<PAGE> 1
As filed with the Securities and Exchange Commission on July 28, 1995
1933 Act Registration No. 33-42160
1940 Act Registration No. 811-6376
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /__X__/
Pre-Effective Amendment No. _____ /_____/
Post-Effective Amendment No.__5__ /__X__/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /__X__/
Amendment No. __8__ /__X__/
(Check appropriate box or boxes.)
PAINEWEBBER MANAGED ASSETS TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
GREGORY K. TODD, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
/_____/ Immediately upon filing pursuant to Rule 485(b)
/__X__/ On August 1, 1995 pursuant to Rule 485(b)
/_____/ 60 days after filing pursuant to Rule 485(a)(i)
/_____/ On _________________ pursuant to Rule 485(a)(i)
/_____/ 75 days after filing pursuant to Rule 485(a)(ii)
/_____/ On _________________ pursuant to Rule 485(a)(ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under
the Investment Company Act of 1940 and filed the notice required by such
Rule for its most recent fiscal year on May 26, 1995.
<PAGE> 2
PaineWebber Managed Assets Trust
Contents of Registration Statement
This Registration Statement consists of the following papers and
documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE> 3
PaineWebber Managed Assets Trust
Form N-1A Cross Reference Sheet
Part A Item No.
and Caption Prospectus Caption
------------- ------------------
1. Cover Page . . . . . . . Cover Page
2. Synopsis . . . . . . . . Prospectus Summary
3. Condensed Financial
Information . . . . . . Financial Highlights;
Performance Information
4. General Description of
Registrant . . . . . . . Prospectus Summary;
Investment Objective and
Policies; General Information
5. Management of the Fund . Management; General Information
6. Capital Stock and Other
Securities . . . . . . . Cover Page; Conversion of Class B
Shares; Dividends and Taxes;
General Information
7. Purchase of Securities
Being Offered . . . . . Purchases; Exchanges;
Valuation of Shares; Other
Services and
Information; Management
8. Redemption or Repurchase Purchases; Redemptions; Other
Services and Information
9. Pending Legal Proceedings Not Applicable
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover page . . . . . . . Cover Page
11. Table of Contents . . . Table of Contents
12. General Information and
History . . . . . . . . Not Applicable
13. Investment Objective and
Policies . . . . . . . . Investment Policies and
Restrictions; Hedging Strategies;
Portfolio Transactions
14. Management of the Fund . Trustees and Officers
<PAGE> 4
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
15. Control Persons and
Principal Holders of
Securities . . . . . . . Trustees and Officers
16. Investment Advisory and
Other Services . . . . . Investment Advisory and
Distribution Arrangements; Other
Information
17. Brokerage Allocation . . Portfolio Transactions
18. Capital Stock and Other
Securities . . . . . . . Conversion of Class B Shares;
Other Information
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . Reduced Sales Charges, Additional
Exchange and Redemption
Information and Other Services;
Valuation of Shares
20. Tax Status . . . . . . . Taxes
21. Underwriters . . . . . .
Investment Advisory and
Distribution Arrangements
22. Calculation of
Performance Data . . . . Performance Information
23. Financial Statements . . Financial Statements
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> 5
The Fund is a series of PaineWebber Managed Assets Trust ("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 August 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.
- ------------------------------------------------------
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.
- ------------------------------------------------------
August 1, 1995
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.
PAINEWEBBER
CAPITAL APPRECIATION
FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 2
Financial Highlights................... 6
Flexible Pricing System................ 7
Investment Objective and Policies...... 8
Purchases.............................. 11
Exchanges.............................. 15
Redemptions............................ 16
Conversion of Class B Shares........... 17
Other Services and Information......... 17
Dividends and Taxes.................... 18
Valuation of Shares.................... 20
Management............................. 20
Performance Information................ 22
General Information.................... 23
Appendix A............................. A-1
</TABLE>
- ------------------------------------------------------
A PAINEWEBBER MUTUAL FUND
<PAGE> 6
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
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------------
PAINEWEBBER CAPITAL APPRECIATION FUND
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed
in this summary.
<TABLE>
<S> <C>
The Fund: This Prospectus describes PaineWebber Capital Appreciation
Fund ("Fund"), a diversified series of an open-end, manage-
ment investment company.
Investment Objective and Long-term capital appreciation; invests primarily in common
Policies: stocks of medium-sized companies (including U.S. dollar-
denominated securities of foreign companies) selected using a
research intensive approach and valuation techniques that
emphasize earnings growth.
Total Net Assets: $234.8 million at June 30, 1995.
Investment Adviser and Mitchell Hutchins Asset Management Inc. ("Mitchell Hutch-
Administrator: ins"), an asset management subsidiary of PaineWebber Incor-
porated ("PaineWebber" or "PW"), manages approximately $43.5
billion in assets. See "Management".
Sub-Adviser: Denver Investment Advisors, LLC ("Sub-Adviser") manages
approximately $8.6 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
Fund's transfer agent ("Transfer Agent").
Flexible Pricing System: Investors may select Class A, Class B or Class D shares, each
with a public offering price that reflects different sales
charges and expense levels. See "Flexible Pricing System",
"Purchases", "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).
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
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 and Mitchell Hutchins/Kidder, Peabody
("MH/KP") 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 also distri-
buted 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.
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial
Systematic withdrawal plan sales
Rights of accumulation charge
365-day reinstatement privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class D Shares Automatic investment plan Systematic withdrawal plan
</TABLE>
WHO SHOULD INVEST. The Fund invests primarily in common stocks of a
diversified group of medium-sized companies selected by using a
research-intensive approach and valuation technique that emphasizes earnings
growth. Accordingly, the Fund is designed for investors seeking long-term growth
of capital who are able to bear the risks inherent in such equity investments.
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. The Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Investing in securities of
medium-sized and smaller companies entails greater market volatility and risks
of adverse financial developments than is the case for
3
<PAGE> 8
securities of larger companies. The Fund's ability to invest in U.S.
dollar-denominated foreign equity securities and its use of options and futures
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.
SHAREHOLDER TRANSACTION EXPENSES (1)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
percentage of public offering price)................... 4.5% 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
</TABLE>
ANNUAL FUND OPERATING EXPENSES (2)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Management fees.......................................... 1.00% 1.00% 1.00%
12b-1 fees(3)............................................ 0.25 1.00 1.00
Other expenses........................................... 0.33 0.34 0.35
------ ------ ------
Total operating expenses................................. 1.58% 2.34% 2.35%
====== ====== ======
</TABLE>
- ------------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge generally declines by 1% annually
thereafter, reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. The management fee payable to
Mitchell Hutchins is higher than the management fee paid by most funds. All
expenses are those actually incurred for the fiscal year ended March 31,
1995.
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees....................................... 0.25% 0.25% 0.25%
12b-1 distribution fees.................................. 0.00% 0.75% 0.75%
</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 charges permitted by the National Association of Securities
Dealers, Inc.
4
<PAGE> 9
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A Shares(1)...................... $ 60 $ 93 $ 127 $ 224
Class B Shares:
Assuming a complete redemption at
end of period(2)(3)............. $ 74 $ 103 $ 145 $ 231
Assuming no redemption(3)......... $ 24 $ 73 $ 125 $ 231
Class D Shares......................... $ 24 $ 73 $ 126 $ 269
</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
contingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
The 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 Fund 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.
5
<PAGE> 10
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class A
share, one Class B share and one Class D share of the Fund for 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 March 31, 1995, which are incorporated by reference into the
Statement of Additional Information. The financial statements and notes, as well
as the information in the table appearing below 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.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
---------------------------------- ------------------------------------- ----------------------------------
FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED
MARCH 31, MARCH 31, MARCH 31,
---------------------------------- ------------------------------------- ----------------------------------
1995 1994 1993+ 1995 1994 1993+ 1995 1994 1993#
-------- -------- -------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period...... $ 11.65 $ 10.53 $ 9.55 $ 12.02 $ 10.94 $ 10.00 $ 11.50 $ 10.47 $ 8.89
-------- -------- -------- --------- --------- --------- -------- -------- --------
Income (loss)
from invest-
ment opera-
tions:
Net
investment
loss........ (0.09) (0.09) (0.06) (0.20) (0.17) (0.11) (0.19) (0.10) (0.05)
Net realized
and
unrealized
gains from
investment
trans-
actions... 1.29 1.21 1.04 1.33 1.25 1.05 1.27 1.13 1.63
-------- -------- -------- --------- --------- --------- -------- -------- --------
Total income
from
investment
operations... 1.20 1.12 0.98 1.13 1.08 0.94 1.08 1.03 1.58
-------- -------- -------- --------- --------- --------- -------- -------- --------
Less
distributions:
Distributions
from net
realized
gains on
invest-
ments... (0.04) -- -- (0.04) -- -- (0.04) -- --
-------- -------- -------- --------- --------- --------- -------- -------- --------
Net asset
value, end
of period... $ 12.81 $ 11.65 $ 10.53 $ 13.11 $ 12.02 $ 10.94 $ 12.54 $ 11.50 $ 10.47
======== ======== ======== ========= ========= ========= ======== ======== ========
Total
investment
return(1)... 10.36% 10.64% 10.26% 9.46% 9.87% 9.40% 9.45% 9.84% 17.77%
======== ======== ======== ========= ========= ========= ======== ======== ========
Ratios/Supple-
mental
Data:
Net assets,
end of
period
(000's)..... $ 62,673 $ 58,523 $ 48,582 $ 139,302 $ 133,828 $ 105,490 $ 24,993 $ 29,884 $ 13,806
Expenses to
average net
assets...... 1.58% 1.54% 1.72%* 2.34% 2.30% 2.49%* 2.35% 2.28% 2.31%*
Net
investment
loss to
average net
assets...... (0.79)% (0.84)% (0.78)%* (1.56)% (1.60)% (1.55)%* (1.57)% (1.58)% (1.53)%*
Portfolio
turnover
rate........ 42% 60% 51% 42% 60% 51% 42% 60% 51%
</TABLE>
- ---------------
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and capital gain distributions, if any, 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 sale charges; results for Class A and
Class B shares would be lower if sale charges were included. Total return
for periods less than one year have not been annualized.
* Annualized.
+ For the period April 7, 1992 (commencement of operations) to March 31, 1993.
# For the period July 2, 1992 (commencement of offering of shares) to March
31, 1993.
6
<PAGE> 11
FLEXIBLE PRICING SYSTEM
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in
their initial and contingent deferred sales charge structures and in their
ongoing expenses, including asset-based sales charges in the form of
distribution fees. These differences are summarized in the table below. Each
Class has distinct advantages and disadvantages for different investors, and
investors may choose the Class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
---------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge Service fee of 0.25% Initial sales charge
of 4.5% of the public waived or reduced for
offering price certain purchases
CLASS B Maximum contingent deferred Service fee of 0.25%; Shares convert to Class A
sales charge of 5% of distribution fee of 0.75% shares approximately six
redemption proceeds; years after issuance
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 on-going 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.
7
<PAGE> 12
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. 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 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 deferred sales charges, service fees
and distribution fees for the three Classes of shares of the Fund. See also
"Conversion of Class B Shares," "Dividends and Taxes," "Valuation of Shares" and
"General Information" for other differences among the three Classes.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve long-term capital
appreciation. Under normal circumstances, the Fund invests at least 65% of its
total assets in common stocks of medium-sized companies (including U.S.
dollar-denominated securities of foreign companies) selected using a research
intensive approach and valuation techniques that emphasize earnings growth.
Medium-sized companies are defined by the adviser as 1) the domestic public
companies that are not included in either of the largest 100 companies ranked by
revenues or by market capitalization in Fortune magazine's annual ranking of
"The Fortune 500--
8
<PAGE> 13
The Largest U.S. Industrial and Service Corporations," or 2) foreign companies
with market capitalizations of less than $10 billion. In addition, to qualify as
a medium-sized company, both domestic and foreign companies must have either
revenues or market capitalizations of at least $100 million. Although most
medium-sized companies in which the Fund will invest are relatively
well-established, they may be more vulnerable than larger companies to adverse
business or economic developments. If the issuer of a common stock ceases to be
a medium-sized company after the Fund has purchased the stock, the Fund will
consider selling the security, but is not required to do so.
In selecting securities for the Fund, the Sub-Adviser emphasizes a
"bottom-up" approach; that is, an investment approach focusing more on
fundamental analysis of individual companies than on broad economic or technical
market analysis. It is anticipated that, under normal circumstances, the Fund's
portfolio will be relatively highly diversified, consisting of common stocks of
at least 80 issuers.
The Fund may invest up to 35% of its total assets in common stocks of
companies that are larger or smaller than medium-sized companies, convertible
preferred stocks, convertible debt securities, U.S. government securities and
money market instruments. Smaller companies may have limited product lines,
markets or financial resources, and may be dependent on a relatively small
management group. Securities of such companies may be less liquid and more
volatile than securities of medium-sized or larger companies or the market
averages in general and therefore may involve greater risk than investing in
larger companies. U.S. government securities 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 solely or primarily by the
credit of the issuer.
There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate based on changes in the
value of its portfolio securities.
DOLLAR-DENOMINATED FOREIGN SECURITIES. The Fund may invest up to 35% of its
total assets in U.S. dollar-denominated equity securities of foreign issuers
that are traded on recognized U.S. exchanges or in the U.S. over-the-counter
("OTC") market. These investments may involve special risks, arising both from
political and economic developments abroad and differences between foreign and
U.S. regulatory systems. Foreign economies may differ favorably or unfavorably
from the U.S. economy in various respects, and many 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. The Fund may attempt to reduce the overall risk of its
investments (hedge) by using options (both exchange-traded and OTC) and futures
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 that the Fund may use. The
Statement of Additional Information contains further information on these
strategies.
The Fund may write (sell) covered put or call options and buy put or call
options on securities in which it may invest and on securities indices. In
addition, the Fund may buy and sell securities index futures contracts and may
write covered put or call options and buy put or call options on such futures
contracts. Because the Fund intends to use options and
9
<PAGE> 14
futures for hedging purposes, the Fund may enter into options and futures
contracts that hedge the full value of the portfolio, although, under normal
circumstances, a much smaller portion of the Fund's portfolio will be at risk
under such hedging instruments under which up to 100% of its portfolio is at
risk.
The Fund might not employ any of the strategies described above, and no
assurance can be given that any strategy used will succeed. If the Sub-Adviser
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a strategy for the Fund, the Fund would be in a better position if it
had 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") for resale 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.
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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase debt
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but the Fund generally
would not pay for such securities or start earning interest on them until they
are delivered. However, when the Fund purchases securities on a when-issued or
delayed delivery basis, it immediately assumes the risks of ownership, including
the risk of price fluctuation. Failure by a counter party to deliver a security
purchased on a when-issued or delayed delivery basis may result in a loss or
missed opportunity to make an alternative investment. Depending on market
conditions, the Fund's when-issued and delayed delivery purchase commitments
could cause its net asset value
10
<PAGE> 15
per share to be more volatile, because such securities may increase the amount
by which the Fund's total assets, including the value of when-issued and delayed
delivery securities held by the Fund, exceed its net assets.
LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to lend up to 10%
of the total value of its portfolio securities to broker-dealers or
institutional investors that the Sub-Adviser deems qualified. Lending securities
enables the Fund to earn additional income, but could result in a loss or delay
in recovering the Fund's portfolio securities.
OTHER INFORMATION. When the Sub-Adviser 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.
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. Although repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the Fund
if the other party to the repurchase agreement becomes insolvent, the Fund
intends to enter into repurchase agreements only with banks and dealers in
transactions believed by the Sub-Adviser to present minimal credit risks in
accordance with guidelines established by the Trust's board of trustees. 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 and
may engage in reverse repurchase agreements, but not in excess of 5% of its
total assets.
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 trustees without shareholder approval.
PURCHASES
GENERAL. Class A shares are sold to investors subject to an initial sales
charge; Class B shares are sold without an initial sales charge but are subject
to higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon 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 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 the Class A shares.
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<PAGE> 16
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 a purchase with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the third Business Day after the order is received at PaineWebber's New York
City offices. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber
clients may purchase shares of the Fund through the Transfer Agent. Shares of
the Fund may be purchased, and an account with the Fund established, by
completing and signing the purchase application at the end of this Prospectus
and mailing it, together with a check to cover the purchase, to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. Subsequent investments need not be accompanied by an
application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales charge,
which will vary with the size of the purchase as shown in the following table:
INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF DISCOUNT TO SELECTED
-------------------------------------------- DEALERS AS A
NET AMOUNT INVESTED PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE (NET ASSET VALUE) 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
resources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the 1933 Act.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A Shares are available without
a sales charge through exchanges for Class A shares of most other PaineWebber
and MH/KP mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares
12
<PAGE> 17
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 or MH/KP mutual funds, their spouses, parents and children and
advisory clients of Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the purchase
is made through a PaineWebber investment executive who formerly was employed as
a broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing
brokerage firm, (2) within 90 days of the purchase of Class A shares the
purchaser redeemed shares of one or more mutual funds for which that competing
firm or its affiliates was principal underwriter, provided the purchaser either
paid a sales charge to invest in those funds, paid a contingent deferred sales
charge upon redemption or held shares of those funds for the period required not
to pay the otherwise applicable contingent deferred sales charge and (3) the
total amount of shares of all PaineWebber and MH/KP mutual funds purchased under
this sales charge waiver does not exceed the amount of the purchaser's
redemption proceeds from the competing firm's funds. To take advantage of this
waiver, an investor must provide satisfactory evidence that all the above-noted
conditions are met. Qualifying investors should contact their PaineWebber
investment executives for more information.
Certificate holders of unit investment trusts ("UITs") sponsored by
PaineWebber may acquire Class A shares of the Fund without regard to minimum
investment requirements and without sales charges by electing to have dividends
and other distributions from their UIT investment automatically invested in
Class A shares.
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible
group of related Fund investors purchases Class A shares concurrently with Class
A shares of other PaineWebber or MH/KP mutual funds, the purchases may be
combined to take advantage of the reduced sales 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
or MH/KP 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.
13
<PAGE> 18
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, redemptions of Class B shares of the Fund will be subject
to a contingent deferred sales charge. The amount of any applicable contingent
deferred sales charge will be calculated by multiplying the net asset value of
such shares at the time of redemption by the applicable percentage shown in the
table below:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
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
14
<PAGE> 19
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 the PaineWebber and MH/KP mutual funds listed below, 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. 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. A
$5.00 exchange fee is charged for each exchange, and exchanges may be subject to
minimum investment requirements of the fund into which exchanges are made.
The other PaineWebber and MH/KP mutual funds with which Fund shares may be
exchanged include:
Income Funds
- MH/KP ADJUSTABLE RATE GOVERNMENT FUND
- MH/KP GLOBAL FIXED INCOME FUND
- MH/KP GOVERNMENT INCOME FUND
- MH/KP INTERMEDIATE FIXED INCOME FUND
- PW GLOBAL INCOME FUND
- PW HIGH INCOME FUND
- PW INVESTMENT GRADE INCOME FUND
- PW SHORT-TERM U.S. GOVERNMENT INCOME FUND
- PW STRATEGIC INCOME FUND
- PW U.S. GOVERNMENT INCOME FUND
Tax-Free Income Funds
- MH/KP MUNICIPAL BOND FUND
- PW CALIFORNIA TAX-FREE INCOME FUND
- PW MUNICIPAL HIGH INCOME FUND
- PW NATIONAL TAX-FREE INCOME FUND
- PW NEW YORK TAX-FREE INCOME FUND
Growth Funds
- MH/KP EMERGING MARKETS EQUITY FUND
- MH/KP GLOBAL EQUITY FUND
- MH/KP SMALL CAP GROWTH FUND
- PW ATLAS GLOBAL GROWTH FUND
- PW BLUE CHIP GROWTH FUND
- PW COMMUNICATIONS & TECHNOLOGY GROWTH FUND
- PW EUROPE GROWTH FUND
- PW GROWTH FUND
- PW REGIONAL FINANCIAL GROWTH FUND
- PW SMALL CAP VALUE FUND
Growth and Income Funds
- MH/KP ASSET ALLOCATION FUND
- MH/KP EQUITY INCOME FUND
- PW BALANCED FUND
- PW GLOBAL ENERGY FUND
- PW GLOBAL GROWTH AND INCOME FUND
- PW GROWTH AND INCOME FUND
- PW UTILITY INCOME FUND
PaineWebber Money Market Fund
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms. Shareholders who are not
PaineWebber clients 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
15
<PAGE> 20
offices or by the Transfer Agent. See "Valuation of Shares." Fund shares
purchased through PaineWebber or its correspondent firms may be exchanged only
after the settlement date has passed and payment for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber and MH/KP mutual fund shares to be acquired may be
legally made. Before making any exchange, shareholders should contact their
PaineWebber investment executives or correspondent firms or the Transfer Agent
to obtain more information and prospectuses of the PaineWebber and MH/KP mutual
funds to be acquired through the exchange.
REDEMPTIONS
Fund shares may be redeemed at their net asset value (subject to any
applicable contingent deferred sales charge) and redemption proceeds will be
paid after receipt of a redemption request as described below. PaineWebber
clients may redeem 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 three Business Days,
repurchase proceeds (less any applicable contingent deferred sales charge) will
be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and correspondent
firms are responsible for promptly forwarding redemption requests to
PaineWebber's New York City offices.
PaineWebber reserves the right not to honor any redemption request, in
which case PaineWebber promptly will forward the request to the Transfer Agent
for treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients must redeem their shares through the Transfer Agent by mail;
other shareholders also may redeem Fund shares through the Transfer Agent.
Shareholders should mail redemption requests directly to the Transfer Agent:
PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. A redemption request will be executed at the net asset value next
computed after it is received in "good order" and redemption proceeds will be
paid within seven days of receipt of the request. "Good order" means that the
request must be accompanied by the following: (1) a letter of instruction or a
stock assignment specifying the number of shares or amount of investment to be
redeemed (or that all shares credited to 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
16
<PAGE> 21
accordance with SEC rules, such as a commercial bank, trust company or member of
a recognized stock exchange, and (3) other supporting legal documents for
estates, trusts, guardianships, custodianships, partnerships and corporations.
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS. Redemption proceeds of $1 million or
more may be wired to the shareholder's PaineWebber brokerage account or a
commercial bank account designated by the shareholder. Questions about this
option, or redemption requirements generally, should be referred to the
shareholder's PaineWebber investment executive or correspondent firm, or to the
Transfer Agent if the shares are not held in a PaineWebber brokerage account. If
a shareholder requests redemption of shares which were purchased recently, the
Fund may delay payment until it is assured that good payment has been received.
In the case of purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed by purchasing
Class A shares within 365 days of the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their PaineWebber investment
executive or correspondent firm at the time the privilege is exercised.
CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A shares
approximately six years after the date of issuance, together with a pro rata
portion of all Class B shares representing dividends and other distributions
paid in additional Class B shares. The Class B shares so converted will no
longer be subject to the higher expenses borne by Class B shares. The conversion
will be effected at the relative net asset values per share of the two Classes
on the first Business Day of the month in which the sixth anniversary of the
issuance of the Class B shares occurs. 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. 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 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
17
<PAGE> 22
amount each month, the shareholder will purchase more shares when the Fund's net
asset value per share is low and fewer shares when the net asset value per share
is high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through
periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class D shares
with a value of $5,000 or more or Class B shares with a value of $20,000 or more
may have PaineWebber redeem a portion of their Fund shares monthly, quarterly or
semi-annually under the Fund's 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 Fund's systematic withdrawal
plan. Purchases of additional Fund shares concurrent with withdrawals are
ordinarily disadvantageous to shareholders because of tax liabilities and, for
Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Fund shares 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 Fund shares in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares normally 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.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund pays a dividend from its net investment income and net
short-term capital gain, if any, annually. The Fund also distributes
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss) with the regular annual dividend. The
Fund may make additional distributions if necessary to avoid a 4% excise tax on
certain undistributed income
18
<PAGE> 23
and capital gain. Dividends and other distributions paid on all Classes of Fund
shares 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."
Dividends and other distributions on Fund shares are paid in additional
Fund shares of the same Class at net asset value unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and/or other
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber
investment executives or correspondent firms or complete the appropriate section
of the application form.
TAXES. The Fund intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code so that it will be
relieved of federal income tax on that part of its investment company taxable
income (consisting generally of net investment income and net short-term capital
gain) and net capital gain that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid
in cash or in additional shares) generally are taxable to its shareholders as
ordinary income. Distributions of the Fund's net capital gain (whether paid in
cash or in additional shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Shareholders not subject to tax on their income generally will not be required
to pay taxes on amounts distributed to them.
The Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
that year 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 also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the redemption proceeds 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 or MH/KP mutual 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 or MH/KP mutual 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 Fund's 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 or MH/KP
mutual fund shares subsequently acquired. In addition, if Fund shares are
purchased within 30 days before or after redeeming other Fund shares (regardless
19
<PAGE> 24
of Class) at a loss, all or a portion of that loss will not be deductible and
will increase the basis of the newly purchased shares.
No gain or loss will be recognized to a shareholder as a result of a
conversion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be other
federal, state or local tax considerations applicable to a particular investor.
Prospective 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. 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.
MANAGEMENT
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's
day-to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, supervises the activities of the Sub-Adviser and all other
aspects of the Fund's operations. Denver Investment Advisors, LLC, as
Sub-Adviser, makes and implements all investment decisions.
Mitchell Hutchins receives a monthly fee for its services, computed daily
and payable monthly, at an annual rate of 1.00% of the Fund's average daily net
assets. The advisory fee for the Fund is higher than that paid by most
investment companies to their advisers, but Mitchell Hutchins believes the fee
is comparable to the advisory fees paid to advisers by other funds with similar
investment objectives and policies. Brokerage transactions for the Fund may be
conducted through PaineWebber in accordance with procedures adopted by the
Trust's board of trustees.
Mitchell Hutchins (not the Fund) pays the Sub-Adviser a fee for its
sub-investment advisory services, in an amount equal to 50% of the fee received
by Mitchell Hutchins from the Fund for advisory and administrative services.
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 also incurs various other expenses and, for the fiscal
year ended March 31, 1995, total expenses for the Fund's Class A, Class B and
Class D shares, stated as a percentage of average daily net assets, were 1.58%,
2.34% and 2.35%, 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 a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. At June 30, 1995, Mitchell Hutchins was adviser or
sub-adviser of 41 investment com-
20
<PAGE> 25
panies with 86 separate portfolios and aggregate assets of over $27.9 billion.
The Sub-Adviser is located at 1225 17th Street, 26th Floor, P.O. Box 17487,
Denver, Colorado 80217. At June 30, 1995, the Sub-Adviser managed approximately
$8.6 billion of assets of various clients. The Sub-Adviser has managed client
accounts investing primarily in equity securities of medium-sized companies
since 1958. In managing assets for its clients, the Sub-Adviser strives to
implement a "team approach" rather than rely on one or two key individuals.
Todger Anderson, President and a director of portfolio management for the
Sub-Adviser, is responsible for the day-to-day management of the Fund's
portfolio. He has managed the Fund since its inception and has concentrated on
medium capitalization investing since 1975.
At a meeting held November 9, 1994, Denver Investment Advisors, Inc.
("DIA"), sub-adviser for the Fund, informed the board that First Interstate
Bancorp, the indirect parent of DIA, had agreed in principle to sell the
investment advisory business of DIA to a new company, Denver Investment
Advisors, LLC ("New DIA"), which is owned by the current principal officers of
DIA, in a transaction expected to be consummated on or before April 30, 1995
("Transaction").
The board of trustees approved for submission to the shareholders a
proposed sub-advisory contract between Mitchell Hutchins Asset Management Inc.
and New DIA ("New Sub-Advisory Contract"), to take effect upon consummation of
the Transaction. The terms and conditions of the New Sub-Advisory Contract
provide for the same sub-advisory fee and are otherwise identical to those of
the current sub-advisory contract with DIA except for different effective and
termination dates and for making explicit the authorization of New DIA to vote
proxies of issuers of securities held by the Fund. A special meeting of the
shareholders was held on March 1, 1995, at which time shareholders approved the
contract.
Investment personnel of Mitchell Hutchins or the Sub-Adviser may engage in
securities transactions for their own accounts pursuant to codes of ethics that
establish procedures for personal investing and restrict certain transactions.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the
Fund's shares and has appointed PaineWebber as the exclusive dealer for the sale
of those shares. Under separate plans of distribution pertaining to the Class A
shares, Class B shares and Class D shares ("Class A Plan," "Class B Plan" and
"Class D Plan", collectively, "Plans"), the Fund pays Mitchell Hutchins monthly
service fees at the annual rate of 0.25% of the average daily net assets of each
Class of shares and 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 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 fee under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling Class B and
Class D shares.
21
<PAGE> 26
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 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, the Fund will not be obligated to pay more
than those fees and, if Mitchell Hutchins' expenses are less than such fees, it
will retain its full fees and realize a profit. The Fund will pay the service
and distribution fees to Mitchell Hutchins until either the applicable Plan or
Distribution Contract is terminated or not renewed. In that event, Mitchell
Hutchins' distribution expenses in excess of service and distribution fees
received or accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration of
the continuation of the Plans, the trustees will review the Plan and Mitchell
Hutchins' corresponding expenses for each Class separately from the Plans and
corresponding expenses for the other two Classes.
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. Standardized return for the Class A
shares reflects deduction of the Fund's maximum initial sales charge at the time
of purchase, and standardized return for the Class B shares reflects deduction
of the applicable contingent deferred sales charge imposed on a redemption of
shares held for the period. One-, five- and ten-year periods will be shown,
unless the Class has been in existence for a shorter period. Total return
calculations assume reinvestment of dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative
22
<PAGE> 27
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 Managed Assets Trust 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 August 9, 1991. The Trust commenced operations on April 7, 1992. The
trustees have authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $.001 per share. At the present time, the
trustees have established no series other than the Fund.
The shares of beneficial interest of the Fund are divided into three
Classes, designated Class A shares, Class B 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 matters
pertaining to its plan of distribution, (2) Class A shares are subject to an
initial sales charge, (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance,
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class and (5) each Class may bear differing amounts of certain Class-specific
expenses. The board of trustees of the Trust does not anticipate that there will
be any conflicts among the interests of the holders of the different Classes of
shares of the Fund. On an ongoing basis, the board of trustees will consider
whether any such conflict exists and, if so, take appropriate action.
The Trust does not hold annual meetings of shareholders. There normally
will be no meetings of shareholders to elect trustees unless fewer than a
majority of the trustees holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Trust may remove a trustee by votes cast in person or by proxy at a meeting
called for that purpose. The trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when so requested in writing by 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 three
Classes, dividends and liquidation proceeds of the Class B and Class D shares
are likely to be lower than for the Class A shares.
To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares 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
23
<PAGE> 28
Drive, North Quincy, Massachusetts 02171 is the custodian of the Fund's assets.
PFPC Inc., a subsidiary of PNC Bank, National Association, whose principal
business address is 400 Bellevue Parkway, Wilmington, Delaware 19809, is the
Fund's transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of
purchases and redemptions of Fund shares. 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.
24
<PAGE> 29
APPENDIX A
The Fund may use the following hedging instruments:
OPTIONS ON EQUITY AND DEBT SECURITIES--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 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 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 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 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. A securities index option operates in the
same way as a more traditional securities option, except that exercise of a
securities index option is effected with cash payment and does not involve
delivery of securities. Thus, upon exercise of a securities 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 securities
index.
SECURITIES INDEX FUTURES CONTRACTS--A securities 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 securities 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 securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contracts.
INTEREST RATE FUTURES CONTRACTS--Interest rate 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 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, 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 currencies, 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.
A-1
<PAGE> 30
Application Form
<TABLE>
<S> <C> <C>
THE PAINEWEBBER / / / / - / / / / / / / / / / - / / / /
MUTUAL FUNDS PaineWebber Account No.
</TABLE>
- --------------------------------------------------------------------------------
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).
<TABLE>
<S> <C> <C>
ALSO, DO NOT USE THIS FORM TO OPEN A RETIREMENT PLAN ACCOUNT. Return this completed form to:
FOR RETIREMENT PLAN FORMS OR FOR ASSISTANCE PFPC Inc.
IN COMPLETING THIS FORM CONTACT PFPC INC. AT 1-800-647-1568. P.O. Box 8950
Wilmington, Delaware 19899
PLEASE PRINT ATTN: PaineWebber Mutual Funds
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
--- ------------------------------------------------------------------------------------------
1 INITIAL INVESTMENT ($1,000 MINIMUM)
--- ------------------------------------------------------------------------------------------
ENCLOSED IS A CHECK FOR $__________ (payable to "PaineWebber Capital Appreciation Fund") to
purchase Class A / / Class B / / or Class D / / shares (Check one Class; if no Class is specified
Class A shares will be purchased)
--- ------------------------------------------------------------------------------------------
2 ACCOUNT REGISTRATION
--- ------------------------------------------------------------------------------------------
</TABLE>
Not valid without
signature and
Soc. Sec. or Tax ID #
- -- As joint tenants, use Lines 1 and 2
- -- As custodian for a minor, use
- -- In the name of a corporation, trust
or other organization or any
fiduciary capacity, use Line 4
<TABLE>
<S> <C>
1. Individual / /
--------------------------- ------------------------- ------------------------------
First Name Last Name MI Soc. Sec. No.
2. Joint Tenancy / /
------------------------ ------------------------- ------------------------------
First Name Last Name MI Soc. Sec. No.Lines 1 and 3
("Joint Tenants with Rights of Survivorship" unless otherwise specified)
3. Gifts to Minors / /
-------------------------------------------------- ------------------------------
Minor's Name Soc. Sec. No.
Uniform Gifts /Uniform Transfers
Under the to Minors Act / to Minors Act
-----------------------------------------------------------
State of Residence of Minor
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 gains distributions 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.
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
--- ------------------------------------------------------------------------------------------
5 SPECIAL OPTIONS (For More Information--Check Appropriate Box)
--- ------------------------------------------------------------------------------------------
/ / Automatic Investment Plan / / Prototype IRA Application / / Systematic Withdrawal Plan
--- ------------------------------------------------------------------------------------------
6 RIGHTS OF ACCUMULATION--CLASS A SHARES See Prospectus
--- ------------------------------------------------------------------------------------------
Indicate here any other account(s) in the group of funds
that would qualify for the cumulative quantity discount as
outlined in the Prospectus.
------------------------------- --------------------------- -------------------------------
Fund Name Account No. Registered Owner
------------------------------- --------------------------- -------------------------------
Fund Name Account No. Registered Owner
------------------------------- --------------------------- -------------------------------
Fund Name Account No. Registered Owner
--- ------------------------------------------------------------------------------------------
7 PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
--- ------------------------------------------------------------------------------------------
"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses
and children.
----------------------------------------
Nature of Relationship
--- --------------------------------------------------------
8 SIGNATURE(S) AND TAX CERTIFICATION(S)
--- --------------------------------------------------------
I warrant that I have full authority and am of legal age
to purchase shares of the Fund and have received and read
a current Prospectus of the Fund and agree to its terms.
The Fund and its Transfer Agent will not be liable for
acting upon instructions or inquiries believed genuine.
Under penalties of perjury, I certify that (1) my taxpayer
identification number provided in this application is
correct and (2) I am not subject to backup withholding
because (i) I have not been notified that I am subject to
backup withholding as a result of failure to report
interest or dividends or (ii) the IRS has notified me that
I am no longer subject to backup withholding (strike out
clause (2) if incorrect).
----------------------------------------- --------------------------------- -------------------------
Individual (or Custodian) Joint Registrant (if any) Date
----------------------------------------- --------------------------------- -------------------------
Corporate Officer, Partner, Trustee, etc. Title Date
--- ------------------------------------------------------------------------------------------
9 INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By 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
EXECUTIVE OR CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX
8950, WILMINGTON, DELAWARE 19899.
</TABLE>
<PAGE> 32
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 33
Shares of the Fund can be exchanged for shares of
the following PaineWebber ("PW") and Mitchell
Hutchins/Kidder Peabody ("MH/KP") Mutual
Funds:
INCOME FUNDS
- - MH/KP Adjustable Rate Government Fund
- - MH/KP Global Fixed Income Fund
- - MH/KP Government Income Fund
- - MH/KP Intermediate Fixed Income Fund
- - PW Global Income Fund
- - PW High Income Fund
- - PW Investment Grade Income Fund
- - PW Short-Term U.S. Government Income Fund
- - PW Strategic Income Fund
- - PW U.S. Government Income Fund
TAX-FREE INCOME FUNDS
- - MH/KP Municipal Bond Fund
- - PW California Tax-Free Income Fund
- - PW Municipal High Income Fund
- - PW National Tax-Free Income Fund
- - PW New York Tax-Free Income Fund
GROWTH FUNDS
- - MH/KP Emerging Markets Equity Fund
- - MH/KP Global Equity Fund
- - MH/KP Small Cap Growth Fund
- - PW Atlas Global Growth Fund
- - PW Blue Chip Growth Fund
- - PW Communications & Technology Growth Fund
- - PW Europe Growth Fund
- - PW Growth Fund
- - PW Regional Financial Growth Fund
- - PW Small Cap Value Fund
GROWTH AND INCOME FUNDS
- - MH/KP Asset Allocation Fund
- - MH/KP Equity Income Fund
- - PW Balanced Fund
- - PW Global Energy Fund
- - PW Global Growth and Income Fund
- - PW Growth and Income Fund
- - PW Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
--------------------
A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read the prospectus carefully before
investing.
[RECYCLE LOGO] Recycled Paper
(C) 1995 PaineWebber Incorporated
PAINEWEBBER
CAPITAL
APPRECIATION
- - FUND
- - LONG-TERM CAPITAL APPRECIATION
- - PROFESSIONAL MANAGEMENT
- - PORTFOLIO DIVERSIFICATION
- - DIVIDEND AND CAPITAL GAIN
REINVESTMENT
- - FLEXIBLE PRICING(SM)
- - LOW MINIMUM INVESTMENT
- - AUTOMATIC INVESTMENT PLAN
- - SYSTEMATIC WITHDRAWAL PLAN
- - SUITABLE FOR RETIREMENT PLANS
PROSPECTUS
August 1, 1995
<PAGE> 34
PAINEWEBBER CAPITAL APPRECIATION FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Capital Appreciation Fund ("Fund") is a diversified series of
PaineWebber Man-aged Assets Trust ("Trust"), a professionally managed, open-end
management investment company organized as a Massachusetts business trust. The
Fund seeks long-term capital appreciation; it invests primarily in common stocks
of medium-sized companies. The Fund's investment adviser, administrator and
distributor is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"). The Fund's
sub-adviser is Denver Investment Advisors, LLC ("Sub-Adviser"). As distributor
for the Fund, Mitchell Hutchins has appointed PaineWebber to serve as the
exclusive dealer for the sale of Fund shares. This Statement of Additional
Information is not a prospectus and should be read only in conjunction with the
Fund's current Prospectus, dated August 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 August 1, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. To the extent the
Fund holds securities of foreign issuers, such securities may not be 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 invests in securities of foreign issuers only if such securities
are traded in the U.S. securities market directly or through American Depository
Receipts ("ADRs"). Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. For purposes of the Fund's investment policies,
ADRs are deemed to have the same classification as the underlying securities
they represent. Thus, an ADR evidencing ownership of common stock will be
treated as common stock.
Investments in foreign securities involve risks relating to political and
economic developments abroad as well as those that may result from the
differences between the regulation to which U.S. issuers are subject and that
applicable to foreign issuers. These risks may include expropriation,
withholding taxes on interest, confiscatory taxation, limitations on the use or
transfer of the Fund's assets and political or social instability or diplomatic
developments. Moreover, individual foreign
<PAGE> 35
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Securities of many foreign companies may be less liquid and their prices more
volatile than securities issued by comparable U.S. companies. While the Fund
generally invests only in securities that are traded on recognized exchanges or
in over-the-counter ("OTC") markets, from time to time foreign securities may be
difficult to liquidate rapidly without significantly depressing the price of
such securities. There may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning U.S.
companies.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in
foreign currency exchange rates will affect the Fund's net asset value, the
value of interest earned, gains and losses realized on the sale of securities
and net investment income and capital gain, if any, to be distributed to
shareholders by the Fund. 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. Any of these factors could adversely
affect the Fund.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose includes,
among other things, purchased OTC options, repurchase agreements maturing in
more than seven days and restricted securities other than those the Sub-Adviser
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"). 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
either themselves exempt from registration or 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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<PAGE> 36
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 Trust's board of trustees has delegated the function of making
day-to-day determinations of liquidity to the Sub-Adviser, pursuant to
guidelines approved by the board. 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). The Sub-Adviser monitors
the liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board of trustees and Mitchell Hutchins.
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 the Fund's net investment
income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party to
a repurchase agreement becomes insolvent. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
the Sub-Adviser to present minimal credit risks in accordance with guidelines
established by the Trust's board of trustees. The Sub-Adviser reviews and
monitors the creditworthiness of those institutions under the board's and
Mitchell Hutchins' general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's total assets. Such agreements involve the sale of
securities held by the Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary purposes. While a reverse repurchase agreement is
outstanding, the Fund's custodian segregates assets to cover
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<PAGE> 37
the Fund's obligations under the reverse repurchase agreement. See "Investment
Policies and Restrictions--Segregated Accounts."
SHORT SALES "AGAINST THE BOX." As indicated in the Prospectus, the Fund
may engage in short sales of securities it owns or has the right to acquire at
no added cost through conversion or exchange of other securities it owns (short
sales "against the box") to defer realization of gains or losses for tax or
other purposes. To make delivery to the purchaser in a short sale, the executing
broker borrows the securities being sold short on behalf of the Fund, and the
Fund is obligated to replace the securities borrowed at a date in the future.
When the Fund sells short, it will establish a margin account with the broker
effecting the short sale and will deposit collateral with the broker. In
addition, the Fund will maintain with its custodian, in a segregated account,
the securities that could be used to cover the short sale. The Fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining and closing short sales against the box. The Fund currently does not
intend to have obligations under short sales that at any time during the coming
year exceed 5% of the Fund's net assets.
The Fund might make a short sale "against the box" in order to hedge
against market risks when Mitchell Hutchins believes that the price of a
security may decline, thereby causing a decline in the value of a security owned
by the Fund or a security convertible into or exchangeable for a security owned
by the Fund, or when Mitchell Hutchins wants to sell a security that the Fund
owns at a current price, but also wishes to defer recognition of gain or loss
for federal income tax purposes. In such case, any loss in the Fund's long
position after the short sale should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which gains or losses in the long position are
reduced will depend upon the amount of the securities sold short relative to the
amount of the securities the Fund owns, either directly or indirectly and, in
the case where the Fund owns convertible securities, changes in the investment
values or conversion premiums of such securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. As stated in the Prospectus,
the Fund may purchase securities on a "when-issued" or delayed-delivery basis. A
security purchased on a when-issued or delayed-delivery basis is recorded as an
asset on the commitment date and is subject to changes in market value,
generally based upon changes in the level of interest rates. Thus, fluctuation
in the value of the security from the time of the commitment date will affect
the Fund's net asset value. When the Fund agrees to purchase securities on a
when-issued basis, its custodian segregates assets to cover the amount of the
commitment. See "Investment Policies and Restrictions--Segregated Accounts." The
Fund purchases when-issued securities only with the intention of taking
delivery, but may sell the right to acquire the security prior to delivery if
Mitchell Hutchins deems it advantageous to do so, which may result in a gain or
loss to the Fund.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed-delivery basis or reverse
repurchase agreements, the Fund will maintain with an approved custodian in a
segregated account cash, U.S. government securities or other liquid high-grade
debt securities, marked to market daily, in an amount at least equal to the
Fund's obligation or commitment under such transactions. As described under
"Hedging Strategies," segregated accounts may also be required in connection
with certain transactions involving options or futures contracts.
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<PAGE> 38
INVESTMENT LIMITATIONS
The Fund may not (1) 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; (2) 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; (3) 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 the federal
securities laws; (4) make short sales of securities or maintain a short
position, except that the Fund may (a) make short sales of securities it does
not own in an amount up to 25% of its net assets, (b) make short sales and
maintain short positions in connection with its use of options, futures
contracts and options on futures contracts and (c) sell short "against the box";
(5) 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; (6) purchase or sell
commodities or commodity contracts, except that the Fund may purchase or sell
financial futures contracts, such as stock index, interest rate and bond index
futures contracts and options thereon; (7) invest in oil, gas or mineral-related
programs or leases; (8) make loans, except through loans of portfolio securities
as described in the Prospectus or this Statement of Additional Information 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; (9) 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; (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 the Fund's total assets
are outstanding; or (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 equal or exceed 25% of the 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 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 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 the Fund's total assets would be invested in
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<PAGE> 39
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 the Fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days; (4) invest in warrants, valued at the lower of cost or market, in excess
of 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 the American Stock
Exchange, Inc., 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; or (5) invest more than 35% of its total assets in debt
securities rated Ba or lower by Moody's Investors Service, Inc. or BB or lower
by Standard & Poor's Ratings Group (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 interpret fundamental
investment limitation (5) to prohibit investment in real estate limited
partnerships.
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
the Sub-Adviser may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures") and options on futures contracts, to attempt to hedge the
Fund's portfolio. The particular Hedging Instruments are described in Appendix A
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 transaction
costs. Alternatively, the Fund might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.
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<PAGE> 40
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast, generally
are used to hedge against price movements in broad equity market sectors in
which the Fund has invested or expects to invest. Hedging Instruments on debt
securities may be used to hedge either individual securities or broad fixed
income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, the Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in
the Prospectus, the Fund expects to discover additional opportunities in
connection with options, futures contracts and other hedging techniques. These
new opportunities may become available as the Fund develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
options, futures contracts or other techniques are developed. The Fund 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
Sub-Adviser's ability to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. While the Sub-Adviser 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. Because the Fund invests
primarily in common stocks of medium-sized companies, there might be a
significant lack of correlation between the portfolio and the stock indices
underlying any such Hedging Instruments available for use by the 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 the Fund entered into a
short hedge because
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<PAGE> 41
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, 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 the opposite party to the transaction 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 or other options or
futures contracts or (2) cash and short-term liquid debt securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so require,
set aside cash, 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 or call options, and write (sell)
covered put or call options, on equity and debt securities in which it is
authorized to invest and securities indices. 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 market price of the security underlying a covered put option declines to
less than the exercise price of the option, minus the premium received, the Fund
would expect to suffer a loss. The securities or other assets used as cover for
OTC options written by the Fund would be considered illiquid to the extent
described under "Investment Policies and Restrictions--Illiquid Securities."
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<PAGE> 42
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 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 options used by the Fund are European-style options.
This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit, and
would be unable to limit its losses prior to expiration. The inability to enter
into a closing purchase transaction for a covered call option written by the
Fund could cause material losses because the Fund would be unable to sell the
investments used as cover for the written option until the option expires or is
exercised.
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<PAGE> 43
GUIDELINES FOR OPTIONS. The Fund's use of options is governed by the
following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
1. The Fund may purchase a put or call option, including any straddles
or spreads, only if the value of its premium, when aggregated with the
premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets.
2. The aggregate value of securities underlying put options written by
the Fund, determined as of the date the put options are written, will not
exceed 50% of the Fund's net assets.
3. The aggregate premiums paid on all options (including options on
securities and stock 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 securities index futures contracts
and interest rate 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 call 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 an option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a put or 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
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<PAGE> 44
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. Secondary markets for options on futures are currently in the
development stage, and the Fund will not trade options on futures on any
exchange or board of trade unless, in the Sub-Adviser's opinion, the markets for
such options have developed sufficiently that the liquidity risks for such
options are not greater than the corresponding risks for futures.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
GUIDELINES FOR FUTURES AND RELATED OPTIONS. The Fund's use of futures and
related options is governed by the following guidelines, which can be changed by
the Trust's board of trustees without shareholder vote:
1. To the extent the Fund enters into futures contracts and options on
futures positions that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed
5% of the Fund's net assets.
2. The aggregate premiums paid on all options (including options on
securities and securities indices and options on futures contracts)
purchased by the Fund that are held at any time will not exceed 20% of the
Fund's net assets.
3. The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of the Fund's total
assets.
11
<PAGE> 45
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------------- ----------------------- ---------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 68 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 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 Na Pro
BioTherapeutics, Inc. and a director
or trustee of 26 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Meyer Feldberg; 53 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior
New York, New York 10027 to 1989, he 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 18 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller.
New York, New York 10017 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 companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
12
<PAGE> 46
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------------- ----------------------- ---------------------------------------
<S> <C> <C>
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Capital
901 15th Street, N.W. Partners (investment bank) and a co-
Suite 300 chairman and director of CB Commer-
Washington, D.C. 20005 cial 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
Holdings Inc. (holding company of NWA
Inc.). Prior to 1989, he was employed
by the Marriott Corporation (hotels,
restaurants, airline catering and
contract feeding), where he most
recently was an executive vice
president and president of Marriott
Hotels and Resorts. Mr. Malek is also
a director of American 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**; 50 Trustee Mr. Minard is chairman and a director
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
director of Oppenheimer Capital in
New York and Director of Oppenheimer
Capital Ltd. in London. Mr. Minard is
also a director or trustee of 30
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Judith Davidson Moyers; 60 Trustee Mrs. Moyers is president of Public
Public Affairs Television Affairs Television, Inc., an
356 W. 58th Street educational consultant and a home
New York, New York 10019 economist. Mrs. Moyers is also a
director of Columbia Real Estate
Investments and Ogden Corporation and
a director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
13
<PAGE> 47
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------------- ----------------------- ---------------------------------------
<S> <C> <C>
Thomas F. Murray; 84 Trustee Mr. Murray is a real estate and
400 Park Avenue financial consultant. Mr. Murray is
New York, New York 10022 also a director and chairman of
American Continental Properties,
Inc., a trustee of Prudential Realty
Trust, and a director or trustee of
16 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Margo N. Alexander; 48 President Ms. Alexander is president, chief
executive officer and a director of
Mitchell Hutchins. Prior to January
1995, Ms. Alexander was an executive
vice president of PaineWebber. Ms.
Alexander is also a trustee of one
and president of 39 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president and
manager--advisory 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
39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins. Prior
to December 1993, she was an
associate at the law firm of Seward &
Kissel. Ms. Cohen is also a vice
president and assistant secretary of
26 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ellen R. Harris; 49 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.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president and
Assistant Treasurer the senior manager of the Fund
Administration Division of Mitchell
Hutchins. Mr. Maher is also a vice
president and assistant treasurer of
39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
14
<PAGE> 48
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------------- ----------------------- ---------------------------------------
<S> <C> <C>
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is also
a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy 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; 44 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. From April 1990 to May
1994, she was a partner in the law
firm of Arnold & Porter. Prior to
April 1990, she was a partner in the
law firm of Shereff, Friedman,
Hoffman & Goodman. Ms. Schonfeld is
also a vice president of 39 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Treasurer Mitchell Hutchins. From August 1992
to August 1994, he was a vice
president at BlackRock Financial
Management, L.P. Prior to August
1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is
also a vice president and assistant
treasurer of 39 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Martha J. Slezak; 33 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 September
1991, she was a tax manager with
Arthur Andersen LLP. 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.
</TABLE>
15
<PAGE> 49
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE WITH TRUST OTHER DIRECTORSHIPS
- ---------------------------- ----------------------- ---------------------------------------
<S> <C> <C>
Julian F. Sluyters; 35 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.
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.
** Messrs. Bewkes 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
$2,500 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 1% of the
shares of the Fund. Because Mitchell Hutchins and PaineWebber perform
substantially all of the services necessary for the operation of the Trust, the
Trust requires no employees. No officer, director or employee of Mitchell
Hutchins or PaineWebber presently receives any compensation from the Trust for
acting as a trustee or officer. The table on the following page includes certain
information relating to the compensation of the Trust's trustees who held office
during the fiscal year ended March 31, 1995.
16
<PAGE> 50
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION
OR
RETIREMENT
BENEFITS
ACCRUED TOTAL
AS COMPENSATION
AGGREGATE PART FROM THE
COMPENSATION OF ESTIMATED TRUST AND
FROM THE ANNUAL THE
THE TRUST'S BENEFITS UPON FUND
NAME OF PERSON, POSITION TRUST* EXPENSES RETIREMENT COMPLEX**
- ------------------------------------------ ------ ----- ------------- ------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of the board
of trustees............................. -- -- -- --
Meyer Feldberg,
Trustee................................. $4,875 -- -- $ 86,050
George W. Gowen,
Trustee................................. $4,625 -- -- 71,425
Frederic V. Malek,
Trustee................................. $4,875 -- -- 77,875
Frank P.L. Minard,
Trustee................................. -- -- -- --
Judith Davidson Moyers,
Trustee................................. $4,375 -- -- 71,125
Thomas F. Murray,
Trustee................................. $4,625 -- -- 71,925
</TABLE>
- ---------------
* Represents fees paid to each trustee during the fiscal year ended March 31,
1995.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract dated March 20,
1992 with the Trust ("Advisory Contract"). Under the Advisory Contract, the Fund
pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual
rate of 1.00% of the Fund's average daily net assets. Pursuant to the Advisory
Contract, for the fiscal years ended March 31, 1995 and March 31, 1994 and the
period from April 7, 1992 (commencement of operations) to March 31, 1993, the
Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administration fees of $2,168,097, $2,018,477 and $1,109,234, respectively.
Pursuant to a service agreement with the Fund that is reviewed by the
Trust's board of trustees annually, PaineWebber provides certain services to the
Fund not otherwise provided by its transfer agent. Pursuant to the service
agreement, for the fiscal years ended March 31, 1995 and March 31, 1994 and the
period from April 7, 1992 (commencement of operations) to March 31, 1993 and the
Fund paid (or accrued) to PaineWebber service fees of $98,260, $88,794 and
$55,713, 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
17
<PAGE> 51
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 Trust or Mitchell
Hutchins; (6) all expenses incurred in connection with the trustees' services,
including travel expenses; (7) taxes (including any income or franchise taxes)
and governmental fees; (8) costs of any liability, uncollectable items of
deposit and other insurance or fidelity bonds; (9) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Trust or Fund for violation of any law; (10) legal, accounting and
auditing expenses, including legal fees of special counsel for the independent
trustees; (11) charges of custodians, transfer agents and other agents; (12)
costs of preparing share certificates; (13) expenses of setting in type and
printing prospectuses, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders, and costs of
mailing such materials to shareholders; (14) any extraordinary expenses
(including fees and disbursements of counsel) incurred by the Fund; (15) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the board and any committees
thereof; (17) the cost of investment company literature and other publications
provided to trustees and officers; and (18) costs of mailing, stationery and
communications equipment.
As required by state regulation, Mitchell Hutchins will reimburse the Fund
if and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such limit
applicable to the Fund is 2.5% of the first $30 million of the Fund's average
daily net assets, 2.0% of the next $70 million of its average daily net assets
and 1.5% of its average daily net assets in excess of $100 million. Certain
expenses, such as brokerage commissions, taxes, interest, distribution fees and
extraordinary items, are excluded from this limitation. For the fiscal years
ended March 31, 1995 and March 31, 1994 and the period from April 7, 1992
(commencement of operations) to March 31, 1993, no reimbursements were made
pursuant to such limitation.
The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers, but does not require Mitchell Hutchins to do so. Mitchell Hutchins
has entered into a separate contract with the Sub-Adviser, dated March 21, 1995
("Sub-Advisory Contract"), pursuant to which the Sub-Adviser determines what
securities will be purchased, sold or held by the Fund. Under the Sub-Advisory
Contract, Mitchell Hutchins (not the Fund) pays the Sub-Adviser a monthly fee of
50% of the fee paid by the Fund to Mitchell Hutchins under the Advisory
Contract. The Sub-Adviser bears all expenses incurred by it in connection with
its services under the Sub-Advisory Contract. Under the Sub-Advisory Contract
and a prior substantially identical contract for the fiscal years ended March
31, 1995 and March 31, 1994 and the period from April 7, 1992 (commencement of
operations) to March 31, 1993, Mitchell Hutchins paid (or accrued) to the
Sub-Adviser sub-advisory fees of $1,084,049, $1,009,239 and $554,617,
respectively.
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. 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 Trust, the Fund, its shareholders or
18
<PAGE> 52
Mitchell Hutchins in connection with the Sub-Advisory Contract, except any
liability to the Trust, the Fund, its shareholders or Mitchell Hutchins to which
the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith, 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 Advisory Contract terminates automatically upon assignment and is
terminable at any time without penalty by the board of trustees or by vote of
the holders of a majority of the Fund's outstanding voting securities on 60
days' written notice to Mitchell Hutchins, or by Mitchell Hutchins on 60 days'
written notice to the Fund. The Sub-Advisory Contract terminates automatically
upon 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' notice to the Sub-Adviser, or by the Sub-Adviser on 120 days' written
notice to Mitchell Hutchins. The Sub-Advisory Contract may also be terminated by
Mitchell Hutchins (1) upon material breach by the Sub-Adviser of its
representations and warranties, which breach shall not have been cured within a
20-day period after notice of such breach; (2) if the Sub-Adviser becomes unable
to discharge its duties and obligations under the Sub-Advisory Contract or (3)
on 120 days' notice to the Sub-Adviser.
The following table shows the approximate net assets as of June 30, 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)............................. $ 5,655.1
Global........................................................ 3,266.9
Equity/Balanced............................................... 2,731.9
Fixed Income (excluding Money Market)......................... 6,190.1
Taxable Fixed Income........................................ 4,435.2
Tax-Free Fixed Income....................................... 1,754.9
Money Market Funds............................................ 19,093.6
</TABLE>
Mitchell Hutchins, and the Sub-Adviser's personnel may invest in securities
for their own accounts pursuant to codes of ethics that describe the fiduciary
duty owed to shareholders of the Fund and other accounts advised by Mitchell
Hutchins or the Sub-Adviser, respectively. With respect to Mitchell Hutchins
personnel, that fiduciary duty is owed to the PaineWebber and Mitchell
Hutchins/Kidder, Peabody ("MH/KP") mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees.
The codes of ethics establish procedures for personal investing and restrict
certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require
pre-clearance, short-term trading and participation in initial public offerings
generally are prohibited. In addition, the code of ethics applicable to Mitchell
Hutchins personnel puts restrictions on the timing of personal investing in
relation to trades by PaineWebber and MH/KP mutual funds and other Mitchell
Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
the Fund's Class A, Class B and Class D shares under separate distribution
contracts with the Trust dated July 7, 1993
19
<PAGE> 53
(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 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 Fund shares. Under the Class B Plan and the
Class D Plan, the Fund pays Mitchell Hutchins a monthly distribution fee at the
annual rate of 0.75% of the average daily net assets of the Class B and Class D
shares, respectively.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the Trust's board of trustees at least quarterly, and the trustees
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the 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 Fund's outstanding
voting securities 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 March 31, 1995, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Class A, Class B and Class D
Plans:
<TABLE>
<S> <C>
Class A...................................................... $ 146,951
Class B...................................................... $1,322,393
Class D...................................................... $ 257,893
</TABLE>
Mitchell Hutchins estimates that it and its parent corporation,
PaineWebber, incurred the following shareholder service-related and
distribution-related expenses with respect to the Fund for the fiscal year ended
March 31, 1995:
20
<PAGE> 54
<TABLE>
<S> <C>
CLASS A
Marketing and advertising......................................................... $ 25,350
Printing of prospectuses and statements of additional information................. 1,834
Branch network costs allocated and interest expense............................... 279,694
Service fees paid to PaineWebber investment executives............................ 66,128
CLASS B
Marketing and advertising......................................................... $ 57,431
Amortization of commissions....................................................... 568,533
Printing of prospectuses and statements of additional information................. 4,068
Branch network costs allocated and interest expense............................... 703,288
Service fees paid to PaineWebber investment executives............................ 148,770
CLASS D
Marketing and advertising......................................................... $ 29,735
Amortization of commissions....................................................... 36,119
Printing of prospectuses and statements of additional information................. 2,074
Branch network costs allocated and interest expense............................... 344,927
Service fees paid to PaineWebber investment executives............................ 29,013
</TABLE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts in 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 Fund 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 existing 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)
improve the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution arrangements.
In approving the Class A Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the case,
(3) the advantages to the shareholders of economies of scale resulting from
growth in the Fund's assets and potential continued growth, (4) the services to
be provided to the Fund and its shareholders by Mitchell Hutchins, (5) the
services to be provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
21
<PAGE> 55
In approving the Class B Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from 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 to be provided to the Fund and
its shareholders by Mitchell Hutchins, (6) the services to be provided by
PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (7) Mitchell Hutchins' shareholder service- and distribution-related
expenses and costs. The trustees also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.
In approving the Class D Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors in
having no initial sales charges deducted from the Fund's purchase payments and
instead having the entire amount of their purchase payments immediately invested
in Fund shares, (2) the advantage to investors in being 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.
22
<PAGE> 56
Under the Distribution Contract between the Trust and Mitchell Hutchins for
the Class A shares, for the fiscal year and period set forth below, Mitchell
Hutchins earned the following approximate amounts of sales charges and retained
the following approximate amounts, net of concessions to PaineWebber as
exclusive dealer:
<TABLE>
<CAPTION>
APRIL 7,
1992
FISCAL FISCAL (COMMENCEMENT
YEAR YEAR OF
ENDED ENDED OPERATIONS)
MARCH MARCH TO MARCH
31, 31, 31,
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
Earned................. $118,445 $286,632 $1,566,801
Retained............... 7,400 16,609 93,862
</TABLE>
For the fiscal year ended March 31, 1995, Mitchell Hutchins earned and
retained $574,248 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, the
Sub-Adviser is responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, the Sub-Adviser 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 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. For the fiscal years ended March 31, 1995 and March 31, 1994
and the period from April 7, 1992 (commencement of operations) to March 31,
1993, the Fund paid approximately $322,307, $421,737 and $577,885, respectively,
in brokerage commissions.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through 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 authorize Mitchell Hutchins 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 March 31, 1995, no
brokerage commissions were paid by the Fund to PaineWebber or any other Mitchell
Hutchins affiliate. For the fiscal year ended March 31, 1994, the Fund paid
$2,730 in brokerage commissions to PaineWebber. For
23
<PAGE> 57
the period from April 7, 1992 (commencement of operations) to March 31, 1993, no
brokerage commissions were paid by the Fund to PaineWebber or any other Mitchell
Hutchins affiliate.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of Mitchell Hutchins
and its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, the Sub-Adviser 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 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 Fund and its other clients and that the
total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. For the fiscal years ended March 31,
1995 the Sub-Adviser directed $45,882,954 in portfolio transactions to brokers
chosen because they provided research services, for which the Fund paid $75,512
in commissions. The Fund may purchase and sell securities to and from dealers
who provide the Fund with research services.
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 was attributed to the
services provided by the executing dealer. Moreover, the Sub-Adviser 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. The Sub-Adviser may engage
in agency transactions in OTC equity and debt securities in return for research
and execution services. These transactions are entered into only in compliance
with procedures ensuring that the transaction (including commissions) is at
least as favorable as it would have been if effected directly with a
market-maker that did not provide research or execution services. These
procedures include Mitchell Hutchins or the Sub-Adviser receiving multiple
quotes from dealers before executing the transactions on an agency basis.
Information and research services furnished by brokers or dealers through
which or with which the Fund effects securities transactions may be used by the
Sub-Adviser in advising other funds or accounts and, conversely, research
services furnished to the Sub-Adviser in connection with these other funds or
accounts may be used in advising the Fund. Information and research received
from brokers or dealers will be in addition to, and not in lieu of, the services
required to be performed by the Sub-Adviser under the Sub-Advisory Contract.
Investment decisions for the Fund and for other investment accounts managed
by 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 the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount
24
<PAGE> 58
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, the Sub-Adviser or any of their 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 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, the
Sub-Adviser 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
such securities in the portfolio during the year. For the fiscal years ended
March 31, 1995 and March 31, 1994 the Fund's portfolio turnover rate was 42% and
60%, 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 or
MH/KP 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 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;
25
<PAGE> 59
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act account created by the individual or the individual's spouse;
or
(g) an employer (or group of related employers) and one or more
qualified retirement plans of such employer or employers (an employer
controlling, controlled by or under common control with another employer is
deemed related to that other employer).
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are
available through a right of accumulation, under which investors and eligible
groups of related Fund investors (as defined above) are permitted to purchase
Class A shares of the Fund among related accounts at the offering price
applicable to the total of (1) the dollar amount then being purchased plus (2)
an amount equal to the then-current net asset value of the purchaser's combined
holdings of Class A Fund shares and Class A shares of any other PaineWebber or
MH/KP mutual fund. The purchaser must provide sufficient information to permit
confirmation of his or her holdings, and the acceptance of the purchase order is
subject to 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 or MH/KP mutual funds.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or the Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment 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.
26
<PAGE> 60
If payment is made in securities, a shareholder may incur brokerage expenses in
converting these securities into cash. The Trust has elected, however, to be
governed by Rule 18f-1 under the 1940 Act, under which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal. The Fund may suspend
redemption privileges or postpone the date of payment during any period (1) when
the NYSE is closed or trading on the NYSE is restricted as determined by the
SEC, (2) when an emergency exists, as defined by the SEC, that makes it not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its assets or (3) as the SEC may otherwise
permit. The redemption price may be more or less than the shareholder's cost,
depending on the market value of the Fund's portfolio at the time.
SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or
semi-annual plans, PaineWebber will arrange for redemption by the Fund of
sufficient Fund shares to provide the withdrawal payment specified by
participants in the Fund's 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 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 redemption proceeds are
reinvested, if the reinstatement privilege is exercised within 30 days after
redemption, and an adjustment will be made to the shareholder's tax basis for
the 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.
27
<PAGE> 61
PAINEWEBBER RMA RESOURCE ACCUMULATION PLANS(SM);
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(R)(RMA(R))
Shares of the PaineWebber and MH/KP mutual funds (each a "PW Fund" and,
collectively, the "PW Funds") are available for purchase through the RMA
Resource Accumulation Plan ("Plan") by customers of PaineWebber and its
correspondent firms who maintain Resource Management Accounts ("RMA
accountholders"). The Plan allows an RMA accountholder to continually invest in
one or more of the PW Funds at regular intervals, with payment for shares
purchased automatically deducted from the client's RMA account. The client may
elect to invest at monthly or quarterly intervals and may elect either to invest
a fixed dollar amount (minimum $100 per period) or to purchase a fixed number of
shares. A client can elect to have Plan purchases executed on the first or
fifteenth day of the month. Settlement occurs three Business Days (defined under
"Valuation of Shares") after the trade date, and the purchase price of the
shares is withdrawn from the investor's RMA account on the settlement date from
the following sources and in the following order: uninvested cash balances,
balances in RMA money market funds, or margin borrowing power, if applicable to
the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
Periodic Investing and Dollar Cost Averaging.
Periodic investing in the PW Funds or other mutual funds, whether 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;
28
<PAGE> 62
- monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold MasterCard(R)
transactions during the period, and provide unrealized and realized gain and
loss estimates for most securities held in the account;
- comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
- automatic "sweep" of uninvested cash into the RMA accountholder's choice of
one of the five RMA money market funds--RMA Money Market Portfolio, RMA U.S.
Government Portfolio, RMA Tax-Free Fund, RMA California Municipal Money Fund
and RMA New York Municipal Money Fund. Each money market fund attempts to
maintain a stable price per share of $1.00, although there can be no
assurance that it will be able to do so. Investments in the money market
funds are not insured or guaranteed by the U.S. government;
- check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can
code their checks to classify expenditures. All canceled checks are returned
each month;
- Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to remain
invested for a longer period of time;
- 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
- expanded account protection to $25 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money
market funds or the PW Funds because those shares are held at the transfer
agent and not through PaineWebber; and
- automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of the two Classes, as of the
close of business on the first Business Day of the month in which the sixth
anniversary of the initial issuance of such Class B shares of the Fund occurs.
For the purpose of calculating the holding period required for conversion of
Class B shares, the date of initial issuance shall mean (1) the date on which
such Class B shares were issued, or (2) for Class B shares obtained through an
exchange, or a series of exchanges, the date on which the original Class B
shares were issued. If the shareholder acquired Class B shares of the Fund
through an exchange of Class B shares of a CDSC Fund that were acquired prior to
July 1, 1991, the shareholder's holding period for purposes of conversion will
be determined based on the date the CDSC Fund shares were initially issued. For
purposes of conversion into Class A shares, 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
29
<PAGE> 63
those in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through dividends and other distributions.
The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends and
other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.
VALUATION OF SHARES
The Fund determines its 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. 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
the Sub-Adviser 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. Futures contracts and options are valued on the basis of
market quotations, if any. 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.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent 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:
<TABLE>
<C> <C> <S>
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.
</TABLE>
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<PAGE> 64
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
Fund's 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.
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 annual return.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended March 31, 1995:
Standardized Return*................................... 5.38% 4.46% 9.45%
Non-Standardized Return................................ 10.36% 9.46% 9.45%
Inception** to March 31, 1995:
Standardized Return*................................... 8.80% 8.80% 13.49%
Non-Standardized Return................................ 10.49% 9.64% 13.49%
</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 contingent deferred sales charge; therefore,
Non-Standardized Return is identical to Standardized Return.
** The inception date for the Class A and Class B shares of the Fund is April 7,
1992; the inception date for the Class D shares is 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 the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500"), the Standard & Poor's Midcap
400 Stock
31
<PAGE> 65
Index ("S&P 400"), the Dow Jones Industrial Average, the Nasdaq Composite Index,
the Russell 2000 Index, the Russell Midcap Index, the Wilshire 5000 Index, the
Lehman Bond Index, 30-year and 10-year U.S. Treasury bonds and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The Fund
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper,
CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer
to discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals, including 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.
Over the past sixty-nine years, the total return of equity investments, as
measured by the S&P 500, exceeded the inflation rate, as measured by the
Consumer Price Index, as well as the total return on long-term Treasury bonds
and short-term Treasury bills. Over the three-year period ended December 31,
1994, the total return of the S&P 400 exceeded the total return of the S&P 500.
However, there can be no assurance that these relationships will continue or
that the Fund's performance will be comparable to any of these indexes.
Furthermore, year-to-year fluctuations in each of these indexes and instruments
have been significant; and total return for the S&P 400 and S&P 500 for some
periods has been negative.
The S&P 400 is an index of 400 stocks chosen by Standard & Poor's Ratings
Group comprising the mid-range sector of the U. S. stock market. The S&P 400 was
first established on June 19, 1991.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested 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. 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. 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 and net short-term
capital gain) ("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
32
<PAGE> 66
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities, or other
income (including gains from options or futures) derived with respect to its
business of investing in securities ("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, options or futures that were held for less than
three months ("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 December of any
year and payable to shareholders of record on a date in any of those months will
be deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if the distributions are paid by the Fund during the
following January. Accordingly, those distributions will be taxed to
shareholders for the year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or in additional shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by the Fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or capital gain distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
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.
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.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (a) at least 75% of its gross income is passive or (b) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of 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
33
<PAGE> 67
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), even if they are not
distributed to the Fund; those amounts likely would have to be distributed to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the owner's adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from transactions in
options and futures contracts derived by the Fund with respect to its business
of investing in securities will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
contracts will be subject to the Short-Short Limitation if they are held for
less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The Fund
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures beyond the time when it otherwise would be advantageous to do so, in
order to continue to qualify as a RIC.
OTHER INFORMATION
PaineWebber Managed Assets Trust is an entity of the type commonly known as
a "Massachusetts business trust." Under Massachusetts law, shareholders of the
Fund could, under certain circumstances, be held personally liable for the
obligations of the Trust or Fund. However, the Trust's Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust or the Fund
and requires that notice of such disclaimer be given in each note, bond,
contract, instrument, certificate or undertaking made or issued by the trustees
or by any officers or officer by or on behalf of the Trust 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.
34
<PAGE> 68
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.
The Fund is authorized to issue Class C shares in addition to Class A,
Class B and Class D shares, but the Trust's board of trustees has no current
intention of doing so. Class C shares, if issued, would bear no service or
distribution fees, would be sold with no initial sales charge and would be
redeemable at net asset value without the imposition of a contingent deferred
sales charge.
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 of the Fund 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 LLP, 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 LLP 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.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended March
31, 1995 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent auditors appearing therein are incorporated herein by this
reference.
35
<PAGE> 69
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Investment Policies and Restrictions... 1
Hedging Strategies..................... 6
Trustees and Officers.................. 12
Investment Advisory and Distribution
Arrangements......................... 17
Portfolio Transactions................. 23
Reduced Sales Charges, Additional
Exchange and Redemption
Information and Other Services....... 25
Conversion of Class B Shares........... 29
Valuation of Shares.................... 30
Performance Information................ 30
Taxes.................................. 32
Other Information...................... 34
Financial Statements................... 35
</TABLE>
(C)1995 PaineWebber Incorporated
(LOGO) Recycled Paper
PAINEWEBBER
CAPITAL APPRECIATION
FUND
------------------------------------------------------
Statement of Additional Information
August 1, 1995
------------------------------------------------------
PAINEWEBBER
<PAGE> 70
PART C. OTHER INFORMATION
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Included in Part A of this Registration Statement:
Financial Highlights for one Class A and one Class B
share for each of the two years in the period ended March
31, 1995 and for the period April 7, 1992 (commencement
of operations) to March 31, 1993.
Financial Highlights for one Class D share for each of
the two years in the period ended March 31, 1995 and for
the period July 2, 1992 (commencement of offering) to
March 31, 1993.
Included in part B of this Registration Statement through incorporation by
reference from the Annual Report to Shareholders (previously filed with
the Securities and Exchange Commission through EDGAR on May 30, 1995.
Accession No. 0000950130-95-001048):
Portfolio of Investments at March 31, 1995
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the year ended March 31, 1995
Statement of Changes in Net Assets for the two years in
the period ended March 31, 1995
Notes to Financial Statements
Financial Highlights for one Class A and one Class B
share for each of the two years in the period ended March
31, 1995 and for the period April 7, 1992 (commencement
of operations) to March 31, 1993
Financial Highlights for one Class D share for each of
the two years in the period ended March 31, 1995 and for
the period July 2, 1992 (commencement of offering) to
March 31, 1993
C-1
<PAGE> 71
Report of Ernst & Young LLP, Independent Auditors, dated
May 19, 1995.
(b) Exhibits:
(1) (a) Declaration of Trust 1/
(b) Amendment effective January 23, 1992 to
Declaration of Trust 2/
(c) Amendment effective June 30, 1992 to
Declaration of Trust 5/
(2) (a) By-Laws 1/
(b) Certificate of Amendment dated September
28, 1994 to By-Laws - (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of
Registrant's shares of beneficial interest 7/
(5) (a) Investment Advisory and Administration
Contract 2/
(b) Sub-Advisory Contract (filed herewith)
(6) (a) Distribution Contract with respect to
Class A Shares 8/
(b) Distribution Contract with respect to
Class B Shares 8/
(c) Distribution Contract with respect to
Class D Shares 8/
(d) Exclusive Dealer Agreement with respect
to Class A Shares 8/
(e) Exclusive Dealer Agreement with respect
to Class B Shares 8/
(f) Exclusive Dealer Agreement with respect
to Class D Shares 8/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 3/
(9) Transfer Agency Agreement 5/
(10) (a) Opinion and consent of Kirkpatrick &
Lockhart, counsel to the Registrant,
with respect to Class A and B Shares 2/
(b) Opinion and consent of Kirkpatrick &
Lockhart, counsel to the Registrant,
with respect to Class D Shares 3/
(11) Other opinions, appraisals, rulings and consents:
Auditors' Consent (filed herewith)
(12) Financial Statements omitted from Part B - none
C-2
<PAGE> 72
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan 4/
(15) (a) Plan of Distribution pursuant to Rule
12b-1 with respect to Class A Shares 3/
(b) Plan of Distribution pursuant to Rule
12b-1 with respect to Class B Shares 3/
(c) Plan of Distribution pursuant to Rule
12b-1 with respect to Class D Shares 6/
(16) Schedule for Computation of Performance
Quotations for Class A, Class B and Class D
Shares 6/
(18) Plan pursuant to Rule 18f-3 (filed herewith)
(27) Financial Data Schedule (filed herewith)
- --------------
1/ Incorporated by reference from the initial registration statement, SEC
File No. 33-42160, filed August 9, 1991.
2/ Incorporated by reference from Pre-Effective Amendment No. 3 to the
registration statement, SEC File No. 33-42160, filed March 27, 1992.
3/ Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 33-42160, filed April 29, 1992.
4/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
5/ Incorporated by reference from Post-Effective Amendment No. 2 to the
registration statement, SEC File No. 33-42160, filed September 30, 1992.
6/ Incorporated by reference from Post-Effective Amendment No. 3 to the
registration statement, SEC File No. 33-42160, filed July 29, 1993.
7/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Declaration of Trust, as amended January 23, 1992 and June
30, 1992, and from Articles II, VII and X of Registrant's By-Laws, as
amended September 28, 1994.
8/ Incorporated by reference from Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 33-42160, filed July 29, 1994.
C-3
<PAGE> 73
Item 25. Persons Controlled by or under Common Control with
Registrant
--------------------------------------------------
None
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of July 18, 1995
-------------- -------------------------
Shares of beneficial interest
($.001 par value)
PaineWebber Capital
Appreciation Fund
Class A Shares 6,838
Class B Shares 14,507
Class D Shares 3,009
Item 27. Indemnification
---------------
Section 3 of Article X of the Declaration of Trust,
"Indemnification," provides that the appropriate series of the Registrant
will indemnify the trustees and officers of the Registrant to the fullest
extent permitted by law against claims and expenses asserted against or
incurred by them by virtue of being or having been a trustee or officer;
provided that no such person shall be indemnified where there has been an
adjudication or other determination, as described in Article X, that such
person is liable to the Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office or did not act in
good faith in the reasonable belief that his action was in the best
interest of the Registrant. Section 3 of Article X also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.
Additionally, "Limitation of Liability" in Article X of the
Declaration of Trust provides that the trustees or officers of the
Registrant shall not be personally liable to any person extending credit
to, contracting with or having a claim against the Registrant or a
particular series; and that, provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the
best interest of the Registrant, the trustees and officers shall not be
liable for neglect or wrongdoing by them or any officer, agent, employee
or investment adviser of the Registrant.
C-4
<PAGE> 74
Section 2 of Article XI of the Declaration of Trust additionally
provides that, subject to the provisions of Section 1 of Article XI and to
Article X, trustees shall not be liable for errors of judgement or
mistakes of fact or law, for any act or omission in accordance with advice
of counsel or other experts, or for failing to follow such advice, with
respect to the meaning and operation of the Declaration of Trust.
Article IX of the By-Laws provides that the Registrant may
purchase and maintain insurance on behalf of any person who is or was a
trustee, officer or employee of the Registrant, or is or was serving at
the request of the Registrant as a trustee, officer or employee of a
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the
Registrant would have the power to indemnify him against such liability to
the Registrant or its shareholders, provided that the Registrant may not
purchase or maintain insurance that protects any such person against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Section 9 of the Investment Advisory and Administration Contract
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 10 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 8 of the Sub-Advisory Agreement with Denver Investment
Advisors LLC ("DIA") provides that DIA shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Registrant,
its shareholders or Mitchell Hutchins in connection with the matters to
which the Contract relates; provided that the Contract shall not be deemed
to indemnify or purport to protect DIA against any liability to the
Registrant, its shareholders or Mitchell Hutchins resulting from DIA's
willful misfeasance, bad faith or gross negligence in the performance of
its duties or from reckless disregard by it of its obligations and duties
under the Contract.
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
C-5
<PAGE> 75
it, in light of the circumstances under which they were made, not
misleading, except insofar as liability arises from untrue statements or
omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect
any such persons against liabilities arising by reason of their bad faith,
gross negligence or willful misfeasance; and shall not inure to the
benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public
policy as expressed in the Securities Act of 1933. Section 9 of each
Distribution Contract also provides that Mitchell Hutchins agrees to
indemnify, defend and hold the Trust, its officers and 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 10 of the Investment Advisory and
Administration Contract, with respect to Mitchell Hutchins and
PaineWebber, as appropriate.
Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of each Distribution Contract, with respect to
PaineWebber Incorporated ("PaineWebber").
Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended, may be provided to trustees,
officers and controlling persons of the Registrant, pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding
or payment pursuant to any insurance policy) is asserted against the
Registrant by such trustee, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Mitchell Hutchins, a Delaware corporation, is a registered
investment adviser and is a wholly owned subsidiary of PaineWebber which
is, in turn, a wholly owned subsidiary of Paine Webber Group Inc.
Mitchell Hutchins is primarily engaged in the investment advisory
business. Information as to the officers and directors of Mitchell
Hutchins is included in its Form ADV filed on February 22, 1995, with the
Securities and Exchange Commission (registration number 801-13219) and is
incorporated herein by reference.
C-6
<PAGE> 76
DIA, a Colorado limited liability company, is a registered investment
adviser. DIA is primarily engaged in the investment advisory business. As of
July 15, 1995, DIA served as investment adviser or sub-adviser for various
separately managed accounts, as well as for certain portfolios of the Westcore
family of funds, including Midco Growth Fund, Modern Value Fund, Equity Income
Fund, Small-Cap Opportunity Fund, Intermediate Bond Fund and Long-Term Bond
Fund. DIA also serves as investment adviser for one closed-end fund, the Blue
Chip Value Fund. Information as to the officers and directors of DIA is
included in its Form ADV filed on May 31, 1995 with the Securities and Exchange
Commission (registration number 801-47933) and is incorporated herein by
reference.
Item 29. Principal Underwriters
----------------------
a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following investment
companies:
ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND,
INC.
MITCHELL HUTCHINS/KIDDER, PEABODY GOVERNMENT INCOME FUND,
INC.
MITCHELL HUTCHINS/KIDDER, PEABODY INSTITUTIONAL SERIES
TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
PAINEWEBBER AMERICA FUND
PAINEWEBBER ATLAS FUND
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER PREMIER HIGH INCOME TRUST INC.
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
PAINEWEBBER PREMIER TAX-FREE INCOME FUND, INC.
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.
C-7
<PAGE> 77
b) Mitchell Hutchins is the principal underwriter for the
Registrant. PaineWebber acts as exclusive dealer for the
shares of the Registrant. The directors and officers of
Mitchell Hutchins, their principal business addresses,
and their positions and offices with Mitchell Hutchins
are identified in its Form ADV filed February 22, 1995,
with the Securities and Exchange Commission (registration
number 801-13219). The directors and officers of
PaineWebber, their principal business addresses, and
their positions and offices with PaineWebber are
identified in its Form ADV filed March 31, 1995, with the
Securities and Exchange Commission (registration number
801-7163). The foregoing information is hereby
incorporated herein by reference. The information set
forth below is furnished for those directors and officers
of Mitchell Hutchins or PaineWebber who also serve as
directors or officers of the Registrant:
Position and Offices With
Name and Principal Position With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ -------------- -------------------------
Frank P.L. Minard Trustee Chairman of the Board of
1285 Avenue of the Mitchell Hutchins and a
Americas Director of Mitchell
New York, New York Hutchins and PaineWebber
10019
Margo N. Alexander President President, Chief Executive
1285 Avenue of the Officer and a Director of
Americas Mitchell Hutchins
New York, New York 10019
C-8
<PAGE> 78
Position and Offices With
Name and Principal Position With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ -------------- -------------------------
Teresa M. Boyle Vice President First Vice President and
1285 Avenue of the Manager - Advisory
Americas Administration of Mitchell
New York, New York Hutchins
10019
Joan L. Cohen Vice President Vice President and
1285 Avenue of the Attorney of Mitchell
Americas Hutchins
New York, New York 10019
Ellen R. Harris Vice President Managing Director and
1285 Avenue of the Chief Domestic Equity
Americas Strategist of Mitchell
New York, New York Hutchins
10019
C. William Maher Vice President First Vice President
1285 Avenue of the and Assistant of Mitchell Hutchins
Americas Treasurer
New York, New York 10019
C-9
<PAGE> 79
Position and Offices With
Name and Principal Position With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ -------------- -------------------------
Ann E. Moran Vice President Vice President of Mitchell
1285 Avenue of the and Assistant Hutchins
Americas Treasurer
New York, New York
10019
Dianne E. O'Donnell Vice President Senior Vice President and
1285 Avenue of the and Secretary Deputy General Counsel of
Americas Mitchell Hutchins
New York, New York
10019
Victoria E. Schonfeld Vice President Managing Director and
1285 Avenue of the General Counsel of
Americas Mitchell Hutchins
New York, New York
10019
Paul H. Schubert Vice President Vice President of Mitchell
1285 Avenue of the and Assistant Hutchins
Americas Treasurer
New York, New York
10019
Martha J. Slezak Vice President Vice President of Mitchell
1285 Avenue of the and Assistant Hutchins
Americas Treasurer
New York, New York
10019
C-10
<PAGE> 80
Position and Offices With
Name and Principal Position With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ -------------- -------------------------
Julian F. Sluyters Vice President Senior Vice President and
1285 Avenue of the and Treasurer Director of Mutual Fund
Americas Finance Division of
New York, New York Mitchell Hutchins
10019
Gregory K. Todd Vice President First Vice President and
1285 Avenue of the and Assistant Associate General Counsel
Americas Secretary of Mitchell Hutchins
New York, New York
10019
C) None
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and (d)
of Rule 31a-1 under the Investment Company Act of 1940 are maintained in
the physical possession of Mitchell Hutchins, 1285 Avenue of the Americas,
New York, New York 10019. All other accounts, books and documents
required by Rule 31a-1 are maintained in the physical possession of
Registrant's transfer agent and custodian.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-11
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets
all the requirements for effectiveness of this Post-Effective Amendment
No. 5 to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment
to be executed on its behalf by the undersigned, thereto duly authorized,
in this City of New York and State of New York, on the 27th day of July,
1995.
PAINEWEBBER MANAGED ASSETS TRUST
By: /s/ Dianne E. O'Donnell
-----------------------------
Dianne E. O'Donnell
Vice President & Secretary
Pursuant to the requirements of the Securities Act of 1933, this
instrument has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Margo N. Alexander President July 27, 1995
---------------------* (Chief Executive Officer)
Margo N. Alexander
/s/E. Garrett Bewkes, Jr. Trustee and Chairman July 27, 1995
------------------------ of the Board of Trustees
E. Garrett Bewkes, Jr.**
/s/Meyer Feldberg Trustee July 27, 1995
------------------------
Meyer Feldberg***
/s/George W. Gowen Trustee July 27, 1995
------------------------
George W. Gowen***
/s/Frederic V. Malek Trustee July 27, 1995
------------------------
Frederic V. Malek***
C-12
<PAGE> 82
/s/Frank P.L. Minard Trustee July 27, 1995
------------------------
Frank P.L. Minard****
/s/Judith Davidson Moyers Trustee July 27, 1995
-------------------------
Judith Davidson Moyers***
/s/Thomas F. Murray Trustee July 27, 1995
------------------------
Thomas F. Murray***
------------------------ Vice President and July 27, 1995
Julian F. Sluyters Treasurer
(Principal Financial and
Accounting Officer)
C-13
<PAGE> 83
* Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated May 8, 1995 and incorporated by reference from Post-Effective
Amendment No. 34 to the registration statement of PaineWebber America
Fund, SEC File No. 2-78626, filed May 10, 1995.
** Signature affixed by Elinor W. Gammon pursuant to powers of attorney
dated January 3, 1994 and incorporated by reference from Post-Effective
Amendment No. 25 to the registration statement of PaineWebber Investment
Series, SEC File No. 33-11025, filed March 1, 1994.
*** Signatures affixed by Elinor W. Gammon pursuant to powers of attorney
dated March 2, 1992 and incorporated by reference from Pre-Effective
Amendment No. 2 to the registration statement of PaineWebber Managed
Assets Trust, SEC File No. 33-42160, filed March 3, 1991.
**** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated November 17, 1993 and incorporated by reference from Post-Effective
Amendment No. 28 to the registration statement of PaineWebber America
Fund, SEC File No. 2-78626, filed December 29, 1993.
C-14
<PAGE> 84
PAINEWEBBER MANAGED ASSETS TRUST
EXHIBIT INDEX
-------------
Exhibit
Number Page
- ------- ----
(1) (a) Declaration of Trust 1/
(b) Amendment effective January 23, 1992 to Declaration of
Trust 2/
(c) Amendment effective June 30, 1992 to Declaration of Trust
5/
(2) (a) By-Laws 1/
(b) Certificate of Amendment dated September 28, 1994 to By-
Laws - (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares
of beneficial interest 7/
(5) (a) Investment Advisory and Administration Contract 2/
(b) Sub-Advisory Contract (filed herewith)
(6) (a) Distribution Contract with respect to Class A Shares 8/
(b) Distribution Contract with respect to Class B Shares 8/
(c) Distribution Contract with respect to Class D Shares 8/
(d) Exclusive Dealer Agreement with respect to Class A
Shares 8/
(e) Exclusive Dealer Agreement with respect to Class B
Shares 8/
(f) Exclusive Dealer Agreement with respect to Class D Shares
8/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 3/
(9) Transfer Agency Agreement 5/
(10) (a) Opinion and consent of Counsel of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to Class A and B
Shares 2/
(b) Opinion and consent of Kirkpatrick & Lockhart, counsel to
the Registrant, with respect to Class D Shares 3/
(11) Other opinions, appraisals, rulings and consents:
Auditors' Consent (filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan 4/
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect
to Class A Shares 3/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect
to Class B Shares 3/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect
to Class D Shares 6/
<PAGE> 85
(16) Schedule for Computation of Performance Quotations for Class A,
Class B and Class D Shares 6/
(18) Plan pursuant to Rule 18f-3 (filed herewith)
(27) Financial Data Schedule (filed herewith)
- -------------
1/ Incorporated by reference from the initial registration statement, SEC
File No. 33-42160, filed August 9, 1991.
2/ Incorporated by reference from Pre-Effective Amendment No. 3 to the
registration statement, SEC File No. 33-42160, filed March 27, 1992.
3/ Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 33-42160, filed April 29, 1992.
4/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
5/ Incorporated by reference from Post-Effective Amendment No. 2 to the
registration statement, SEC File No. 33-42160, filed September 30, 1992.
6/ Incorporated by reference from Post-Effective Amendment No. 3 to the
registration statement, SEC File No. 33-42160, filed July 29, 1993.
7/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Declaration of Trust, as amended January 23, 1992 and June
30, 1992, and from Articles II, VII and X of Registrant's By-Laws, as
amended September 28, 1994.
8/ Incorporated by reference from Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 33-42160, filed July 29, 1994.
<PAGE> 1
Exhibit 2(b)
------------
AMENDMENT TO BY-LAWS
PAINEWEBBER MANAGED ASSETS TRUST
CERTIFICATE OF VICE PRESIDENT AND ASSISTANT SECRETARY
I, Joan L. Cohen, Vice President and Assistant Secretary of PaineWebber
Managed Assets Trust ("Trust"), hereby certify that, at a duly convened meeting
of the Board of Trustees of the Trust held on September 28, 1994, the Trustees
adopted the following resolution:
RESOLVED, that the first sentence of Section 2.05 of the
Trust's by-laws be revised as the following:
"Shareholders entitled to vote may vote either in
person or by proxy, provided that such proxy is authorized to
act by (1) a written instrument, dated not more that eleven
months prior to the meeting and executed either by the
Shareholder or by his or her duly authorized attorney in fact
(who may be so authorized by a writing or by any non-written
means permitted by the laws of the Commonwealth of
Massachusetts) or (2) such electronic, telephonic, computerized
or other alternative means as may be approved by a resolution
adopted by the Trustees."
Dated: June 19, 1995
By: /s/ JOAN L. COHEN
----------------------------
Joan L. Cohen
Vice President and Assistant Secretary
PaineWebber Managed Assets Trust
New York, New York (ss)
Subscribed and sworn before me this 19th day of June, 1995.
JENNIFER FARRELL
Notary Public
Notary Public, State of New York
No. 01FAS0266S3
Qualified in New York County
Commission Expires April 18, 1996
<PAGE> 1
EXHIBIT 5(b)
SUB-ADVISORY CONTRACT
Contract made as of March 1, 1995, between MITCHELL HUTCHINS ASSET
MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation, DENVER
INVESTMENT ADVISORS, LLC ("Sub-Adviser"), a Colorado limited liability company,
and PAINEWEBBER MANAGED ASSETS TRUST ("Fund"), a Massachusetts business trust.
WHEREAS Mitchell Hutchins has entered into an Investment Advisory and
Administration Contract dated March 20, 1992 ("Advisory Contract") with the
Fund, an open-end management investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS the Fund intends to offer for public sale distinct series of shares
of beneficial interest, each corresponding to a distinct portfolio; and
WHEREAS under the Advisory Contract Mitchell Hutchins has agreed to provide
certain investment advisory and administrative services to each series of the
Fund as now exists and as hereafter may be established; and
WHEREAS the Advisory Contract permits Mitchell Hutchins to delegate certain
of its duties as investment adviser under the Advisory Contract to a
sub-adviser; and
WHEREAS Mitchell Hutchins desires to retain the Sub-Adviser to furnish
certain investment advisory and portfolio management services to the
PaineWebber Capital Appreciation Fund series ("Series") of the Fund, and the
Sub-Adviser 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. Mitchell Hutchins hereby appoints the Sub-Adviser as its
sub-adviser with respect to the Series for the period and on the terms set
forth in this Contract. The Sub-Adviser accepts such 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 the Fund's Board of Trustees ("Board")
and Mitchell Hutchins, the Sub-Adviser will provide a continuous investment
program for the Series, including investment research and management with
respect to all securities and investments in the Series. The Sub-Adviser will
determine from time to time what securities and other investments will be
purchased, retained or sold by the Series and will be responsible for voting
proxies of issuers of securities held by the Fund.
(b) The Sub-Adviser agrees that in placing orders with brokers, it will
attempt to obtain the best net results in terms of price and execution;
provided that, on behalf of the Series, the Sub-Adviser may, in its discretion,
use brokers who provide the Series with research, analysis, advice and
<PAGE> 2
similar services to execute portfolio transactions on behalf of the Series, 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 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 the Sub-Adviser, or any affiliated person thereof,
except in accordance with the federal securities laws and the rules and
regulations thereunder.
(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 the securities transactions
of the Series, 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 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) The Sub-Adviser will provide the Board and Mitchell Hutchins on a
regular basis with economic and investment analyses and reports and make
available to the Board or Mitchell Hutchins upon request any economic,
statistical and investment services normally available to institutional or
other customers of the Sub-Adviser.
3. Further Duties. In all matters relating to the performance of this
Contract, the Sub-Adviser will act in conformity with the Fund's Declaration of
Trust, By-Laws and currently effective registration statement under the
Securities Act of 1933, as amended, and the 1940 Act and any amendments or
supplements thereto ("Registration Statement") and with the 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 ("Advisers
Act"), the rules and regulations promulgated thereunder, and all other
applicable federal and state laws and regulations. The Sub-Adviser will manage
the Series' assets so as to permit the Series to qualify or to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended ("Code").
4. Services Not Exclusive. Mitchell Hutchins understands that the
Sub-Adviser now acts, will continue to act or may act in the future as
investment adviser to investment fiduciary and other managed accounts or as
investment adviser to one or more other investment companies, and Mitchell
Hutchins has no objection to the Sub-Adviser so acting, provided that whenever
the Series and one or more other accounts or investment companies advised by
the Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with procedures believed
to be equitable to each entity. Similarly, opportunities to sell securities
will be allocated in an equitable manner. Mitchell Hutchins recognizes that in
some cases these procedures may adversely affect the size of the position that
may be acquired or disposed of for the Series. In
2
<PAGE> 3
addition, Mitchell Hutchins understands that the persons employed by
the Sub-Adviser to assist in the performance of the Sub-Adviser's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Sub-Adviser or any
affiliate of the Sub-Adviser to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature, provided
that doing such does not adversely affect the Sub-Adviser's ability to perform
the services required under this Contract.
5. Sub-Adviser an Independent Contractor. The Sub-Adviser shall, for all
purposes herein, be deemed to be an independent contractor and shall, unless
otherwise expressly authorized, have no authority to act for or represent
Mitchell Hutchins in any way, or in any way be deemed an agent of Mitchell
Hutchins.
6 Expense. During the term of this Contract, the Sub-Adviser will bear all
expenses incurred by it in connection with its services under this Contract.
7. Compensation. For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Contract with respect to the Series, Mitchell
Hutchins will pay to the Sub-Adviser a fee equal to fifty percent of the fee
paid by the Fund to Mitchell Hutchins under the Advisory Contract, such fee to
be paid monthly.
8. 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 Series, the
Fund, its shareholders or Mitchell Hutchins in connection with the matters to
which this Contract relates; provided that nothing herein shall be deemed to
protect or indemnify or purport to protect the Sub-Adviser against any
liability to the Series, the Fund, its shareholders or Mitchell Hutchins to
which the Sub-Adviser would otherwise be subject by reason of 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.
9. Representations and Warranties of the Sub-Adviser. The Sub-Adviser
represents, warrants and agrees that:
(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 Contract
remains in effect, (ii) has met, and will continue to meet for so long as this
Contract remains in effect, any other applicable federal or state requirements,
or requirements of any regulatory or industry self-regulatory agency, necessary
to be met in order to perform the services contemplated by this Contract and
(iii) has the authority to enter into and perform the services contemplated by
this Contract.
(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 with a copy of the code of ethics and evidence of its adoption. Within
forty-five days of the end of the last calendar quarter of each year while this
Contract 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
3
<PAGE> 4
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 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 will, promptly after filing any amendment to its Form ADV with the SEC,
furnish a copy of such amendment to Mitchell Hutchins.
(d) The Sub-Adviser is not prohibited by the 1940 Act or the Advisers
Act from acting under this Contract and will immediately 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.
(e) The Sub-Adviser will notify Mitchell Hutchins of any change in the
identity or control of the holders of its outstanding voting securities
promptly after such change.
10. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove
written, provided that 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 a vote of a majority of the 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 with respect to the Series by vote of a
majority of the outstanding voting securities of the Series.
(c) Notwithstanding the foregoing, this Contract may be terminated at
any time without the payment of any penalty, by vote of the Board or with
respect to the Series by a vote of a majority of the outstanding voting
securities of the Series on sixty-days' written notice to the Sub-Adviser. This
Contract may also be terminated by Mitchell Hutchins (i) upon material breach
by the Sub-Adviser of any of the representations and warranties set forth in
paragraph 9 of this Contract, if such breach shall not have been cured within a
twenty day period after notice of such breach or (ii) if the Sub-Adviser
becomes unable to discharge its duties and obligations under this Contract or
(iii) on one hundred and twenty days' notice to the Sub-Adviser. The
Sub-Adviser may terminate this Contract at any time, without the payment of any
penalty, on one hundred twenty days' notice to Mitchell Hutchins. This Contract
will terminate automatically in the event of its assignment or upon termination
of the Advisory Contract.
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 amendment of
4
<PAGE> 5
this Contract shall be effective until approved by vote of a majority of the
Series' outstanding voting securities and by the Board.
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. 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.
13. 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", "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 1940 Act reflected in any provision of this
Contract 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. The Trustees of the
Fund and the shareholders of the Series shall not be liable for any obligations
of the Series or the Fund under this Contract, and the Sub-Adviser 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 Trustees or shareholders.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their designated officers as of the day and year first above
written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ GREGORY K. TODD
................................ By: /s/ VICTORIA E. SCHONFELD
First Vice President ....................................
Managing Director
Attest: DENVER INVESTMENT ADVISORS, LLC
/s/ STEVE WINE
................................ By: /s/ TODGER ANDERSON
....................................
Attest: PAINEWEBBER MANAGED ASSETS TRUST
/s/ ILENE SHORE
................................ By: /s/ DIANNE E. O'DONNELL
Assistant Secretary ....................................
Vice President
5
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Propectus and "Auditors" in the Statement of
Additional Information and to the incorporation by reference of our
report on PaineWebber Capital Appreciation Fund dated May 19, 1995,
in this Registration Statement (Form N-1A 33-42160) of PaineWebber
Managed Assets Trust.
/s/ ERNST & YOUNG LLP
-----------------------
ERNST & YOUNG LLP
New York, New York
July 26, 1995
<PAGE> 1
EXHIBIT 18
PAINEWEBBER MANAGED ASSETS TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
PaineWebber Managed Assets Trust hereby adopts this Multiple
Class Plan pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act") on behalf of its current operating
series, PaineWebber Capital Appreciation Fund, and any series that may be
established in the future (referred to hereinafter collectively as the
"Funds" and individually as a "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. Class A Shares. Class A shares of each Fund are sold
to the general public subject to an initial sales charge. The initial
sales charge for each Fund is waived for certain eligible purchasers and
reduced or waived for certain large volume purchases.
The maximum sales charge is 4% of the public offering price for
Class A shares of a Fund that invests primarily in debt securities.
The maximum sales charge is 4.5% of the public offering price for
Class A shares of a Fund that invests primarily in equity securities or a
combination of equity and debt securities.
Class A shares of each Fund are subject to an annual service fee
of .25% of the average daily net assets of the Class A shares of each Fund
paid pursuant to a plan of distribution adopted pursuant to Rule 12b-1
under the 1940 Act.
Class A shares of each Fund issued on or after November 1, 1995
will be subject to a contingent deferred sales charge ("CDSC") on
redemptions of shares (i) purchased without an initial sales charge due to
a sales charge waiver for purchases of $1 million or more and (ii) held
less than one year. The Class A CDSC is equal to 1% of the lower of:
(i) the net asset value of the shares at the time of purchase or (ii) the
net asset value of the shares at the time of redemption. Class A shares
of each Fund held one year or longer and Class A shares of each Fund
acquired through reinvestment of dividends or capital gains distributions
on shares otherwise subject to a Class A CDSC are not subject to the CDSC.
The CDSC for Class A shares of each Fund will be waived under certain
circumstances.
<PAGE> 2
PaineWebber Managed Assets Trust
Multiple Class Plan
Page 2
2. Class B Shares. Class B shares of each Fund are sold
to the general public subject to a CDSC, but without imposition of an
initial sales charge.
The maximum CDSC for Class B shares of each Fund is equal to 5%
of the lower of: (i) the net asset value of the shares at the time of
purchase or (ii) the net asset value of the shares at the time of
redemption.
Class B shares of each Fund held six years or longer and Class B
shares of each Fund acquired through reinvestment of dividends or capital
gains distributions are not subject to the CDSC.
Class B shares of each Fund are subject to an annual service fee
of .25% of average daily net assets and a distribution fee of .75% of
average daily net assets of the Class B shares of each Fund, each paid
pursuant to a plan of distribution adopted pursuant to Rule 12b-1 under
the 1940 Act.
Class B shares of each Fund convert to Class A shares
approximately six years after issuance at relative net asset value.
3. Class C Shares. Class C shares are sold without
imposition of an initial sales charge or CDSC and are not subject to any
service or distribution fees.
Class C shares of each Fund are available for purchase only by:
(i) employee benefit and retirement plans, other than individual
retirement accounts and self-employed retirement plans, of Paine Webber
Group Inc. and its affiliates; (ii) certain unit investment trusts
sponsored by PaineWebber Incorporated; (iii) participants in certain wrap
fee investment advisory programs that are currently or in the future
sponsored by PaineWebber Incorporated and that may invest in PaineWebber
proprietary funds, provided that shares are purchased through or in
connection with those programs; and (iv) the holders of Class C shares of
any Mitchell Hutchins/Kidder Peabody ("MH/KP") mutual fund provided that
such shares are issued in connection with the reorganization of a MH/KP
mutual fund into that Fund.
4. Class D Shares. Class D shares of each Fund are sold
to the general public without imposition of a sales charge.
Class D shares of a Fund that invests primarily in equity
securities or a combination of equity and debt securities are subject to
an annual service fee of .25% of average daily net assets and a
distribution fee of .75% of average daily net assets of Class D shares of
such Fund, each pursuant to a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act.
<PAGE> 3
PaineWebber Managed Assets Trust
Multiple Class Plan
Page 3
Class D shares of a Fund that invests primarily in debt
securities are subject to an annual service fee of .25% of average daily
net assets and a distribution fee of .50% of average daily net assets of
Class D shares of such Fund, each pursuant to a plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act.
Class D shares of a Fund that invests primarily in debt
securities will be subject to a CDSC on redemptions of Class D shares held
less than one year equal to .75% of the lower of: (i) the net asset value
of the shares at the time of purchase or (ii) the net asset value of the
shares at the time of redemption; provided that such CDSC shall apply only
to Class D shares issued on or after November 1, 1995.
Class D shares of a Fund that invests primarily in equity
securities or in a combination of equity and debt securities will be
subject to a CDSC on redemptions of Class D shares held less than one year
equal to 1% of the lower of: (i) the net asset value of the shares at the
time of purchase or (ii) the net asset value of the shares at the time of
redemption; provided that such CDSC shall apply only to Class D shares
issued on or after November 1, 1995.
Class D shares of each Fund held one year or longer and Class D
shares of each Fund acquired through reinvestment of dividends or capital
gains distributions are not subject to the CDSC. The CDSC for Class D
shares of each Fund will be waived under certain circumstances.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of
shares of each Fund ("Class Expenses"). Class Expenses are charged
directly to the net assets of the particular Class and, thus, are borne on
a pro rata basis by the outstanding shares of that Class.
In addition to the distribution and service fees described above,
each Class may also pay a different amount of the following other
expenses:
(1) printing and postage expenses related to
preparing and distributing materials
such as shareholder reports,
prospectuses, and proxies to current
shareholders of a specific Class;
(2) Blue Sky registration fees incurred by a specific
Class of shares;
(3) SEC registration fees incurred by a specific
Class of shares;
<PAGE> 4
PaineWebber Managed Assets Trust
Multiple Class Plan
Page 4
(4) expenses of administrative personnel and services
required to support the shareholders of a
specific Class of shares;
(5) Trustees' fees incurred as a result of issues
relating to a specific Class of shares;
(6) litigation expenses or other legal expenses
relating to a specific Class of shares; and
(7) transfer agent fees identified as being
attributable to a specific Class.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Class B and Class D shares of each Fund may be exchanged
for shares of the corresponding Class of other PaineWebber mutual funds
and MH/KP mutual funds, or may be acquired through an exchange of shares
of the corresponding Class of those funds. Class C shares of the Funds
are not exchangeable.
These exchange privileges may be modified or terminated by a
Fund, and exchanges may only be made into funds that are legally
registered for sale in the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Trustees of PaineWebber
Managed Assets Trust, a Fund may alter the nomenclature for the
designations of one or more of its classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms
of the then current prospectus for the applicable Classes; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Fund contains additional information about the Classes
and each Fund's multiple class structure.
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective as of the date hereof,
provided that the CDSC imposed on the Class A shares and Class D shares of
each Fund shall apply only to Class A shares and Class D shares issued on
or after November 1, 1995, and further provided that this Plan shall not
become effective with respect to any Fund unless such action has first
been approved by the vote of a majority of the Board and by vote of a
<PAGE> 5
PaineWebber Managed Assets Trust
Multiple Class Plan
Page 5
majority of those trustees of the Fund who are not interested persons of
PaineWebber Investment Series.
July 20, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PAINEWEBBER CAPITAL APPRECIATION -- CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 47,067
<INVESTMENTS-AT-VALUE> 63,255
<RECEIVABLES> 1,149
<ASSETS-OTHER> 47
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,451
<PAYABLE-FOR-SECURITIES> 1,118
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 660
<TOTAL-LIABILITIES> 1,778
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,784
<SHARES-COMMON-STOCK> 4,893
<SHARES-COMMON-PRIOR> 5,023
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (299)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,188
<NET-ASSETS> 62,673
<DIVIDEND-INCOME> 401
<INTEREST-INCOME> 62
<OTHER-INCOME> 0
<EXPENSES-NET> (929)
<NET-INVESTMENT-INCOME> (466)
<REALIZED-GAINS-CURRENT> (252)
<APPREC-INCREASE-CURRENT> 6,646
<NET-CHANGE-FROM-OPS> 5,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (212)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,129
<NUMBER-OF-SHARES-REDEEMED> (1,425)
<SHARES-REINVESTED> 17
<NET-CHANGE-IN-ASSETS> 5,917
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 588
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 929
<AVERAGE-NET-ASSETS> 58,781
<PER-SHARE-NAV-BEGIN> 11.65
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.81
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> PAINEWEBBER CAPITAL APPRECIATION -- CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 104,616
<INVESTMENTS-AT-VALUE> 140,597
<RECEIVABLES> 2,554
<ASSETS-OTHER> 103
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 143,254
<PAYABLE-FOR-SECURITIES> 2,485
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,467
<TOTAL-LIABILITIES> 3,952
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,987
<SHARES-COMMON-STOCK> 10,624
<SHARES-COMMON-PRIOR> 11,135
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (665)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,980
<NET-ASSETS> 139,302
<DIVIDEND-INCOME> 902
<INTEREST-INCOME> 138
<OTHER-INCOME> 0
<EXPENSES-NET> (3,097)
<NET-INVESTMENT-INCOME> (2,057)
<REALIZED-GAINS-CURRENT> (560)
<APPREC-INCREASE-CURRENT> 14,773
<NET-CHANGE-FROM-OPS> 12,154
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (462)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,499
<NUMBER-OF-SHARES-REDEEMED> (2,901)
<SHARES-REINVESTED> 36
<NET-CHANGE-IN-ASSETS> 12,154
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,323
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,097
<AVERAGE-NET-ASSETS> 132,239
<PER-SHARE-NAV-BEGIN> 12.02
<PER-SHARE-NII> (0.20)
<PER-SHARE-GAIN-APPREC> 1.33
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.11
<EXPENSE-RATIO> 2.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> PAINEWEBBER CAPITAL APPRECIATION -- CLASS D
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 18,770
<INVESTMENTS-AT-VALUE> 25,226
<RECEIVABLES> 458
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,702
<PAYABLE-FOR-SECURITIES> 446
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 263
<TOTAL-LIABILITIES> 709
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,657
<SHARES-COMMON-STOCK> 1,993
<SHARES-COMMON-PRIOR> 2,599
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (119)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,456
<NET-ASSETS> 24,993
<DIVIDEND-INCOME> 175
<INTEREST-INCOME> 27
<OTHER-INCOME> 0
<EXPENSES-NET> (606)
<NET-INVESTMENT-INCOME> (404)
<REALIZED-GAINS-CURRENT> (100)
<APPREC-INCREASE-CURRENT> 2,650
<NET-CHANGE-FROM-OPS> 2,160
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (93)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,420
<NUMBER-OF-SHARES-REDEEMED> (2,033)
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 2,160
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 257
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (606)
<AVERAGE-NET-ASSETS> 25,789
<PER-SHARE-NAV-BEGIN> 11.50
<PER-SHARE-NII> (0.19)
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.54
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
