----------- ------------
Food-- 0.24%
994,800,000 Perdigao Comercio E Indus
Preferred 1,533,965 258,784 1,792,749
------------ ------------ ------------ ----------- ------------
Machinery-- 0.57%
13,410,000 Brasmotor Preferred Reg'd. 3,159,629 552,208 3,711,837
1,108,000 Weg Preferred Reg'd 601,635 601,635
------------ ------------ ------------ ----------- ------------
3,761,264 552,208 4,313,472
------------ ------------ ------------ ----------- ------------
Mining-- 0.99%
51,000,000 Vale Do Rio Doce Preferred Reg'd 6,572,438 876,325 7,448,763
------------ ------------ ------------ ----------- ------------
Oil-- 0.99%
72,666,666 Petrobras Preferred Reg'd 6,419,470 984,998 7,404,468
------------ ------------ ------------ ----------- ------------
Paper-- 0.20%
3,371,570 Melpaper SA Preferred 1,175,167 333,899 1,509,066
------------ ------------ ------------ ----------- ------------
Retailing-- 0.20%
70,660,000 Lojas Americanas Preferred Reg'd 1,309,823 188,269 1,498,092
------------ ------------ ------------ ----------- ------------
Steel-- 0.68%
34,190,000 Acesita Cia Acos Espec Itab 1,892,615 402,827 2,295,442
56,900,000 Metalurg Gerdau Preferred 2,362,214 479,435 2,841,649
------------ ------------ ------------ ----------- ------------
4,254,829 882,262 5,137,091
------------ ------------ ------------ ----------- ------------
Telephone-- 0.09%
11,097 Telebras Preferred Reg'd 163 167 330
262,396 Telecom Do Rio De Janiero 11,744 11,744
2,700,000 Telepar Preferred Reg'd 651,975 651,975
------------ ------------ ------------ ----------- ------------
663,882 167 664,049
------------ ------------ ------------ ----------- ------------
Tools-- 0.19%
2,700,000,000 Forjas Tauras Preferred Shares 1,343,698 119,198 1,462,896
------------ ------------ ------------ ----------- ------------
Total Brazil Preferred Stock 39,375,775 6,726,500 46,102,275
------------ ------------ ------------ ----------- ------------
GERMANY----------- 2.41%
Auto-- 1.80%
4,512 Porsche AG (new) $1,930,220 1,930,220
26,380 Porsche AG Non-Voting 8,130,194 2,188,560 1,274,463 11,593,217
------------ ------------ ------------ ----------- ------------
8,130,194 4,118,780 1,274,463 13,523,437
------------ ------------ ------------ ----------- ------------
Computer Systems-- 0.61%
5,540 SAP AG 4,584,014 4,584,014
------------ ------------ ------------ ----------- ------------
Total Germany Preferred Stocks 4,584,014 8,130,194 4,118,780 1,274,463 18,107,451
------------ ------------ ------------ ----------- ------------
Total Preferred Stocks (cost - $70,155,550) 6,713,147 47,505,969 4,118,780 8,000,963 66,338,859
------------ ------------ ------------ ----------- ------------
STOCK RIGHTS ------- 0.00%
BRAZIL------------ 0.00%
Telephone -
81,666 Telebras ON Rights 1,962 1,962
18,615 Telebras PN Rights 550 550
------------ ------------ ------------ ----------- ------------
2,512 2,512
------------ ------------ ------------ ----------- ------------
SOUTH AFRICA------
Iron/Steel--
149,400 Iscor Ltd. Rights 16,007 16,007
------------ ------------ ------------ ----------- ------------
Total Stock Rights (cost - $6,792) 16,007 2,512 16,007
------------ ------------ ------------ ----------- ------------
WARRANTS - 0.02%
HONG KONG - 0.02%
Aerospace -
10,426,320 China Aero International Holding,
expiring 12/31/95
(cost-$2,128,160) 101,604 19,766 121,370
------------ ------------ ------------ ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments
February 28, 1995 (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MH/KP Global PaineWebber PaineWebber
Equity Atlas Global Europe
Fund Growth Fund Growth Fund
Value Value Value
------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Principal
Amount Maturity Interest
(000)** Dates Rates
- ------------------------- -------- --------
LONG-TERM DEBT
SECURITIES-------- 3.07%
DENMARK----------- 0.59%
25,000 Government of Denmark 11/15/00 9.000%
------------ ------------ ------------
INDONESIA--------- 0.23%
2,000 EKA Guntama Mandiri Convertible 10/04/97 4.000 $870,000***
------------ ------------ ------------
FINLAND----------- 0.34%
12,000 Republic of Finland 03/15/04 9.5000
------------ ------------ ------------
POLAND------------ 0.35%
8,000 Government of Poland 10/27/24 2.7500
------------ ------------ ------------
SOUTH AFRICA------ 0.55%
23,000 Electrical Supply Commission
of South Africa 06/01/08 11.0000
------------ ------------ ------------
SPAIN------------- 0.59%
560 Government of Spain 08/30/96 to 11.850 to
03/25/00 12.250
------------ ------------ ------------
UNITED KINGDOM---- 0.32%
1,300,000 United Kingdom Gilt 07/14/00 13.0000
------------ ------------ ------------
VENEZUELA--------- 0.10%
US$900 Bariven Petroleos de Venezuela 03/17/02 10.6250
------------ ------------ ------------
Total Long-Term Debt Securities (cost - $24,487,512) 870,000
------------ ------------ ------------
SHORT-TERM DEBT
SECURITIES 2.90%
UNITED STATES----- 2.90%
$8,600 Federal Farm Credit Bank Discount 03/14/95 5.890 $8,581,708
1,800 Federal Home Loan Mortgage Corp.
Discount Notes 03/01/95 5.950 1,800,000
1,800 Federal Home Loan Mortgage Corp.
Discount Notes 03/02/95 5.780 1,799,711
7,600 Federal National Mortgage Association
Discount Notes 03/07/95 5.860 7,592,578
2,000 United States Treasury Bill 03/02/95 5.180 1,999,720
------------ ------------ ------------
Total Short-Term Debt Securities (cost - $21,773,717) 19,773,997 1,999,720
------------ ------------ ------------
REPURCHASE AGREEMENTS-- 1.06%
5,750 Repurchase Agreement dated 2/28/95 with
State Street Bank and Trust Company,
collateralized by $5,505,000 U.S. Treasury
Notes, 8.875% due 02/15/99; proceeds:
$5,750,958
03/01/95 6.000 5,750,000
------------ ------------ ------------
75 Repurchase Agreement dated 2/28/95 with
Brown Brothers Harriman & Co., collateralized
by $75,959 U.S. Treasury Notes, 8.5000%
due 08/15/95; proceeds: $75,011
03/01/95 5.500 75,000
------------ ------------ ------------
310 Repurchase Agreement dated 2/28/95 with
Brown Brothers Harriman & Co., collateralized
by $313,965 U.S Treasury Notes, 8.5000%
due 8/15/95; proceeds: $310,047
03/01/95 5.500 310,000
------------ ------------ ------------
1,822 Repurchase Agreement dated 2/28/95 with
Nomura Securities, collateralized by
$1,700,000 U.S. Treasury Bonds,
8.5000% due 2/15/20; proceeds: $1,822,306
03/01/95 6.050
------------ ------------ ------------
Total Repurchase Agreements (cost - $7,957,000) 5,750,000 75,000 310,000
------------ ------------ ------------
Total Investments
(cost - $770,760,901)- 98.66% 214,166,970 347,111,955 99,837,103
Other assets in excess of liabilities (liabilities in excess of
other assets)- 1.34% (13,532,351) 14,991,939 5,664,814
------------ ------------ ------------
Net Assets - 100.00% $200,634,619 $362,103,894 $105,501,917
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
PaineWebber
Global Growth Pro Forma
& Income Fund Combined
Value Value
------------ ------------
<S> <C> <C> <C> <C>
Principal
Amount Maturity Interest
(000)** Dates Rates
- ------------------------- -------- --------
LONG-TERM DEBT
SECURITIES- 3.07%
DENMARK-------------- 0.59%
25,000 Government of Denmark 11/15/00 9.000% $4,384,909 $4,384,909
------------ ------------
INDONESIA------------ 0.23%
2,000 EKA Guntama Mandiri Convertible 10/04/97 4.000 870,000*** 1,740,000
------------ ------------
FINLAND-------------- 0.34%
12,000 Republic of Finland 03/15/04 9.5000 2,575,854 2,575,854
------------ ------------
POLAND--------------- 0.35%
8,000 Government of Poland 10/27/24 2.7500 2,660,000*** 2,660,000
------------ ------------
SOUTH AFRICA--------- 0.55%
23,000 Electrical Supply Commission
of South Africa 06/01/08 11.0000 4,110,077*** 4,110,077
------------ ------------
SPAIN---------------- 0.59%
560 Government of Spain 08/30/96 to 11.850 to
03/25/00 12.250 4,452,789 4,452,789
------------ ------------
UNITED KINGDOM------- 0.32%
1,300,000 United Kingdom Gilt 07/14/00 13.0000 2,430,377 2,430,377
------------ ------------
VENEZUELA------------ 0.10%
US$900 Bariven Petroleos de Venezuela 03/17/02 10.6250 720,000*** 720,000
------------ ------------
Total Long-Term Debt Securities (cost - $24,487,512) 22,204,006 23,074,006
------------ ------------
SHORT-TERM DEBT
SECURITIES 2.90%
UNITED STATES--------- 2.90%
$8,600 Federal Farm Credit Bank Discount 03/14/95 5.890 8,581,708
1,800 Federal Home Loan Mortgage Corp.
Discount Notes 03/01/95 5.950 1,800,000
1,800 Federal Home Loan Mortgage Corp.
Discount Notes 03/02/95 5.780 1,799,711
7,600 Federal National Mortgage Association
Discount Notes 03/07/95 5.860 7,592,578
2,000 United States Treasury Bill 03/02/95 5.180 1,999,720
------------ ------------
Total Short-Term Debt Securities (cost - $21,773,717) 21,773,717
------------ ------------
REPURCHASE AGREEMENTS-- 1.06%
5,750 Repurchase Agreement dated 2/28/95 with
State Street Bank and Trust Company,
collateralized by $5,505,000 U.S. Treasury
Notes, 8.875% due 02/15/99; proceeds:
$5,750,958
03/01/95 6.000 5,750,000
------------ ------------
75 Repurchase Agreement dated 2/28/95 with
Brown Brothers Harriman & Co., collateralized
by $75,959 U.S. Treasury Notes, 8.5000%
due 08/15/95; proceeds: $75,011
03/01/95 5.500 75,000
------------ ------------
310 Repurchase Agreement dated 2/28/95 with
Brown Brothers Harriman & Co., collateralized
by $313,965 U.S Treasury Notes, 8.5000%
due 8/15/95; proceeds: $310,047
03/01/95 5.500 310,000
------------ ------------
1,822 Repurchase Agreement dated 2/28/95 with
Nomura Securities, collateralized by
$1,700,000 U.S. Treasury Bonds,
8.5000% due 2/15/20; proceeds: $1,822,306
03/01/95 6.050 1,822,000 1,822,000
------------ ------------
Total Repurchase Agreements (cost - $7,957,000) 1,822,000 7,957,000
------------ ------------
Total Investments
(cost - $770,760,901)- 98.66% 79,558,579 740,674,607
Other assets in excess of liabilities (liabilities in excess of
other assets)- 1.34% 2,968,559 10,092,961
------------ ------------
Net Assets - 100.00% $82,527,138 $750,767,568
============ ============
</TABLE>
- ----------------------------------
* Non-income producing security
** In local currency unless otherwise indicated.
*** Securities totalling $9,230,077 do not conform to investment restrictions
of MH/KP Global Equity Fund and will be sold prior to reorganization.
ADR- American Depository Receipts
+ Security restricted as to resale.
See accompanying notes to pro forma combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACTS
Unrealized
Contracts Maturity Appreciation
to Deliver In Exchange for Dates (Depreciation)
---------- --------------- -------- --------
<S> <C> <C> <C> <C>
MH/KP Global
Equity Fund
U.S. Dollars 850,726 ATS8,798,206 03/06/95 3,593
U.S. Dollars 198,755 ATS2,033,461 03/06/95 (1,302)
Hong Kong Dollars 85,380 US$ 11,042 03/01/95 (1)
New Zealand Dollars 50,285 US$ 31,755 03/01/95 (114)
New Zealand Dollars 77,639 US$ 49,037 03/02/95 (167)
New Zealand Dollars 460,809 US$ 291,830 03/03/95 (209)
--------
1,800
--------
</TABLE>
Currency Type Abbreviations:
ATS--Austrian Schillings
<PAGE>
Pro forma Combined
Statement of Assets and Liabilities
February 28, 1995
(unaudited)
<TABLE>
<CAPTION>
MH/KP PaineWebber PaineWebber PaineWebber
Global Atlas Global Europe Global Growth
Equity Growth Growth & Income Pro forma
Fund Fund Fund Fund Combined
------ ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Investments in securities, at value (cost $214,166,970 $347,111,955 $ 99,837,103 $79,558,579 $740,674,607
-$191,963,699,$396,096,627,$94,576,803,
$88,123,772, and $770,760,901, respectively)
Other assets 2,757,593 38,988,270 21,402,822 7,445,104 70,593,789
------------ ------------ ------------ ----------- ------------
Total assets 216,924,563 386,100,225 121,239,925 87,003,683 811,268,396
------------ ------------ ------------ ----------- ------------
Total liabilities 16,289,944 23,996,331 15,738,008 4,476,545 60,500,828
------------ ------------ ------------ ----------- ------------
Beneficial interest, $0.001 par value
(unlimited amount authorized) 179,169,400 407,395,064 102,246,645 94,301,445 783,112,554
Undistributed (distribution in excess
of) net investment income (loss) 25,316 (843,613) (446,713) 474,779 (790,231)
Accumulated net realized gains (losses) from
investments, forward contracts and other
assets and liabilities denominated in foreign
currencies (773,514) 4,579,763 (1,655,105) (3,704,272) (1,553,128)
Net unrealized appreciation (depreciation) of
investments, other assets, liabilities and
forward contracts denominated in foreign
currencies 22,213,417 (49,027,320) 5,357,090 (8,544,814) (30,001,627)
------------ ------------ ------------ ----------- ------------
Net assets $200,634,619 $362,103,894 $105,501,917 $82,527,138 $750,767,568
============ ============ ============ =========== ============
Class A:
Net assets $145,103,774 $155,965,070 $ 64,289,551 $47,193,793 $412,552,188
------------ ------------ ------------ ----------- ------------
Shares outstanding 10,173,570 11,780,515 7,323,860 4,907,103 28,931,202
------------ ------------ ------------ ----------- ------------
Net asset and value redemption value per share $ 14.26 $ 13.24 $ 8.78 $ 9.62 $ 14.26
============ ============ ============ =========== ============
Maximum offering price per share (net asset
value plus sales charges of 5.75%, 4.50%,
4.50%, 4.50%, and 5.75%, respectively) $ 15.13 $ 13.86 $ 9.19 $ 10.07 $ 15.13
============ ============ ============ =========== ============
Class B:
Net assets $ 27,483,775 $119,843,249 $ 30,787,402 $26,834,856 $ 99,710,744
------------ ------------ ------------ ----------- ------------
Shares outstanding 1,955,883 9,276,567 3,589,075 2,842,894 7,097,228
------------ ------------ ------------ ----------- ------------
Net asset value and offering price per share $ 14.05 $ 12.92 $ 8.58 $ 9.44 $ 14.05
============ ============ ============ =========== ============
Class C:
Net assets $ 28,047,070 $ 32,992,059 $ 61,039,129
------------ ------------ ------------ ----------- ------------
Shares outstanding 1,956,969 2,474,091 4,260,135
------------ ------------ ------------ ----------- ------------
Net asset value, offering price and
redemption value per share $ 14.33 $ 13.34 $ 14.33
============ ============ ============ =========== ============
Class D:
Net assets $ 53,303,516 $ 10,424,964 $ 8,498,489 $0
------------ ------------ ------------ ----------- ------------
Shares outstanding 4,100,803 1,208,214 899,321 0
------------ ------------ ------------ ----------- ------------
Net asset value, offering price and
redemption value per share $ 13.00 $ 8.63 $ 9.45
============ ============ ============ =========== ============
Class E:
Net assets $177,465,507
------------ ------------ ------------ ----------- ------------
Shares outstanding 12,632,344
------------ ------------ ------------ ----------- ------------
Net asset value, offering price and
redemption value per share $ 14.05
============ ============ ============ =========== ============
</TABLE>
See Notes to Pro Forma Combined Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined
Statement of Operations
(Unaudited) For the Twelve Months Ended February 28, 1995
MH/KP Global PaineWebber PaineWebber PaineWebber
Equity Atlas Global Europe Growth Global Growth Pro Forma
Fund Growth Fund Fund & Income Fund Adjustments Combined
------------ ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Interest and dividends (net of foreign
withholding taxes) $4,185,178 $7,832,734 $2,125,671 $3,484,017 $0 $17,627,600
----------- ----------- ----------- ----------- ---------- ------------
Expenses:
Investment advisory and administration fees 2,360,484 3,401,760 1,190,642 951,655 43,122 7,947,663
Distribution fees 745,950 2,625,720 768,414 594,416 79,539 4,814,039
Transfer agency and service fees 149,793 509,698 217,258 189,325 (387,615) 678,459
Custody fees 301,230 1,210,013 383,890 332,488 (1,157,748) 1,069,873
Other 301,284 505,979 259,165 188,752 (492,019) 763,161
----------- ----------- ----------- ----------- ---------- ------------
3,858,741 8,253,170 2,819,369 2,256,636 (1,914,721) 15,273,195
----------- ----------- ----------- ----------- ---------- ------------
Net Investment Income (Loss) 326,437 (420,436) (693,698) 1,227,381 1,914,721 2,354,405
----------- ----------- ----------- ----------- ---------- ------------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains (losses) from:
Investment transactions 8,609,598 10,443,677 14,819,369 4,372,152 0 37,712,863
Foreign currency transactions 3,108,384 (23,418,623) (22,365,611) (3,817,312) 0 (46,493,162)
Net change in unrealized appreciation/
depreciation on:
Investments (27,952,679) (89,174,819) (13,069,759) (17,758,700) 0 (147,955,957)
Other assets, liabilities and forward
contracts denominated in foreign
currencies (427,878) (2,615,455) (3,466,908) 36,213 0 (1,243,118)
----------- ----------- ----------- ----------- ---------- ------------
Net realized and unrealized losses from
investment activities (16,662,575) (99,534,310) (24,614,842) (17,167,647) 0 (157,979,374)
----------- ----------- ----------- ----------- ---------- ------------
Net decrease in net assets resulting
from operations ($16,336,138) ($99,954,746) ($25,308,540) ($15,940,266) $1,914,721 ($155,624,969)
=========== =========== =========== =========== ========== ============
See Notes to Pro Forma Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined
Statement of Operations For the Twelve Months Ended February 28, 1995
(Unaudited)
MH/KP Global PaineWebber
Equity Atlas Global Pro Forma
Fund Growth Fund Adjustments Combined
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Investment Income
Interest and dividends (net of foreign withholding taxes) $4,185,178 $7,832,734 $0 $12,017,912
------------ ------------ --------- -------------
Expenses:
Investment advisory and administration fees 2,360,484 3,401,760 200,635 5,962,879
Distribution fees 745,950 2,625,720 79,590 3,451,260
Transfer agency and service fees 149,793 509,698 (91,365) 568,126
Custody fees 301,230 1,210,013 (433,410) 1,077,833
Other 301,284 505,979 (192,528) 614,735
------------ ------------ --------- -------------
3,858,741 8,253,170 (437,078) 11,674,833
------------ ------------ --------- -------------
Net Investment Income (Loss) 326,437 (420,436) 437,078 343,079
------------ ------------ --------- -------------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains (losses) from:
Investment transactions 8,609,598 10,443,677 0 19,053,275
Foreign currency transactions 3,108,384 (23,418,623) 0 (20,310,239)
Net change in unrealized appreciation/depreciation on:
Investments (27,952,679) (89,174,819) 0 (117,127,498)
Other assets, liabilities, and forward contracts denominated
in foreign currencies (427,878) 2,615,455 0 2,187,577
------------ ------------ --------- -------------
Net realized and unrealized losses from investment activities (16,662,575) (99,534,310) 0 (116,196,885)
------------ ------------ --------- -------------
Net decrease in net assets resulting from operations ($16,336,138) ($99,954,746) $437,078 ($115,853,806)
============ ============ ========= ==============
See Notes to Pro Forma Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined
Statement of Operations For the Twelve Months Ended February 28, 1995
(Unaudited)
MH/KP Global PaineWebber
Equity Europe Growth Pro Forma
Fund Fund Adjustments Combined
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Investment Income
Interest and dividends (net of foreign withholding taxes) $4,185,178 $2,125,671 $0 $6,310,849
------------ ------------ ----------- ------------
Expenses:
Investment advisory and administration fees 2,360,484 1,190,642 (357,528) 3,193,598
Distribution fees 745,950 768,414 0 1,514,364
Transfer agency and service fees 149,793 217,258 (119,981) 247,070
Custody fees 301,230 383,890 (228,340) 456,780
Other 301,284 259,165 (46,907) 513,542
------------ ------------ ----------- ------------
3,858,741 2,819,369 (752,756) 5,925,354
------------ ------------ ----------- ------------
Net Investment Income (Loss) 326,437 (693,698) 752,756 385,495
------------ ------------ ----------- ------------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains (losses) from:
Investment transactions 8,609,598 14,287,436 0 22,897,034
Foreign currency transactions 3,108,384 (22,365,611) 0 (19,257,227)
Net change in unrealized appreciation/depreciation on:
Investments (27,952,679) (13,069,759) 0 (41,022,438)
Translation of other assets and liabilities denominated
in foreign currencies (427,878) (3,466,908) 0 (3,894,786)
------------ ------------ ----------- ------------
Net realized and unrealized losses from investment activities (16,662,575) (24,614,842) 0 (41,277,417)
------------ ------------ ----------- ------------
Net decrease in net assets resulting from operations ($16,336,138) ($25,308,540) $752,756 ($40,891,922)
============ ============ =========== ============
See Notes to Pro Forma Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined
Statement of Operations For the Year Ended February 28, 1995
(Unaudited)
MH/KP Global PaineWebber
Equity Global Growth & Pro Forma
Fund Income Fund Adjustments Combined
------------ --------------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Income
Interest and dividends (net of foreign withholding taxes) $4,185,178 $3,484,017 $0 $7,669,195
------------ ------------ -------- -----------
Expenses:
Investment advisory and administration fees 2,360,484 951,655 (407,904) 2,904,235
Distribution fees 745,950 594,416 0 1,340,366
Transfer agency and service fees 149,793 189,325 (52,701) 286,417
Custody fees 301,230 332,488 (314,159) 319,559
Other 301,284 188,752 (39,188) 450,848
------------ ------------ -------- -----------
3,858,741 2,266,482 (813,952) 5,301,425
------------ ------------ -------- -----------
Net Investment Income 326,437 1,227,381 813,952 2,367,770
------------ ------------ -------- -----------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains (losses) from:
Investment transactions 8,609,598 4,372,152 0 12,981,750
Foreign currency transactions 3,108,384 (3,817,312) 0 (708,928)
Net change in unrealized appreciation/depreciation on:
Investments (27,952,679) (17,758,700) 0 (45,711,379)
Other assets, liabilities, and forward contracts
denominated in foreign currencies (427,878) 36,213 0 (391,665)
------------ ------------ -------- -----------
Net realized and unrealized gains from investment activities (16,662,575) (17,167,647) 0 (33,830,222)
------------ ------------ -------- -----------
Net decrease in net assets resulting from operations ($16,336,138) ($15,940,266) $813,952 (31,462,452)
------------ ------------ -------- -----------
See Notes to Pro Forma Combined Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Capitalization
as of February 28, 1995
(Unaudited)
MH/KP Global PaineWebber PaineWebber PaineWebber MH/KP Global
Equity Atlas Global Europe Growth Global Growth Equity Fund
Fund Growth Fund Fund & Income Fund (As Adjusted)(1)
------------ ------------ ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Shareholders' Equity:
Beneficial interest shares of $0.001 par value
per share (unlimited amount authorized)
14,086,422,shares outstanding for MH/KP Global Equity
(Actual)
27,631,976 shares outstanding for Atlas Global Growth
Fund (Actual)
12,121,149 shares outstanding for Europe Growth Fund
(Actual)
8,649,318 shares outstanding for Global Growth and
Income Fund (Actual)
52,920,909 shares outstanding for Global Equity Fund
(As Adjusted) 179,169,400 407,395,064 102,246,645 94,301,445 783,112,554(2)(3)
Undistributed (distribution in excess of) net investment
income 25,316 (843,613) (446,713) 474,779 (790,231)
Accumulated net realized gains (losses) from investments (773,514) 4,579,763 (1,655,105) (3,704,272) (1,553,128)(4)
Net unrealized appreciation/depreciation of investments,
other assets, liabilities and forward contracts
denominated in foreign currencies 22,213,417 (49,027,320) 5,357,090 (8,544,814) (30,001,627)
------------ ------------ ------------ ----------- ------------
Net Assets $200,634,619 $362,103,894 $105,501,917 $82,527,138 $750,767,568
============ ============ ============ =========== ============
</TABLE>
(1) The adjusted balances are presented as if the Reorganization involving
all Funds was effective as of February 28, 1995 for information purposes
only. The actual effective time of the Reorganization is expected to be
August, 1995, at which time the results would be reflective of the
actual composition of shareholders' equity at that date.
(2) Assumes the issuance of 25,565,852 shares in exchange for the net assets
applicable to beneficial interest holders of Atlas Global Growth.
Assumes the issuance of 7,443,251 shares in exchange for the net assets
applicable to beneficial interest holders of Europe Growth. Assumes the
issuance of 5,825,384 shares in exchange for the net assets applicable
to beneficial interest holders of Global Growth and Income. The exchange
is based on the net asset values for Global Equity Class A, B, and C,
and the net assets applicable to beneficial interest holders of Atlas
Global Growth, Europe Growth and Global Growth and Income as of February
28, 1995.
(3) Does not include the impact of estimated Reorganization costs of
$400,000.
(4) Assumes Europe Growth's and Global Growth and Income's net realized
losses from investment transactions carry forward into Global Equity.
<PAGE>
Notes To Pro Forma Combined Financial Statements
(unaudited)
Basis of Presentation:
Subject to approval of the Plan of Reorganization by the shareholders of
PaineWebber Atlas Global Growth Fund ("Atlas Global Growth"), PaineWebber Europe
Growth Fund ("Europe Growth"), and PaineWebber Global Growth and Income Fund
("Growth and Income"), Mitchell Hutchins/Kidder, Peabody Global Equity Fund
("Global Equity") would acquire the assets of Atlas Global Growth, Europe
Growth, and Global Growth and Income in exchange solely for the assumption by
Global Equity of Atlas Global Growth's, Europe Growth's and Global Growth and
Income's liabilities and Class A, Class B, Class D and Class C (for Atlas Global
Growth Fund only) shares of Global Equity that correspond, in aggregate net
asset value per class, to the outstanding Class A, Class B, Class C and Class D
shares of Atlas Global Growth, Europe Growth and Global Growth and Income.
Shares of Global Equity will be distributed to Atlas Global Growth, Europe
Growth and Global Growth and Income's shareholders, at the net asset value per
share of Global Equity for the value acquired, and Atlas Global Growth, Europe
Growth and Global Growth and Income will be terminated as soon as practicable
thereafter. Each Atlas Global Growth, Europe Growth and Global Growth and Income
shareholder will receive the number of full and fractional shares of each Class
of shares of Global Equity equal in value to such shareholder's holdings in the
corresponding Class of shares of Atlas Global Growth, Europe Growth and Global
Growth and Income as of the closing date of the merger.
The pro forma combined financial statements reflect the financial position of
Global Equity, Atlas Global Growth, Europe Growth Fund, and Global Growth and
Income at February 28, 1995 and the combined results of operations of Global
Equity, Atlas Global Growth, Europe Growth and the Global Growth and Income for
the twelve months ended February 28, 1995. Certain expenses have been adjusted
to reflect the expected expenses of the combined entity. Pro forma operating
expenses include the actual expenses of the Funds and the combined Fund adjusted
for certain items.
Due to differences in class structure, Class B for Atlas Global Growth, Europe
Growth, and Global Growth and Income are considered Class E and Class D for
Atlas Global Growth, Europe Growth and Global Growth and Income are considered
Class B, for combined pro forma results.
As a result of the Reorganization, the investment advisory and administration
fee for Atlas Global Growth will increase due to the higher fee schedule
applicable to Global Equity. Other fixed expenses will be reduced due to
duplication of expenses. In addition, the pro forma combined statement of assets
and liabilities has not been adjusted as a result of the proposed transaction
because such adjustment would not be material. It is estimated that costs of
approximately $400,000 associated with the merger will be charged to the Funds
in proportion to their respective net assets.
The pro forma combined financial statements are presented for the information of
the reader and may not necessarily be representative of what the actual combined
financial statements would have been had the Reorganization occurred at February
28, 1995. The pro forma combined financial statements should be read in
conjunction with the historical financial statements of the constituent Funds
included in the statement of additional information.
<PAGE>
PART C
OTHER INFORMATION
Item 15. 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, 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
<PAGE>
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.
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 ("GEIM") provides that GEIM
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 GEIM 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 GEIM
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
<PAGE>
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 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 16. Exhibits:
--------
(1) (a) Declaration of Trust/1/
-
(b) Amendment effective September 3, 1991 to Declaration of Trust/2/
-
(c) Amendment effective December 11, 1991 to Declaration of Trust (filed
herewith)
(d) Amendment effective February 13, 1995 to Declaration of Trust (filed
herewith)
(2) (a) By-Laws of the Trust/3/
-
(b) Amendment effective August 28, 1991 to By-Laws/4/
-
(3) Voting Trust Agreement - None
(4) Agreement and Plan of Reorganization and Termination
(a) PaineWebber Atlas Global Growth Fund (filed herewith)
(b) PaineWebber Europe Growth Fund (filed herewith)
<PAGE>
(c) PaineWebber Global Growth and Income Fund (filed herewith)
(5) Specimen security - None
(6) (a) Investment Advisory and Administration Contract (filed herewith)
(b) Form of Investment Sub-Advisory Contract (filed herewith)
(7) (a) Distribution Contract Class A Shares (filed herewith)
(b) Distribution Contract Class B Shares (filed herewith)
(c) Distribution Contract Class C Shares (filed herewith)
(8) Bonus, Profit-Sharing, Pension or Other Similar Contracts - None
(9) (a) Form of Custody Contract with State Street Bank and Trust Company/5/
-
(10) (a) Distribution Related Services Agreement (filed herewith)
(b) Shareholder Servicing Agreement (filed herewith)
(c) Amendment to Amended and Restated Shareholder Servicing and
Distribution Plan (filed herewith)
(11) Opinion and Consent of Willkie Farr & Gallagher (to be subsequently filed)
(12) (a) Opinion and Consent of Willkie Farr & Gallagher (filed herewith)
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP (filed herewith)
(13) Form of Transfer Agency Agreement (filed herewith)
(14) (a) Consent of Deloitte & Touche LLP (filed herewith)
(b) Consent of Price Waterhouse LLP (filed herewith)
(c) Consent of Ernst & Young LLP (filed herewith)
(15) Financial Statements Omitted from Prospectus - None
(16) Copies of manually signed Powers of Attorney - None
(17) Additional Exhibits
(a) Declaration pursuant to Rule 24f-2 (filed herewith)
(b) Proxy Cards (filed herewith)
_____________________
/1/ Incorporated by reference to Registration Statement, filed March 29, 1991,
- Exhibit #1.
/2/ Incorporated by reference to Pre-Effective Amendment No. 2 to registration
- statement on Form N-1A, filed September 4, 1991.
/3/ Incorporated by reference to Pre-Effective Amendment No. 2 to registration
- statement on Form N-1A, filed September 4, 1991, as Exhibit 2.
/4/ Incorporated by reference to Pre-Effective Amendment No. 2 to registration
- statement on Form N-1A, filed September 4, 1991.
/5/ Incorporated by reference to Pre-Effective Amendment No. 1 to registration
- statement on Form N-1A, filed August 7, 1991, as Exhibit 8.
<PAGE>
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which
is a part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for
reoffering by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York, State of New
York, on the 26th day of April, 1995.
MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST
By: /s/ Frank P.L. Minard
----------------------------
Frank P.L. Minard, President
Each of the undersigned trustees and officers of Mitchell Hutchins/Kidder,
Peabody Investment Trust ("Fund") hereby severally constitutes and appoints
Victoria E. Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Elinor W. Gammon
and Robert A. Wittie, and each of them singly, our true and lawful attorneys,
with full power to them to sign for each of us, and in each of our names and in
the capacities indicated below, any and all amendments to the registration
statement of the Fund, and all instruments necessary or desirable in connection
therewith, filed with the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by said attorneys to any and
all amendments to said registration statement.
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ David J. Beaubien Trustee April 26, 1995
- ---------------------
David J. Beaubien
/s/ William W. Hewitt, Jr. Trustee April 26, 1995
- --------------------------
William W. Hewitt, Jr.
/s/ Thomas R. Jordan Trustee April 26, 1995
- -----------------------
Thomas R. Jordan
/s/ Frank P.L. Minard Trustee and April 26, 1995
- -----------------------
Frank P.L. Minard President (Chief
Executive Officer)
/s/ Carl W. Schafer Trustee April 26, 1995
- -----------------------
Carl W. Schafer
/s/ Julian F. Sluyters Vice President and April 26, 1995
- -----------------------
Julian F. Sluyters Treasurer (Principal
Financial and
Accounting Officer)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
FORM N-14
REGISTRATION STATEMENT UNDER [X]
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ____
POST-EFFECTIVE AMENDMENT NO. ____
MITCHELL HUTCHINS/KIDDER PEABODY INVESTMENT TRUST
FILE NO.
<PAGE>
MITCHELL HUTCHINS/KIDDER PEABODY INVESTMENT
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------ ----
<C> <C> <S>
(1) (a) Declaration of Trust/1/
(b) Amendment effective September 3, 1991 to Declaration of Trust/2/
(c) Amendment effective December 11, 1991 to Declaration of Trust (filed herewith)
(d) Amendment effective February 13, 1995 to Declaration of Trust (filed herewith)
(2) (a) By-Laws of the Trust/3/
(b) Amendment effective August 28, 1991 to By-Laws/4/
(3) Voting Trust Agreement - None
(4) Agreement and Plan of Reorganization and Termination
(a) PaineWebber Atlas Global Growth Fund (filed herewith)
(b) PaineWebber Europe Growth Fund (filed herewith)
(c) PaineWebber Global Growth and Income Fund (filed herewith)
(5) Specimen security - None
(6) (a) Investment Advisory and Administration Contract (filed herewith)
(b) Form of Investment Sub-Advisory Contract (filed herewith)
(7) (a) Distribution Contract Class A Shares (filed herewith)
(b) Distribution Contract Class B Shares (filed herewith)
(c) Distribution Contract Class C Shares (filed herewith)
(8) Bonus, Profit-Sharing, Pension or Other Similar Contracts - None
(9) (a) Form of Custody Contract with State Street Bank and Trust Company/5/
(10) (a) Distribution Related Services Agreement (filed herewith)
(b) Shareholder Servicing Agreement (filed herewith)
(c) Amendment to Amended and Restated Shareholder Servicing and
Distribution Plan (filed herewith)
(11) Opinion and Consent of Willkie Farr & Gallagher (to be subsequently filed)
(12) (a) Opinion and Consent of Willkie Farr & Gallagher (filed herewith)
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP (filed herewith)
(13) Form of Transfer Agency Agreement (filed herewith)
(14) (a) Consent of Deloitte & Touche LLP (filed herewith)
(b) Consent of Price Waterhouse LLP (filed herewith)
(c) Consent of Ernst & Young LLP (filed herewith)
(15) Financial Statements Omitted from Prospectus - None
(16) Copies of manually signed Powers of Attorney - None
(17) Additional Exhibits
(a) Declaration pursuant to Rule 24f-2 (filed herewith)
(b) Proxy Cards (filed herewith)
</TABLE>
_____________________
/1/ Incorporated by reference to Registration Statement, filed March 29, 1991,
- Exhibit #1.
/2/ Incorporated by reference to Pre-Effective Amendment No. 2 to registration
- statement on Form N-1A, filed September 4, 1991.
/3/ Incorporated by reference to Pre-Effective Amendment No. 2 to registration
- statement on Form N-1A, filed September 4, 1991, as Exhibit 2.
/4/ Incorporated by reference to Pre-Effective Amendment No. 2 to registration
- statement on Form N-1A, filed September 4, 1991.
/5/ Incorporated by reference to Pre-Effective Amendment No. 1 to registration
- statement on Form N-1A, filed August 7, 1991, as Exhibit 8.
<TABLE> <S> <C>
<PAGE>
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<NAME> PAINEWEBBER ATLAS CLASS A
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<INTEREST-INCOME> 96
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<EXPENSES-NET> (846)
<NET-INVESTMENT-INCOME> (269)
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<APPREC-INCREASE-CURRENT> (2,762)
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<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 2,684
<NUMBER-OF-SHARES-REDEEMED> (2,034)
<SHARES-REINVESTED> 122
<NET-CHANGE-IN-ASSETS> (4,856)
<ACCUMULATED-NII-PRIOR> 198
<ACCUMULATED-GAINS-PRIOR> (6,479)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (370)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (846)
<AVERAGE-NET-ASSETS> 40,375
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> (0.09)
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<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NAME> PAINEWEBBER EUROPE GROWTH FUND CLASS D
<NUMBER> 3
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 1,588
<SHARES-COMMON-PRIOR> 1,605
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (312)
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 180
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<NET-INVESTMENT-INCOME> (101)
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<GROSS-EXPENSE> (317)
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<PER-SHARE-NAV-BEGIN> 9.67
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NAME> PAINEWEBBER GLOBAL GROWTH & INCOME FUND CLASS A
<NUMBER> 4
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
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<INVESTMENTS-AT-VALUE> 61,017
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<SHARES-COMMON-PRIOR> 5,951
<ACCUMULATED-NII-CURRENT> 61
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,762
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 584
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<DISTRIBUTIONS-OF-GAINS> (664)
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<ACCUMULATED-NII-PRIOR> 2,709
<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> (3,540)
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<GROSS-EXPENSE> (1,125)
<AVERAGE-NET-ASSETS> 67,334
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> 0.17
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NAME> PAINEWEBBER GLOBAL GROWTH & INCOME FUND CLASS B
<NUMBER> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
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<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 1,039
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<TOTAL-LIABILITIES> 2,615
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<SHARES-COMMON-STOCK> 3,125
<SHARES-COMMON-PRIOR> 1,664
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 983
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,098
<NET-ASSETS> 34,468
<DIVIDEND-INCOME> 326
<INTEREST-INCOME> 683
<OTHER-INCOME> 0
<EXPENSES-NET> (842)
<NET-INVESTMENT-INCOME> 167
<REALIZED-GAINS-CURRENT> 1,700
<APPREC-INCREASE-CURRENT> (2,148)
<NET-CHANGE-FROM-OPS> (281)
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<DISTRIBUTIONS-OF-INCOME> (264)
<DISTRIBUTIONS-OF-GAINS> (217)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,950
<NUMBER-OF-SHARES-REDEEMED> (9,969)
<SHARES-REINVESTED> 643
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<ACCUMULATED-NII-PRIOR> 750
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (981)
<GROSS-ADVISORY-FEES> (316)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (842)
<AVERAGE-NET-ASSETS> 30,833
<PER-SHARE-NAV-BEGIN> 11.20
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.03
<EXPENSE-RATIO> 2.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NAME> PAINEWEBBER GLOBAL GROWTH & INCOME FUND CLASS D
<NUMBER> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 10,636
<INVESTMENTS-AT-VALUE> 11,344
<RECEIVABLES> 669
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 347
<TOTAL-ASSETS> 12,364
<PAYABLE-FOR-SECURITIES> 687
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 872
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,453
<SHARES-COMMON-STOCK> 1,040
<SHARES-COMMON-PRIOR> 629
<ACCUMULATED-NII-CURRENT> 11
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 328
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 700
<NET-ASSETS> 11,492
<DIVIDEND-INCOME> 109
<INTEREST-INCOME> 228
<OTHER-INCOME> 0
<EXPENSES-NET> (293)
<NET-INVESTMENT-INCOME> 44
<REALIZED-GAINS-CURRENT> 567
<APPREC-INCREASE-CURRENT> (717)
<NET-CHANGE-FROM-OPS> (106)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (110)
<DISTRIBUTIONS-OF-GAINS> (84)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,986
<NUMBER-OF-SHARES-REDEEMED> (3,324)
<SHARES-REINVESTED> 214
<NET-CHANGE-IN-ASSETS> 1,576
<ACCUMULATED-NII-PRIOR> 284
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (372)
<GROSS-ADVISORY-FEES> (105)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (293)
<AVERAGE-NET-ASSETS> 11,468
<PER-SHARE-NAV-BEGIN> 11.22
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.05
<EXPENSE-RATIO> 2.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> GLOBAL EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 138,832,756
<INVESTMENTS-AT-VALUE> 154,896,429
<RECEIVABLES> 1,378,275
<ASSETS-OTHER> 504,828
<OTHER-ITEMS-ASSETS> 99,696
<TOTAL-ASSETS> 156,879,228
<PAYABLE-FOR-SECURITIES> 1,662,667
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,112,787
<TOTAL-LIABILITIES> 11,775,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,579,612
<SHARES-COMMON-STOCK> 10,173,570
<SHARES-COMMON-PRIOR> 10,925,463
<ACCUMULATED-NII-CURRENT> 18,309
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (559,424)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,065,277
<NET-ASSETS> 145,103,774
<DIVIDEND-INCOME> 937,512
<INTEREST-INCOME> 175,171
<OTHER-INCOME> 0
<EXPENSES-NET> (1,269,548)
<NET-INVESTMENT-INCOME> (156,865)
<REALIZED-GAINS-CURRENT> (747,493)
<APPREC-INCREASE-CURRENT> (14,369,480)
<NET-CHANGE-FROM-OPS> (15,273,838)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (12,882,410)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 785,130
<NUMBER-OF-SHARES-REDEEMED> (2,421,673)
<SHARES-REINVESTED> 884,650
<NET-CHANGE-IN-ASSETS> (40,124,582)
<ACCUMULATED-NII-PRIOR> 319,157
<ACCUMULATED-GAINS-PRIOR> 13,515,053
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 815,906
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,269,548
<AVERAGE-NET-ASSETS> 167,678,143
<PER-SHARE-NAV-BEGIN> 16.98
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> (1.44)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.26
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> GLOBAL EQUITY FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 26,295,996
<INVESTMENTS-AT-VALUE> 29,338,580
<RECEIVABLES> 261,056
<ASSETS-OTHER> 95,618
<OTHER-ITEMS-ASSETS> 18,883
<TOTAL-ASSETS> 29,714,137
<PAYABLE-FOR-SECURITIES> 314,922
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,915,440
<TOTAL-LIABILITIES> 2,230,362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,543,379
<SHARES-COMMON-STOCK> 1,955,883
<SHARES-COMMON-PRIOR> 1,894,276
<ACCUMULATED-NII-CURRENT> 3,468
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (105,959)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,042,887
<NET-ASSETS> 27,483,775
<DIVIDEND-INCOME> 177,572
<INTEREST-INCOME> 33,179
<OTHER-INCOME> 0
<EXPENSES-NET> (351,841)
<NET-INVESTMENT-INCOME> (141,090)
<REALIZED-GAINS-CURRENT> (141,581)
<APPREC-INCREASE-CURRENT> (2,721,691)
<NET-CHANGE-FROM-OPS> (3,004,362)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (2,404,670)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 232,017
<NUMBER-OF-SHARES-REDEEMED> (338,660)
<SHARES-REINVESTED> 168,250
<NET-CHANGE-IN-ASSETS> (4,435,731)
<ACCUMULATED-NII-PRIOR> 54,778
<ACCUMULATED-GAINS-PRIOR> 2,319,648
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154,539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 351,841
<AVERAGE-NET-ASSETS> 30,393,533
<PER-SHARE-NAV-BEGIN> 16.81
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> (1.43)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.25)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.05
<EXPENSE-RATIO> 2.4
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 103
<NAME> GLOBAL EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 26,834,947
<INVESTMENTS-AT-VALUE> 29,939,889
<RECEIVABLES> 266,407
<ASSETS-OTHER> 97,578
<OTHER-ITEMS-ASSETS> 19,270
<TOTAL-ASSETS> 30,323,144
<PAYABLE-FOR-SECURITIES> 321,376
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,954,698
<TOTAL-LIABILITIES> 2,276,074
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,046,409
<SHARES-COMMON-STOCK> 1,956,696
<SHARES-COMMON-PRIOR> 1,666,769
<ACCUMULATED-NII-CURRENT> 3,539
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (108,131)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,105,253
<NET-ASSETS> 28,047,070
<DIVIDEND-INCOME> 181,212
<INTEREST-INCOME> 33,858
<OTHER-INCOME> 0
<EXPENSES-NET> (205,162)
<NET-INVESTMENT-INCOME> 9,908
<REALIZED-GAINS-CURRENT> (144,483)
<APPREC-INCREASE-CURRENT> (2,777,473)
<NET-CHANGE-FROM-OPS> (2,912,048)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (2,465,467)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 482,574
<NUMBER-OF-SHARES-REDEEMED> (361,856)
<SHARES-REINVESTED> 169,482
<NET-CHANGE-IN-ASSETS> (514,935)
<ACCUMULATED-NII-PRIOR> 48,847
<ACCUMULATED-GAINS-PRIOR> 2,068,470
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 157,706
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,162
<AVERAGE-NET-ASSETS> 29,271,113
<PER-SHARE-NAV-BEGIN> 17.03
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (1.45)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.25)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.33
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1(c)
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST
--------------------------------
The undersigned, constituting a majority of the Trustees of Kidder, Peabody
Investment Trust (the "Trust"), a Massachusetts business trust, hereby certify
pursuant to Section 8.3 of Article VIII of the Declaration of Trust of KIDDER,
PEABODY INVESTMENT TRUST, that the Trustees of the Trust have duly adopted the
following amendment to the Declaration of Trust of the Trust dated the 28th day
of March, 1991.
VOTED: that the Declaration of Trust dated March 28, 1991 be, and it hereby
is, amended to change the name of the Series of the Trust previously
designated by a vote of the Board of Trustees of the Trust at a
meeting held on September 30, 1991 from "Kidder, Peabody General Fixed
Income Fund" to "Kidder, Peabody Intermediate Fixed Income Fund," and
that the proper officers of the Trust be, and hereby are, directed to
take all action necessary to carry out the intent of this vote.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this Certificate of Amendment in duplicate
and have caused a duplicate original to be lodged among the records of the Trust
as required by Article VIII of the Declaration of Trust, as of the 11th day of
December, 1991.
/s/ David J. Beaubien /s/ Harry G. Bowles
- -------------------------------------- --------------------------------------
David J. Beaubien Harry G. Bowles
/s/ Robert W. Donahue /s/ George V. Grune, Jr.
- -------------------------------------- --------------------------------------
Robert W. Donahue George V. Grune, Jr.
/s/ William W. Hewitt, Jr. /s/ Russell H. Johnson
- -------------------------------------- --------------------------------------
William W. Hewitt, Jr. Russell H. Johnson
/s/ Thomas R. Jordan /s/ Carl W. Schafer
- -------------------------------------- --------------------------------------
Thomas R. Jordan Carl W. Schafer
<PAGE>
EXHIBIT 99.1(d)
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST
The undersigned, being a Trustee of Kidder, Peabody Investment Trust (the
"Trust"), a Massachusetts business trust, hereby certifies pursuant to Section
8.3 of Article VIII and Section 10.1 of Article X of the Declaration of Trust of
KIDDER, PEABODY INVESTMENT TRUST, as amended, that the Trustees of the Trust
have duly adopted at the Board of trustees meeting held on December 14, 1994
(adjourned to December 16, 1994) and ratified at the Board of Trustees meeting
held on January 25, 1995 the following amendment to the Declaration of Trust of
the Trust dated the 28th Day of March 1991, in the manner provided in such
Declaration of Trust.
VOTED: that the Declaration of Trust dated March 28, 1991 be, and it hereby
is, amended to change the name of the trust, from "Kidder, Peabody
Investment Trust" to "Mitchell Hutchins/Kidder, Peabody Investment
Trust" in the following manner:
Section 1.1. Name. The name of the trust created hereby is
----
the "Mitchell Hutchins/Kidder, Peabody Investment Trust."
Section 1.2(q) of Article I of the Declaration of Trust is
hereby amended to read as follows:
(q) "Trust" means "Mitchell Hutchins/Kidder, Peabody
-----
Investment Trust."
and that the names of the series thereof, previously designated by the
Board of Trustees of the Trust be changed as follows:
from: "Kidder, Peabody Global Equity Fund"
to: "Mitchell Hutchins/Kidder, Peabody Global Equity Fund";
from: "Kidder, Peabody Global Fixed Income Fund"
to: "Mitchell Hutchins/Kidder, Peabody Global Fixed Income
Fund";
<PAGE>
from: "Kidder, Peabody Intermediate Fixed Income Fund"
to: "Mitchell Hutchins/Kidder, Peabody Intermediate Fixed
Income Fund";
from: "Kidder, Peabody Asset Allocation Fund"
to: "Mitchell Hutchins/Kidder, Peabody Asset Allocation Fund";
and
from: "Kidder, Peabody Adjustable Rate Government Fund"
to: "Mitchell Hutchins/Kidder, Peabody Adjustable Rate
Government Fund."
IN WITNESS WHEREOF, the undersigned, being a Trustee of the Trust, has
signed this Certificate of Amendment in duplicate, as of the 16th day of
February, 1995.
/s/ Thomas R. Jordan
--------------------
Trustee
- 2 -
<PAGE>
EXHIBIT 99.4(A)
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of May 12, 1995, between Mitchell Hutchins/Kidder, Peabody Investment
Trust, a Massachusetts business trust ("MHKP Trust"), on behalf of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and PaineWebber Atlas Fund, a
Massachusetts business trust ("PW Trust"), on behalf of its PaineWebber Atlas
Global Growth Fund series ("Target"). (Acquiring Fund and Target are sometimes
referred to herein individually as a "Fund" and collectively as the "Funds," and
MHKP Trust and PW Trust are sometimes referred to herein collectively as the
"Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(D) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of shares
of beneficial interest in Target ("Target Shares") in exchange therefor, all
upon the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by MHKP Trust on behalf of
Acquiring Fund and by PW Trust on behalf of Target.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class E shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class E Acquiring
Fund Shares", respectively). Apart from differences in certain ancillary class-
specific expenses, these classes differ only with respect to the sales charges
imposed on the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under the
Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring
Fund Shares are offered at net asset value ("NAV") plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25%
of the average daily net assets attributable to the class ("class assets"); (2)
Class B Acquiring Fund Shares are offered at NAV without imposition of any sales
charge and are subject to 12b-1 service and distribution fees at the respective
annual rates of 0.25% and
<PAGE>
0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently
to a limited group of investors (consisting of former employees of Kidder,
Peabody & Co. Incorporated ("Kidder") and their associated accounts, directors
and trustees of mutual funds formerly distributed by Kidder (now known as
Mitchell Hutchins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds),
Kidder's employee benefit plans, and participants in a certain portfolio asset
allocation program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee; and (4) Class E Acquiring Fund Shares are offered at
NAV without imposition of any sales charge and are subject to a contingent
deferred sales charge and 12b-1 service and distribution fees at the respective
annual rates of 0.25% and 0.75% of class assets.
Target's shares are divided into four classes, designated Class A, Class B,
Class C, and Class D shares ("Class A Target Shares," "Class B Target Shares,"
"Class C Target Shares," and "Class D Target Shares," respectively). Except as
noted in the following sentence, these classes differ only with respect to the
sales charges imposed on the purchase of shares and the 12b-1 fees payable by
each class, as follows: (1) Class A Target Shares are offered at NAV plus a
sales charge, if applicable, and are subject to a 12b-1 service fee at the
annual rate of 0.20% of class assets; (2) Class B Target Shares are offered at
NAV without imposition of any sales charge and are subject to a contingent
deferred sales charge and 12b-1 service and distribution fees at the respective
annual rates of 0.25% and 0.75% of class assets; (3) Class C Target Shares are
offered, currently only to the trustee of the PaineWebber Savings Investment
Plan on behalf of that plan, at NAV without imposition of any sales charge and
are not subject to any 12b-1 fee; and (4) Class D Target Shares are offered at
NAV without imposition of any sales charge and are subject to 12b-1 service and
distribution fees at the respective annual rates of 0.25% and 0.75% of class
assets. These classes also may differ from one another with respect to the
allocation of certain class-specific expenses other than 12b-1 fees.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set forth
in paragraph
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<PAGE>
2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring Fund Shares
determined by dividing the Target Value attributable to the Class D Target
Shares by the NAV (as so computed) of a Class B Acquiring Fund Share, (iii)
Class C Acquiring Fund Shares determined by dividing the Target Value
attributable to the Class C Target Shares by the NAV (as so computed) of a
Class C Acquiring Fund Share, and (iv) Class E Acquiring Fund Shares
determined by dividing the Target Value attributable to the Class B Target
Shares by the NAV (as so computed) of a Class E Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses described in
paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and realized net capital gain, if any, for
the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books
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<PAGE>
in the Shareholders' names and transferring such Acquiring Fund Shares thereto.
Each Shareholder's account shall be credited with the respective pro rata number
of full and fractional (rounded to the third decimal place) Acquiring Fund
Shares due that Shareholder, by class (i.e., the account for a Shareholder of
Class A Target Shares shall be credited with the respective pro rata number of
Class A Acquiring Fund Shares due that Shareholder, the account for a
Shareholder of Class B Target Shares shall be credited with the respective pro
rata number of Class E Acquiring Fund Shares due that Shareholder, the account
for a Shareholder of Class C Target Shares shall be credited with the respective
pro rata number of Class C Acquiring Fund Shares due that Shareholder, and the
account for a Shareholder of Class D Target Shares shall be credited with the
respective pro rata number of Class B Acquiring Fund Shares due that
Shareholder). All outstanding Target Shares, including any represented by
certificates, shall simultaneously be canceled on Target's share transfer
records. Acquiring Fund shall not issue certificates representing the Acquiring
Fund Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a
series of PW Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"),
using the valuation procedures set forth in Target's then-current prospectus and
statement of additional information less (b) the amount of the Liabilities as of
the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund
Share, a Class B Acquiring Fund Share, a Class C Acquiring Fund Share, and a
Class E Acquiring Fund Share shall be computed as of the Valuation Time, using
the valuation procedures set forth in Acquiring Fund's then-current prospectus
and statement of additional information.
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<PAGE>
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at the Funds' principal office on August 11,
1995, or at such other place and/or on such other date as the parties may agree.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof or at such other
time as the parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
is disrupted, so that accurate appraisal of the net value of Target and the NAV
per Acquiring Fund Share is impracticable, the Effective Time shall be postponed
until the first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
3.2. PW Trust shall deliver to MHKP Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
with the delivery of the Assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment has been
made.
3.3. PW Trust shall deliver to MHKP Trust at the Closing a list of the
names and addresses of the Shareholders and the number (by class) of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time, certified
by the Secretary or Assistant Secretary of Target. The Transfer Agent shall
deliver at the Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. MHKP Trust shall issue
and deliver a confirmation to PW Trust evidencing the Acquiring Fund Shares (by
class) to be credited to Target at the Effective Time or provide evidence
satisfactory to PW Trust that such Acquiring Fund Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipi-
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<PAGE>
ent and dated the Effective Time, to the effect that the representations and
warranties it made in this Agreement are true and correct at the Effective Time
except as they may be affected by the transactions contemplated by this
Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. PW Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and a
copy of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of PW
Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and does not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of PW
Trust's Declaration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target is a
party or by which it is bound,
A-6
<PAGE>
except as previously disclosed in writing to and accepted by MHKP Trust;
4.1.7. Except as disclosed in writing to and accepted by MHKP Trust,
all material contracts and other commitments of or applicable to Target
(other than this Agreement and investment contracts, including options,
futures, and forward contracts) will be terminated, or provision for
discharge of any liabilities of Target thereunder will be made, at or prior
to the Effective Time, without either Fund's incurring any liability or
penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted to be
taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
MHKP Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against PW Trust with respect to Target or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is not
a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of PW Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive relief or no-
action assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to sections 17(a) and 17(d) of the 1940
Act, this Agreement will constitute a valid and legally binding obligation
of Target, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights and
by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Secu-
A-7
<PAGE>
rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for the execution
or performance of this Agreement by PW Trust, except for (a) the filing
with the SEC of a registration statement by MHKP Trust on Form N-14
relating to the Acquiring Fund Shares issuable hereunder, and any
supplement or amendment thereto ("Registration Statement"), including
therein a prospectus/proxy statement ("Proxy Statement"), (b) receipt of
the exemptive relief referenced in subparagraph 4.1.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MHKP Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
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<PAGE>
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. MHKP Trust is a Business Trust; it is duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and a copy of its Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.2.2. MHKP Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
MHKP Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. Class E Acquiring Fund Shares were only recently authorized
for purposes of facilitating the Reorganization, and only one share of that
class will be outstanding immediately before the Effective Time. The
Acquiring Fund Shares to be issued and delivered to Target hereunder will,
at the Effective Time, have been duly authorized and, when issued and
delivered as provided herein, will be duly and validly issued and
outstanding shares of Acquiring Fund, fully paid and non-assessable, except
to the extent that under Massachusetts law shareholders of a Business Trust
may, under certain circumstances, be held personally liable for its
obligations. Except as contemplated by this Agreement, Acquiring Fund does
not have outstanding any options, warrants, or other rights to subscribe
for or purchase any of its shares, nor is there outstanding any security
convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
thereunder and does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or
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<PAGE>
violate, Massachusetts law or any provision of MHKP Trust's Declaration of
Trust or By-Laws or of any provision of any agreement, instrument, lease,
or other undertaking to which Acquiring Fund is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Acquiring
Fund is a party or by which it is bound, except as previously disclosed in
writing to and accepted by PW Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by PW
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against MHKP Trust with respect to Acquiring
Fund or any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of MHKP Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to receipt of
any necessary exemptive relief or no-action assurances requested from the
SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act,
this Agreement will constitute a valid and legally binding obligation of
Acquiring Fund, enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by MHKP Trust, except for
(a) the filing with the SEC of the Registration Statement, (b) receipt of
the exemptive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement
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<PAGE>
will (a) comply in all material respects with the applicable provisions of
the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder
and (b) not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading; provided that the foregoing shall not
apply to statements in or omissions from the Proxy Statement made in
reliance on and in conformity with information furnished by PW Trust for
use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M of the Code, and (c) expects to
retain substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged with another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or securities
of any one issuer
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<PAGE>
and (b) not more than 50% of the value of such assets will be invested in
the stock or securities of five or fewer issuers; and
4.2.17. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis, and the total
adjusted basis, of the Assets will equal or exceed the Liabilities to be
assumed by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire,
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<PAGE>
at least 90% of the fair market value of the net assets, and at least 70%
of the fair market value of the gross assets, held by Target immediately
before the Reorganization. For the purposes of this representation, any
amounts used by Target to pay its Reorganization expenses and redemptions
and distributions made by it immediately before the Reorganization (except
for (a) distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation to pay
federal income tax and/or the excise tax under section 4982 of the Code and
(b) redemptions not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will be
in "control" of Acquiring Fund within the meaning of section 304(c) of the
Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the Closing;
provided that Target shall not dispose of more than an insignificant portion of
its historic business assets during such period without Acquiring Fund's prior
consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
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<PAGE>
5.4. Target covenants that it will assist MHKP Trust in obtaining such
information as MHKP Trust reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to MHKP Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. MHKP Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by PW Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall
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<PAGE>
have been received that any other or further action is required to permit the
parties to carry out the transactions contemplated hereby. The Registration
Statement shall have become effective under the 1933 Act, no stop orders
suspending the effectiveness thereof shall have been issued, and the SEC shall
not have issued an unfavorable report with respect to the Reorganization under
section 25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin
consummation of the transactions contemplated hereby under section 25(c) of the
1940 Act. All consents, orders, and permits of federal, state, and local
regulatory authorities (including the SEC and state securities authorities)
deemed necessary by either Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Fund may for itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MHKP Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of MHKP Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by MHKP Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by PW Trust on
behalf of Target, is a valid and legally binding obligation of MHKP Trust
with respect to Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. Only one Class E Acquiring Fund Share currently is
outstanding. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, except to the extent
that under
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<PAGE>
Massachusetts law shareholders of a Business Trust may, under certain
circumstances, be held personally liable for its obligations, and no
shareholder of Acquiring Fund has any preemptive right to subscribe for or
purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate MHKP Trust's Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel) to which MHKP Trust (with respect to
Acquiring Fund) is a party or by which it is bound or, to the knowledge of
such counsel, result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which MHKP Trust (with respect to Acquiring Fund) is a party or by which it
is bound, except as set forth in such opinion or as previously disclosed in
writing to and accepted by PW Trust;
6.4.5. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by MHKP Trust on behalf of Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.4.6. MHKP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to MHKP Trust (with respect
to Acquiring Fund) or any of its properties or assets attributable or
allocable to Acquiring Fund and (b) MHKP Trust (with respect to Acquiring
Fund) is not a party to or subject to the provisions of any order, decree,
or judgment of any court or governmental body that materially and adversely
affects Acquiring Fund's business, except as set forth in such opinion or
as otherwise disclosed in writing to and accepted by PW Trust.
In rendering such opinion, such counsel may rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
6.5. MHKP Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to PW Trust, substantially to the effect that:
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<PAGE>
6.5.1. Target is a duly established series of PW Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by MHKP Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of PW
Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate PW Trust's Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel) to which PW Trust (with respect to
Target) is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which PW Trust
(with respect to Target) is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing to and accepted
by MHKP Trust;
6.5.4. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by PW Trust on behalf of Target of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required under state
securities laws;
6.5.5. PW Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to PW Trust (with respect to
Target) or any of its properties or assets attributable or allocable to
Target and (b) PW Trust (with respect to Target) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its
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<PAGE>
business, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by MHKP Trust.
In rendering such opinion, such counsel may rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, addressed to and in form and substance satisfactory to PW
Trust, and MHKP Trust shall have received an opinion of Willkie Farr &
Gallagher, its counsel, addressed to and in form and substance satisfactory to
MHKP Trust, each as to the federal income tax consequences mentioned below (each
a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may rely as
to factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(D) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the
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<PAGE>
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder (regarding the recognition of gain or loss and/or the determination
of the basis or holding period) with respect to any asset (including certain
options, futures, and forward contracts included in the Assets) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of MHKP Trust's board of trustees, such
waiver will not have a material adverse effect on its shareholders' interests,
and (b) Target may waive any of the foregoing conditions if, in the judgment of
PW Trust's board of trustees, such waiver will not have a material adverse
effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by the Funds proportionately, as follows:
each such expense will be borne by the Funds in proportion to their respective
net assets as of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement; (b) expenses associated with the preparation and filing of the
Registration Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident as of the
date of the mailing of the Proxy Statement to such shareholders; (d) printing
and postage expenses; (e) legal and accounting fees; and (f) solicitation costs.
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<PAGE>
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before December 31, 1995; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers of
either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts; provided that, in the
case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective succes-
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<PAGE>
sors and assigns any rights or remedies under or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of
each Investment Company's trustees solely in their capacity as trustees, and not
individually, and that each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its trustees,
officers, or shareholders, but are only binding on and enforceable against the
respective Funds' assets and property. Each Fund agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the other Fund's
assets and property in settlement of such rights or claims and not to such
trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT
TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL
EQUITY FUND
/s/ Stephanie Hemphill-Johnson /s/ Gregory S. Todd
By: ______________________________ ______________________________
Secretary Vice President
ATTEST: PAINEWEBBER ATLAS FUND,
on behalf of its series,
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
/s/ Jennifer Farrell /s/ Gregory S. Todd
By: ______________________________ ______________________________
Assistant Secretary Vice President
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<PAGE>
EXHIBIT 99.4(B)
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of May 12, 1995, between Mitchell Hutchins/Kidder, Peabody Investment
Trust, a Massachusetts business trust ("MHKP Trust"), on behalf of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and PaineWebber Investment Series, a
Massachusetts business trust ("PW Trust"), on behalf of its PaineWebber Europe
Growth Fund series ("Target"). (Acquiring Fund and Target are sometimes
referred to herein individually as a "Fund" and collectively as the "Funds," and
MHKP Trust and PW Trust are sometimes referred to herein collectively as the
"Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of shares
of beneficial interest in Target ("Target Shares") in exchange therefor, all
upon the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by MHKP Trust on behalf of
Acquiring Fund and by PW Trust on behalf of Target.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class E shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class E Acquiring
Fund Shares", respectively). Apart from differences in certain ancillary class-
specific expenses, these classes differ only with respect to the sales charges
imposed on the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under the
Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring
Fund Shares are offered at net asset value ("NAV") plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25%
of the average daily net assets attributable to the class ("class assets"); (2)
Class B Acquiring Fund Shares are offered at NAV without imposition of any sales
charge and are subject to 12b-1 service and distribution fees at the respective
annual rates of 0.25% and
<PAGE>
0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently
to a limited group of investors (consisting of former employees of Kidder,
Peabody & Co. Incorporated ("Kidder") and their associated accounts, directors
and trustees of mutual funds formerly distributed by Kidder (now known as
Mitchell Hutchins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds),
Kidder's employee benefit plans, and participants in a certain portfolio asset
allocation program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee; and (4) Class E Acquiring Fund Shares are offered at
NAV without imposition of any sales charge and are subject to a contingent
deferred sales charge and 12b-1 service and distribution fees at the respective
annual rates of 0.25% and 0.75% of class assets. Only Classes A, B, and E
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A, Class
B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and
"Class D Target Shares," respectively). Except as noted in the following
sentence, these classes differ only with respect to the sales charges imposed on
the purchase of shares and the 12b-1 fees payable by each class, as follows: (1)
Class A Target Shares are offered at NAV plus a sales charge, if applicable, and
are subject to a 12b-1 service fee at the annual rate of 0.25% of class assets;
(2) Class B Target Shares are offered at NAV without imposition of any sales
charge and are subject to a contingent deferred sales charge and 12b-1 service
and distribution fees at the respective annual rates of 0.25% and 0.75% of class
assets; and (3) Class D Target Shares are offered at NAV without imposition of
any sales charge and are subject to 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.75% of class assets. These classes also
may differ from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set forth
in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring
Fund Shares determined by dividing the Target Value attribut-
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<PAGE>
able to the Class D Target Shares by the NAV (as so computed) of a Class B
Acquiring Fund Share, and (iii) Class E Acquiring Fund Shares determined by
dividing the Target Value attributable to the Class B Target Shares by the
NAV (as so computed) of a Class E Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses described in
paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and realized net capital gain, if any, for
the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books in the
Shareholders' names and transferring such Acquiring Fund Shares thereto. Each
Shareholder's account shall be credited with the respective pro rata number of
full and fractional (rounded to the third decimal place) Acquiring Fund Shares
due that Shareholder, by class (i.e., the account for a Shareholder of Class A
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<PAGE>
Target Shares shall be credited with the respective pro rata number of Class A
Acquiring Fund Shares due that Shareholder, the account for a Shareholder of
Class B Target Shares shall be credited with the respective pro rata number of
Class E Acquiring Fund Shares due that Shareholder, and the account for a
Shareholder of Class D Target Shares shall be credited with the respective pro
rata number of Class B Acquiring Fund Shares due that Shareholder). All
outstanding Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a
series of PW Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"),
using the valuation procedures set forth in Target's then-current prospectus and
statement of additional information less (b) the amount of the Liabilities as of
the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund
Share, a Class B Acquiring Fund Share, and a Class E Acquiring Fund Share shall
be computed as of the Valuation Time, using the valuation procedures set forth
in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.
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<PAGE>
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at the Funds' principal office on August 11,
1995, or at such other place and/or on such other date as the parties may agree.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof or at such other
time as the parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
is disrupted, so that accurate appraisal of the net value of Target and the NAV
per Acquiring Fund Share is impracticable, the Effective Time shall be postponed
until the first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
3.2. PW Trust shall deliver to MHKP Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
with the delivery of the Assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment has been
made.
3.3. PW Trust shall deliver to MHKP Trust at the Closing a list of the
names and addresses of the Shareholders and the number (by class) of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time, certified
by the Secretary or Assistant Secretary of Target. The Transfer Agent shall
deliver at the Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. MHKP Trust shall issue
and deliver a confirmation to PW Trust evidencing the Acquiring Fund Shares (by
class) to be credited to Target at the Effective Time or provide evidence
satisfactory to PW Trust that such Acquiring Fund Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
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4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. PW Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and a
copy of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of PW
Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and does not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of PW
Trust's Declaration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target is a
party or by which it is bound, except as previously disclosed in writing to
and accepted by MHKP Trust;
4.1.7. Except as disclosed in writing to and accepted by MHKP Trust,
all material contracts and other commitments of or applicable to Target
(other than this Agreement and investment
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contracts, including options, futures, and forward contracts) will be
terminated, or provision for discharge of any liabilities of Target
thereunder will be made, at or prior to the Effective Time, without either
Fund's incurring any liability or penalty with respect thereto and without
diminishing or releasing any rights Target may have had with respect to
actions taken or omitted to be taken by any other party thereto prior to
the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
MHKP Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against PW Trust with respect to Target or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is not
a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of PW Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive relief or no-
action assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to sections 17(a) and 17(d) of the 1940
Act, this Agreement will constitute a valid and legally binding obligation
of Target, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights and
by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of this
Agreement by PW Trust, except for (a) the filing with the SEC of a
registration statement by MHKP Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a
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prospectus/proxy statement ("Proxy Statement"), (b) receipt of the
exemptive relief referenced in subparagraph 4.1.9, and (c) such consents,
approvals, authorizations, and filings as have been made or received or as
may be required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MHKP Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
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4.2. Acquiring Fund represents and warrants as follows:
4.2.1. MHKP Trust is a Business Trust; it is duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and a copy of its Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.2.2. MHKP Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
MHKP Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. Class E Acquiring Fund Shares were only recently authorized
for purposes of facilitating the Reorganization, and only one share of that
class will be outstanding immediately before the Effective Time. The
Acquiring Fund Shares to be issued and delivered to Target hereunder will,
at the Effective Time, have been duly authorized and, when issued and
delivered as provided herein, will be duly and validly issued and
outstanding shares of Acquiring Fund, fully paid and non-assessable, except
to the extent that under Massachusetts law shareholders of a Business Trust
may, under certain circumstances, be held personally liable for its
obligations. Except as contemplated by this Agreement, Acquiring Fund does
not have outstanding any options, warrants, or other rights to subscribe
for or purchase any of its shares, nor is there outstanding any security
convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
thereunder and does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law or
any provision of MHKP Trust's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in
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the acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by PW Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by PW
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against MHKP Trust with respect to Acquiring
Fund or any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of MHKP Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to receipt of
any necessary exemptive relief or no-action assurances requested from the
SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act,
this Agreement will constitute a valid and legally binding obligation of
Acquiring Fund, enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by MHKP Trust, except for
(a) the filing with the SEC of the Registration Statement, (b) receipt of
the exemptive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
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<PAGE>
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading; provided that the foregoing shall not apply to statements in or
omissions from the Proxy Statement made in reliance on and in conformity
with information furnished by PW Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M of the Code, and (c) expects to
retain substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged with another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock or securities of five or fewer issuers; and
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4.2.17. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and redemptions and distribu-
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tions made by it immediately before the Reorganization (except for (a)
distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation to pay
federal income tax and/or the excise tax under section 4982 of the Code and
(b) redemptions not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the Closing;
provided that Target shall not dispose of more than an insignificant portion of
its historic business assets during such period without Acquiring Fund's prior
consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist MHKP Trust in obtaining such
information as MHKP Trust reasonably requests concerning the beneficial
ownership of Target Shares.
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5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to MHKP Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. MHKP Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by PW Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
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thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect on
the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MHKP Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of MHKP Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by MHKP Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by PW Trust on
behalf of Target, is a valid and legally binding obligation of MHKP Trust
with respect to Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. Only one Class E Acquiring Fund Share currently is
outstanding. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, except to the extent
that under Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obligations, and
no shareholder of Acquiring Fund has any preemptive right to subscribe for
or purchase such shares;
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6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate MHKP Trust's Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel) to which MHKP Trust (with respect to
Acquiring Fund) is a party or by which it is bound or, to the knowledge of
such counsel, result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which MHKP Trust (with respect to Acquiring Fund) is a party or by which it
is bound, except as set forth in such opinion or as previously disclosed in
writing to and accepted by PW Trust;
6.4.5. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by MHKP Trust on behalf of Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.4.6. MHKP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to MHKP Trust (with respect
to Acquiring Fund) or any of its properties or assets attributable or
allocable to Acquiring Fund and (b) MHKP Trust (with respect to Acquiring
Fund) is not a party to or subject to the provisions of any order, decree,
or judgment of any court or governmental body that materially and adversely
affects Acquiring Fund's business, except as set forth in such opinion or
as otherwise disclosed in writing to and accepted by PW Trust.
In rendering such opinion, such counsel may rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
6.5. MHKP Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to PW Trust, substantially to the effect that:
6.5.1. Target is a duly established series of PW Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
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6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by MHKP Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of PW
Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate PW Trust's Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel) to which PW Trust (with respect to
Target) is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which PW Trust
(with respect to Target) is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing to and accepted
by MHKP Trust;
6.5.4. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by PW Trust on behalf of Target of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required under state
securities laws;
6.5.5. PW Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to PW Trust (with respect to
Target) or any of its properties or assets attributable or allocable to
Target and (b) PW Trust (with respect to Target) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its business,
except as set forth in such opinion or as otherwise disclosed in writing to
and accepted by MHKP Trust.
In rendering such opinion, such counsel may rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
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<PAGE>
6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, addressed to and in form and substance satisfactory to PW
Trust, and MHKP Trust shall have received an opinion of Willkie Farr &
Gallagher, its counsel, addressed to and in form and substance satisfactory to
MHKP Trust, each as to the federal income tax consequences mentioned below (each
a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may rely as
to factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares, and its holding period for those Acquiring Fund
Shares will include its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the Effective Time.
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<PAGE>
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder (regarding the recognition of gain or loss and/or the determination
of the basis or holding period) with respect to any asset (including certain
options, futures, and forward contracts included in the Assets) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of MHKP Trust's board of trustees, such
waiver will not have a material adverse effect on its shareholders' interests,
and (b) Target may waive any of the foregoing conditions if, in the judgment of
PW Trust's board of trustees, such waiver will not have a material adverse
effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by the Funds proportionately, as follows:
each such expense will be borne by the Funds in proportion to their respective
net assets as of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement; (b) expenses associated with the preparation and filing of the
Registration Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident as of the
date of the mailing of the Proxy Statement to such shareholders; (d) printing
and postage expenses; (e) legal and accounting fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered
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<PAGE>
pursuant hereto or in connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before December 31, 1995; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers of
either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts; provided that, in the
case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of
each Investment Company's trustees solely in
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<PAGE>
their capacity as trustees, and not individually, and that each Investment
Company's obligations under this instrument are not binding on or enforceable
against any of its trustees, officers, or shareholders, but are only binding on
and enforceable against the respective Funds' assets and property. Each Fund
agrees that, in asserting any rights or claims under this Agreement, it shall
look only to the other Fund's assets and property in settlement of such rights
or claims and not to such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT
TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL
EQUITY FUND
/s/ Stephanie Hemphill-Johnson /s/ Gregory S. Todd
By: ______________________________ ______________________________
Secretary Vice President
ATTEST: PAINEWEBBER INVESTMENT SERIES,
on behalf of its series,
PAINEWEBBER EUROPE GROWTH FUND
/s/ Jennifer Farrell /s/ Gregory S. Todd
By: ______________________________ ______________________________
Assistant Secretary Vice President
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<PAGE>
EXHIBIT 99.4(C)
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of May 12, 1995, between Mitchell Hutchins/Kidder, Peabody Investment
Trust, a Massachusetts business trust ("MHKP Trust"), on behalf of Mitchell
Hutchins/Kidder, Peabody Global Equity Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and PaineWebber Investment Series, a
Massachusetts business trust ("PW Trust"), on behalf of its PaineWebber Global
Growth and Income Fund series ("Target"). (Acquiring Fund and Target are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds," and MHKP Trust and PW Trust are sometimes referred to herein
collectively as the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended ("Code"). The reorganization will involve the transfer to
Acquiring Fund of Target's assets solely in exchange for voting shares of
beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares to the holders of shares
of beneficial interest in Target ("Target Shares") in exchange therefor, all
upon the terms and conditions set forth herein. The foregoing transactions are
referred to herein as the "Reorganization." All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by MHKP Trust on behalf of
Acquiring Fund and by PW Trust on behalf of Target.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class E shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class E Acquiring
Fund Shares", respectively). Apart from differences in certain ancillary class-
specific expenses, these classes differ only with respect to the sales charges
imposed on the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under the
Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring
Fund Shares are offered at net asset value ("NAV") plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25%
of the average daily net assets attributable to the class ("class assets"); (2)
Class B Acquiring Fund Shares are offered at NAV without imposition of any sales
charge and are subject to 12b-1 service and distribution fees at the respective
annual rates of 0.25% and
<PAGE>
0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently
to a limited group of investors (consisting of former employees of Kidder,
Peabody & Co. Incorporated ("Kidder") and their associated accounts, directors
and trustees of mutual funds formerly distributed by Kidder (now known as
Mitchell Hutchins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds),
Kidder's employee benefit plans, and participants in a certain portfolio asset
allocation program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee; and (4) Class E Acquiring Fund Shares are offered at
NAV without imposition of any sales charge and are subject to a contingent
deferred sales charge and 12b-1 service and distribution fees at the respective
annual rates of 0.25% and 0.75% of class assets. Only Classes A, B, and E
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A, Class
B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and
"Class D Target Shares," respectively). Except as noted in the following
sentence, these classes differ only with respect to the sales charges imposed on
the purchase of shares and the 12b-1 fees payable by each class, as follows: (1)
Class A Target Shares are offered at NAV plus a sales charge, if applicable, and
are subject to a 12b-1 service fee at the annual rate of 0.25% of class assets;
(2) Class B Target Shares are offered at NAV without imposition of any sales
charge and are subject to a contingent deferred sales charge and 12b-1 service
and distribution fees at the respective annual rates of 0.25% and 0.75% of class
assets; and (3) Class D Target Shares are offered at NAV without imposition of
any sales charge and are subject to 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.75% of class assets. These classes also
may differ from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set forth
in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring
Fund Shares determined by dividing the Target Value attribut-
A-2
<PAGE>
able to the Class D Target Shares by the NAV (as so computed) of a Class B
Acquiring Fund Share, and (iii) Class E Acquiring Fund Shares determined by
dividing the Target Value attributable to the Class B Target Shares by the
NAV (as so computed) of a Class E Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses described in
paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and realized net capital gain, if any, for
the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund Shares
received by it pursuant to paragraph 1.1 to Target's shareholders of record,
determined as of the Effective Time (collectively "Shareholders" and
individually a "Shareholder"), in exchange for their Target Shares. Such
distribution shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books in the
Shareholders' names and transferring such Acquiring Fund Shares thereto. Each
Shareholder's account shall be credited with the respective pro rata number of
full and fractional (rounded to the third decimal place) Acquiring Fund Shares
due that Shareholder, by class (i.e., the account for a Shareholder of Class A
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<PAGE>
Target Shares shall be credited with the respective pro rata number of Class A
Acquiring Fund Shares due that Shareholder, the account for a Shareholder of
Class B Target Shares shall be credited with the respective pro rata number of
Class E Acquiring Fund Shares due that Shareholder, and the account for a
Shareholder of Class D Target Shares shall be credited with the respective pro
rata number of Class B Acquiring Fund Shares due that Shareholder). All
outstanding Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a
series of PW Trust and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"),
using the valuation procedures set forth in Target's then-current prospectus and
statement of additional information less (b) the amount of the Liabilities as of
the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund
Share, a Class B Acquiring Fund Share, and a Class E Acquiring Fund Share shall
be computed as of the Valuation Time, using the valuation procedures set forth
in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Mitchell Hutchins Asset Management Inc.
A-4
<PAGE>
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1. The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at the Funds' principal office on August 11,
1995, or at such other place and/or on such other date as the parties may agree.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof or at such other
time as the parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
is disrupted, so that accurate appraisal of the net value of Target and the NAV
per Acquiring Fund Share is impracticable, the Effective Time shall be postponed
until the first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
3.2. PW Trust shall deliver to MHKP Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein their adjusted tax basis and holding period by lot.
Target's custodian shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets held by the custodian will be transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
with the delivery of the Assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment has been
made.
3.3. PW Trust shall deliver to MHKP Trust at the Closing a list of the
names and addresses of the Shareholders and the number (by class) of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time, certified
by the Secretary or Assistant Secretary of Target. The Transfer Agent shall
deliver at the Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. MHKP Trust shall issue
and deliver a confirmation to PW Trust evidencing the Acquiring Fund Shares (by
class) to be credited to Target at the Effective Time or provide evidence
satisfactory to PW Trust that such Acquiring Fund Shares have been credited to
Target's account on Acquiring Fund's books. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, stock
certificates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. PW Trust is an unincorporated voluntary association with
transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts; and a
copy of its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.1.3. Target is a duly established and designated series of PW
Trust;
4.1.4. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.1.5. Target's current prospectus and statement of additional
information conform in all material respects to the applicable requirements
of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules
and regulations thereunder and does not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of PW
Trust's Declaration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target is a
party or by which it is bound, except as previously disclosed in writing to
and accepted by MHKP Trust;
4.1.7. Except as disclosed in writing to and accepted by MHKP Trust,
all material contracts and other commitments of or applicable to Target
(other than this Agreement and investment
A-6
<PAGE>
contracts, including options, futures, and forward contracts) will be
terminated, or provision for discharge of any liabilities of Target
thereunder will be made, at or prior to the Effective Time, without either
Fund's incurring any liability or penalty with respect thereto and without
diminishing or releasing any rights Target may have had with respect to
actions taken or omitted to be taken by any other party thereto prior to
the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
MHKP Trust, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against PW Trust with respect to Target or
any of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the conduct
of its business; Target knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or investigation and is not
a party to or subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of PW Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive relief or no-
action assurances requested from the Securities and Exchange Commission
("SEC") or its staff with respect to sections 17(a) and 17(d) of the 1940
Act, this Agreement will constitute a valid and legally binding obligation
of Target, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights and
by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ("1934 Act"), or the 1940 Act for the execution or performance of this
Agreement by PW Trust, except for (a) the filing with the SEC of a
registration statement by MHKP Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a
A-7
<PAGE>
prospectus/proxy statement ("Proxy Statement"), (b) receipt of the
exemptive relief referenced in subparagraph 4.1.9, and (c) such consents,
approvals, authorizations, and filings as have been made or received or as
may be required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MHKP Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business;
4.1.14. Target is a "fund" as defined in section 851(h)(2) of the
Code; it qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
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<PAGE>
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. MHKP Trust is a Business Trust; it is duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Massachusetts; and a copy of its Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts;
4.2.2. MHKP Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
MHKP Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.2.5. Class E Acquiring Fund Shares were only recently authorized
for purposes of facilitating the Reorganization, and only one share of that
class will be outstanding immediately before the Effective Time. The
Acquiring Fund Shares to be issued and delivered to Target hereunder will,
at the Effective Time, have been duly authorized and, when issued and
delivered as provided herein, will be duly and validly issued and
outstanding shares of Acquiring Fund, fully paid and non-assessable, except
to the extent that under Massachusetts law shareholders of a Business Trust
may, under certain circumstances, be held personally liable for its
obligations. Except as contemplated by this Agreement, Acquiring Fund does
not have outstanding any options, warrants, or other rights to subscribe
for or purchase any of its shares, nor is there outstanding any security
convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
thereunder and does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law or
any provision of MHKP Trust's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in
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<PAGE>
the acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or by
which it is bound, except as previously disclosed in writing to and
accepted by PW Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by PW
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Acquiring
Fund's knowledge) threatened against MHKP Trust with respect to Acquiring
Fund or any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of MHKP Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to receipt of
any necessary exemptive relief or no-action assurances requested from the
SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act,
this Agreement will constitute a valid and legally binding obligation of
Acquiring Fund, enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by MHKP Trust, except for
(a) the filing with the SEC of the Registration Statement, (b) receipt of
the exemptive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
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<PAGE>
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading; provided that the foregoing shall not apply to statements in or
omissions from the Proxy Statement made in reliance on and in conformity
with information furnished by PW Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current taxable year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M of the Code, and (c) expects to
retain substantially all the Assets in the same form as it receives them in
the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund to be
dissolved or merged with another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2) of the Code)
following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock or securities of five or fewer issuers; and
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<PAGE>
4.2.17. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and redemptions and distribu-
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<PAGE>
tions made by it immediately before the Reorganization (except for (a)
distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation to pay
federal income tax and/or the excise tax under section 4982 of the Code and
(b) redemptions not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that (a) such ordinary course will include declaring and paying customary
dividends and other distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b) each Fund will
retain exclusive control of the composition of its portfolio until the Closing;
provided that Target shall not dispose of more than an insignificant portion of
its historic business assets during such period without Acquiring Fund's prior
consent.
5.2. Target covenants to call a shareholders' meeting to consider and act
upon this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist MHKP Trust in obtaining such
information as MHKP Trust reasonably requests concerning the beneficial
ownership of Target Shares.
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<PAGE>
5.5. Target covenants that Target's books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to MHKP Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. MHKP Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all the obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by PW Trust's board of trustees and shall have
been approved by Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
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<PAGE>
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain same would not involve a risk of a material adverse effect on
the assets or properties of either Fund, provided that either Fund may for
itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MHKP Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of MHKP Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by MHKP Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by PW Trust on
behalf of Target, is a valid and legally binding obligation of MHKP Trust
with respect to Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. Only one Class E Acquiring Fund Share currently is
outstanding. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable, except to the extent
that under Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obligations, and
no shareholder of Acquiring Fund has any preemptive right to subscribe for
or purchase such shares;
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<PAGE>
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate MHKP Trust's Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel) to which MHKP Trust (with respect to
Acquiring Fund) is a party or by which it is bound or, to the knowledge of
such counsel, result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which MHKP Trust (with respect to Acquiring Fund) is a party or by which it
is bound, except as set forth in such opinion or as previously disclosed in
writing to and accepted by PW Trust;
6.4.5. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by MHKP Trust on behalf of Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.4.6. MHKP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to MHKP Trust (with respect
to Acquiring Fund) or any of its properties or assets attributable or
allocable to Acquiring Fund and (b) MHKP Trust (with respect to Acquiring
Fund) is not a party to or subject to the provisions of any order, decree,
or judgment of any court or governmental body that materially and adversely
affects Acquiring Fund's business, except as set forth in such opinion or
as otherwise disclosed in writing to and accepted by PW Trust.
In rendering such opinion, such counsel may rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
6.5. MHKP Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, counsel to PW Trust, substantially to the effect that:
6.5.1. Target is a duly established series of PW Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
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<PAGE>
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by MHKP Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of PW
Trust with respect to Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate PW Trust's Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel) to which PW Trust (with respect to
Target) is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which PW Trust
(with respect to Target) is a party or by which it is bound, except as set
forth in such opinion or as previously disclosed in writing to and accepted
by MHKP Trust;
6.5.4. To the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required
for the consummation by PW Trust on behalf of Target of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required under state
securities laws;
6.5.5. PW Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to PW Trust (with respect to
Target) or any of its properties or assets attributable or allocable to
Target and (b) PW Trust (with respect to Target) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its business,
except as set forth in such opinion or as otherwise disclosed in writing to
and accepted by MHKP Trust.
In rendering such opinion, such counsel may rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel.
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<PAGE>
6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, addressed to and in form and substance satisfactory to PW
Trust, and MHKP Trust shall have received an opinion of Willkie Farr &
Gallagher, its counsel, addressed to and in form and substance satisfactory to
MHKP Trust, each as to the federal income tax consequences mentioned below (each
a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may rely as
to factual matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares to the
Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for its
Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares, and its holding period for those Acquiring Fund
Shares will include its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the Effective Time.
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<PAGE>
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder (regarding the recognition of gain or loss and/or the determination
of the basis or holding period) with respect to any asset (including certain
options, futures, and forward contracts included in the Assets) as to which any
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting.
At any time before the Closing, (a) Acquiring Fund may waive any of the
foregoing conditions if, in the judgment of MHKP Trust's board of trustees, such
waiver will not have a material adverse effect on its shareholders' interests,
and (b) Target may waive any of the foregoing conditions if, in the judgment of
PW Trust's board of trustees, such waiver will not have a material adverse
effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
---------------------------
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or not
they are consummated) will be borne by the Funds proportionately, as follows:
each such expense will be borne by the Funds in proportion to their respective
net assets as of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement; (b) expenses associated with the preparation and filing of the
Registration Statement; (c) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident as of the
date of the mailing of the Proxy Statement to such shareholders; (d) printing
and postage expenses; (e) legal and accounting fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered
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<PAGE>
pursuant hereto or in connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before December 31, 1995; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees or officers of
either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts; provided that, in the
case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a Business
Trust. Notice is hereby given that this instrument is executed on behalf of
each Investment Company's trustees solely in
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<PAGE>
their capacity as trustees, and not individually, and that each Investment
Company's obligations under this instrument are not binding on or enforceable
against any of its trustees, officers, or shareholders, but are only binding on
and enforceable against the respective Funds' assets and property. Each Fund
agrees that, in asserting any rights or claims under this Agreement, it shall
look only to the other Fund's assets and property in settlement of such rights
or claims and not to such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT
TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER, PEABODY GLOBAL
EQUITY FUND
/s/ Stephanie Hemphill-Johnson /s/ Gregory S. Todd
By: ______________________________ ______________________________
Secretary Vice President
ATTEST: PAINEWEBBER INVESTMENT SERIES,
on behalf of its series,
PAINEWEBBER GLOBAL GROWTH AND
INCOME FUND
/s/ Jennifer Farrell /s/ Gregory S. Todd
By: ______________________________ ______________________________
Assistant Secretary Vice President
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<PAGE>
Exhibit 99.6(a)
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of April 13, 1995 between MITCHELL HUTCHINS/ KIDDER,
PEABODY INVESTMENT TRUST, a Massachusetts business trust ("Fund") and MITCHELL
HUTCHINS ASSET MANAGEMENT INC. ("Manager"), a Delaware corporation registered as
a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934
Act"), and as an investment adviser under the Investment Advisers Act of 1940,
as amended.
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company, and intends
to offer for public sale distinct shares of beneficial interest ("Shares"),
which may be offered in separate and distinct classes of shares, each
corresponding to a distinct portfolio ("Series"); and
WHEREAS the Fund desires to retain Manager as investment adviser and
administrator to furnish certain administrative, investment advisory and
portfolio management services to the Fund and each Series as now exists and as
hereafter may be established, and Manager is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Manager as investment adviser
-----------
and administrator of the Fund and each Series for the period and on the terms
set forth in this Contract. Manager accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Duties as Investment Adviser.
----------------------------
(a) Subject to the supervision of the Fund's Board of Trustees ("Board"),
Manager will provide a continuous investment program for each Series, including
investment research and management with respect to all securities and
investments and cash equivalents in each Series. Manager will determine from
time to
<PAGE>
time what securities and other investments will be purchased, retained or sold
by each Series.
(b) Manager agrees that in placing orders with brokers, it will attempt to
obtain the best net result in terms of price and execution; provided that, on
behalf of any Series, Manager may, in its discretion, use brokers who provide
the Series with research, analysis, advice and similar services to execute
portfolio transactions on behalf of the Series, and Manager may pay to those
brokers in return for brokerage and research services a higher commission than
may be charged by other brokers, subject to Manager's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of Manager to such Series and its other clients
and that the total commissions paid by such Series will be reasonable in
relation to the benefits to the Series over the long term. In no instance will
portfolio securities be purchased from or sold to Manager, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder, or any applicable exemptive orders. Whenever
Manager simultaneously places orders to purchase or sell the same security on
behalf of a Series and one or more other accounts advised by Manager, such
orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable to each account. The Fund recognizes that in
some cases this procedure may adversely affect the results obtained for the
Series.
(c) Manager will oversee the maintenance of all books and records with
respect to the securities transactions of each Series, and will furnish the
Board with such periodic and special reports as the Board reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Manager hereby agrees that all records which it maintains for the Fund are the
property of the Fund, agrees to preserve for the periods prescribed by Rule 31a-
2 under the 1940 Act any records which it maintains for the Fund and which are
required to be maintained by Rule 31a-1 under the 1940 Act and further agrees to
surrender promptly to the Fund any records which it maintains for the Fund upon
request by the Fund.
(d) Manager will oversee the computation of the net asset value and the net
income of each Series as described in the currently effective registration
statement of the Fund under the Securities Act of 1933, as amended, and the 1940
Act and any supplements thereto ("Registration Statement") or as more frequently
requested by the Board.
(e) The Fund hereby authorizes Manager and any entity or person associated
with Manager which is a member of a national securities exchange to effect any
transaction on such exchange for
-2-
<PAGE>
the account of any Series, which transaction is permitted by Section 11(a) of
the 1934 Act, and the Fund hereby consents to the retention of compensation by
Manager or any person or entity associated with Manager for such transaction.
3. Duties as Administrator. Manager will administer the affairs of the
-----------------------
Fund and each Series subject to the supervision of the Board and the following
understandings:
(a) Manager will supervise all aspects of the operations of the Fund and
each Series, including oversight of transfer agency, custodial and accounting
services, except as hereinafter set forth; provided, however, that nothing
herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Fund and
each Series.
(b) Manager will provide the Fund and each Series with such corporate,
administrative and clerical personnel (including officers of the Fund) and
services as are reasonably deemed necessary or advisable by the Board, including
the maintenance of certain books and records of the Fund and each Series.
(c) Manager will arrange, but not pay, for the periodic preparation,
updating, filing and dissemination (as applicable) of the Fund's Registration
Statement, proxy material, tax returns and required reports to each Series'
shareholders and the Securities and Exchange Commission and other appropriate
federal or state regulatory authorities.
(d) Manager will provide the Fund and each Series with, or obtain for it,
adequate office space and all necessary office equipment and services, including
telephone service, heat, utilities, stationery supplies and similar items.
(e) Manager will provide the Board on a regular basis with economic and
investment analyses and reports and make available to the Board upon request any
economic, statistical and investment services normally available to
institutional or other customers of Manager.
4. Further Duties. In all matters relating to the performance of this
--------------
Contract, Manager will act in conformity with the Declaration of Trust, By-Laws
and currently effective Registration Statement of the Fund, as delivered to
Manager and upon which it shall be entitled to rely, and with the instructions
and directions of the Board, and will comply with the requirements of the 1940
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
-3-
<PAGE>
5. Delegation of Manager's Duties as Investment Adviser and Administrator.
----------------------------------------------------------------------
With respect to any or all Series, Manager may enter into one or more contracts
("Sub-Advisory or Sub-Administration Contract") with a sub-adviser or sub-
administrator in which Manager delegates to such sub-adviser or sub-
administrator any or all of its duties specified in Paragraphs 2 and 3 of this
Contract, provided that each Sub-Advisory or Sub-Administration Contract imposes
on the sub-adviser or sub-administrator bound thereby all the duties and
conditions to which Manager is subject by Paragraphs 2, 3 and 4 of this
Contract, and further provided that each Sub-Advisory or Sub-Administration
Contract meets all requirements of the 1940 Act and rules thereunder.
6. Services Not Exclusive. The services furnished by Manager hereunder
----------------------
are not to be deemed exclusive and Manager shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of Manager, who may also be a Trustee, officer or
employee of the Fund, to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
7. Expenses.
--------
(a) During the term of this Contract, each Series will bear all expenses,
not specifically assumed by Manager, incurred in its operations and the offering
of its shares.
(b) Expenses borne by each Series will include but not be limited to the
following (or each Series' proportionate share of the following): (i) the cost
(including brokerage commissions) of securities purchased or sold by the Series
and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Manager under this Contract; (iii)
expenses of organizing the Fund and the Series; (iv) filing fees and expenses
relating to the registration and qualification of the Series' shares and the
Fund under federal and/or state securities laws and maintaining such
registration and qualification; (v) fees and salaries payable to the Fund's
Trustees and officers who are not interested persons of the Fund or Manager;
(vi) all expenses incurred in connection with the Trustees' services, including
travel expenses in the case of Trustees who are not interested persons of the
Fund or Manager; (vii) taxes (including any income or franchise taxes) and
governmental fees; (viii) costs of any liability, uncollectible items of deposit
and other insurance and fidelity bonds; (ix) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Fund or Series for violation of any law and any indemnification
relating thereto; (x) legal, accounting and auditing
-4-
<PAGE>
expenses, including legal fees of special counsel for those Trustees of the Fund
who are not interested persons of the Fund; (xi) charges of custodians, transfer
agents and other agents; (xii) costs of preparing share certificates; (xiii)
expenses of setting in type and printing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials for existing shareholders; (xiv) costs of mailing prospectuses and
supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials to existing shareholders; (xv) any
extraordinary expenses (including fees and disbursements of counsel, costs of
actions, suits or proceedings to which the Fund is a party and the expenses the
Fund may incur as a result of its legal obligation to provide indemnification to
its officers, Trustees, agents and shareholders or to Manager) incurred by the
Fund or Series; (xvi) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (xvii) cost of
mailing and tabulating proxies and costs of meetings of shareholders, the Board
and any committees thereof; (xviii) the cost of investment company literature
and other publications provided by the Fund to its Trustees and officers; (xix)
costs of mailing, stationery and communications equipment; (xx) expenses
incident to any dividend, withdrawal or redemption options; (xxi) charges and
expenses of any outside pricing service used to value portfolio securities; and
(xxii) interest on borrowings of the Fund.
(c) Manager will assume the cost of any compensation for services provided
to the Fund received by the officers of the Fund and by those Trustees who are
interested persons of the Fund.
(d) The payment or assumption by Manager of any expenses of the Fund or a
Series that Manager is not required by this Contract to pay or assume shall not
obligate Manager to pay or assume the same or any similar expense of the Fund or
a Series on any subsequent occasion.
8. Compensation.
------------
(a) For the services provided and the expenses assumed pursuant to this
Contract with respect to each Series, the Fund will pay to Manager a fee,
computed daily and paid monthly, as set forth in Schedule A hereto.
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any Series hereafter established, the Trust will pay to
Manager from the assets of such Series a fee in an amount to be agreed upon in a
written fee agreement ("Fee Agreement") executed by the Fund on behalf of such
Series and by Manager. All such Fee Agreements shall provide that they are
subject to all terms and conditions of this Contract.
-5-
<PAGE>
(c) The fee shall be computed daily and paid monthly to Manager on or
before the first business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective day to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. Limitation of Liability of Manager. Manager and its delegates,
----------------------------------
including any Sub-Adviser or Sub-Administrator to the Fund, shall not be liable
for any error of judgment or mistake of law or for any loss suffered by any
Series, the Fund or any of its shareholders, in connection with the matters to
which this Contract relates, except to the extent that such a loss results from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Contract. Any person, even though also an officer,
director, employee, or agent of Manager, who may be or become an officer,
Trustee, employee or agent of the Fund shall be deemed, when rendering services
to any Series or the Fund or acting with respect to any business of such Series
or the Fund, to be rendering such service to or acting solely for the Series or
the Fund and not as an officer, director, employee, or agent or one under the
control or direction of Manager even though paid by it.
10. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove written
provided that, with respect to any Series, this Contract shall not take effect
unless it has first been approved (i) by a vote of a majority of those Trustees
of the Fund who are not parties to this Contract or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of that Series' outstanding voting
securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if
not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of those Trustees of the
Fund who are not parties to this Contract or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a majority of the outstanding
voting securities of a Series with respect to that Series.
-6-
<PAGE>
(c) Notwithstanding the foregoing, with respect to any Series this Contract
may be terminated at any time, without the payment of any penalty, by vote of
the Board or by a vote of a majority of the outstanding voting securities of
such Series on sixty days' written notice to Manager or by Manager at any time,
without the payment of any penalty, on sixty days' written notice to the Fund.
Termination of this Contract with respect to any given Series shall in no way
affect the continued validity of this Contract or the performance thereunder
with respect to any other Series. This Contract will automatically terminate in
the event of its assignment.
11. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no material amendment of this Contract
as to any given Series shall be effective until approved by vote of a majority
of such Series' outstanding voting securities.
12. Governing Law. This Contract shall be construed in accordance with
-------------
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act, provided, however,
that Section 13 will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent that the applicable laws of the
State of Delaware or the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.
13. Limitation of Liability of the Trustees and Shareholders of the Trust.
----------------------------------------------------------------------
No Trustee, shareholder, officer, employee or agent of any Series shall be
liable for any obligations of any Series or the Fund under this Contract, and
Manager agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund in settlement of such
right or claim, and not to such Trustee, shareholder, officer, employee or
agent. The Fund represents that a copy of its Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and the Boston City
Clerk.
14. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities", "affiliated person",
"interested person", "assignment", "broker", "investment adviser", "national
securities exchange", "net assets", "prospectus", "sale", "sell" and
-7-
<PAGE>
"security" shall have the same meaning as such terms have in the 1940 Act,
subject to such exemption as may be granted by the Securities and Exchange
Commission by any rule, regulation or order. Where the effect of a requirement
of the 1940 Act reflected in any provision of this Contract is affected by a
rule, regulation or order of the Securities and Exchange Commission, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Jennifer Farrell /s/ Margo Alexander, President
____________________ By _____________________________________
Attest: MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST
/s/ Jennifer Farrell /s/ Dianne E. O'Donnell, Vice President
____________________ By _______________________________________
-8-
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Series Fee*
- ----------------------------------- ------------------------
<S> <C>
Mitchell Hutchins/Kidder, Peabody 1.00%
Global Equity Fund
Mitchell Hutchins/Kidder, Peabody .45%
Adjustable Rate Government Fund
Mitchell Hutchins/Kidder, Peabody .50% up to $250 million
Asset Allocation Fund .45% over $250 million
Mitchell Hutchins/Kidder, Peabody .70%
Global Fixed Income Fund
Mitchell Hutchins/Kidder, Peabody .70%
Intermediate Fixed Income Fund
============================================================
</TABLE>
__________
* Rate as a percentage of the Series' average net assets.
-9-
<PAGE>
Exhibit 99.6(b)
SUB-INVESTMENT ADVISORY AGREEMENT
---------------------------------
April 13, 1995
GE Investment Management Incorporated
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06904
Dear Sirs:
Mitchell Hutchins/Kidder, Peabody Investment Trust, a business trust formed
under the laws of the Commonwealth of Massachusetts (the "Trust") and Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), the Fund's manager,
confirm their agreement with GE Investment Management Incorporated ("GEIM") with
respect to GEIM's serving as the investment adviser of Mitchell Hutchins/Kidder,
Peabody Global Equity Fund (the "Fund"), a series of the Trust, as follows:
Section 1. Services as Investment Adviser.
(a) The Trust anticipates that the Fund will employ its capital by
investing and reinvesting in investments of the type specified in the Trust's
Declaration of Trust dated March 28, 1991, as amended from time to time (the
"Declaration of Trust"), and in the current Prospectus and Statement of
Additional Information describing the Fund from time to time in effect, and in
the manner and to the extent approved by the Board of Trustees of the Trust.
Copies of the current Prospectus and Statement of Additional Information
describing the Fund have been submitted to GEIM and Mitchell Hutchins.
(b) Under an agreement dated as of April 13, 1995 between the Trust and
Mitchell Hutchins relating to the Fund (the "Management Agreement"), Mitchell
Hutchins serves as the Fund's manager and has the responsibility of selecting
and compensating an investment adviser to the Fund. Acting pursuant to the
authority provided in the Management Agreement, Mitchell Hutchins selects GEIM
to serve as the Fund's investment adviser for the compensation set out in
Section 4 of this Agreement.
<PAGE>
(c) Subject to the supervision and direction of the Trust's Board of
Trustees, and subject to review by Mitchell Hutchins, GEIM, as the Fund's
investment adviser, will manage the Fund's portfolio in accordance with the
investment objective and stated policies of the Fund, will make investment
decisions for the Fund and will place purchase and sale orders for the Fund's
portfolio transactions.
(d) GEIM will, at its own expense, maintain sufficient staff, and employ or
retain sufficient personnel and consult with any other persons that it
determines may be necessary or useful to the performance of its obligations
under this Agreement.
Section 2. Selection of Investments on Behalf of the Fund.
Unless otherwise set forth in the current Prospectus describing the Fund or
directed by Mitchell Hutchins or the Trust, GEIM will, in selecting brokers or
dealers to effect transactions on behalf of the Fund, give primary consideration
to securing the most favorable price and efficient execution. In so doing, GEIM
may consider the financial responsibility, research and investment information
and other services provided by brokers or dealers who may effect or be a party
to any transaction to which the Fund is a party or other transaction to which
other clients of GEIM may be a party. The Trust recognizes the desirability of
GEIM's having access to supplemental investment and market research and security
and economic analyses provided by brokers and that those brokers may execute
brokerage transactions at a higher cost to the Fund than would be the case if
the transactions were executed on the basis of the most favorable price and
efficient execution. The Trust, thus, authorizes GEIM, to the extent permitted
by applicable law and regulations, to pay higher brokerage commissions for the
purchase and sale of securities for the Fund to brokers who provide supplemental
investment and market research and security and economic analyses, subject to
review by the Trustees of the Trust and of Mitchell Hutchins from time to time
with respect to the extent and continuation of this practice. The Trust
understands that the services provided by those brokers may be useful to GEIM in
connection with its services to other clients.
Section 3. Costs and Expenses.
GEIM will bear the cost of rendering the services it is obligated to
provide under this Agreement and will, at its own expense, pay the salaries of
all officers and employees who are employed by both it and the Trust. GEIM will
provide the Fund with investment officers who are authorized by the Trust's
Board of Trustees to execute purchases and sales of securities on behalf of the
Fund and will employ a professional staff of portfolio managers who draw upon a
variety of sources for research information for the Fund. Other expenses to be
incurred in the
2
<PAGE>
operation of the Fund and not specifically borne by Mitchell Hutchins or GEIM
will be borne by the Fund, including: Mitchell Hutchins' fees for services
rendered under the Management Agreement; shareholder servicing fees paid to
Mitchell Hutchins under the terms of the Trust's shareholder servicing plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"); charges and expenses of any registrar, custodian,
transfer and dividend disbursing agent providing services to the Trust in
connection with the Fund; brokerage fees and commissions; taxes; engraving and
printing of the Fund's share certificates, if any; registration costs of the
Fund and its shares under federal and state securities laws; the costs and
expense of printing; including typesetting, and distributing of prospectuses and
statements of additional information describing the Fund and supplements thereto
to regulatory authorities and the Fund's shareholders; all expenses incurred in
conducting meetings of the Fund's shareholders and meetings of the Trust's Board
of Trustees relating to the Fund; all expenses incurred in preparing, printing
and mailing proxy statements and reports to shareholders of the Fund; fees and
travel expenses of members of the Trust's Board of Trustees or members of any
advisory board or committee who are not employees of Mitchell Hutchins, GEIM, or
any of their affiliates; all expenses incident to any dividend, withdrawal or
redemption options provided to Fund shareholders; charges and expenses of any
outside service used for pricing the Fund's portfolio securities and calculating
the net asset value of the Fund's shares; fees and expenses of legal counsel,
including counsel to the members of the Trust's Board of Trustees who are not
interested persons of the Fund, Mitchell Hutchins or GEIM, and independent
auditors; membership dues of industry associations; interest on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Trust that inure to their benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Fund's operations.
Section 4. Compensation.
In consideration of services rendered pursuant to this Agreement, Mitchell
Hutchins will pay GEIM on the Trust's first business day of each month a fee
that is accrued daily at the annual rate of .70% of the value of the Fund's
average daily net assets up to $200 million and .50% thereafter for the previous
month. The fee for the period from the date the Trust's registration statement
describing the Fund (the "Registration Statement") is declared effective by the
Securities and Exchange Commission (the "Commission") to the end of the month
during which the Registration Statement is declared effective by the Commission
will be prorated according to the proportion that the period bears to the full
monthly period. Upon any termination of this Agreement before the end of the
month, the fee for the
3
<PAGE>
portion of the month in which this Agreement is in effect will be prorated
according to the proportion that the portion bears to the full monthly period
and will be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to GEIM under this Agreement, the value of
the Fund's net assets will be computed in the manner described in the Trust's
current Prospectus and/or Statement of Additional Information describing the
Fund.
Section 5. Excess Expense Reimbursement.
If, in any fiscal year of the Fund, the aggregate expenses of the Fund
(including management fees, but excluding interest, taxes, brokerage and, with
the prior written consent of the necessary state securities authorities,
extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Trust, GEIM will reimburse Mitchell Hutchins for 70% of
the Fund's average daily net assets up to $200 million and 50% thereafter of the
amount Mitchell Hutchins is required to reimburse the Trust under the Management
Agreement. The expense reimbursement obligation of GEIM is limited to the
amount of fees to which GEIM is entitled under this Agreement. The expense
reimbursement payable under the terms of this Section 5 will be estimated,
reconciled and paid on a monthly basis.
Section 6. Services to Other Companies or Accounts.
(a) The Trust and Mitchell Hutchins understand and acknowledge that GEIM
now acts and will continue to act as investment manager or adviser to various
fiduciary or other managed accounts and the Trust and Mitchell Hutchins have no
objection to GEIM's so acting, so long as that when the Fund and any account
served by GEIM are prepared to invest in, or desire to dispose of the same
security, available investments or opportunities for sales will be allocated in
a manner believed by GEIM to be equitable to the Fund and the account. The
Trust and Mitchell Hutchins recognize that, in some cases, this procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or disposed of by the Fund.
(b) The Trust and Mitchell Hutchins understand and acknowledge that the
persons employed by GEIM to assist in the performance of its duties under this
Agreement will not devote their full time to that service: nothing contained in
this Agreement will be deemed to limit or restrict the right of GEIM or any
affiliate of GEIM to engage in and devote time and attention to other businesses
or to render services of whatever kind or nature.
4
<PAGE>
Section 7. Continuance and Termination of the Agreement.
(a) This Agreement will become effective as of April 13, 1995, and will
continue for an initial two-year term and will continue thereafter so long as
the continuance is specifically approved at least annually (a) by the Trustees
of the Trust or (b) by a vote of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act, provided that in either event the
continuance is also approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on the approval.
(b) This Agreement is terminable without penalty, by the Trust on not more
than 60 nor less than 30 days' notice to Mitchell Hutchins and GEIM, by vote of
holders of a majority of the Fund's outstanding voting securities, as defined in
the 1940 Act, or by Mitchell Hutchins or GEIM on not more than 60 nor less than
30 days' notice to the Trust.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act or in rules adopted under the 1940 Act).
Section 8. Filing of Declaration of Trust.
The Trust represents that a copy of the Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and with the Boston City
Clerk.
Section 9. Limitation of Liability.
(a) GEIM will 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 this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of GEIM in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also an officer, director, employee or agent
of GEIM, who may be or become an officer, Trustee, employee or agent of the
Trust, will be deemed, when rendering services to the Trust or acting on any
business of the Trust, to be rendering services to, or acting solely for, the
Trust and not as an officer, director, employee or agent, or one under the
control or direction of, GEIM even though paid by GEIM.
(b) The Trust, Mitchell Hutchins and GEIM agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Declaration of Trust.
5
<PAGE>
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither the authorization by the Trustees nor the execution and
delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Trust as provided in the Declaration of Trust.
No series of the Trust, including the Fund, will be liable for any claims
against any other series.
Section 10. Dates.
This Agreement has been executed by the Trust, GEIM and Mitchell Hutchins
as of April 13, 1995 and will become effective as of this date.
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
By:_______________________________
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:_______________________________
Accepted:
GE INVESTMENT MANAGEMENT INCORPORATED
By:________________________________
6
<PAGE>
Exhibit 99.7(a)
KIDDER, PEABODY INVESTMENT TRUST
DISTRIBUTION CONTRACT
CLASS A SHARES
CONTRACT made as of January 30, 1995, between KIDDER, PEABODY INVESTMENT
TRUST, a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and 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
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Plan") and desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class A Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class A Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class A Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class A Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class A Shares directly through the
<PAGE>
Fund's transfer agent in the manner set forth in the Registration Statement. As
used in this Contract, the term "Registration Statement" shall mean the
currently effective registration statement of the Fund, and any supplements
thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940
Act.
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to solicit orders for the sale of shares of
the Fund and to undertake advertising and promotion that it believes reasonable
in connection with such solicitation as agent for the Fund and upon the terms
described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial offering of
the Class A Shares to the public by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class A Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to sell
Class A Shares to such registered and qualified retail dealers, including but
not limited to PaineWebber Incorporated ("PaineWebber"), as it may select. In
making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class A Shares of each Series shall be the
net asset value per Share as next determined by the Fund following receipt of an
order at Mitchell Hutchins' principal office plus the applicable initial sales
charge, if any, computed as set forth in the Registration Statement. The Fund
shall promptly furnish Mitchell Hutchins with a statement of each computation of
net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain number of
Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders directly or
through dealers, Mitchell Hutchins is authorized but not required on behalf of
the Fund to repurchase Class A Shares presented to it by shareholders and
dealers at the price determined in accordance with, and in the manner set forth
in, the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services, which
include responding to shareholder
- 2 -
<PAGE>
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) Mitchell Hutchins shall have the right to use any list of shareholders
of the Fund or any other list of investors which it obtains in connection with
its provision of services under this Contract; provided, however, that Mitchell
Hutchins shall not sell or knowingly provide such list or lists to any
unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to Delegate
-----------------------------------------------------------------------
Duties as Distributor. With respect to the Class A Shares of any or all Series,
- ---------------------
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
A Shares or the provision of service activities. In a separate contract or as
part of any such exclusive dealer agreement, Mitchell Hutchins also may delegate
to PaineWebber or another registered and qualified dealer ("sub-distributor")
any or all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
-------------
(a) As compensation for its service activities under this contract with
respect to the Class A Shares, Mitchell Hutchins shall receive from the Fund a
service fee at the rate and under the terms and conditions of the Plan adopted
by the Fund, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
- 3 -
<PAGE>
(b) As compensation for its activities under this contract with respect to
the distribution of the Class A Shares, Mitchell Hutchins shall retain the
initial sales charge, if any, on purchases of Class A Shares as set forth in the
Registration Statement. Mitchell Hutchins is authorized to collect the gross
proceeds derived from the sale of the Class A Shares, remit the net asset value
thereof to the Fund upon receipt of the proceeds and retain the initial sales
charge, if any.
(c) Mitchell Hutchins may reallow any or all of the initial sales charges
or service fees which it is paid under this Contract to such dealers as Mitchell
Hutchins may from time to time determine.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering Class A
Shares of any or all Series by written notice to Mitchell Hutchins at its
principal office.
(b) The Fund shall determine in its sole discretion whether certificates
shall be issued with respect to the Class A Shares. If the Fund has determined
that certificates shall be issued, the Fund will not cause certificates
representing Class A Shares to be issued unless so requested by shareholders.
If such request is transmitted by Mitchell Hutchins, the Fund will cause
certificates evidencing Class A Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its affairs and
shall make available to Mitchell Hutchins copies of all information, financial
statements, and other papers which Mitchell Hutchins may reasonably request for
use in connection with the distribution of Class A Shares, including, without
limitation, certified copies of any financial statements prepared for the Fund
by its independent public accountant and such reasonable number of copies of the
most current prospectus, statement of additional information, and annual and
interim reports of any Series as Mitchell Hutchins may request, and the Fund
shall cooperate fully in the efforts of Mitchell Hutchins to sell and arrange
for the sale of the Class A Shares of the Series and in the performance of
Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action, including
payment of the related filing fee, as may be necessary to register the Class A
Shares under the 1933 Act to the end that there will be available for sale such
number of Class A Shares as Mitchell Hutchins may be expected to sell. The Fund
agrees to file, from time to time, such amendments, reports, and other documents
as may be necessary in order that
- 4 -
<PAGE>
there will be no untrue statement of a material fact in the Registration
Statement, nor any omission of a material fact which omission would make the
statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to execute a general consent to the service of process in any state.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
--------------------
registering the Class A Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class A Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class A Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class A Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of
- 5 -
<PAGE>
Class A Shares as may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins, its
officers and directors, and any person who controls Mitchell Hutchins within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in the Registration
Statement or any related prospectus ("Prospectus") or arising out of or based
upon any omission, or alleged omission, to state a material fact required to be
stated in the Registration Statement or Prospectus or necessary to make the
statements therein not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by Mitchell Hutchins to the
Fund for use in the Registration Statement or Prospectus; provided, however,
that this indemnity agreement shall not inure to the benefit of any person who
is also an officer or trustee of the Fund or who controls the Fund within the
meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent, that
such result would not be against public policy as expressed in the 1933 Act; and
further provided, that in no event shall anything contained herein be so
construed as to protect Mitchell Hutchins against any liability to the Fund or
to the shareholders of any Series to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Contract. The Fund shall not be liable to Mitchell
Hutchins under this indemnity agreement with respect to any claim made against
Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other
such person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon Mitchell
Hutchins or such other person (or after Mitchell Hutchins or the person shall
have received notice of service on any designated agent). However, failure to
notify the Fund of any claim shall not relieve the Fund from any liability which
it may have to Mitchell Hutchins or any person against whom such action is
brought otherwise than on account of this
- 6 -
<PAGE>
indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to the indemnified defendants in
the suit. In the event that the Fund elects to assume the defense of any suit
and retain counsel, the indemnified defendants shall bear the fees and expenses
of any additional counsel retained by them. If the Fund does not elect to
assume the defense of a suit, it will reimburse the indemnified defendants for
the reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify Mitchell Hutchins promptly of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any of its Class A
Shares.
(b) The Fund's indemnification agreement contained in this Section 9 will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Mitchell Hutchins, its officers and directors, or any
controlling person, and will survive the delivery of any shares of the Fund.
(c) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund, its
officers and trustees and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Fund, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by Mitchell Hutchins
to the Fund for use in the Registration Statement, or arising out of or based
upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement necessary to
make such information not misleading. Mitchell Hutchins shall have the right to
control the defense of any action contemplated by this Section 9(c), with
counsel of its own choosing, satisfactory to the Fund, unless the action is not
based solely upon an alleged misstatement or omission on Mitchell Hutchins'
part. In such event, the Fund, its officers or trustees or controlling persons
will each have the right to participate in the defense or preparation of the
defense of the action. In the event that Mitchell Hutchins elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If Mitchell
Hutchins does not elect to assume the defense of any suit, it will reimburse the
indemnified defendants in the suit
- 7 -
<PAGE>
for the reasonable fees and expenses of any counsel retained by them.
(d) Mitchell Hutchins shall not be liable to the Fund under this indemnity
agreement with respect to any claim made against the Fund or any person
indemnified unless the Fund or other such person shall have notified Mitchell
Hutchins in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Fund or such other person (or after the Fund
shall have received notice of service on any designated agent). Mitchell
Hutchins will not be obligated to indemnify any entity or person against any
liability to which the Fund, its officers and trustees, or any controlling
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in performance of, or reckless disregard of, the obligations
and duties set forth in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
--------------------------------------------------------------------
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
The Fund represents that a copy of the Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk.
11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove written,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund, and have no direct or indirect financial interest in the
operation of the Plan relating to the Series or in any agreements related
thereto (all such trustees collectively being referred to herein as the
"Independent Trustees") cast in
- 8 -
<PAGE>
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Class A Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class A Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series shall in
no way affect the continued validity of this Contract or the performance
thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall
- 9 -
<PAGE>
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby. This Contract shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors. As used in this Contract, the terms "majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: KIDDER, PEABODY INVESTMENT TRUST
/s/Dawn Ciulla /s/Robert B. Jones
------------------------- -----------------------------------
Dawn Ciulla Robert B. Jones
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/Jennifer Farrell /s/Dianne E. O'Donnell
------------------------- ------------------------------------
Jennifer Farrell Dianne E. O'Donnell
- 10 -
<PAGE>
Exhibit 99.7(b)
KIDDER, PEABODY INVESTMENT TRUST
DISTRIBUTION CONTRACT
Class B SHARES
CONTRACT made as of January 30, 1995, between KIDDER, PEABODY INVESTMENT
TRUST, a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and 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
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Plan") and desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class B Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class B Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class B Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the
<PAGE>
Fund's transfer agent in the manner set forth in the Registration Statement. As
used in this Contract, the term "Registration Statement" shall mean the
currently effective registration statement of the Fund, and any supplements
thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940
Act.
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to solicit orders for the sale of shares of
the Fund and to undertake advertising and promotion that it believes reasonable
in connection with such solicitation as agent for the Fund and upon the terms
described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial offering of
the Class B Shares to the public by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class B Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to sell
Class B Shares to such registered and qualified retail dealers, including but
not limited to PaineWebber Incorporated ("PaineWebber"), as it may select. In
making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class B Shares of each Series shall be the
net asset value per Share as next determined by the Fund following receipt of an
order at Mitchell Hutchins' principal office. The Fund shall promptly furnish
Mitchell Hutchins with a statement of each computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain number of
Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders directly or
through dealers, Mitchell Hutchins is authorized but not required on behalf of
the Fund to repurchase Class B Shares presented to it by shareholders and
dealers at the price determined in accordance with, and in the manner set forth
in, the Registration Statement. Such price shall reflect the subtraction of the
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing
- 2 -
<PAGE>
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) Mitchell Hutchins shall have the right to use any list of shareholders
of the Fund or any other list of investors which it obtains in connection with
its provision of services under this Contract; provided, however, that Mitchell
Hutchins shall not sell or knowingly provide such list or lists to any
unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to Delegate
-----------------------------------------------------------------------
Duties as Distributor. With respect to the Class B Shares of any or all Series,
- ---------------------
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
B Shares or the provision of service activities. In a separate contract or as
part of any such exclusive dealer agreement, Mitchell Hutchins also may delegate
to PaineWebber or another registered and qualified dealer ("sub-distributor")
any or all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
-------------
(a) As compensation for its service activities under this contract with
respect to the Class B Shares, Mitchell Hutchins shall receive from the Fund a
service fee at the rate and under the terms and conditions of the Plan adopted
by the
- 3 -
<PAGE>
Fund with respect to the Series, as such Plan is amended from time to time, and
subject to any further limitations on such fee as the Board may impose.
(b) As compensation for its activities under this contract with respect to
the distribution of the Class B Shares, Mitchell Hutchins shall receive from the
Fund a distribution fee adopted by the Fund with respect to the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(c) As compensation for its activities under this contract with respect to
the distribution of the Class B Shares, Mitchell Hutchins shall receive all
contingent deferred sales charges imposed on redemption of Class B Shares of
each Series. Whether and at what rate a contingent deferred sales charge will
be imposed with respect to a redemption shall be determined in accordance and in
the manner set forth in the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution or
service fees, or contingent deferred sales charges, which it is paid under this
Contract to such dealers as Mitchell Hutchins may from time to time determine.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering Class B
Shares of any or all Series by written notice to Mitchell Hutchins at its
principal office.
(b) The Fund shall determine in its sole discretion whether certificates
shall be issued with respect to the Class B Shares. If the Fund has determined
that certificates shall be issued, the Fund will not cause certificates
representing Class B Shares to be issued unless so requested by shareholders.
If such request is transmitted by Mitchell Hutchins, the Fund will cause
certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its affairs and
shall make available to Mitchell Hutchins copies of all information, financial
statements, and other papers which Mitchell Hutchins may reasonably request for
use in connection with the distribution of Class B Shares, including, without
limitation, certified copies of any financial statements prepared for the Fund
by its independent public accountant and such reasonable number of copies of the
most current prospectus, statement of additional information, and annual and
interim reports of any Series as Mitchell Hutchins may request, and the Fund
shall cooperate fully in the efforts of
- 4 -
<PAGE>
Mitchell Hutchins to sell and arrange for the sale of the Class B Shares of the
Series and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action, including
payment of the related filing fee, as may be necessary to register the Class B
Shares under the 1933 Act to the end that there will be available for sale such
number of Class B Shares as Mitchell Hutchins may be expected to sell. The Fund
agrees to file, from time to time, such amendments, reports, and other documents
as may be necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, nor any omission of a material fact
which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to execute a general consent to the service of process in any state.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
--------------------
registering the Class B Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class B Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class B Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional
- 5 -
<PAGE>
information, and annual and interim shareholder reports other than copies
thereof required for distribution to existing shareholders or for filing with
any federal or state securities authorities; (ii) any expenses of advertising
incurred by Mitchell Hutchins in connection with such offering; (iii) the
expenses of registration or qualification of Mitchell Hutchins as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to Mitchell
Hutchins' employees and others for selling Class B Shares, and all expenses of
Mitchell Hutchins, its employees and others who engage in or support the sale of
Class B Shares as may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins, its
officers and directors, and any person who controls Mitchell Hutchins within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in the Registration
Statement or any related prospectus ("Prospectus") or arising out of or based
upon any omission, or alleged omission, to state a material fact required to be
stated in the Registration Statement or Prospectus or necessary to make the
statements therein not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by Mitchell Hutchins to the
Fund for use in the Registration Statement or Prospectus; provided, however,
that this indemnity agreement shall not inure to the benefit of any person who
is also an officer or trustee of the Fund or who controls the Fund within the
meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent, that
such result would not be against public policy as expressed in the 1933 Act; and
further provided, that in no event shall anything contained herein be so
construed as to protect Mitchell Hutchins against any liability to the Fund or
to the shareholders of any Series to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Contract. The Fund shall not be liable to Mitchell
Hutchins under this indemnity agreement with
- 6 -
<PAGE>
respect to any claim made against Mitchell Hutchins or any person indemnified
unless Mitchell Hutchins or other such person shall have notified the Fund in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon Mitchell Hutchins or such other person (or after Mitchell
Hutchins or the person shall have received notice of service on any designated
agent). However, failure to notify the Fund of any claim shall not relieve the
Fund from any liability which it may have to Mitchell Hutchins or any person
against whom such action is brought otherwise than on account of this indemnity
agreement. The Fund shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity agreement. If the Fund elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Fund and satisfactory to the indemnified defendants in the suit.
In the event that the Fund elects to assume the defense of any suit and retain
counsel, the indemnified defendants shall bear the fees and expenses of any
additional counsel retained by them. If the Fund does not elect to assume the
defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify Mitchell Hutchins promptly of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any of its Class B
Shares.
(b) The Fund's indemnification agreement contained in this Section 9 will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Mitchell Hutchins, its officers and directors, or any
controlling person, and will survive the delivery of any shares of the Fund.
(c) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund, its
officers and trustees and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Fund, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by Mitchell Hutchins
to the Fund for use in the Registration Statement, or arising out of or based
upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement necessary to
make such information not misleading. Mitchell Hutchins shall have the right to
control the defense of any action contemplated
- 7 -
<PAGE>
by this Section 9(c), with counsel of its own choosing, satisfactory to the
Fund, unless the action is not based solely upon an alleged misstatement or
omission on Mitchell Hutchins' part. In such event, the Fund, its officers or
trustees or controlling persons will each have the right to participate in the
defense or preparation of the defense of the action. In the event that Mitchell
Hutchins elects to assume the defense of any suit and retain counsel, the
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them. If Mitchell Hutchins does not elect to assume the
defense of any suit, it will reimburse the indemnified defendants in the suit
for the reasonable fees and expenses of any counsel retained by them.
(d) Mitchell Hutchins shall not be liable to the Fund under this indemnity
agreement with respect to any claim made against the Fund or any person
indemnified unless the Fund or other such person shall have notified Mitchell
Hutchins in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Fund or such other person (or after the Fund
shall have received notice of service on any designated agent). Mitchell
Hutchins will not be obligated to indemnify any entity or person against any
liability to which the Fund, its officers and trustees, or any controlling
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in performance of, or reckless disregard of, the obligations
and duties set forth in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
--------------------------------------------------------------------
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
The Fund represents that a copy of the Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk.
11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
- 8 -
<PAGE>
12. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove written,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund, and have no direct or indirect financial interest in the
operation of the Plan relating to the Series or in any agreements related
thereto (all such trustees collectively being referred to herein as the
"Independent Trustees") cast in person at a meeting called for the purpose of
voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months 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 by vote of a majority of the outstanding voting securities of
the Class B Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class B Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series shall in
no way affect the continued validity of this Contract or the performance
thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
- 9 -
<PAGE>
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: KIDDER, PEABODY INVESTMENT TRUST
/s/Dawn Ciulla /s/Robert B. Jones
----------------------- --------------------------------
Dawn Ciulla Robert B. Jones
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/Jennifer Farrell /s/Dianne E. O'Donnell
---------------------- ---------------------------------
Jennifer Farrell Dianne E. O'Donnell
- 10 -
<PAGE>
Exhibit 99.7(c)
KIDDER, PEABODY INVESTMENT TRUST
DISTRIBUTION CONTRACT
CLASS C SHARES
CONTRACT made as of January 30, 1995, between KIDDER, PEABODY INVESTMENT
TRUST, a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and currently
has 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
C shares ("Class C Shares"); and
WHEREAS the Fund desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class C Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class C Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class C Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class C Shares directly through the Fund's transfer agent in the
manner set forth in the Registration
<PAGE>
Statement. As used in this Contract, the term "Registration Statement" shall
mean the currently effective registration statement of the Fund, and any
supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"),
and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to solicit orders for the sale of Class
C shares of the Fund and to undertake advertising and promotion it believes
reasonable in connection with such solicitation as agent for the Fund and upon
the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class C Shares by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class C Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class C Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class C Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.
(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services
- 2 -
<PAGE>
under this Contract; provided, however, that Mitchell Hutchins shall not sell or
knowingly provide such list or lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Contracts and to Delegate
----------------------------------------------------------------------
Duties as Distributor. With respect to the Class C Shares of any or all Series,
- ---------------------
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
C Shares. In a separate contract or as part of any such exclusive dealer
agreement, Mitchell Hutchins also may delegate to PaineWebber or another
registered and qualified dealer ("sub-distributor") any or all of its duties
specified in this Contract, provided that such separate contract or exclusive
dealer agreement imposes on the sub-distributor bound thereby all applicable
duties and conditions to which Mitchell Hutchins is subject under this Contract,
and further provided that such separate contract or exclusive dealer agreement
meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation and Reimbursement of Distribution Expenses. The Fund
-------------------------------------------------------
shall have no obligation to compensate or reimburse Mitchell Hutchins for any
services performed by it hereunder.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering
Class C Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class C Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class C Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class C Shares to be issued in such names
- 3 -
<PAGE>
and denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class C Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class C Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class C Shares under the 1933 Act to the end that there will be available for
sale such number of Class C Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to consent to service of process in any state. Mitchell Hutchins shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
---------------------
registering the Class C Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation
- 4 -
<PAGE>
and mailing of annual and interim reports, prospectuses, statements of
additional information and proxy materials to shareholders; and (iv) the
qualifications of Class C Shares for sale and of the Fund as a broker or dealer
under the securities laws of such jurisdictions as shall be selected by the Fund
and Mitchell Hutchins pursuant to Paragraph 6(e) hereof, and the costs and
expenses payable to each such jurisdiction for continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class C Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class C Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class C Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in the Registration
Statement or any related prospectus ("Prospectus") or arising out of or based
upon any omission, or alleged omission, to state a material fact required to be
stated in the Registration Statement or Prospectus or necessary to make the
statements therein not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
- 5 -
<PAGE>
conformity with information furnished in writing by Mitchell Hutchins to the
Fund for use in the Registration Statement or Prospectus; provided, however,
that this indemnity agreement shall not inure to the benefit of any person who
is also an officer or trustee of the Fund or who controls the Fund within the
meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent, that
such result would not be against public policy as expressed in the 1933 Act; and
further provided, that in no event shall anything contained herein be so
construed as to protect Mitchell Hutchins against any liability to the Fund or
to the shareholders of any Series to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Contract. The Fund shall not be liable to Mitchell
Hutchins under this indemnity agreement with respect to any claim made against
Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other
such person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon Mitchell
Hutchins or such other person (or after Mitchell Hutchins or the person shall
have received notice of service on any designated agent). However, failure to
notify the Fund of any claim shall not relieve the Fund from any liability which
it may have to Mitchell Hutchins or any person against whom such action is
brought otherwise than on account of this indemnity agreement. The Fund shall
be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity agreement. If the Fund elects to assume the defense of any
such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to indemnified defendants in the suit. In the event that the Fund
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Fund does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants. The Fund agrees to notify
Mitchell Hutchins promptly of the commencement of any litigation or proceedings
against it or any of its officers or trustees in connection with the issuance or
sale of any of its Class C Shares.
(b) The Fund's indemnification agreement contained in this Section 9
will remain operative and in full force and effect regardless of any
investigation made by or on behalf of Mitchell Hutchins, its officers and
directors, or any controlling person
- 6 -
<PAGE>
and will survive the delivery of any shares of the Fund.
(c) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer. Mitchell Hutchins
shall have the right to control the defense of any action contemplated by this
Section 9(c), with counsel of its own choosing, satisfactory to the Fund, unless
the action is not based solely upon an alleged misstatement or omission on
Mitchell Hutchins' part. In such event, the Fund, its officers or trustees or
controlling persons will each have the right to participate in the defense or
preparation of the defense of the action. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
--------------------------------------------------------------------
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
The Fund represents that a copy of the Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk.
11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed,
- 7 -
<PAGE>
when rendering services to the Fund or acting in any business of the Fund, to be
rendering such services to or acting solely for the Fund and not as an officer,
director, employee or agent or one under the control or direction of Mitchell
Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in this Contract or in any agreements related thereto (all such
Trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Class C Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against
- 8 -
<PAGE>
which enforcement of the change, waiver, discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the 1940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: KIDDER, PEABODY INVESTMENT TRUST
/s/Dawn Ciulla /s/Robert B. Jones
---------------------- --------------------------------
Dawn Ciulla Robert B. Jones
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/Jennifer Farrell /s/Dianne E. O'Donnell
---------------------- --------------------------------
Jennifer Farrell Dianne E. O'Donnell
- 9 -
<PAGE>
Exhibit 99.10(a)
DISTRIBUTION RELATED SERVICES AGREEMENT
---------------------------------------
January 30, 1995
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Kidder, Peabody Investment Trust (the "Trust") confirms its agreement with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") implementing the
terms of the amended and restated shareholder servicing and distribution plan
dated as of December 16, 1992 (the "Plan") adopted by the Trust with respect to
the Class B shares (the "Class B shares") of Kidder, Peabody Global Equity Fund
(the "Fund"), a series of the Trust, pursuant to Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940, as amended (the "1940 Act"), as follows:
SECTION 1. COMPENSATION AND SERVICES TO BE RENDERED.
----------------------------------------
(a) The Trust will pay Mitchell Hutchins an annual fee in connection with
distribution related services provided with respect to the Class B shares of the
Fund. The annual fee paid to Mitchell Hutchins under this Agreement will be
calculated daily and paid monthly by the Trust at the annual rate of .75% of the
value of the average daily net assets of the Fund.
(b) The annual fee will be used by Mitchell Hutchins to provide initial and
ongoing sales compensation to its registered representatives in respect of sales
of Class B shares of the Fund; costs of printing and distributing the Fund's
Prospectus, Statement of Additional Information and sales literature to
prospective investors that are attributable to sales of the Class B shares of
the Fund; costs associated with any advertising relating to Class B shares of
the Fund; an allocation of overhead and other Mitchell Hutchins branch office
expenses related to the distribution of Class B shares of the Fund; and payments
to, and expenses of, persons who provide support services in connection with the
distribution of the Class B shares of the Fund.
SECTION 2. APPROVAL BY TRUSTEES.
--------------------
This Agreement will not take effect until approved by a majority vote of
both (a) the full Board of Trustees of the Trust
<PAGE>
and (b) 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 in this
Agreement (the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on this Agreement.
SECTION 3. CONTINUANCE OF THE PLAN.
-----------------------
This Agreement will continue in effect from year to year so long as its
continuance is specifically approved annually by vote of the Trust's Board of
Trustees in the manner described in Section 2 above.
SECTION 4. TERMINATION.
-----------
(a) This Agreement may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by vote of a
majority of the outstanding voting securities represented by the Class B shares
of the Fund on not more than 30 days' written notice to Mitchell Hutchins.
(b) This Agreement will terminate automatically in the event of its
assignment.
SECTION 5. SELECTION OF CERTAIN TRUSTEES.
-----------------------------
While this Agreement is in effect, the selection and nomination of the
Trust's Trustees who are not interested persons of the Trust will be committed
to the discretion of the Trustees then in office who are not interested persons
of the Trust.
SECTION 6. WRITTEN REPORTS.
---------------
Mitchell Hutchins agrees that, in each year during which this Agreement
remains in effect, Mitchell Hutchins will prepare and furnish to the Trust's
Board of Trustees, and the Board will review, at least quarterly, written
reports, complying with the requirements of the Rule, that set out the amounts
expended under this Agreement and the purposes for which those expenditures were
made.
SECTION 7. MEANING OF CERTAIN TERMS.
------------------------
As used in this Agreement, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Trust under the 1940
Act by the Securities and Exchange Commission.
-2-
<PAGE>
SECTION 8. FILING OF DECLARATION OF TRUST.
------------------------------
The Trust represents that a copy of its Declaration of Trust dated as of
March 28, 1991, as amended from time to time (the "Declaration of Trust"), is on
file with the Secretary of the Commonwealth of Massachusetts and with the Boston
City Clerk.
SECTION 9. LIMITATION OF LIABILITY.
-----------------------
The obligations of the Trust under this Agreement will not be binding upon
any of the Trustees, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Trust, individually, but are binding
only upon the assets and property of the Trust, as provided in the Declaration
of Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust, and signed by an authorized officer of the Trust,
acting as such, and neither the authorization by the Trustees nor the execution
and delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Trust as provided in the Declaration of Trust.
No series of the Trust, including the Fund, will be liable for any claims
against any other series.
SECTION 10. DATES.
-----
This Agreement has been executed by the Trust with respect to the Fund as
of January 30, 1995 and will become effective as of that date.
* * * * *
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
Very truly yours,
KIDDER, PEABODY INVESTMENT TRUST
/s/ Robert B. Jones
--------------------------------
Robert B. Jones
Accepted:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Dianne E. O'Donnell
- -----------------------
Dianne E. O'Donnell
-3-
<PAGE>
Exhibit 99.10(b)
SHAREHOLDER SERVICING AGREEMENT
-------------------------------
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Kidder, Peabody Investment Trust (the "Trust") confirms its agreement with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), implementing the
terms of the Amended and Restated Shareholder Servicing and Distribution Plan
dated as of December 16, 1992 (the "Plan") adopted by the Trust with respect to
each of the Class A shares and Class B shares of the Kidder Peabody Global
Equity Fund (the "Fund"), a series of the Trust, pursuant to Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"),
as follows:
SECTION 1. COMPENSATION AND SERVICES TO BE RENDERED.
----------------------------------------
(a) The Trust will pay Mitchell Hutchins an annual fee in connection with
the servicing of Fund shareholder accounts. The annual fee paid to Mitchell
Hutchins under this Agreement will be calculated daily and paid monthly by the
Trust at the annual rate of .25% of the average daily net assets with respect to
each of the Classes of shares of the Fund.
(b) The annual fee with respect to each Class will be used by Mitchell
Hutchins to provide compensation for ongoing servicing and/or maintenance of
shareholder accounts in the Class and to cover an allocable portion of overhead
and other Mitchell Hutchins branch office expenses related to the servicing
and/or maintenance of shareholder accounts. Compensation will be paid by
Mitchell Hutchins to persons, including Mitchell Hutchins employees, who respond
to inquiries of shareholders of the Fund regarding their ownership of shares or
their accounts with the Fund or who provide other similar services not otherwise
required to be provided by the Fund's manager, investment adviser, transfer
agent or other agent of the Fund.
SECTION 2. APPROVAL BY TRUSTEES.
--------------------
This Agreement will not take effect until approved by a majority vote of
both (a) the full Board of Trustees of the Trust and (b) 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 in this Agreement (the "Independent
<PAGE>
Trustees"), cast in person at a meeting called for the purpose of voting on this
Agreement.
SECTION 3. CONTINUANCE OF THE PLAN.
-----------------------
This Agreement will continue in effect from year to year so long as its
continuance is specifically approved annually by vote of the Trust's Board of
Trustees in the manner described in Section 2 above.
SECTION 4. TERMINATION.
-----------
(a) This Agreement may be terminated at any time, with respect to a
particular Class of shares of the Fund without the payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities represented by the particular Class of shares of
the Fund on not more than 60 days' written notice to Mitchell Hutchins. The
Plan may remain in effect with respect to a particular Class even if the Plan
has been terminated in accordance with this Section 4 with respect to any other
Class.
(b) This Agreement will terminate automatically in the event of its
assignment.
SECTION 5. SELECTION OF CERTAIN TRUSTEES.
-----------------------------
While this Agreement is in effect, the selection and nomination of the
Trust's Trustees who are not interested persons of the Trust will be committed
to the discretion of the Trustees then in office who are not interested persons
of the Trust.
SECTION 6. WRITTEN REPORTS.
---------------
Mitchell Hutchins agrees that, in each year during which this Agreement
remains in effect, Mitchell Hutchins will prepare and furnish to the Trust's
Board of Trustees, and the Board will review, at least quarterly, written
reports, complying with the requirements of the Rule, that set out the amounts
expended under this Agreement and the purposes for which those expenditures were
made.
SECTION 7. MEANING OF CERTAIN TERMS.
------------------------
As used in this Agreement, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Trust under the 1940
Act by the Securities and Exchange Commission.
-2-
<PAGE>
SECTION 8. FILING OF DECLARATION OF TRUST.
------------------------------
The Trust represents that a copy of its Declaration of Trust dated as of
March 28, 1991, as amended from time to time (the "Declaration of Trust"), is on
file with the Secretary of the Commonwealth of Massachusetts and with the Boston
City Clerk.
SECTION 9. LIMITATION OF LIABILITY.
-----------------------
The obligations of the Trust under this Agreement will not be binding upon
any of the Trustees, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Trust, individually, but are binding
only upon the assets and property of the Trust, as provided in the Declaration
of Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust, and signed by an authorized officer of the Trust,
acting as such, and neither the authorization by the Trustees nor the execution
and delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Trust as provided in the Declaration of Trust.
No series of the Trust, including the Fund, will be liable for any claims
against any other series.
SECTION 10. DATES.
-----
This Agreement has been executed by the Trust with respect to the Fund as
of January 30, 1995 and will become effective, as to any particular Class, as of
that date.
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
Very truly yours,
KIDDER, PEABODY INVESTMENT TRUST
/s/Robert B. Jones
--------------------------------
Robert B. Jones
Accepted:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Dianne E. O'Donnell
- ----------------------------------
Dianne E. O'Donnell
-3-
<PAGE>
Exhibit 99.10(c)
AMENDMENT TO
AMENDED AND RESTATED
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
-------------------------------------------
(Dated as of December 16, 1992)
WHEREAS, pursuant to resolutions adopted by the Board of Directors of
Kidder, Peabody Investment Trust ("Trust") on December 16, 1994, Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins") was appointed distributor
of the Trust's shares, including the shares of its series, Kidder, Peabody
Global Equity Fund ("Fund");
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Fund, the
following amendment to the above-referenced plan ("Plan)":
All references to "Kidder, Peabody & Co. Incorporated" in the Plan are
hereby replaced with "Mitchell Hutchins Asset Management Inc." and all
references to "Kidder, Peabody" in the Plan are hereby replaced with
"Mitchell Hutchins."
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has executed this
"Amendment to the Amended and Restated Shareholder Servicing and Distribution
Plan" on the day and year set forth below.
Date: January 30, 1995
KIDDER, PEABODY INVESTMENT TRUST
/s/ Lawrence A. Kaplan
--------------------------------
Attest: /s/ Dawn Ciulla
---------------
Dawn Ciulla
<PAGE>
EXHIBIT 99.12(a)
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
May 16, 1995
Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of
Mitchell Hutchins/Kidder, Peabody Global
Equity Fund
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) PaineWebber Atlas Global Growth Fund, a series of
PaineWebber Atlas Fund (the "Acquired Fund"), (b) Mitchell Hutchins/Kidder,
Peabody Global Equity Fund, a series of Mitchell Hutchins/Kidder, Peabody
Investment Trust (the "Acquiring Fund"), and (c) holders of shares of beneficial
interest in the Acquired Fund (the "Acquired Fund Shareholders") when the
holders of Class A, Class B, Class C and Class D shares of the Acquired Fund
receive Class A, Class E, Class C and Class B shares, respectively, of the
Acquiring Fund (all such shares of the Acquiring Fund referred to hereinafter as
the "Acquiring Fund Shares"), in liquidation of their interests in the Acquired
Fund pursuant to an acquisition by the Acquiring Fund of all or substantially
all of the assets of the Acquired Fund in exchange for the Acquiring Fund Shares
and the assumption by the Acquiring Fund of the liabilities of the Acquired Fund
and the subsequent liquidation of the Acquired Fund and distribution of the
Acquiring Fund Shares to the Acquired Fund Shareholders (the "Reorganization").
We have reviewed such documents and materials as we have considered necessary
for the purpose of rendering this opinion. In rendering this opinion, we assume
that such
<PAGE>
May 16, 1995
Page 2
documents as yet unexecuted will, when executed, conform in all material
respects to the proposed forms of such documents that we have examined. In
addition, we assume the genuineness of all signatures, the capacity of each
party executing a document so to execute that document, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this letter. The opinions expressed in
this letter are based upon certain factual statements relating to the Acquired
Fund and the Acquiring Fund set forth in the Registration Statement on Form N-14
(the "Registration Statement") filed by Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of the Acquiring Fund, with the Securities and
Exchange Commission and specifically upon the representations made in the
Agreement and Plan of Reorganization and Liquidation attached to the
Registration Statement as Appendix A. We have no reason to believe that these
representations and facts are not valid, but we have not attempted to verify
independently any of these representations and facts, and this opinion is based
upon the assumption that each of them is accurate. Capitalized terms used
herein and not otherwise defined shall have the meaning given them in the
Registration Statement.
The conclusions expressed herein are based upon the Internal Revenue Code of
1986 (the "Code"), Treasury regulations issued thereunder, published rulings and
procedures of the Internal Revenue Service and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the Acquiring Fund's acquisition of the assets of the Acquired Fund in
exchange solely for Acquiring Fund Shares and the Acquiring Fund's assumption of
the liabilities of the Acquired Fund, followed by the Acquired Fund's
distribution of those shares to the Acquired Fund Shareholders in exchange for
their shares of the Acquired Fund, will constitute a reorganization within the
meaning of Section 368(a)(1)(D) of the Code, and each Fund will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the
<PAGE>
May 16, 1995
Page 3
Acquired Fund in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund Shareholders upon
the exchange of their shares of the Acquired Fund for Acquiring Fund Shares;
(5) the aggregate tax basis of Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of the Acquired Fund surrendered in exchange
therefor, and the holding period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the period during which the shares
of the Acquired Fund exchanged therefor were held by such Acquired Fund
Shareholder (provided the shares of the Acquired Fund were held as capital
assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's assets will
be the same as the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization, and the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement or in the Prospectus/Proxy Statement constituting
a part thereof.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
<PAGE>
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
May 16, 1995
Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of
Mitchell Hutchins/Kidder, Peabody Global
Equity Fund
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) PaineWebber Europe Growth Fund, a series of PaineWebber
Investment Series (the "Acquired Fund"), (b) Mitchell Hutchins/Kidder, Peabody
Global Equity Fund, a series of Mitchell Hutchins/Kidder, Peabody Investment
Trust (the "Acquiring Fund"), and (c) holders of shares of beneficial interest
in the Acquired Fund (the "Acquired Fund Shareholders") when the holders of
Class A, Class B and Class D shares of the Acquired Fund receive Class A, Class
E and Class B shares, respectively, of the Acquiring Fund (all such shares of
the Acquiring Fund referred to hereinafter as the "Acquiring Fund Shares"), in
liquidation of their interests in the Acquired Fund pursuant to an acquisition
by the Acquiring Fund of all or substantially all of the assets of the Acquired
Fund in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund and the subsequent
liquidation of the Acquired Fund and distribution of the Acquiring Fund Shares
to the Acquired Fund Shareholders (the "Reorganization").
We have reviewed such documents and materials as we have considered necessary
for the purpose of rendering this opinion. In rendering this opinion, we assume
that such
<PAGE>
May 16, 1995
Page 2
documents as yet unexecuted will, when executed, conform in all material
respects to the proposed forms of such documents that we have examined. In
addition, we assume the genuineness of all signatures, the capacity of each
party executing a document so to execute that document, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this letter. The opinions expressed in
this letter are based upon certain factual statements relating to the Acquired
Fund and the Acquiring Fund set forth in the Registration Statement on Form N-14
(the "Registration Statement") filed by Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of the Acquiring Fund, with the Securities and
Exchange Commission and specifically upon the representations made in the
Agreement and Plan of Reorganization and Liquidation attached to the
Registration Statement as Appendix A. We have no reason to believe that these
representations and facts are not valid, but we have not attempted to verify
independently any of these representations and facts, and this opinion is based
upon the assumption that each of them is accurate. Capitalized terms used
herein and not otherwise defined shall have the meaning given them in the
Registration Statement.
The conclusions expressed herein are based upon the Internal Revenue Code of
1986 (the "Code"), Treasury regulations issued thereunder, published rulings and
procedures of the Internal Revenue Service and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the Acquiring Fund's acquisition of the assets of the Acquired Fund in
exchange solely for Acquiring Fund Shares and the Acquiring Fund's assumption of
the liabilities of the Acquired Fund, followed by the Acquired Fund's
distribution of those shares to the Acquired Fund Shareholders in exchange for
their shares of the Acquired Fund, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and each Fund will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the
<PAGE>
May 16, 1995
Page 3
Acquired Fund in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund Shareholders upon
the exchange of their shares of the Acquired Fund for Acquiring Fund Shares;
(5) the aggregate tax basis of Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of the Acquired Fund surrendered in exchange
therefor, and the holding period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the period during which the shares
of the Acquired Fund exchanged therefor were held by such Acquired Fund
Shareholder (provided the shares of the Acquired Fund were held as capital
assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's assets will
be the same as the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization, and the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement or in the Prospectus/Proxy Statement constituting
a part thereof.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
May 16, 1995
Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of
Mitchell Hutchins/Kidder, Peabody Global
Equity Fund
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) PaineWebber Global Growth and Income Fund, a series of
PaineWebber Investment Series (the "Acquired Fund"), (b) Mitchell
Hutchins/Kidder, Peabody Global Equity Fund, a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust (the "Acquiring Fund"), and (c)
holders of shares of beneficial interest in the Acquired Fund (the "Acquired
Fund Shareholders") when the holders of Class A, Class B and Class D shares of
the Acquired Fund receive Class A, Class E and Class B shares, respectively, of
the Acquiring Fund (all such shares of the Acquiring Fund referred to
hereinafter as the "Acquiring Fund Shares"), in liquidation of their interests
in the Acquired Fund pursuant to an acquisition by the Acquiring Fund of all or
substantially all of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund and the subsequent liquidation of the Acquired
Fund and distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders (the "Reorganization").
We have reviewed such documents and materials as we have considered necessary
for the purpose of rendering this opinion. In rendering this opinion, we assume
that such
<PAGE>
May 16, 1995
Page 2
documents as yet unexecuted will, when executed, conform in all material
respects to the proposed forms of such documents that we have examined. In
addition, we assume the genuineness of all signatures, the capacity of each
party executing a document so to execute that document, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this letter. The opinions expressed in
this letter are based upon certain factual statements relating to the Acquired
Fund and the Acquiring Fund set forth in the Registration Statement on Form N-14
(the "Registration Statement") filed by Mitchell Hutchins/Kidder, Peabody
Investment Trust, on behalf of the Acquiring Fund, with the Securities and
Exchange Commission and specifically upon the representations made in the
Agreement and Plan of Reorganization and Liquidation attached to the
Registration Statement as Appendix A. We have no reason to believe that these
representations and facts are not valid, but we have not attempted to verify
independently any of these representations and facts, and this opinion is based
upon the assumption that each of them is accurate. Capitalized terms used
herein and not otherwise defined shall have the meaning given them in the
Registration Statement.
The conclusions expressed herein are based upon the Internal Revenue Code of
1986 (the "Code"), Treasury regulations issued thereunder, published rulings and
procedures of the Internal Revenue Service and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the Acquiring Fund's acquisition of the assets of the Acquired Fund in
exchange solely for Acquiring Fund Shares and the Acquiring Fund's assumption of
the liabilities of the Acquired Fund, followed by the Acquired Fund's
distribution of those shares to the Acquired Fund Shareholders in exchange for
their shares of the Acquired Fund, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and each Fund will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for Acquiring Fund Shares
and the
<PAGE>
May 16, 1995
Page 3
assumption by the Acquiring Fund of the liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund Shareholders upon
the exchange of their shares of the Acquired Fund for Acquiring Fund Shares;
(5) the aggregate tax basis of Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of the Acquired Fund surrendered in exchange
therefor, and the holding period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the period during which the shares
of the Acquired Fund exchanged therefor were held by such Acquired Fund
Shareholder (provided the shares of the Acquired Fund were held as capital
assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's assets will
be the same as the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization, and the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement or in the Prospectus/Proxy Statement constituting
a part thereof.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
EXHIBIT 99.12(B)
[LETTERHEAD OF KIRKPATRICK & LOCKHART]
May 15, 1995
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber Atlas Fund ("Atlas Trust"), on behalf of PaineWebber Atlas
Global Growth Fund, a segregated portfolio of assets ("series") of Atlas Trust
("Target"), and Mitchell Hutchins/Kidder, Peabody Investment Trust ("MHKP
Trust"), on behalf of Mitchell Hutchins/Kidder, Peabody Global Equity Fund, a
series of MHKP Trust ("Acquiring Fund"),/1/ have requested our opinion as to
certain federal income tax consequences of the proposed acquisition of Target by
Acquiring Fund, pursuant to an Agreement and Plan of Reorganization and
Termination between them dated as of May 12, 1995 ("Plan"), a form of which is
attached as an exhibit to the prospectus/proxy statement furnished in connection
with the solicitation of proxies by Atlas Trust's board of trustees for use at a
special meeting of Target shareholders ("Special Meeting") to be held on July
14, 1995 ("Proxy"), included in the registration statement on Form N-14 to be
filed with the Securities and Exchange Commission ("SEC") on the date hereof
("Registration Statement"). Specifically, each Trust has requested our opinion:
(1) that the acquisition by Acquiring Fund of Target's assets in
exchange solely for shares of beneficial interest in Acquiring Fund and the
assumption by Acquiring Fund of Target's liabilities, followed by the
distribution of those shares by Target pro rata to its shareholders of
record as of the close of regular trading on the New York Stock Exchange,
Inc. on the date of the Closing (as hereinafter defined) ("Shareholders")
con-
- ----------
/1/ Target and Acquiring Fund are referred to herein individually either by
such names or as a "Fund" and collectively as the "Funds," and Atlas Trust and
MHKP Trust are referred to herein individually either by such names or as a
"Trust" and collectively as the "Trusts."
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 2
structively in exchange for their shares of beneficial interest in Target
("Target Shares") (such transaction sometimes being referred to herein as
the "Reorganization"), will constitute a "reorganization" within the
meaning of section 368(a)(1)(D)/2/ and that each Fund will be a "party to a
reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will recognize
no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reorganization of
the transferred assets and the shares of Acquiring Fund issued pursuant
thereto.
In rendering this opinion, we have examined (1) the currently effective
prospectus and statement of additional information of Target, both dated January
1, 1995, and of Acquiring Fund, both dated December 29, 1994, (2) the Proxy, (3)
the Plan, and (4) such other documents as we have deemed necessary or
appropriate for the purposes hereof. As to various matters of fact material to
this opinion, we have relied on statements of responsible officers of each Trust
and on the Representations described below.
FACTS
-----
Atlas Trust is as an unincorporated voluntary association with
transferable shares formed as a business trust under the laws of the
Commonwealth of Massachusetts (commonly referred to as a "Massachusetts business
trust") pursuant to a Declaration of Trust dated October 31, 1986, and is the
successor to PaineWebber Atlas Fund, Inc., a Maryland corporation; Target
commenced operations as the sole series thereof on December 30, 1983. MHKP
Trust was formed as a Massachusetts business trust pursuant to a Declaration of
Trust dated March 28, 1991; Acquiring Fund commenced operations as a series
thereof on November 14, 1991. Each Trust is registered with the SEC as an open-
end management investment company under the Investment Company Act of 1940
("1940 Act"). Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"), serves as
investment manager or adviser to each Fund and is the distributor of
- ----------
/2/ All section references are to the Internal Revenue Code of 1986, as amended
("Code"), and all "Treas. Reg. (S)" references are to the regulations under
the Code ("Regulations").
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 3
each Fund's shares. GE Investment Management Incorporated is each Fund's sub-
advisor, and the same individual serves as the portfolio manager of each Fund.
Acquiring Fund currently offers for sale three classes of shares,
designated Class A, Class B, and Class C shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," and "Class C Acquiring Fund Shares,"
respectively); in connection with the Reorganization, Acquiring Fund will issue
Class E shares ("Class E Acquiring Fund Shares"). Apart from differences in
certain ancillary class-specific expenses, these classes differ only with
respect to the sales charges imposed on the purchase of shares and the fees
("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the 1940 Act.
Target's shares are divided into four classes, designated Class A, Class B,
Class C, and Class D shares ("Class A Target Shares," "Class B Target Shares,"
"Class C Target Shares," and "Class D Target Shares," respectively). Except for
possible differences with respect to the allocation of class-specific expenses
other than 12b-1 fees, these classes differ only with respect to the sales
charges imposed on the purchase of shares and the 12b-1 fees payable by each
class.
At or immediately before the close of business on the date on which the
Reorganization, together with all related acts necessary to consummate the same
("Closing") occurs, scheduled for August 11, 1995 (or on such other date or at
such other time as the parties may agree) ("Effective Time"), Target shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
Acquiring Fund's investment objective is long-term growth of capital.
Acquiring Fund seeks to achieve its objective by investing principally in
foreign equity securities. Under normal circumstances, it invests at least 65%
of its total assets in no fewer than three different countries and at least 80%
of its total assets in countries or governments represented in the Morgan
Stanley Capital International Index. Acquiring Fund also may invest up to 35%
of its assets in debt securities rated within the four highest rating categories
established by Standard & Poor's Ratings Group or Moody's Investors Service,
Inc., that mature in seven years or less.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 4
Target's investment objective is to provide long-term capital appreciation.
Target seeks to achieve its objective by investing primarily in common stocks of
issuers based in the United States, Europe, Japan, and the Pacific Basin.
Normally, at least 80% of Target's assets are invested in common stocks and
securities convertible into common stocks. Target may invest up to 20% of its
assets in non-convertible debt securities of both domestic and foreign issuers,
as well as in obligations issued or guaranteed by the U.S. or foreign
governments, their agencies or instrumentalities. Target is not subject to
limits on the maturities of such debt securities and may invest up to 5% of its
total assets in non-investment grade debt securities.
Although there are differences in the Funds' investment policies, it is not
expected that Acquiring Fund will revise its investment policies following the
Reorganization to reflect those of Target. Since the Funds' investment policies
differ in some respects, certain of the securities currently held by Target may
need to be sold rather than transferred. If the Reorganization is approved,
Target will sell any assets that are inconsistent with Acquiring Fund's
investment policies prior to the Effective Time, and the proceeds thereof will
be held in temporary investments or reinvested in assets that qualify to be held
by Acquiring Fund. It is expected that an insubstantial portion of Target's
assets will be sold for this reason.
Atlas Trust's board of trustees, including a majority of the members
thereof who are not "interested persons" (as that term is defined in the 1940
Act) of Atlas Trust, has concluded that the Reorganization is in Target's best
interests, that the terms of the Reorganization are fair and reasonable, and
that Target's shareholders' interests will not be diluted as a result of the
Reorganization. Similarly, MHKP Trust's board of trustees, including a majority
of its members who are not "interested persons" (as so defined) of MHKP Trust,
has concluded that the Reorganization is in Acquiring Fund's best interests,
that the terms of the Reorganization are fair and reasonable, and that the
interests of Acquiring Fund's shareholders will not be diluted as a result of
the Reorganization.
In considering the Reorganization, the Trust's boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies, and
restrictions;
(2) the investment performance of each Fund;
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 5
(3) the effect of the Reorganization on Acquiring Fund's expense ratio
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing to
operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
The Reorganization was recommended by Mitchell Hutchins to MHKP Trust's
board of trustees at a meeting thereof held on April 26, 1995, and to Atlas
Trust's board of trustees at a meeting thereof held on April 28, 1995. The
trustees were advised by Mitchell Hutchins that the Funds have similar
investment objectives and generally similar investment policies, with the
material differences noted. In approving the proposed transaction, the trustees
took account of Mitchell Hutchins's opinion that Acquiring Fund's objective of
long-term growth of capital by investing principally in foreign equity
securities remains an appropriate one to offer to investors as part of an
overall investment strategy. Mitchell Hutchins further advised the trustees
that, while past performance is no guarantee of future results, Acquiring Fund
had experienced better investment performance than Target during the recent time
period.
In considering the proposed transaction, the trustees were advised by
Mitchell Hutchins that combining the Funds would reduce the expenses borne by
Target's shareholders as a percentage of net assets. The trustees were further
advised that Acquiring Fund's expenses also would be likely to decrease as a
result of the Reorganization because of the increased size of the combined Fund.
In recommending the Reorganization, Mitchell Hutchins advised the boards of
trustees that the proposed investment advisory fee following the Reorganization
would be lower than that currently in effect for Acquiring Fund and higher than
that currently in effect for Target. In considering the fee increase for
Target, Mitchell Hutchins advised Atlas Trust's board that since the adoption of
Target's current fee structure nearly twelve years ago, the cost and complexity
of managing global funds have increased in the face of a rapidly changing world
economy and the more extensive research needed to evaluate investment
opportunities worldwide and in emerging markets. These changes necessitate
increases in staffing, the addition of more sophisticated equipment and
technology, and higher travel costs. In addition, because of international
currency changes and the volatility of global markets, integrating tax,
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 6
pricing, and accounting functions of global funds has become more complex and
time-consuming.
In addition, Target's Class A shareholders will pay a slightly higher 12b-1
service fee following the Reorganization. Those shareholders currently pay a
12b-1 service fee of 0.20% of Target's average daily net assets attributable to
Class A, which reflects a blended annual rate of 0.25% and 0.15% of those assets
representing shares sold on or after December 2, 1988, and shares sold prior to
that date, respectively. Class A shareholders of Target will pay a slightly
higher 12b-1 service fee of 0.25% of Acquiring Fund's Class A average daily net
assets following the Reorganization. In considering the higher 12b-1 service
fee assessed on Class A shares, Mitchell Hutchins noted the overall lower
expense ratio that is expected to result from the Reorganization.
Pursuant to all the foregoing, each Trust's board of trustees approved the
Plan, subject to approval of Target's shareholders. The Plan, which specifies
that it is intended to be, and is adopted as, a plan of a reorganization
described in section 368(a)(1)(D), provides in relevant part for the following:
(1) The acquisition by Acquiring Fund of all the Assets (as defined
below) in exchange solely for
(a) the number of full and fractional (i) Class A Acquiring Fund
Shares determined by dividing the net value of Target ("Target Value")
attributable to the Class A Target Shares by the net asset value
("NAV") of a Class A Acquiring Fund Share, (ii) Class B Acquiring Fund
Shares determined by dividing the Target Value attributable to the
Class D Target Shares by the NAV of a Class B Acquiring Fund Share,
(iii) Class C Acquiring Fund Shares determined by dividing the Target
Value attributable to the Class C Target Shares by the NAV of a Class
C Acquiring Fund Share, and (iv) Class E Acquiring Fund Shares
determined by dividing the Target Value attributable to the Class B
Target Shares by the NAV of a Class E Acquiring Fund Share, and
(b) Acquiring Fund's assumption of the Liabilities (as defined
below),
(2) The constructive distribution of such Acquiring Fund Shares to
the Shareholders, and
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 7
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring the
Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder, by class (i.e., the account
for a Shareholder of Class A Target Shares shall be credited with the respective
pro rata number of Class A Acquiring Fund Shares due that Shareholder, the
account for a Shareholder of Class B Target Shares shall be credited with the
respective pro rata number of Class E Acquiring Fund Shares due that
Shareholder, the account for a Shareholder of Class C Target Shares shall be
credited with the respective pro rata number of Class C Acquiring Fund Shares
due that Shareholder, and the account for a Shareholder of Class D Target Shares
shall be credited with the respective pro rata number of Class B Acquiring Fund
Shares due that Shareholder). All outstanding Target Shares, including any
represented by certificates, simultaneously will be canceled on Target's share
transfer records.
The Target assets to be acquired by Acquiring Fund include all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (collectively "Assets").
Acquiring Fund will assume all of Target's liabilities, debts, obligations,
and duties of whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business, whether or
not determinable at the Effective Time, and whether or not specifically referred
to in the Plan, including without limitation Target's share of the expenses
incurred in connection with the Reorganization (collectively "Liabilities").
Target agreed in the Plan to use its best efforts to discharge all of its known
liabilities and obligations prior to the Effective Time.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 8
REPRESENTATIONS
---------------
The representations enumerated below ("Representations") have been made to
us by appropriate officers of each Trust.
Each of Atlas Trust, on behalf of Target, and MHKP Trust, on behalf of
Acquiring Fund, has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when received
by the Shareholders, will be approximately equal to the fair market value
of their Target Shares constructively surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
5. The fair market value on a going concern basis, and the total
adjusted basis, of the Assets will equal or exceed the Liabilities to be
assumed by Acquiring Fund and those to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 9
7. Pursuant to the Reorganization, Target will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by Target immediately before the Reorganization. For
the purposes of this representation, any amounts used by Target to pay its
Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made to
conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 and (b) redemptions not made as part of
the Reorganization) will be included as assets thereof held immediately
before the Reorganization;
8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
9. Immediately after the Reorganization, the Shareholders will be in
"control" of Acquiring Fund within the meaning of section 304(c).
Atlas Trust also has represented and warranted to us on behalf of Target as
follows:
1. The Liabilities were incurred by Target in the ordinary course of
its business;
2. Target is a "fund" as defined in section 851(h)(2); it qualified
for treatment as a regulated investment company ("RIC") under Subchapter M
of the Code ("Subchapter M") for each past taxable year since it commenced
operations and will continue to meet all the requirements for such
qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
3. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning
of section 368(a)(3)(A);
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 10
4. Not more than 25% of the value of Target's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the stock
or securities of any one issuer, and not more than 50% of the value of such
assets is invested in the stock or securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably practicable after
the Reorganization, but in all events within six months after the Effective
Time.
MHKP Trust also has represented and warranted to us on behalf of Acquiring
Fund as follows:
1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a RIC under Subchapter M for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; Acquiring
Fund intends to continue to meet all such requirements for the next taxable
year; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M, and (c) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to be dissolved
or merged with another corporation or business
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 11
trust or any "fund" thereof (within the meaning of section 851(h)(2))
following the Reorganization;
5. Immediately after the Reorganization, (a) not more than 25% of the
value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock or securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock or securities of five or fewer issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at the
Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
OPINION
-------
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange for
the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for their Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C), and
each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
2. No gain or loss will be recognized to Target on the transfer of
the Assets to Acquiring Fund solely in exchange for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or upon the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares and
its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 12
the Reorganization (section 362(b)), and Acquiring Fund's holding period
for the Assets will include Target's holding period therefor (section
1223(2));
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares pursuant
to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be received
by it in the Reorganization will be the same as the basis for its Target
Shares to be constructively surrendered in exchange for those Acquiring
Fund Shares (section 358(a)), and its holding period for those Acquiring
Fund Shares will include its holding period for those Target Shares,
provided they are held as capital assets by the Shareholder on the Closing
Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the Internal Revenue Service
("Service") in existence on the date hereof and (2) is applicable only to the
extent each Fund is solvent. We express no opinion about the tax treatment of
the transactions described herein if either Fund is insolvent.
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(D), and
Each Fund Will Be a Party to a Reorganization.
---------------------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(D) (a "D reorganization") involves
a transfer by a corporation of all or a part of its assets to another
corporation if immediately after the transfer the transferor, or one or more of
its shareholders (including persons who were shareholders immediately before the
transfer), or any combination thereof, is in control of the acquiring
corporation; but only if, in pursuance of the plan, stock or securities of the
acquiring corporation are distributed in a transaction that qualifies under
section 354, 355, or 356. For the transaction to qualify under that section,
therefore, both entities involved therein must be corporations (or associations
taxable as corporations). Each Trust, however, is a Massachusetts business
trust, not a corporation, and each Fund is a separate series of a Trust.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 13
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
--- ---------------------
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
- ------------------- ------------
(1942).
Based on these criteria, neither Trust qualifies as a trust for federal
income tax purposes. While each Trust is an "investment trust," it does not
have a fixed pool of assets -- each Fund has been a managed portfolio of
securities, and its investment adviser has had the authority to buy and sell
securities for it. Neither Trust is simply an arrangement to protect or
conserve property for the beneficiaries, but each is designed to carry on a
profit-making business. In addition, the word "association" has long been held
to include "Massachusetts business trusts," such as the Trusts. See Hecht v.
--- --------
Malley, 265 U.S. 144 (1924). Accordingly, we believe that each Trust will be
- ------
treated as a corporation for federal income tax purposes.
Neither Trust as such, however, is participating in the Reorganization, but
rather series of each of them are the participants. Ordinarily, a transaction
involving segregated pools of assets (such as the Funds) could not qualify as a
reorganization, because the pools would not be corporations. Under section
851(h), however, each Fund is treated as a separate corporation for all purposes
of the Code save the definitional requirement of section 851(a) (which is
satisfied by each Trust). Thus, we believe that each Fund will be a separate
corporation, and each Fund's shares will be treated as shares of corporate
stock, for purposes of section 368(a)(1)(D).
B. Non-applicability of Section 368(a)(2)(F).
-----------------------------------------
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a D
reorganization with respect to any such investment company or its shareholders
unless, among other things, the investment company is a RIC or --
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 14
(1) not more than 25% of the value of its total assets is invested
in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a D reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Assets.
---------------------------------------------
Section 354(b)(1)(A) provides that, for an exchange in pursuance of a plan
of reorganization within the meaning of section 368(a)(1)(D) to receive tax-free
treatment under section 354 (see V below), the acquiring corporation must
acquire "substantially all" of the assets of the transferor corporation. For
purposes of issuing private letter rulings, the Service considers the transfer
of at least 70% of the transferor's gross assets, and at least 90% of its net
assets, held immediately before the reorganization to satisfy the "substantially
all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will
involve such a transfer. Accordingly, we believe that the Reorganization will
involve the transfer to Acquiring Fund of substantially all of Target's assets.
D. Requirements of Continuity.
--------------------------
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas. Reg. (S)
1.368-1(d)(2) requires that the acquiring corporation must either (i) continue
the acquired corporation's historic business ("business continuity") or (ii) use
a significant portion of the acquired corporation's historic business assets in
a business ("asset continuity").
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 15
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continuity
as well.
The Funds' investment objectives are quite similar, and they share the same
sub-advisor and portfolio manager. Furthermore, Acquiring Fund will actively
continue Target's business in the same manner that Target conducted it
immediately before the Reorganization. Accordingly, there will be business
continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
expects to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make dispositions
thereof to maintain such status. Although, because of some differences in the
Funds' investment policies, certain of the securities currently held by Target
may need to be sold before the Effective Time rather than transferred to
Acquiring Fund, it is expected that an insubstantial portion of Target's assets
will be sold for this reason. Accordingly, there will be asset continuity as
well.
For all the foregoing reasons, we believe that the Reorganization will meet
the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement of Treas. Reg. (S) 1.368-1(b) satisfied if
ownership in an acquiring corporation on the part of a transferor corporation's
former shareholders is equal in value to at least 50% of the value of all the
formerly outstand-
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 16
ing shares of the transferor corporation. Rev. Proc. 77-37, supra; but see Rev.
----- --- ---
Rul. 56-345, 1956-2 C.B. 206 (continuity of interest was held to exist in a
reorganization of two RICs where immediately after the reorganization 26% of the
shares were redeemed in order to allow investment in a third RIC); also see Reef
---- --- ----
Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert. denied, 386 U.S. 1018
- --------------------- ------------
(1967) (a redemption of 48% of a transferor corporation's stock was not a
sufficient shift in proprietary interest to disqualify a transaction as a
reorganization under section 368(a)(2)(F) ("F Reorganization"), even though only
52% of the transferor's shareholders would hold all the transferee's stock);
Aetna Casualty and Surety Co. v. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976)
- -------------------------------------
(redemption of a 38.39% minority interest did not prevent a transaction from
qualifying as an F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a
transaction qualified as an F Reorganization even though the transferor's
shareholders acquired only 45% of the transferee's stock, while the remaining
55% of that stock was issued to new shareholders in a public underwriting
immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is imposed
under the Code on the acquired corporation's shareholders. Rev. Rul. 66-23,
1966-1 C.B. 67, provides generally that "unrestricted rights of ownership for a
period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired corporation's
shareholders to dispose of more than 50% of an acquiring corporation's shares
could be problematic. Shareholders with no such preconceived plan or
arrangement, however, are basically free to sell any part of the shares received
by them in the reorganization without fear of breaking continuity of interest,
because the subsequent sale will be treated as an independent transaction from
the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of Target as a series of an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholderinterests, if
any, that will be redeemed as a result of or at the time of the Reorganization
will be de minimis. Accordingly, we be-
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 17
lieve that the Reorganization will meet the continuity of interest requirement
of Treas. Reg. (S) 1.368-1(b).
E. "Control" and Distribution by Target.
------------------------------------
As provided in section 368(a)(1)(D), a transfer by a corporation of all or
a part of its assets to another corporation will qualify as a D reorganization
only if (1) immediately after the transfer the transferor, or one or more of its
shareholders (including persons who were shareholders immediately before the
transfer), or any combination thereof, is in control of the transferee
corporation and (2) pursuant to the plan, stock or securities of the transferee
corporation are distributed in a transaction that qualifies under section 354,
among others (and, pursuant to section 354(b)(1)(B), all such stock or
securities, as well as the transferor's other properties, are distributed
pursuant to the plan). For purposes of clause (1), as applicable here (see
---
sections 368(a)(2)(H) and 304(c)(1)), "control" is defined as the ownership of
stock possessing at least 50% of the total combined voting power of all classes
of stock entitled to vote or at least 50% of the total value of shares of all
classes of stock; the Shareholders will be in control (as so defined) of
Acquiring Fund immediately after the Reorganization. With respect to clause
(2), under the Plan -- which we believe constitutes a "plan of reorganization"
within the meaning of Treas. Reg. (S) 1.368-2(g) -- Target will distribute all
the Acquiring Fund Shares to its shareholders in constructive exchange for their
Target Shares. As noted in V. below, we believe that that distribution will
qualify under section 354(a). Accordingly, we believe that the control and
distribution requirements will be satisfied.
F. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
--------------------
U.S. 465 (1935), and is now set forth in Treas. Reg. (S)(S) 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doctrine,
a transaction must have a bona fide business purpose (and not a purpose to avoid
federal income tax) to constitute a valid reorganization. The substantial
business purposes of the Reorganization are outlined above. Accordingly, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax) and therefore meets the
requirements of the business purpose doctrine.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 18
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
G. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. (S) 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. Section 361(c)(4)
provides that specified provisions requiring recognition of gain on certain
distributions shall not apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a D reorganization, each
Fund will be a party to a reorganization, and the Plan constitutes a plan of
reorganization. Target will exchange the Assets solely for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities and then will
terminate pursuant to the Plan, distributing those shares to its shareholders in
constructive exchange for their Target Shares. As also noted
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 19
above, we believe that the Reorganization is being undertaken for bona fide
business purposes (and not a purpose to avoid federal income tax); we also do
not believe that the principal purpose of Acquiring Fund's assumption of the
Liabilities is avoidance of federal income tax on the proposed transaction.
Accordingly, we believe that no gain or loss will be recognized to Target on the
Reorganization./3/
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
----------------------------------------------------
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly, we
believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its
Holding Period Will Include Target's Holding Period.
---------------------------------------------------------------------------
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute
a D reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange has a
carryover basis, the property will have a holding
- ----------
/3/ Notwithstanding anything herein to the contrary, no opinion is expressed as
to the effect of the Reorganization on the Funds or any Shareholder (regarding
the recognition of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, futures, and
forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a mark-to-
market system of accounting.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 20
period in the hands of the acquiror that includes the holding period of the
property in the transferor's hands. As stated above, Acquiring Fund's basis for
the Assets will be a carryover basis. Accordingly, we believe that Acquiring
Fund's holding period for the Assets will include Target's holding period
therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
----------------------------------------------------
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, where
the shares exchanged, as well as the shares received, are those of a corporation
that is a party to the reorganization. As stated above, the Reorganization will
constitute a D reorganization, the Plan constitutes a plan of reorganization,
each Fund will be a party to a reorganization, and the requirements of section
354(b)(1)(A) and (B) will be satisfied. Accordingly, we believe that under
section 354 a Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to
the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period for
its Target Shares.
---------------------------------------------------------------------------
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a D reorganization and
under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Atlas Fund
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 21
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholderheld its Target Shares
as capital assets on the Closing Date, we believe its holding period for those
Acquiring Fund Shares will include its holding period for those Target Shares.
We hereby consent to this opinion accompanying the Registration Statement
and to the references to our firm under the captions "Proposal 1. Approval of
the Reorganizations -- Synopsis -- Federal Income Tax Consequences of the
Reorganizations" and "Proposal 1. Approval of the Reorganizations -- The
Proposed Transactions --Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
_________________________
Theodore L. Press
<PAGE>
[LETTERHEAD OF KIRKPATRICK & LOCKHART]
May 15, 1995
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber Investment Series ("Investment Series"), on behalf of
PaineWebber Europe Growth Fund, a segregated portfolio of assets ("series") of
Investment Series ("Target"), and Mitchell Hutchins/Kidder, Peabody Investment
Trust ("MHKP Trust"), on behalf of Mitchell Hutchins/Kidder, Peabody Global
Equity Fund, a series of MHKP Trust ("Acquiring Fund"),/1/ have requested our
opinion as to certain federal income tax consequences of the proposed
acquisition of Target by Acquiring Fund, pursuant to an Agreement and Plan of
Reorganization and Termination between them dated as of May 12, 1995 ("Plan"), a
form of which is attached as an exhibit to the prospectus/proxy statement
furnished in connection with the solicitation of proxies by Investment Series's
board of trustees for use at a special meeting of Target shareholders ("Special
Meeting") to be held on July 14, 1995 ("Proxy"), included in the registration
statement on Form N-14 to be filed with the Securities and Exchange Commission
("SEC") on the date hereof ("Registration Statement"). Specifically, each Trust
has requested our opinion:
(1) that the acquisition by Acquiring Fund of Target's assets in
exchange solely for shares of beneficial interest in Acquiring Fund and the
assumption by Acquiring Fund of Target's liabilities, followed by the
distribution of those shares by Target pro rata to its shareholders of
record as of the close of regular trading on the New York Stock Exchange,
Inc. on the date of the Closing (as hereinafter defined) ("Shareholders")
con-
- ----------
/1/ Target and Acquiring Fund are referred to herein individually either by
such names or as a "Fund" and collectively as the "Funds," and Investment Series
and MHKP Trust are referred to herein individually either by such names or as a
"Trust" and collectively as the "Trusts."
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 2
structively in exchange for their shares of beneficial interest in Target
("Target Shares") (such transaction sometimes being referred to herein as
the "Reorganization"), will constitute a "reorganization" within the
meaning of section 368(a)(1)(C)/2/ and that each Fund will be a "party to a
reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will recognize
no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reorganization of
the transferred assets and the shares of Acquiring Fund issued pursuant
thereto.
In rendering this opinion, we have examined (1) the currently effective
prospectus and statement of additional information of Target, both dated March
1, 1995, and of Acquiring Fund, both dated December 29, 1994, (2) the Proxy, (3)
the Plan, and (4) such other documents as we have deemed necessary or
appropriate for the purposes hereof. As to various matters of fact material to
this opinion, we have relied on statements of responsible officers of each Trust
and on the Representations described below.
FACTS
-----
Investment Series is as an unincorporated voluntary association with
transferable shares formed as a business trust under the laws of the
Commonwealth of Massachusetts (commonly referred to as a "Massachusetts business
trust") pursuant to a Declaration of Trust dated December 22, 1986; Target
commenced operations as a series thereof on February 7, 1990. MHKP Trust was
formed as a Massachusetts business trust pursuant to a Declaration of Trust
dated March 28, 1991; Acquiring Fund commenced operations as a series thereof on
November 14, 1991. Each Trust is registered with the SEC as an open-end
management investment company under the Investment Company Act of 1940 ("1940
Act"). Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
owned subsidiary of PaineWebber Incorporated ("PaineWebber"), serves as
investment manager or adviser to each Fund and is the distributor of each Fund's
shares. GE Investment Management Incorporated is
- ----------
/2/ All section references are to the Internal Revenue Code of 1986, as amended
("Code"), and all "Treas. Reg. (S)" references are to the regulations under the
Code ("Regulations").
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 3
each Fund's sub-advisor, and the same individual serves as the portfolio manager
of each Fund.
Acquiring Fund currently offers for sale three classes of shares,
designated Class A, Class B, and Class C shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," and "Class C Acquiring Fund Shares,"
respectively); in connection with the Reorganization, Acquiring Fund will issue
Class E shares ("Class E Acquiring Fund Shares"). Apart from differences in
certain ancillary class-specific expenses, these classes differ only with
respect to the sales charges imposed on the purchase of shares and the fees
("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the 1940 Act. Only Classes A, B, and E Acquiring Fund Shares
are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A, Class
B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and
"Class D Target Shares," respectively). Except for possible differences with
respect to the allocation of class-specific expenses other than 12b-1 fees,
these classes differ only with respect to the sales charges imposed on the
purchase of shares and the 12b-1 fees payable by each class.
At or immediately before the close of business on the date on which the
Reorganization, together with all related acts necessary to consummate the same
("Closing") occurs, scheduled for August 11, 1995 (or on such other date or at
such other time as the parties may agree) ("Effective Time"), Target shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
Acquiring Fund's investment objective is long-term growth of capital.
Acquiring Fund seeks to achieve its objective by investing principally in
foreign equity securities. Under normal circumstances, it invests at least 65%
of its total assets in no fewer than three different countries and at least 80%
of its total assets in countries or governments represented in the Morgan
Stanley Capital International Index. Acquiring Fund also may invest up to 35%
of its assets in debt securities rated within the four highest rating categories
established by Standard & Poor's Ratings Group or Moody's Investors Service,
Inc., that mature in seven years or less.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 4
Target's investment objective is to provide long-term capital appreciation.
Target seeks to achieve its objective by investing principally in equity
securities of issuers based in Europe. Target may invest up to 65% of its
assets in equity securities of issuers based in Europe, including Eastern
Europe, and up to 35% of its assets in equity securities of issuers located in
countries outside of Europe, including the United States. Target also may
invest up to 20% of its assets in non-convertible debt securities of both
domestic and foreign issuers, as well as in obligations issued or guaranteed by
the U.S. or foreign governments, their agencies, or instrumentalities. Target
is not subject to limits on the maturities of such debt securities.
Although there are differences in the Funds' investment policies, it is not
expected that Acquiring Fund will revise its investment policies following the
Reorganization to reflect those of Target. Since the Funds' investment policies
differ in some respects, certain of the securities currently held by Target may
need to be sold rather than transferred. If the Reorganization is approved,
Target will sell any assets that are inconsistent with Acquiring Fund's
investment policies prior to the Effective Time, and the proceeds thereof will
be held in temporary investments or reinvested in assets that qualify to be held
by Acquiring Fund. It is expected that an insubstantial portion of Target's
assets will be sold for this reason.
Investment Series's board of trustees, including a majority of the members
thereof who are not "interested persons" (as that term is defined in the 1940
Act) of Investment Series, has concluded that the Reorganization is in Target's
best interests, that the terms of the Reorganization are fair and reasonable,
and that Target's shareholders' interests will not be diluted as a result of the
Reorganization. Similarly, MHKP Trust's board of trustees, including a majority
of its members who are not "interested persons" (as so defined) of MHKP Trust,
has concluded that the Reorganization is in Acquiring Fund's best interests,
that the terms of the Reorganization are fair and reasonable, and that the
interests of Acquiring Fund's shareholders will not be diluted as a result of
the Reorganization.
In considering the Reorganization, the Trust's boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies, and
restrictions;
(2) the investment performance of each Fund;
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 5
(3) the effect of the Reorganization on Acquiring Fund's expense ratio
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing to
operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
The Reorganization was recommended by Mitchell Hutchins to MHKP Trust's
board of trustees at a meeting thereof held on April 26, 1995, and to Investment
Series's board of trustees at a meeting thereof held on April 28, 1995. The
trustees were advised by Mitchell Hutchins that the Funds have similar
investment objectives and generally similar investment policies, with the
material differences noted. In approving the proposed transaction, the trustees
took account of Mitchell Hutchins's opinion that Acquiring Fund's objective of
long-term growth of capital by investing principally in foreign equity
securities remains an appropriate one to offer to investors as part of an
overall investment strategy. Mitchell Hutchins further advised the trustees
that, while past performance is no guarantee of future results, Acquiring Fund
had experienced better investment performance than Target during the recent time
period. Mitchell Hutchins further noted that the Funds' investment policies
differ in that Acquiring Fund does not invest primarily in Europe.
In considering the proposed transaction, the trustees were advised by
Mitchell Hutchins that combining the Funds would reduce the expenses borne by
Target's shareholders as a percentage of net assets. The trustees were further
advised that Acquiring Fund's expenses also would be likely to decrease as a
result of the Reorganization because of the increased size of the combined Fund.
In recommending the Reorganization, Mitchell Hutchins advised the boards of
trustees that the proposed investment advisory fee following the Reorganization
would be lower than that currently in effect for Acquiring Fund and the same as
that currently in effect for Target.
Pursuant to all the foregoing, each Trust's board of trustees approved the
Plan, subject to approval of Target's shareholders. The Plan, which specifies
that it is intended to be, and is adopted as, a plan of a reorganization
described in section 368(a)(1)(C), provides in relevant part for the following:
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 6
(1) The acquisition by Acquiring Fund of all the Assets (as defined
below) in exchange solely for
(a) the number of full and fractional (i) Class A Acquiring Fund
Shares determined by dividing the net value of Target ("Target Value")
attributable to the Class A Target Shares by the net asset value
("NAV") of a Class A Acquiring Fund Share, (ii) Class B Acquiring Fund
Shares determined by dividing the Target Value attributable to the
Class D Target Shares by the NAV of a Class B Acquiring Fund Share,
and (iii) Class E Acquiring Fund Shares determined by dividing the
Target Value attributable to the Class B Target Shares by the NAV of a
Class E Acquiring Fund Share, and
(b) Acquiring Fund's assumption of the Liabilities (as defined
below),
(2) The constructive distribution of such Acquiring Fund Shares to
the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring the
Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder, by class (i.e., the account
for a Shareholder of Class A Target Shares shall be credited with the respective
pro rata number of Class A Acquiring Fund Shares due that Shareholder, the
account for a Shareholder of Class B Target Shares shall be credited with the
respective pro rata number of Class E Acquiring Fund Shares due that
Shareholder, and the account for a Shareholder of Class D Target Shares shall be
credited with the respective pro rata number of Class B Acquiring Fund Shares
due that Shareholder). All outstanding Target Shares, including any represented
by certificates, simultaneously will be canceled on Target's share transfer
records.
The Target assets to be acquired by Acquiring Fund include all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 7
books, and other property owned by Target at the Effective Time (collectively
"Assets").
Acquiring Fund will assume all of Target's liabilities, debts, obligations,
and duties of whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business, whether or
not determinable at the Effective Time, and whether or not specifically referred
to in the Plan, including without limitation Target's share of the expenses
incurred in connection with the Reorganization (collectively "Liabilities").
Target agreed in the Plan to use its best efforts to discharge all of its known
liabilities and obligations prior to the Effective Time.
REPRESENTATIONS
---------------
The representations enumerated below ("Representations") have been made to
us by appropriate officers of each Trust.
Each of Investment Series, on behalf of Target, and MHKP Trust, on behalf
of Acquiring Fund, has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when received
by the Shareholders, will be approximately equal to the fair market value
of their Target Shares constructively surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 8
and be subject to substantially the same liabilities that Target held or
was subject to immediately prior thereto, plus any liabilities and expenses
of the parties incurred in connection with the Reorganization;
5. The fair market value on a going concern basis of the Assets will
equal or exceed the Liabilities to be assumed by Acquiring Fund and those
to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by Target immediately before the Reorganization. For
the purposes of this representation, any amounts used by Target to pay its
Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made to
conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 and (b) redemptions not made as part of
the Reorganization) will be included as assets thereof held immediately
before the Reorganization;
8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
section 304(c).
Investment Series also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary course of
its business;
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 9
2. Target is a "fund" as defined in section 851(h)(2); it qualified
for treatment as a regulated investment company ("RIC") under Subchapter M
of the Code ("Subchapter M") for each past taxable year since it commenced
operations and will continue to meet all the requirements for such
qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
3. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning
of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the stock
or securities of any one issuer, and not more than 50% of the value of such
assets is invested in the stock or securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably practicable after
the Reorganization, but in all events within six months after the Effective
Time.
MHKP Trust also has represented and warranted to us on behalf of Acquiring
Fund as follows:
1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a RIC under Subchapter M for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; Acquiring
Fund intends to continue to meet all such requirements for the next taxable
year; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business;
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 10
3. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M, and (c) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to be dissolved
or merged with another corporation or business trust or any "fund" thereof
(within the meaning of section 851(h)(2)) following the Reorganization;
5. Immediately after the Reorganization, (a) not more than 25% of the
value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock or securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock or securities of five or fewer issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at the
Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
OPINION
-------
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange for
the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for their Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C), and
each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 11
2. No gain or loss will be recognized to Target on the transfer of
the Assets to Acquiring Fund solely in exchange for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or upon the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares and
its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization
(section 362(b)), and Acquiring Fund's holding period for the Assets will
include Target's holding period therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares pursuant
to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be received
by it in the Reorganization will be the same as the basis for its Target
Shares to be constructively surrendered in exchange for those Acquiring
Fund Shares (section 358(a)), and its holding period for those Acquiring
Fund Shares will include its holding period for those Target Shares,
provided they are held as capital assets by the Shareholder on the Closing
Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the Internal Revenue Service
("Service") in existence on the date hereof and (2) is applicable only to the
extent each Fund is solvent. We express no opinion about the tax treatment of
the transactions described herein if either Fund is insolvent.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 12
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C), and
Each Fund Will Be a Party to a Reorganization.
---------------------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganization") involves
the acquisition by one corporation, in exchange solely for all or a part of its
voting stock, of substantially all of the properties of another corporation.
For the transaction to qualify under that section, therefore, both entities
involved therein must be corporations (or associations taxable as corporations).
Each Trust, however, is a Massachusetts business trust, not a corporation, and
each Fund is a separate series of a Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
--- ---------------------
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
- ------------------- ------------
(1942).
Based on these criteria, neither Trust qualifies as a trust for federal
income tax purposes. While each Trust is an "investment trust," it does not
have a fixed pool of assets -- each Fund has been a managed portfolio of
securities, and its investment adviser has had the authority to buy and sell
securities for it. Neither Trust is simply an arrangement to protect or
conserve property for the beneficiaries, but each is designed to carry on a
profit-making business. In addition, the word "association" has long been held
to include "Massachusetts business trusts," such as the Trusts. See Hecht v.
--- --------
Malley, 265 U.S. 144 (1924). Accordingly, we believe that each Trust will be
- ------
treated as a corporation for federal income tax purposes.
Neither Trust as such, however, is participating in the Reorganization, but
rather series of each of them are the participants. Ordinarily, a transaction
involving segregated pools of assets (such as the Funds) could not qualify as a
reorganization, because
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 13
the pools would not be corporations. Under section 851(h), however, each Fund
is treated as a separate corporation for all purposes of the Code save the
definitional requirement of section 851(a) (which is satisfied by each Trust).
Thus, we believe that each Fund will be a separate corporation, and each Fund's
shares will be treated as shares of corporate stock, for purposes of section
368(a)(1)(C).
B. Non-applicability of Section 368(a)(2)(F).
-----------------------------------------
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a C
reorganization with respect to any such investment company or its shareholders
unless, among other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested
in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers
the transfer of at least 70% of the transferor's gross assets, and at least 90%
of its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 14
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
--------------------------
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas. Reg. (S)
1.368-1(d)(2) requires that the acquiring corporation must either (i) continue
the acquired corporation's historic business ("business continuity") or (ii) use
a significant portion of the acquired corporation's historic business assets in
a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 15
of P to engage in the business of investing in corporate securities after the
exchange caused the transaction to lack business continuity as well.
The Funds' investment objectives are quite similar, and they share the same
sub-advisor and portfolio manager. Furthermore, Acquiring Fund will actively
continue Target's business in the same manner that Target conducted it
immediately before the Reorganization. Accordingly, there will be business
continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
expects to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make dispositions
thereof to maintain such status. Although, because of some differences in the
Funds' investment policies, certain of the securities currently held by Target
may need to be sold before the Effective Time rather than transferred to
Acquiring Fund, it is expected that an insubstantial portion of Target's assets
will be sold for this reason. Accordingly, there will be asset continuity as
well.
For all the foregoing reasons, we believe that the Reorganization will meet
the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement of Treas. Reg. (S) 1.368-1(b) satisfied if
ownership in an acquiring corporation on the part of a transferor corporation's
former shareholders is equal in value to at least 50% of the value of all the
formerly outstanding shares of the transferor corporation. Rev. Proc. 77-37,
supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of interest was
- ----- --- ---
held to exist in a reorganization of two RICs where immediately after the
reorganization 26% of the shares were redeemed in order to allow investment in a
third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966),
---- --- --------------------------
cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor
- ------------
corporation's stock was not a sufficient shift in proprietary interest to
disqualify a transaction as a reorganization under section 368(a)(2)(F) ("F
Reorganization"), even though only 52% of the transferor's shareholders would
hold all the transferee's stock); Aetna Casualty and Surety Co. v. U.S., 568
-------------------------------------
F.2d 811, 822-23 (2d Cir. 1976) (redemption
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 16
of a 38.39% minority interest did not prevent a transaction from qualifying as
an F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified
as an F Reorganization even though the transferor's shareholders acquired only
45% of the transferee's stock, while the remaining 55% of that stock was issued
to new shareholders in a public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is imposed
under the Code on the acquired corporation's shareholders. Rev. Rul. 66-23,
1966-1 C.B. 67, provides generally that "unrestricted rights of ownership for a
period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired corporation's
shareholders to dispose of more than 50% of an acquiring corporation's shares
could be problematic. Shareholders with no such preconceived plan or
arrangement, however, are basically free to sell any part of the shares received
by them in the reorganization without fear of breaking continuity of interest,
because the subsequent sale will be treated as an independent transaction from
the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of Target as a series of an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholderinterests, if
any, that will be redeemed as a result of or at the time of the Reorganization
will be de minimis. Accordingly, we believe that the Reorganization will meet
the continuity of interest requirement of Treas. Reg. (S) 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a C
reorganization unless the corporation whose properties are acquired distributes
the stock it receives and its other property in pursuance of the plan of
reorganization. Under the Plan -- which we believe constitutes a "plan of
reorganization" within the meaning of Treas. Reg. (S) 1.368-2(g) -- Target will
distribute all the Acquiring Fund Shares to its shareholders in constructive
exchange for their Target Shares; as soon as is reason-
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 17
ably practicable thereafter, Target will be terminated. Accordingly, we believe
that the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
--------------------
U.S. 465 (1935), and is now set forth in Treas. Reg. (S)(S) 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doctrine,
a transaction must have a bona fide business purpose (and not a purpose to avoid
federal income tax) to constitute a valid reorganization. The substantial
business purposes of the Reorganization are outlined above. Accordingly, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax) and therefore meets the
requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. (S) 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. (Such a distribution
is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C
reorganization.) Section 361(c)(4) pro-
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 18
vides that specified provisions requiring recognition of gain on certain
distributions shall not apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization, each
Fund will be a party to a reorganization, and the Plan constitutes a plan of
reorganization. Target will exchange the Assets solely for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities and then will
terminate pursuant to the Plan, distributing those shares to its shareholders in
constructive exchange for their Target Shares. As also noted above, we believe
that the Reorganization is being undertaken for bona fide business purposes (and
not a purpose to avoid federal income tax); we also do not believe that the
principal purpose of Acquiring Fund's assumption of the Liabilities is avoidance
of federal income tax on the proposed transaction. Accordingly, we believe that
no gain or loss will be recognized to Target on the Reorganization./3/
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
----------------------------------------------------
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the
- ----------
/3/ Notwithstanding anything herein to the contrary, no opinion is expressed as
to the effect of the Reorganization on the Funds or any Shareholder (regarding
the recognition of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, futures, and
forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a mark-to-
market system of accounting.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 19
Acquiring Fund Shares to Target in exchange for the Assets, which consist of
money and securities. Accordingly, we believe that no gain or loss will be
recognized to Acquiring Fund on the Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its
Holding Period Will Include Target's Holding Period.
--------------------------------------------------------------------------
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute
a C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange has a
carryover basis, the property will have a holding period in the hands of the
acquiror that includes the holding period of the property in the transferor's
hands. As stated above, Acquiring Fund's basis for the Assets will be a
carryover basis. Accordingly, we believe that Acquiring Fund's holding period
for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
----------------------------------------------------
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, where
the shares exchanged, as well as the shares received, are those of a corporation
that is a party to the reorganization. As stated above, the Reorganization will
constitute a C reorganization, the Plan constitutes a plan of reorganization,
and each Fund will be a party to a reorganization. Accordingly, we believe that
under section 354 a Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 20
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period for
its Target Shares.
---------------------------------------------------------------------------
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization and
under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 21
held its Target Shares as capital assets on the Closing Date, we believe its
holding period for those Acquiring Fund Shares will include its holding period
for those Target Shares.
We hereby consent to this opinion accompanying the Registration Statement
and to the references to our firm under the captions "Proposal 1. Approval of
the Reorganizations -- Synopsis -- Federal Income Tax Consequences of the
Reorganizations" and "Proposal 1. Approval of the Reorganizations -- The
Proposed Transactions --Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
_____________________
Theodore L. Press
<PAGE>
[LETTERHEAD OF KIRKPATRICK & LOCKHART]
May 15, 1995
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber Investment Series ("Investment Series"), on behalf of
PaineWebber Global Growth and Income Fund, a segregated portfolio of assets
("series") of Investment Series ("Target"), and Mitchell Hutchins/Kidder,
Peabody Investment Trust ("MHKP Trust"), on behalf of Mitchell Hutchins/Kidder,
Peabody Global Equity Fund, a series of MHKP Trust ("Acquiring Fund"),/1/ have
requested our opinion as to certain federal income tax consequences of the
proposed acquisition of Target by Acquiring Fund, pursuant to an Agreement and
Plan of Reorganization and Termination between them dated as of May 12, 1995
("Plan"), a form of which is attached as an exhibit to the prospectus/proxy
statement furnished in connection with the solicitation of proxies by Investment
Series's board of trustees for use at a special meeting of Target shareholders
("Special Meeting") to be held on July 14, 1995 ("Proxy"), included in the
registration statement on Form N-14 to be filed with the Securities and Exchange
Commission ("SEC") on the date hereof ("Registration Statement"). Specifically,
each Trust has requested our opinion:
(1) that the acquisition by Acquiring Fund of Target's assets in
exchange solely for shares of beneficial interest in Acquiring Fund and the
assumption by Acquiring Fund of Target's liabilities, followed by the
distribution of those shares by Target pro rata to its shareholders of
record as of the close of regular trading on the New York Stock Exchange,
Inc. on the date of the
- -----------
/1/ Target and Acquiring Fund are referred to herein individually either by
such names or as a "Fund" and collectively as the "Funds," and Investment Series
and MHKP Trust are referred to herein individually either by such names or as a
"Trust" and collectively as the "Trusts."
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 2
Closing (as hereinafter defined) ("Shareholders") constructively in
exchange for their shares of beneficial interest in Target ("Target
Shares") (such transaction sometimes being referred to herein as the
"Reorganization"), will constitute a "reorganization" within the meaning of
section 368(a)(1)(C)/2/ and that each Fund will be a "party to a
reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will recognize
no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reorganization of
the transferred assets and the shares of Acquiring Fund issued pursuant
thereto.
In rendering this opinion, we have examined (1) the currently effective
prospectus and statement of additional information of Target, both dated March
1, 1995, and of Acquiring Fund, both dated December 29, 1994, (2) the Proxy, (3)
the Plan, and (4) such other documents as we have deemed necessary or
appropriate for the purposes hereof. As to various matters of fact material to
this opinion, we have relied on statements of responsible officers of each Trust
and on the Representations described below.
FACTS
-----
Investment Series is as an unincorporated voluntary association with
transferable shares formed as a business trust under the laws of the
Commonwealth of Massachusetts (commonly referred to as a "Massachusetts business
trust") pursuant to a Declaration of Trust dated December 22, 1986; Target
commenced operations as a series thereof on June 9, 1989. MHKP Trust was formed
as a Massachusetts business trust pursuant to a Declaration of Trust dated March
28, 1991; Acquiring Fund commenced operations as a series thereof on November
14, 1991. Each Trust is registered with the SEC as an open-end management
investment company under the Investment Company Act of 1940 ("1940 Act").
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"), serves as investment
manager or adviser to each Fund and is the distributor
- ----------
/2/ All section references are to the Internal Revenue Code of 1986, as amended
("Code"), and all "Treas. Reg. (S)" references are to the regulations under
the Code ("Regulations").
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 3
of each Fund's shares. GE Investment Management Incorporated is each Fund's
sub-advisor.
Acquiring Fund currently offers for sale three classes of shares,
designated Class A, Class B, and Class C shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," and "Class C Acquiring Fund Shares,"
respectively); in connection with the Reorganization, Acquiring Fund will issue
Class E shares ("Class E Acquiring Fund Shares"). Apart from differences in
certain ancillary class-specific expenses, these classes differ only with
respect to the sales charges imposed on the purchase of shares and the fees
("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the 1940 Act. Only Classes A, B, and E Acquiring Fund Shares
are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A, Class
B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and
"Class D Target Shares," respectively). Except for possible differences with
respect to the allocation of class-specific expenses other than 12b-1 fees,
these classes differ only with respect to the sales charges imposed on the
purchase of shares and the 12b-1 fees payable by each class.
At or immediately before the close of business on the date on which the
Reorganization, together with all related acts necessary to consummate the same
("Closing") occurs, scheduled for August 11, 1995 (or on such other date or at
such other time as the parties may agree) ("Effective Time"), Target shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
Acquiring Fund's investment objective is long-term growth of capital.
Acquiring Fund seeks to achieve its objective by investing principally in
foreign equity securities. Under normal circumstances, it invests at least 65%
of its total assets in no fewer than three different countries and at least 80%
of its total assets in countries or governments represented in the Morgan
Stanley Capital International Index. Acquiring Fund also may invest up to 35%
of its assets in debt securities rated within the four highest rating categories
established by Standard & Poor's Ratings Group or Moody's Investors Service,
Inc., that mature in seven years or less.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 4
Target's investment objective is high total return. Target invests in
equity, debt, and money market securities of issuers based primarily in the
United States, Europe, Japan, and the Pacific Basin. There is no limit on the
portion of Target's assets that may be invested in securities of issuers based
in any one country, and there are no prescribed limits on the allocation of its
investments among equity, debt, and money market securities. Under normal
circumstances, Target invests in securities of issuers based in at least three
countries, including the United States. Target also may invest in precious
metal-related securities, real-estate related securities, and "zero-coupon" U.S.
Treasury securities, and up to 10% of its assets in mortgage-backed securities
of private issuers. Target has no limit on the amount of its assets it may
invest in debt securities, and it may invest up to 35% of its total assets in
non-investment grade debt securities. Unlike Acquiring Fund, which is
diversified, Target is a non-diversified fund.
Although there are differences in the Funds' investment objective and
policies, it is not expected that Acquiring Fund will revise its investment
objective or policies following the Reorganization to reflect those of Target.
Since the Funds' investment policies differ in some respects, certain of the
securities currently held by Target may need to be sold rather than transferred.
If the Reorganization is approved, Target will sell any assets that are
inconsistent with Acquiring Fund's investment objective and policies prior to
the Effective Time, and the proceeds thereof will be held in temporary
investments or reinvested in assets that qualify to be held by Acquiring Fund.
It is expected that an insubstantial portion of Target's assets will be sold for
this reason.
Investment Series's board of trustees, including a majority of the members
thereof who are not "interested persons" (as that term is defined in the 1940
Act) of Investment Series, has concluded that the Reorganization is in Target's
best interests, that the terms of the Reorganization are fair and reasonable,
and that Target's shareholders' interests will not be diluted as a result of the
Reorganization. Similarly, MHKP Trust's board of trustees, including a majority
of its members who are not "interested persons" (as so defined) of MHKP Trust,
has concluded that the Reorganization is in Acquiring Fund's best interests,
that the terms of the Reorganization are fair and reasonable, and that the
interests of Acquiring Fund's shareholders will not be diluted as a result of
the Reorganization.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 5
In considering the Reorganization, the Trust's boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies, and
restrictions;
(2) the investment performance of each Fund;
(3) the effect of the Reorganization on Acquiring Fund's expense ratio
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing to
operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
The Reorganization was recommended by Mitchell Hutchins to MHKP Trust's
board of trustees at a meeting thereof held on April 26, 1995, and to Investment
Series's board of trustees at a meeting thereof held on April 28, 1995. The
trustees were advised by Mitchell Hutchins that the Funds have similar
investment objectives and generally similar investment policies, with the
material differences noted. In approving the proposed transaction, the trustees
took account of Mitchell Hutchins's opinion that Acquiring Fund's objective of
long-term growth of capital by investing principally in foreign equity
securities remains an appropriate one to offer to investors as part of an
overall investment strategy. Mitchell Hutchins further advised the trustees
that, while past performance is no guarantee of future results, Acquiring Fund
had experienced better investment performance than Target during the recent time
period. Mitchell Hutchins further noted that the Funds' investment policies
differ in that, unlike Target, Acquiring Fund may not invest without limitation
in debt and money market securities.
In considering the proposed transaction, the trustees were advised by
Mitchell Hutchins that combining the Funds would reduce the expenses borne by
Target's shareholders as a percentage of net assets. The trustees were further
advised that Acquiring Fund's expenses also would be likely to decrease as a
result of the Reorganization because of the increased size of the combined Fund.
In recommending the Reorganization, Mitchell Hutchins advised the boards of
trustees that the proposed investment advisory fee following the Reorganization
would be lower than that currently in effect for each Fund.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 6
Pursuant to all the foregoing, each Trust's board of trustees approved the
Plan, subject to approval of Target's shareholders. The Plan, which specifies
that it is intended to be, and is adopted as, a plan of a reorganization
described in section 368(a)(1)(C), provides in relevant part for the following:
(1) The acquisition by Acquiring Fund of all the Assets (as defined
below) in exchange solely for
(a) the number of full and fractional (i) Class A Acquiring Fund
Shares determined by dividing the net value of Target ("Target Value")
attributable to the Class A Target Shares by the net asset value
("NAV") of a Class A Acquiring Fund Share, (ii) Class B Acquiring Fund
Shares determined by dividing the Target Value attributable to the
Class D Target Shares by the NAV of a Class B Acquiring Fund Share,
and (iii) Class E Acquiring Fund Shares determined by dividing the
Target Value attributable to the Class B Target Shares by the NAV of a
Class E Acquiring Fund Share, and
(b) Acquiring Fund's assumption of the Liabilities (as defined
below),
(2) The constructive distribution of such Acquiring Fund Shares to
the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring the
Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder, by class (i.e., the account
for a Shareholder of Class A Target Shares shall be credited with the respective
pro rata number of Class A Acquiring Fund Shares due that Shareholder, the
account for a Shareholder of Class B Target Shares shall be credited with the
respective pro rata number of Class E Acquiring Fund Shares due that
Shareholder, and the account for a Shareholder of Class D Target Shares shall be
credited with the respective pro rata number of Class B Acquiring Fund Shares
due that Shareholder). All outstanding Target Shares, including any represented
by certificates, simultaneously will be canceled on Target's share transfer
records.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 7
The Target assets to be acquired by Acquiring Fund include all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (collectively "Assets").
Acquiring Fund will assume all of Target's liabilities, debts, obligations,
and duties of whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business, whether or
not determinable at the Effective Time, and whether or not specifically referred
to in the Plan, including without limitation Target's share of the expenses
incurred in connection with the Reorganization (collectively "Liabilities").
Target agreed in the Plan to use its best efforts to discharge all of its known
liabilities and obligations prior to the Effective Time.
REPRESENTATIONS
---------------
The representations enumerated below ("Representations") have been made to
us by appropriate officers of each Trust.
Each of Investment Series, on behalf of Target, and MHKP Trust, on behalf
of Acquiring Fund, has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when received
by the Shareholders, will be approximately equal to the fair market value
of their Target Shares constructively surrendered in exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the Acquiring
Fund Shares to be received by them in the Reorganization and (b) does not
anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 8
3. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the parties
incurred in connection with the Reorganization;
5. The fair market value on a going concern basis of the Assets will
equal or exceed the Liabilities to be assumed by Acquiring Fund and those
to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by Target immediately before the Reorganization. For
the purposes of this representation, any amounts used by Target to pay its
Reorganization expenses and redemptions and distributions made by it
immediately before the Reorganization (except for (a) distributions made to
conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 and (b) redemptions not made as part of
the Reorganization) will be included as assets thereof held immediately
before the Reorganization;
8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to, any
of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
section 304(c).
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 9
Investment Series also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary course of
its business;
2. Target is a "fund" as defined in section 851(h)(2); it qualified
for treatment as a regulated investment company ("RIC") under Subchapter M
of the Code ("Subchapter M") for each past taxable year since it commenced
operations and will continue to meet all the requirements for such
qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
3. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning
of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the stock
or securities of any one issuer, and not more than 50% of the value of such
assets is invested in the stock or securities of five or fewer issuers; and
5. Target will be terminated as soon as reasonably practicable after
the Reorganization, but in all events within six months after the Effective
Time.
MHKP Trust also has represented and warranted to us on behalf of Acquiring
Fund as follows:
1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a RIC under Subchapter M for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; Acquiring
Fund intends to continue to meet all such requirements for the next taxable
year; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or other-
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 10
wise reacquire any Acquiring Fund Shares issued to the Shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to sell
or otherwise dispose of any of the Assets, except for dispositions made in
the ordinary course of that business and dispositions necessary to maintain
its status as a RIC under Subchapter M, and (c) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to be dissolved
or merged with another corporation or business trust or any "fund" thereof
(within the meaning of section 851(h)(2)) following the Reorganization;
5. Immediately after the Reorganization, (a) not more than 25% of the
value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock or securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock or securities of five or fewer issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at the
Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
OPINION
-------
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange for
the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders construc-
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 11
tively in exchange for their Target Shares, will constitute a
reorganization within the meaning of section 368(a)(1)(C), and each Fund
will be "a party to a reorganization" within the meaning of section 368(b);
2. No gain or loss will be recognized to Target on the transfer of
the Assets to Acquiring Fund solely in exchange for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or upon the
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares and
its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization
(section 362(b)), and Acquiring Fund's holding period for the Assets will
include Target's holding period therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares pursuant
to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be received
by it in the Reorganization will be the same as the basis for its Target
Shares to be constructively surrendered in exchange for those Acquiring
Fund Shares (section 358(a)), and its holding period for those Acquiring
Fund Shares will include its holding period for those Target Shares,
provided they are held as capital assets by the Shareholder on the Closing
Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the Internal Revenue Service
("Service") in existence on the date hereof and (2) is applicable only to the
extent each Fund is solvent. We express no opinion about the tax treatment of
the transactions described herein if either Fund is insolvent.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 12
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C), and
Each Fund Will Be a Party to a Reorganization.
---------------------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganization") involves
the acquisition by one corporation, in exchange solely for all or a part of its
voting stock, of substantially all of the properties of another corporation.
For the transaction to qualify under that section, therefore, both entities
involved therein must be corporations (or associations taxable as corporations).
Each Trust, however, is a Massachusetts business trust, not a corporation, and
each Fund is a separate series of a Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
--- ---------------------
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
- ------------------- ------------
(1942).
Based on these criteria, neither Trust qualifies as a trust for federal
income tax purposes. While each Trust is an "investment trust," it does not
have a fixed pool of assets -- each Fund has been a managed portfolio of
securities, and its investment adviser has had the authority to buy and sell
securities for it. Neither Trust is simply an arrangement to protect or
conserve property for the beneficiaries, but each is designed to carry on a
profit-making business. In addition, the word "association" has long been held
to include "Massachusetts business trusts," such as the Trusts. See Hecht v.
--- --------
Malley, 265 U.S. 144 (1924). Accordingly, we believe that each Trust will be
- ------
treated as a corporation for federal income tax purposes.
Neither Trust as such, however, is participating in the Reorganization, but
rather series of each of them are the participants. Ordinarily, a transaction
involving segregated pools of assets (such as the Funds) could not qualify as a
reorganization, because
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 13
the pools would not be corporations. Under section 851(h), however, each Fund
is treated as a separate corporation for all purposes of the Code save the
definitional requirement of section 851(a) (which is satisfied by each Trust).
Thus, we believe that each Fund will be a separate corporation, and each Fund's
shares will be treated as shares of corporate stock, for purposes of section
368(a)(1)(C).
B. Non-applicability of Section 368(a)(2)(F).
-----------------------------------------
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a C
reorganization with respect to any such investment company or its shareholders
unless, among other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested
in the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested
in the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers
the transfer of at least 70% of the transferor's gross assets, and at least 90%
of its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 14
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
--------------------------
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas. Reg. (S)
1.368-1(d)(2) requires that the acquiring corporation must either (i) continue
the acquired corporation's historic business ("business continuity") or (ii) use
a significant portion of the acquired corporation's historic business assets in
a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 15
of P to engage in the business of investing in corporate securities after the
exchange caused the transaction to lack business continuity as well.
The Funds' investment objectives are similar. Furthermore, Acquiring Fund
will actively continue Target's business in the same manner that Target
conducted it immediately before the Reorganization. Accordingly, there will be
business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
expects to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make dispositions
thereof to maintain such status. Although, because of some differences in the
Funds' investment policies, certain of the securities currently held by Target
may need to be sold before the Effective Time rather than transferred to
Acquiring Fund, it is expected that an insubstantial portion of Target's assets
will be sold for this reason. Accordingly, there will be asset continuity as
well.
For all the foregoing reasons, we believe that the Reorganization will meet
the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement of Treas. Reg. (S) 1.368-1(b) satisfied if
ownership in an acquiring corporation on the part of a transferor corporation's
former shareholders is equal in value to at least 50% of the value of all the
formerly outstanding shares of the transferor corporation. Rev. Proc. 77-37,
supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of interest was
- ----- --- ---
held to exist in a reorganization of two RICs where immediately after the
reorganization 26% of the shares were redeemed in order to allow investment in a
third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966),
---- --- --------------------------
cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor
- ------------
corporation's stock was not a sufficient shift in proprietary interest to
disqualify a transaction as a reorganization under section 368(a)(2)(F) ("F
Reorganization"), even though only 52% of the transferor's shareholders would
hold all the transferee's stock); Aetna Casualty and Surety Co. v. U.S., 568
-------------------------------------
F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39% minority interest did
not prevent a transaction from
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 16
qualifying as an F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a
transaction qualified as an F Reorganization even though the transferor's
shareholders acquired only 45% of the transferee's stock, while the remaining
55% of that stock was issued to new shareholders in a public underwriting
immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is imposed
under the Code on the acquired corporation's shareholders. Rev. Rul. 66-23,
1966-1 C.B. 67, provides generally that "unrestricted rights of ownership for a
period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired corporation's
shareholders to dispose of more than 50% of an acquiring corporation's shares
could be problematic. Shareholders with no such preconceived plan or
arrangement, however, are basically free to sell any part of the shares received
by them in the reorganization without fear of breaking continuity of interest,
because the subsequent sale will be treated as an independent transaction from
the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of Target as a series of an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholderinterests, if
any, that will be redeemed as a result of or at the time of the Reorganization
will be de minimis. Accordingly, we believe that the Reorganization will meet
the continuity of interest requirement of Treas. Reg. (S) 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a C
reorganization unless the corporation whose properties are acquired distributes
the stock it receives and its other property in pursuance of the plan of
reorganization. Under the Plan -- which we believe constitutes a "plan of
reorganization" within the meaning of Treas. Reg. (S) 1.368-2(g) -- Target will
distribute all the Acquiring Fund Shares to its shareholders in constructive
exchange for their Target Shares; as soon as is reasonably practicable
thereafter, Target will be terminated. Accord-
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 17
ingly, we believe that the requirements of section 368(a)(2)(G)(i) will be
satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
--------------------
U.S. 465 (1935), and is now set forth in Treas. Reg. (S)(S) 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doctrine,
a transaction must have a bona fide business purpose (and not a purpose to avoid
federal income tax) to constitute a valid reorganization. The substantial
business purposes of the Reorganization are outlined above. Accordingly, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax) and therefore meets the
requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. (S) 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that was
received by the distributing corporation in the exchange. (Such a distribution
is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C
reorganization.) Section 361(c)(4) provides that specified provisions requiring
recognition of gain on
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KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 18
certain distributions shall not apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization, each
Fund will be a party to a reorganization, and the Plan constitutes a plan of
reorganization. Target will exchange the Assets solely for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities and then will
terminate pursuant to the Plan, distributing those shares to its shareholders in
constructive exchange for their Target Shares. As also noted above, we believe
that the Reorganization is being undertaken for bona fide business purposes (and
not a purpose to avoid federal income tax); we also do not believe that the
principal purpose of Acquiring Fund's assumption of the Liabilities is avoidance
of federal income tax on the proposed transaction. Accordingly, we believe that
no gain or loss will be recognized to Target on the Reorganization./3/
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
----------------------------------------------------
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which
- ----------
/3/ Notwithstanding anything herein to the contrary, no opinion is expressed as
to the effect of the Reorganization on the Funds or any Shareholder (regarding
the recognition of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, futures, and
forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a mark-to-
market system of accounting.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 19
consist of money and securities. Accordingly, we believe that no gain or loss
will be recognized to Acquiring Fund on the Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its
Holding Period Will Include Target's Holding Period.
---------------------------------------------------------------------------
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute
a C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange has a
carryover basis, the property will have a holding period in the hands of the
acquiror that includes the holding period of the property in the transferor's
hands. As stated above, Acquiring Fund's basis for the Assets will be a
carryover basis. Accordingly, we believe that Acquiring Fund's holding period
for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
----------------------------------------------------
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, where
the shares exchanged, as well as the shares received, are those of a corporation
that is a party to the reorganization. As stated above, the Reorganization will
constitute a C reorganization, the Plan constitutes a plan of reorganization,
and each Fund will be a party to a reorganization. Accordingly, we believe that
under section 354 a Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization.
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 20
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period for
its Target Shares.
---------------------------------------------------------------------------
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization and
under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder
<PAGE>
KIRKPATRICK & LOCKHART
PaineWebber Investment Series
Mitchell Hutchins/Kidder,
Peabody Investment Trust
May 15, 1995
Page 21
held its Target Shares as capital assets on the Closing Date, we believe its
holding period for those Acquiring Fund Shares will include its holding period
for those Target Shares.
We hereby consent to this opinion accompanying the Registration Statement
and to the references to our firm under the captions "Proposal 1. Approval of
the Reorganizations -- Synopsis -- Federal Income Tax Consequences of the
Reorganizations" and "Proposal 1. Approval of the Reorganizations -- The
Proposed Transactions --Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
_____________________
Theodore L. Press
<PAGE>
EXHIBIT 99.13
TRANSFER AGENCY SERVICES AND SHAREHOLDER SERVICES AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of January 30, 1995, to be effective as of such
date as is agreed to in writing by the parties, by and between KIDDER, PEABODY
INVESTMENT TRUST (the "Fund"), a Massachusetts business trust and PFPC INC.
("PFPC"), a Delaware corporation, which is an indirect wholly-owned subsidiary
of PNC Bank Corp.
The Fund is registered as an open-end management series investment company
under the Investment Company Act of 1940, as amended ("1940 Act"). The Fund
wishes to retain PFPC to serve as the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for such series listed in
Appendix C to this agreement, as amended from time to time (the "Series"), and
PFPC wishes to furnish such services.
In consideration of the promises and mutual covenants herein contained, the
parties agree as follows:
1. Definitions.
-----------
(a) "Authorized Person". The term "Authorized Person" shall mean any
-------------------
officer of the Fund and any other person who is duly authorized by the Fund's
Governing Board to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix or any amendment thereto as may be received by PFPC from time
to time.
1
<PAGE>
If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
(b) "Governing Board". The term "Governing Board" shall mean the Fund's
-----------------
Board of Directors if the Fund is a corporation or the Fund's Board of Trustees
if the Fund is a trust, or, where duly authorized, a competent committee
thereof.
(c) "Oral Instructions". The term "Oral Instructions" shall mean oral
-------------------
instructions received by PFPC from an Authorized Person by telephone or in
person.
(d) "SEC". The term "SEC" shall mean the Securities and Exchange
-----
Commission.
(e) "Securities Laws". The term "Securities Laws" shall mean the 1933 Act,
-----------------
the 1934 Act and the 1940 Act. The terms the "1933 Act" shall mean the
Securities Act of 1933, a amended, and the "1934 Act" shall mean the Securities
Exchange Act of 1934, a amended.
(f) "Shares". The term "Shares" shall mean the shares of beneficial
--------
interest of any Series or class of the Fund.
(g) "Written Instructions". The term "Written Instructions" shall mean
----------------------
written instructions signed by one Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent,
-----------
registrar, dividend disbursing agent and shareholder servicing agent to each of
its Series, in accordance
2
<PAGE>
with the terms set forth in this Agreement, and PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
---------------------
will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PFPC to provide services to each
Series and approving this agreement;
(b) A copy of the Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A under the 1933 Act and 1940 Act as filed
with the SEC;
(c) A copy of the Fund's investment advisory and administration agreement
or agreements;
(d) A copy of the Fund's distribution agreement or agreements;
(e) Copies of any shareholder servicing agreements made in respect of the
Fund; and
(f) Copies of any and all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
------------------------------------------------
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to all duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the
Fund.
3
<PAGE>
5. Instructions. Unless otherwise provided in this Agreement, PFPC shall
------------
act only upon Oral and Written Instructions. PFPC shall be entitled to rely
upon any Oral and Written Instruction it receives from an Authorized Person
pursuant to this Agreement. PFPC may assume that any Oral or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or of any vote, resolution or proceeding
of the Fund's Governing Board or of the Fund's shareholders, unless and until it
receives Written Instructions to the contrary.
The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next business day after such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
-----------------------
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
------------------
should not take, PFPC will request directions or advice, including Oral or
Written Instructions, from the Fund.
4
<PAGE>
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
-----------------
pertaining to any action it should or should not take, PFPC may request advice
at its own cost from such counsel of its own choosing (who may be counsel for
the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
------------------
advice or Oral or Written Instructions PFPC receives from the Fund and the
advice it receives from counsel, PFPC may rely upon and follow the advice of
counsel. In the event PFPC so relies on the advice of counsel, PFPC remains
liable for any action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities provided for in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
------------------
does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel in accordance with this
Agreement and which PFPC believes, in good faith, to be consistent with those
directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed to impose an obligation upon
PFPC (i) to seek such directions, advice or Oral or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
5
<PAGE>
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard of PFPC of any duties, obligations or responsibilities provided for in
this Agreement.
7. Records and Visits. PFPC shall prepare and maintain in complete and
------------------
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B Shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund which are in the
possession, or under the control, of PFPC shall be the property of the Fund.
The Fund or the Fund's Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person of the Fund. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable
6
<PAGE>
visits by the Fund, any agent or person designated by the Fund or any regulatory
agency having authority over the Fund.
8. Confidentiality. PFPC agrees on its own behalf and that of its
---------------
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), its investment
adviser and its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund prior to its
release. The Fund agrees that such consent shall not be unreasonably withheld,
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
----------------------------
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect
-----------------
with appropriate parties one or more agreements making reasonable provision for
periodic backup of computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take all
reasonable steps to minimize service interruptions. PFPC shall
7
<PAGE>
have no liability with respect to the loss of data or service interruptions
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of PFPC and provided further that PFPC has complied with the
provisions of this Paragraph 10.
11. Compensation. As compensation for services rendered by PFPC during
------------
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
agreed to, from time to time, in writing by the Fund and PFPC.
12. Indemnification.
---------------
(a) The Fund agrees to indemnify and hold harmless PFPC and its nominees
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws,
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including, without limitation, reasonable attorneys' fees and
disbursements arising directly or indirectly from any action or omission to act
which PFPC (i) at the request of or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral or Written Instructions. Neither PFPC, nor
any of its nominees, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its nominees' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
8
<PAGE>
(b) PFPC agrees to indemnify and hold harmless the Fund from all taxes,
charges, expenses, assessments, claims and liabilities arising from PFPC's
obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, arising
directly or indirectly out of PFPC's or its nominee's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
13. Insurance. PFPC shall maintain insurance of the types and in the
---------
amounts deemed by it to be appropriate. To the extent that policies of
insurance may provide for coverage of claims for liability or indemnity by the
parties set forth in this Agreement,
9
<PAGE>
the contracts of insurance shall take precedence, and no provision of this
Agreement shall be construed to relieve an insurer of any obligation to pay
claims to the Fund, PFPC or other insured party which would otherwise be a
covered claim in the absence of any provision of this Agreement.
14. Security. PFPC represents and warrants that, to the best of its
--------
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have access to review these systems and
procedures.
15. Responsibility of PFPC. PFPC shall be under no duty to take any
----------------------
action on behalf of the Fund except as specifically set forth herein or as may
be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise due care and diligence in the performance of its duties hereunder, to
act in good faith and to use its best efforts in performing services provided
for under this Agreement. PFPC shall be liable only for any damages arising out
of or in connection with PFPC's performance of or omission or failure to perform
its duties under this
10
<PAGE>
Agreement to the extent such damages arise out of PFPC's negligence, reckless
disregard of its duties, bad faith or willful misfeasance.
Without limiting the generality of the foregoing or of any other provision
of this Agreement, PFPC, in connection with its duties under this Agreement,
shall not be under any duty or obligation to inquire into and shall not be
liable for (a) the validity or invalidity or authority or lack thereof of any
Oral or Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC reasonably believes to
be genuine; or (b) subject to the provisions of Paragraph 10, delays or errors
or loss of data occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power supply.
16. Description of Services. PFPC shall perform the duties of the
-----------------------
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent of the Fund and its specified Series.
(a) Purchase of Shares. PFPC shall issue and credit an account of an
------------------
investor in the manner described in each Series prospectus once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
11
<PAGE>
(iii) Confirmation of receipt or crediting of funds for such order
from the Series' custodian.
(b) Redemption of Shares. PFPC shall redeem a Series' Shares only if
--------------------
that function is properly authorized by the Fund's organizational documents or
resolution of the Fund's Governing Board. Shares shall be redeemed and payment
therefor shall be made in accordance with each Series' prospectus when the
shareholder tenders his or her Shares in proper form and directs the method of
redemption.
(c) Dividends and Distributions. Upon receipt of a resolution of the
---------------------------
Fund's Governing Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the Fund
in Shares, or, upon shareholder election, pay such dividends and distributions
in cash if provided for in each Series' prospectus. Such issuance or payment,
as well as payments upon redemption as described above, shall be made after
deduction and payment of the required amount of funds to be withheld in
accordance with any applicable tax law or other laws, rules or regulations.
PFPC shall mail to each Series' shareholders such tax forms and other
information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation.
PFPC shall prepare, maintain and file with the IRS and other appropriate
taxing authorities reports relating to all dividends above a stipulated amount
paid by the Fund to its shareholders as required by tax or other law, rule or
regulation.
12
<PAGE>
(d) PFPC will provide the services listed on Appendix A and Appendix
B on an ongoing basis. Performance of certain of these services, with
accompanying responsibilities and liabilities, may be delegated and assigned to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or to an
affiliated person of either.
17. Duration and Termination.
------------------------
(a) This Agreement shall continue until January 30, 1997 and shall
automatically be renewed thereafter on a year-to-year basis and with respect to
the year-to-year renewal, provided that the Fund's Governing Board approves such
renewal; and provided further that this Agreement may be terminated by either
party for cause.
(b) With respect to the Fund, cause includes, but is not limited to:
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute "cause" under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii)
13
<PAGE>
issuance of an administrative or court order against PFPC with regard to the
material violation or alleged material violation of the Securities Laws or other
applicable laws related to its business of performing transfer agency services.
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective
thirty (30) days from the date of such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including a certified list of the
shareholders of each Series of the Fund with name, address, and if provided
taxpayer identification or Social Security number, and a complete record of the
account of each shareholder. To the extent that PFPC incurs expenses related to
a transfer of responsibilities to a successor, other than expenses involved in
PFPC's providing the Fund's books and records to the successor, PFPC shall be
entitled to be reimbursed for such expenses, including any
14
<PAGE>
out-of-pocket expenses reasonably incurred by PFPC in connection with the
transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund and any Series thereof upon the liquidation, merger or
other dissolution of the Fund or Series or upon the Fund's ceasing to be
registered investment company.
19. Registration as a Transfer Agent. PFPC represents that it is
--------------------------------
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered for the duration
of this Agreement. PFPC agrees that it will promptly notify the Fund in the
event of any material change in its status as a registered transfer agent.
Should PFPC fail to be registered with the SEC as a transfer agent at any time
during this Agreement, and such failure to register does not permit PFPC to
lawfully conduct its activities, the Fund may terminate this Agreement upon five
days written notice to PFPC.
20. Notices. All notices and other communications, other than Oral or
-------
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PFPC at
PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the
Fund, at 20 Exchange Place, New York, N.Y. 10005; or (c) if to neither of
15
<PAGE>
the foregoing, at such other address as shall have been notified to the sender
of any such notice or other communication. If the notice is sent by confirming
telegram, cable telex or facsimile sending device during regular business hours,
it shall be deemed to have been given immediately. If sent during a time other
than regular business hours, such notice shall be deemed to have been given at
the opening of the next business day. If notice is sent by first-class mail, it
shall be deemed to have been given three business days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered. All postage, cable, telegram, telex and facsimile sending
device charges arising from the sending of a notice hereunder shall be paid by
the sender.
21. Amendments. This Agreement, or any term thereof, may be changed or
----------
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
22. Additional Series. In the event that the Fund establishes one or more
-----------------
investment Series in addition to and with respect to which it desires to have
PFPC render services as transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment Series shall become a Series hereunder, subject to
such additional terms, fees and conditions as are agreed to by the parties.
23. Assignment and Delegation.
-------------------------
16
<PAGE>
(a) PFPC may, at its owns expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate agrees with PFPC to
comply with all relevant provisions of the Securities Laws; and (iii) PFPC and
such delegate promptly provide such information as the Fund may request and
respond to such questions as the Fund may ask relating to the delegation,
including, without limitation, the capabilities of the delegate. The assignment
and delegation of any of PFPC's duties under this subparagraph (a) shall not
relieve PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may assign its rights and delegate its duties hereunder to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or
affiliated person of either provided that (i) PFPC gives the Fund thirty (30)
days' prior written notice; (ii) the delegate agrees to comply with all relevant
provisions of the Securities Laws; and (iii) PFPC and such delegate promptly
provide such information as the Fund may request and respond to such questions
as the Fund may ask relative to the delegation, including, without limitation,
the capabilities of the delegate. In assigning its rights and delegating its
duties under this paragraph, PFPC may impose such conditions or limitations as
it determines appropriate including the condition that PFPC be retained as a
sub-transfer agent.
17
<PAGE>
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
24. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
26. Limitation of Liability. The Trust and PFPC agree that the
-----------------------
obligations of the Trust under this Agreement will not be binding upon any of
the Trustees, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust, individually, but are binding only upon
the assets and property of the Trust, as provided in the Declaration of Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither the authorization by the Trustees nor the execution and
delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Trust as provided in the Declaration of Trust.
No Series of the Trust will be liable for any claims against any other Series.
27. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties and supersedes all
18
<PAGE>
prior agreements and understandings relating to the subject matter hereof,
provided that the parties may embody in one or more separate documents their
agreement, if any, with respect to services to be performed and compensation to
be paid under this Agreement.
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.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware Law, except that, to the extent provision of the Securities
Laws govern the subject matter of this Agreement, such Securities Laws will
controlling. 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 and inure to the
benefit of the parties hereto and their respective successors and assigns.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By:
_______________________________
KIDDER, PEABODY INVESTMENT TRUST
By:
_______________________________
20
<PAGE>
APPENDIX A
Description of Services
-----------------------
(a) Services Provided on an Ongoing Basis by PFPC to the Fund, If
-------------------------------------------------------------
Applicable.
----------
(i) Calculate 12b-1 payments and broker trail commissions;
(ii) Develop, monitor and maintain all systems necessary to implement
and operate the three-tier distribution system, including Class B
conversion feature, as described in the registration statement
and related documents of the Fund, as they may be amended from
time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Fund Shares and deduct such amounts from redemption
proceeds;
(iv) Calculate front-end sales load amounts at time of purchase of
Shares;
(v) Determine dates of Class B conversion and effect same;
(vi) Establish and maintain proper shareholder registrations, unless
requested by the Fund;
(vii) Review new applications with correspondence to shareholders to
complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with proxy
solicitations;
(x) Countersign share certificates;
(xi) Prepare and mail to shareholders confirmation of activity;
(xii) Provide toll-free lines for direct shareholder use, plus customer
liaison staff for on-line inquiry response;
(xiii) Send duplicate confirmations to broker-dealers of their clients'
activity, whether executed through the broker-dealer or directly
with PFPC;
A-1
<PAGE>
(xiv) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Fund;
(xv) Provide detailed data for underwriter/broker confirmations;
(xvi) Periodic mailing of year-end tax and statement information;
(xvii) Notify on a daily basis the investment advisor, accounting agent,
and custodian of fund activity; and
(xviii) Perform other participating broker-dealer shareholder services as
may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral or Written Instructions of the
-------------------------------------------------------------------
Fund.
----
(i) Accept and post daily Series and class purchases and redemptions;
(ii) Accept, post and perform shareholder transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates.
(c) Shareholder Account Services.
----------------------------
(i) PFPC may arrange, in accordance with the Series' prospectus, for
issuance of Shares obtained through:
. The transfer of funds from shareholders' account at
financial institutions; and
. Any pre-authorized check plan.
(ii) PFPC, if requested, shall arrange for a shareholder's:
. Exchange of Shares for shares of a fund for which the Fund
has exchange privileges;
A-2
<PAGE>
. Systematic withdrawal from an account where that shareholder
participates in a systematic withdrawal plan; and/or
. Redemption of Shares from an account with a checkwriting
privilege.
(d) Communications to Shareholders. Upon timely written instructions,
------------------------------
PFPC shall mail all communications by the Fund to its shareholders,
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund Shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy cards
for the meetings of the Fund's shareholders and supply personnel to serve
as inspectors of election.
(e) Records. PFPC shall maintain records of the accounts for each
-------
shareholder showing the following information:
(i) Name, address and United States Tax Identification or Social
Security number;
(ii) Number and class of Shares held and number and class of Shares
for which certificates, if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account of each shareholder,
including dividends and distributions paid and the date and price
for all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a shareholder's
account;
(v) Any correspondence relating to the current maintenance of a
shareholder's account;
(vi) Information with respect to withholdings; and
A-3
<PAGE>
(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(f) Lost or Stolen Certificates. PFPC shall place a stop notice against
---------------------------
any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or
alleged misappropriation.
A new certificate shall be registered and issued upon:
(i) Shareholder's pledge of a lost instrument bond or such other and
appropriate indemnity bond issued by a surety company approved by
PFPC; and
(ii) Completion of a release and indemnification agreement signed by
the shareholder to protect PFPC.
(g) Shareholder Inspection of Stock Records. Upon requests from Fund
---------------------------------------
shareholders to inspect stock records, PFPC will notify the Fund and
require instructions granting or denying such request prior to taking
any action. Unless PFPC has acted contrary to the Fund's
instructions, the Fund agrees to release PFPC from any liability for
refusal of permission for a particular shareholder to inspect the
Fund's shareholder records.
A-4
<PAGE>
APPENDIX B
PFPC will perform or arrange for others to perform the following activities,
some or all of which may be delegated and assigned by PFPC to PaineWebber
Incorporated ("PaineWebber") or Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins") or to an affiliated person of either:
(i) providing, to the extent reasonable, uninterrupted processing of new
accounts, shareholder account changes, sales and redemption
activity, dividend calculations and payments, check settlements,
blue sky reporting, tax reporting, recordkeeping, communication with
all shareholders, resolution of discrepancies and shareholder
inquiries and adjustments, maintenance of dual system, development
and maintenance of repricing system, and development and maintenance
of correction system;
(ii) develop and maintain all systems for custodian interface and
reporting, and underwriter interface and reporting;
(iii) develop and maintain all systems necessary to implement and operate
the three-tier distribution system, including Class B conversion
features as described in the registration statement and related
documents of the Fund, as they may be amended from time to time; and
(iv) provide administrative, technical and legal support for the
foregoing services.
In undertaking its activities and responsibilities under this Appendix, PFPC
will not be responsible, except to the extent caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this agreement, for any charges or fees billed, expenses
incurred or penalties, imposed by any party, including the Fund or any current
or prior services providers of the Fund, without the prior written approval by
PFPC.
B-1
<PAGE>
APPENDIX C
Kidder, Peabody Global Equity Fund
Kidder, Peabody Global Fixed Income Fund
Kidder, Peabody Intermediate Fixed Income Fund
Kidder, Peabody Asset Allocation Fund
Kidder, Peabody Adjustable Rate Government Fund
<PAGE>
EXHIBIT 99.14(a)
CONSENT OF INDEPENDENT AUDITORS
Mitchell Hutchins/Kidder, Peabody Global Equity Fund
(one of the portfolios constituting the Mitchell Hutchins/
Kidder, Peabody Investment Trust):
We consent to the incorporation by reference in this Registration Statement on
Form N-14 of our report dated October 14, 1994, appearing in the annual report
to shareholders for the year ended August 31, 1994, our report dated April 21,
1995, appearing in the semi-annual report to shareholders for the six month
period ended February 28, 1995, and to the references to us under the captions
"Experts" and "Financial Highlights" appearing in the Prospectus/Proxy
Statement, which also is a part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
May 11, 1995
<PAGE>
EXHIBIT 99.14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus/Proxy Statement constituting part of this registration
statement on Form N-14 (the "N-14 Registration Statement") of our report
dated December 13, 1994, relating to the financial statements and
financial highlights of PaineWebber Europe Growth Fund appearing in the
October 31, 1994 Annual Report to Shareholders, which is incorporated by
reference in the Statement of Additional Information constituting part of
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A
of such Fund, which is incorporated by reference in such Prospectus/Proxy
Statement. We also consent to the incorporation by reference in the
Prospectus/Proxy Statement of the N-14 Registration Statement of our
report dated December 13, 1994 relating to the financial statements and
financial highlights of PaineWebber Global Growth and Income Fund
appearing in the October 31, 1994 Annual Report to Shareholders, which is
incorporated by reference in the Statement of Additional Information
constituting part of Post-Effective Amendment No. 29 to the Registration
Statement on Form N-1A of such Fund, which is incorporated by reference in
such Prospectus/Proxy Statement. We also consent to the references to us
under the heading "Miscellaneous - Experts" in such Prospectus/Proxy
Statement of the N-14 Registration Statement.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 11, 1995
<PAGE>
EXHIBIT 99.14(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
and to the incorporation by reference of our report dated October 26,
1994 on PaineWebber Atlas Global Growth Fund (a series of PaineWebber
Atlas Fund), in this Registration Statement (Form N-14) of Mitchell
Hutchins/Kidder Peabody Investment Trust.
ERNST & YOUNG LLP
New York, New York
May 12, 1995
<PAGE>
EXHIBIT 99.17(a)
Securities Act File No. 33-39659
Investment Company Act File No. 811-6292
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes)
------------------
Kidder, Peabody Investment Trust
(Exact Name of Registrant as Specified in Charter)
20 Exchange Place 10005-3250
New York, New York (Zip Code)
(Address of principal executive office)
Registrant's Telephone Number, including Area Code: (212) 510-5349
LAWRENCE H. KAPLAN, ESQ.
Vice President and Associate General Counsel
Kidder, Peabody & Co. Incorporated
20 Exchange Place
New York, New York 10005
(Name and Address of Agent for Service)
Copies to:
BARRY P. BARBASH, ESQ.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
_____________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
<TABLE>
<CAPTION>
Title of Securities Being Registered Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Being Price Offering Registration
Registered Per Share Price Fee
<S> <C> <C> <C> <C>
Shares of Beneficial Interest, par
value $.001 per share............ Indefinite* * Indefinite* $500
</TABLE>
* An indefinite number of Registrant's shares of beneficial interest is being
registered by this Registration Statement pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
Page 1 of Pages
Exhibit Index at Page
<PAGE>
Exhibit 99.17(b)
PROXY
-----
PAINEWEBBER ATLAS FUND - PAINEWEBBER ATLAS GLOBAL GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS - JULY __, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A.
Urena and each of them (with power of substitution) to vote for the undersigned
all shares of beneficial interest of the undersigned at the aforesaid meeting
and any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO
GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF TRUSTEES OF PAINEWEBBER ATLAS FUND.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer
Park, NY 11729.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THE BOARD OF
TRUSTEES RECOMMENDS A VOTE "FOR"
FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan of Reorganization
and Termination between Mitchell Hutchins/Kidder
Peabody Global Equity Fund and PaineWebber Atlas
Global Growth Fund (Fund). __ __ __
2. Approval of Sub-Advisory Agreement between Mitchell
Hutchins Asset Management Inc. and GE Investment
Management Incorporated relating to the Fund. __ __ __
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
This proxy will not be voted unless it is dated and signed
exactly as instructed below
If shares are held jointly, each Shareholder named should sign. If only one
signs, his or her signature will be binding. If the Shareholder is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the Shareholder is a partnership, a partner should
sign in his or her own name, indicating that he or she is a "Partner."
Sign exactly as name appears hereon.
_____________________________ (L.S.)
_____________________________ (L.S.)
Date , 1995
________________________
<PAGE>
PROXY
-----
PAINEWEBBER INVESTMENT SERIES - PAINEWEBBER EUROPE GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS - JULY __, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A.
Urena and each of them (with power of substitution) to vote for the undersigned
all shares of beneficial interest of the undersigned at the aforesaid meeting
and any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO
GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF TRUSTEES OF PAINEWEBBER INVESTMENT SERIES.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer
Park, NY 11729.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THE BOARD OF
TRUSTEES RECOMMENDS A VOTE "FOR"
FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan of Reorganization
and Termination between Mitchell Hutchins/Kidder
Peabody Global Equity Fund and PaineWebber Europe
Growth Fund (Fund). __ __ __
2. Approval of Sub-Advisory Agreement between Mitchell
Hutchins Asset Management Inc. and GE Investment
Management Incorporated relating to the Fund. __ __ __
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
This proxy will not be voted unless it is dated and signed
exactly as instructed below
If shares are held jointly, each Shareholder named should sign. If only one
signs, his or her signature will be binding. If the Shareholder is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the Shareholder is a partnership, a partner should
sign in his or her own name, indicating that he or she is a "Partner."
Sign exactly as name appears hereon.
_____________________________ (L.S.)
_____________________________ (L.S.)
Date , 1995
________________________
<PAGE>
PROXY
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PAINEWEBBER INVESTMENT SERIES - PAINEWEBBER GLOBAL GROWTH AND INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS - JULY __, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A.
Urena and each of them (with power of substitution) to vote for the undersigned
all shares of beneficial interest of the undersigned at the aforesaid meeting
and any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO
GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF TRUSTEES OF PAINEWEBBER INVESTMENT SERIES.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer
Park, NY 11729.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THE BOARD OF
TRUSTEES RECOMMENDS A VOTE "FOR"
FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan of Reorganization
and Termination between Mitchell Hutchins/Kidder
Peabody Global Equity Fund and PaineWebber Global
Growth and Income Fund (Fund). __ __ __
2. Approval of Sub-Advisory Agreement between Mitchell
Hutchins Asset Management Inc. and GE Investment
Management Incorporated relating to the Fund. __ __ __
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
This proxy will not be voted unless it is dated and signed
exactly as instructed below
If shares are held jointly, each Shareholder named should sign. If only one
signs, his or her signature will be binding. If the Shareholder is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the Shareholder is a partnership, a partner should
sign in his or her own name, indicating that he or she is a "Partner."
Sign exactly as name appears hereon.
_____________________________ (L.S.)
_____________________________ (L.S.)
Date , 1995
________________________
