<PAGE>
As filed with the Securities and Exchange Commission on July 1, 1998
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. 12 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 14 [ 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
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: Effective Date of this
Post-Effective Amendment
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ X ] On JULY 3, 1998 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485 (a)(1)
[ ] On _______ pursuant to Rule 485 (a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On _______ pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
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
PAINEWEBBER MID CAP FUND
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER MANAGED ASSETS TRUST
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No. and Caption Prospectus Caption
- ------------------------------ -------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis The Fund at a Glance; Expense Table
3. Condensed Financial Information Financial Highlights; Performance
4. General Description of Registrant The Fund at a Glance; Investment Objective & Policies;
Investment Philosophy & Process; The Fund's Investments;
General Information
5. Management of the Fund Management; General Information
5A. Management's Discussion of Fund Performance Financial Highlights
6. Capital Stock and Other Securities Cover Page; Flexible Pricing -SM-; Dividends & Taxes;
General Information
7. Purchase of Securities Being Offered Flexible Pricing; How to Buy Shares; Other Services;
Determining the Shares' Net Asset Value
8. Redemption or Repurchase How to Sell Shares; Other Services
9. Pending Legal Proceedings Not Applicable
Part B Item No.and Caption Statement of Additional Information Caption
- ---------------------------- --------------------------------------------
10. Cover page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
13. Investment Objective and Policies Investment Policies and Restrictions; Hedging and Other
Strategies Using Derivative Instruments; Portfolio
Transactions
14. Management of the Fund Trustees and Officers; Principal Holders of Securities
15. Control Persons and Principal Holders of Securities Trustees and Officers; Principal Holders of Securities
16. Investment Advisory and Other Services Investment Advisory and Distribution Arrangements;
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
<PAGE>
Part B Item No.and Caption Statement of Additional Information Caption
- ---------------------------- --------------------------------------------
21. Underwriters Investment Advisory and Distribution Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
PART C
-------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PAINEWEBBER MID CAP FUND
1285 AVENUE OF THE AMERICAS, NEW YORK, NY 10019
PROSPECTUS -- JULY 3, 1998
- --------------------------------------------------------------------------------
PaineWebber Mid Cap Fund seeks long-term capital
appreciation by investing primarily in common stocks
of medium-sized companies.
This Prospectus concisely sets forth information that
a prospective investor should know about the Fund
before investing. Please read this Prospectus
carefully and retain a copy for future reference.
A Statement of Additional Information dated July 3,
1998 has been filed with the Securities and Exchange
Commission ("SEC" or "Commission") and is legally part
of this Prospectus. The Statement of Additional
Information can be obtained without
charge, and further inquiries can be made, by
contacting the Fund, your
investment executive at PaineWebber or one of its
correspondent firms or by calling toll-free
1-800-647-1568. In addition, the Commission maintains
a website
(http://www.sec.gov) that contains the Statement of
Additional Information, other material incorporated by
reference, and other information regarding registrants
that file electronically with the Commission.
------------------------------------------------------
THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of
seven broad categories, which are presented here.
Generally, investors seeking to maximize return must
assume greater risk. The Fund offered by this
Prospectus is in the STOCK FUNDS category.
- - ASSET ALLOCATION FUNDS for high total return by investing in stocks and bonds.
- - STOCK FUNDS for long-term growth by investing mainly in stocks.
- - BOND FUNDS for income by investing mainly in bonds.
- - TAX-FREE BOND FUNDS for income exempt from federal income tax and, in some
cases, state and local income taxes, by investing in municipal bonds.
- - GLOBAL FUNDS for long-term growth by investing mainly in foreign stocks or
high current income by investing mainly in global debt instruments.
- - MONEY MARKET FUND for income and stability by investing in high-quality,
short-term investments.
- - FUNDS OF FUNDS for either long-term growth of capital; total return; or income
and, secondarily, growth of capital by investing in other PaineWebber mutual
funds.
A complete listing of the PaineWebber Family of Mutual
Funds is found on the back cover of this Prospectus.
------------------------------------------------------
INVESTORS SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR REFERRED TO IN THIS PROSPECTUS. THE FUND
AND ITS DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO
PROVIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT.
THE PROSPECTUS IS NOT AN OFFER TO SELL SHARES OF THE
FUND IN ANY JURISDICTION WHERE THE FUND OR ITS
DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Prospectus Page 1
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber Mid Cap Fund
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
---
<S> <C>
The Fund at a Glance................................................. 3
Expense Table........................................................ 5
Financial Highlights................................................. 8
Investment Objective & Policies...................................... 10
Investment Philosophy & Process...................................... 10
Performance.......................................................... 11
The Fund's Investments............................................... 13
Flexible Pricing-SM-................................................. 16
How to Buy Shares.................................................... 19
How to Sell Shares................................................... 20
Other Services....................................................... 21
Management........................................................... 21
Determining the Shares' Net Asset Value.............................. 23
Dividends & Taxes.................................................... 23
General Information.................................................. 24
</TABLE>
- --------------------------------------------------------------------------------
Prospectus Page 2
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber Mid Cap Fund
THE FUND AT A GLANCE
- --------------------------------------------------------------------------------
The Fund offered by this Prospectus is not intended to provide a complete or
balanced investment program but may be appropriate as a component of an
investor's overall portfolio. Some common reasons to invest in this Fund are to
finance college educations, plan for retirement or diversify a portfolio. When
selling shares, investors should be aware that they may get more or less for
their shares than they originally paid for them. As with any mutual fund, there
is no assurance that the Fund will achieve its goals.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the
investment adviser and administrator of the Fund.
GOAL:
To increase the value of your investment by investing principally in common
stocks of medium-sized domestic companies and some foreign companies selected
primarily on the basis of earnings growth.
INVESTMENT OBJECTIVE:
Long-term capital appreciation.
RISKS:
Equity securities historically have shown greater growth potential than other
types of securities, but they have also shown greater volatility. Because the
Fund invests primarily in common stocks, the most familiar type of equity
security, its price will rise and fall. Medium-sized companies may have higher
earnings growth rates than larger companies, offering the potential for greater
returns. However, the greater potential of these companies may entail greater
market volatility and risks of adverse financial developments. The Fund may
invest in U.S. dollar-denominated securities of foreign companies, which may
involve more risk than the securities of U.S. companies. The Fund may use
derivatives, such as options and futures, in its hedging activities, which may
involve additional risks. Investors may lose money by investing in the Fund; the
investment is not guaranteed.
SIZE: On April 30, 1998, the Fund had over $261.8 million in assets.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors need
only $100.
WHO SHOULD INVEST
The Fund is for investors who want long-term capital appreciation. The Fund
seeks to achieve this objective by investing primarily in the common stock of
medium-sized domestic companies and foreign companies that are traded in the
United States. Equity securities of small- and medium-sized companies offer
investors the potential for greater returns than larger companies but are
typically more volatile. Accordingly, the Fund is designed for investors seeking
long-term growth who are able to bear the risks that come with investments in
the equity securities of such companies.
HOW TO PURCHASE SHARES OF THE FUNDS
Investors may select among these classes of shares:
CLASS A SHARES
The price is the net asset value plus the initial sales charge (the maximum is
4.5% of the public offering price). Although investors pay an initial sales
charge when they buy Class A shares, the ongoing expenses for this Class are
lower than the ongoing expenses of Class B and Class C shares.
CLASS B SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is immediately
invested. However, Class B shares have higher ongoing expenses than Class A
shares. Depending upon how long they own the shares, investors may have to pay a
sales charge when they sell Class B shares. This sales charge is called a
"contingent deferred sales charge" and applies when investors sell their Class B
shares within six years after purchase. After six years, Class B shares convert
to Class A shares, which have lower ongoing expenses and no contingent deferred
sales charge.
CLASS C SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PaineWebber Mid Cap Fund
THE FUND AT A GLANCE
(Concluded)
- --------------------------------------------------------------------------------
result, 100% of their purchase is immediately invested. However, Class C shares
have higher ongoing expenses than Class A shares. A contingent deferred sales
charge of 1% is charged on shares sold within one year of purchase. Class C
shares never convert to any other class of shares.
CLASS Y SHARES
Class Y shares are offered only to limited groups of investors. The price is the
net asset value. Investors do not pay an initial sales charge when they buy
Class Y shares. As a result, 100% of their purchase is immediately invested.
Investors also do not pay a contingent deferred sales share when they sell Class
Y shares. Class Y shares have lower ongoing expenses than any other class of
shares.
- --------------------------------------------------------------------------------
Prospectus Page 4
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber Mid Cap Fund
EXPENSE TABLE
- --------------------------------------------------------------------------------
The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Fund. Expenses
shown below represent those incurred for the most recent fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS Y
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a % of offering
price)............................................................. 4.50% None None None
Sales Charge on Reinvested Dividends (as a % of offering price)...... None None None None
Maximum Contingent Deferred Sales Charge (as a % of net asset value
at the time of purchase or sale, whichever is less)................ None 5% 1% None
Exchange Fee......................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (as a % of average net assets)
Management Fees...................................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees........................................................... 0.25 1.00 1.00 None
Other Expenses....................................................... 0.26 0.28 0.29 0.22
----- ----- ----- -----
Total Operating Expenses............................................. 1.51 2.28 2.29 1.22
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase
plan are available. Purchases of $1 million or more are not subject to an
initial sales charge. However, if a shareholder sells these shares within
one year after purchase, a contingent deferred sales charge of 1% of the
offering price or the net asset value of the shares at the time of sale by
the shareholder, whichever is less, is imposed.
CLASS B SHARES: Sales charge waivers are available. The maximum 5%
contingent deferred sales charge applies to sales of shares during the first
year after purchase. The charge generally declines by 1% annually, reaching
zero after six years.
CLASS C SHARES: If a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or
the net asset value of the shares at the time of the sale by the
shareholder, whichever is less, is imposed.
CLASS Y SHARES: No initial or contingent deferred sales charge is imposed,
nor are Class Y shares subject to 12b-1 distribution or service fees. Class
Y shares may be purchased by participants in certain investment programs
that are sponsored by PaineWebber and that may invest in PaineWebber mutual
funds ("PW Programs"), when Class Y shares are purchased through that PW
Program. Participation in a PW Program is subject to an advisory fee at an
annual rate of no more than 1.5% of assets held through that PW Program.
This account charge is not included in the table because non-INSIGHT
participants are permitted to purchase Class Y shares.
12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class C shareholders may pay more in direct and indirect sales charges
(including 12b-1 distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
12b-1 service fees..................................................................... 0.25% 0.25% 0.25%
12b-1 distribution fees................................................................ 0.00 0.75 0.75
<CAPTION>
CLASS Y
-----------
<S> <C>
12b-1 service fees..................................................................... 0.00%
12b-1 distribution fees................................................................ 0.00
</TABLE>
For more information, see "Management" and "Flexible Pricing-SM-."
- --------------------------------------------------------------------------------
Prospectus Page 5
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PaineWebber Mid Cap Fund
EXPENSE TABLE
(Continued)
- --------------------------------------------------------------------------------
EXAMPLES OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various costs
and expenses they would incur as shareholders of the Fund. The assumed 5% annual
return shown in the examples is required by regulations of the SEC applicable to
all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF THE FUND MAY BE MORE OR LESS THAN
THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class A........................................... $ 60 $ 91 $ 124 $ 217
Class B (Assuming sale of all shares at end of
period)......................................... $ 73 $ 101 $ 142 $ 224
Class B (Assuming no sale of shares).............. $ 23 $ 71 $ 122 $ 224
Class C (Assuming sale of all shares at end of
period)......................................... $ 33 $ 72 $ 122 $ 263
Class C (Assuming no sale of shares).............. $ 23 $ 72 $ 122 $ 263
Class Y........................................... $ 12 $ 39 $ 67 $ 148
</TABLE>
ASSUMPTIONS MADE IN THE EXAMPLES
- - ALL CLASSES: Reinvestment of all dividends and other distributions;
percentage amounts listed under "Annual Fund Operating Expenses" remain the
same for the years shown.
- - CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at the
time of purchase.
- - CLASS B SHARES: Deduction of the maximum applicable contingent deferred
sales charge at the time of sale, which declines over a period of six
years. Ten-year figures assume that Class B shares convert to Class A
shares at the end of the sixth year.
- - CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
- --------------------------------------------------------------------------------
Prospectus Page 6
<PAGE>
(This page has been left blank intentionally.)
- --------------------------------------------------------------------------------
Prospectus Page 7
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber Mid Cap Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table provides investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Ernst & Young LLP, independent auditors, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended March 31, 1998,
and are incorporated by reference into the Statement of Additional Information.
The financial statements and notes, as well as the financial information in the
table below relating to each of the five years in the period ended March 31,
1998, have been audited by Ernst & Young LLP. Information shown below for
periods prior to the year ended March 31, 1994, has also been audited by Ernst &
Young LLP, whose reports thereon were unqualified. Further information about the
Fund's performance is also included in the Annual Report to Shareholders, which
may be obtained without charge by calling 1-800-647-1568.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
FOR THE
PERIOD
APRIL 7,
FOR THE YEARS ENDED MARCH 31, 1992+ TO
---------------------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 13.44 $ 15.61 $ 12.81 $ 11.65 $ 10.53 $ 9.55
-------- -------- -------- -------- -------- ------------
Net investment loss...... (0.13) (0.17) (0.16) (0.09) (0.09) (0.06)
Net realized and
unrealized gains from
investment
transactions........... 5.15 0.32 3.71 1.29 1.21 1.04
-------- -------- -------- -------- -------- ------------
Net increase from
investment
operations............. 5.02 0.15 3.55 1.20 1.12 0.98
-------- -------- -------- -------- -------- ------------
Distributions from net
realized gains from
investments............ (3.46) (2.32) (0.75) (0.04) -- --
-------- -------- -------- -------- -------- ------------
Net asset value, end of
period................. $ 15.00 $ 13.44 $ 15.61 $ 12.81 $ 11.65 $ 10.53
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Total investment return
(1).................... 41.50% (0.21)% 28.16% 10.36% 10.64% 10.26%
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $101,698 $ 76,909 $ 76,558 $ 62,673 $ 58,523 $ 48,582
Expenses to average net
assets............... 1.51% 1.60% 1.58% 1.58% 1.54% 1.72%*
Net investment loss to
average net assets... (1.16)% (1.20)% (1.11)% (0.79)% (0.84)% (0.78)%*
Portfolio turnover..... 64% 56% 57% 42% 60% 51%
Average commission rate
paid (2)............. $ 0.0479 $ 0.0475 -- -- -- --
</TABLE>
- -----------
* Annualized.
+ Commencement of operations.
# Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all distributions at net
asset value on the payable dates and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for Class A, B and C shares would be lower if sales charges were
included. Total investment returns for periods of less than one year have
not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose the average commission rate paid per share of
common stock investment purchased or sold.
- --------------------------------------------------------------------------------
Prospectus Page 8
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PaineWebber Mid Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------
FOR THE
PERIOD
APRIL 7,
FOR THE YEARS ENDED MARCH 31, 1992+ TO
---------------------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94 $ 10.00
-------- -------- -------- -------- -------- ------------
Net investment loss...... (0.31) (0.31) (0.29) (0.20) (0.17) (0.11)
Net realized and
unrealized gains from
investment
transactions........... 5.25 0.34 3.81 1.33 1.25 1.05
-------- -------- -------- -------- -------- ------------
Net increase from
investment
operations............. 4.94 0.03 3.52 1.13 1.08 0.94
-------- -------- -------- -------- -------- ------------
Distributions from net
realized gains from
investments............ (3.46) (2.32) (0.75) (0.04) -- --
-------- -------- -------- -------- -------- ------------
Net asset value, end of
period................. $ 15.07 $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Total investment return
(1).................... 40.39% (0.99)% 27.28% 9.46% 9.87% 9.40%
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $143,058 $134,495 $157,021 $139,302 $133,828 $105,490
Expenses to average net
assets............... 2.28% 2.36% 2.34% 2.34% 2.30% 2.49%*
Net investment loss to
average net assets... (1.92)% (1.95)% (1.87)% (1.56)% (1.60)% (1.55)%*
Portfolio turnover..... 64% 56% 57% 42% 60% 51%
Average commission rate
paid (2)............. $ 0.0479 $ 0.0475 -- -- -- --
<CAPTION>
CLASS C CLASS Y
------------------------------------------------------------------- ------------
FOR THE FOR THE
PERIOD PERIOD
JULY 2, MARCH 17,
FOR THE YEARS ENDED MARCH 31, 1992# TO 1998# TO
---------------------------------------------------- MARCH 31, MARCH 31,
1998 1997 1996 1995 1994 1993 1998
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47 $ 8.89 $ 14.90
-------- -------- -------- -------- -------- ------------ ------------
Net investment loss...... (0.26) (0.29) (0.27) (0.19) (0.10) (0.05) (0.00)
Net realized and
unrealized gains from
investment
transactions........... 4.92 0.34 3.62 1.27 1.13 1.63 0.10
-------- -------- -------- -------- -------- ------------ ------------
Net increase from
investment
operations............. 4.66 0.05 3.35 1.08 1.03 1.58 0.10
-------- -------- -------- -------- -------- ------------ ------------
Distributions from net
realized gains from
investments............ (3.46) (2.32) (0.75) (0.04) -- -- (0.00)
-------- -------- -------- -------- -------- ------------ ------------
Net asset value, end of
period................. $ 14.07 $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47 $ 15.00
-------- -------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- -------- ------------ ------------
Total investment return
(1).................... 40.46% (0.91)% 27.16% 9.45% 9.84% 17.77% 0.67%
-------- -------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- -------- ------------ ------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $ 27,814 $ 24,810 $ 27,601 $ 24,993 $ 29,884 $ 13,806 $ 35
Expenses to average net
assets............... 2.29% 2.37% 2.36% 2.35% 2.28% 2.31%* 1.22%*
Net investment loss to
average net assets... (1.94)% (1.97)% (1.89)% (1.57)% (1.58)% (1.53)%* 0.00%*
Portfolio turnover..... 64% 56% 57% 42% 60% 51% 64%*
Average commission rate
paid (2)............. $ 0.0479 $ 0.0475 -- -- -- -- $ 0.0479
</TABLE>
- -----------
- --------------------------------------------------------------------------------
Prospectus Page 9
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber Mid Cap Fund
INVESTMENT OBJECTIVE & POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective may not be changed without shareholder approval.
Its other investment policies, except where noted, are not fundamental and may
be changed by the Fund's board.
The Fund's investment objective is long-term capital appreciation. The Fund
seeks to achieve this objective by investing at least 65% of its total assets in
common stocks of medium-sized (or mid cap) companies. Mitchell Hutchins defines
mid cap companies as those companies with market capitalizations of at least
$750 million and no more than $6 billion at the time of purchase.
While mid cap stocks represent potentially higher returns for investors, they
may present investors with greater risks than larger companies. Mid cap
companies may be more vulnerable than larger companies to adverse business or
economic developments. While not required to do so, the Fund may consider
selling equity securities of companies that cease to be "medium-sized" as
defined above.
The Fund can invest up to 35% of its total assets in U.S. dollar-denominated
equity securities of foreign companies that trade on recognized U.S. stock
exchanges or on the U.S. over-the-counter ("OTC") market. When Mitchell Hutchins
believes it is consistent with the Fund's investment objective of long-term
capital appreciation, the Fund may invest up to 35% of its total assets in
common stocks of companies that are larger or smaller than those of mid cap
companies as defined above, as well as in bonds and money market instruments.
* * * *
As with any mutual fund, there is no assurance that the Fund will achieve its
investment objective. The Fund's net asset value fluctuates based upon changes
in the value of its portfolio securities.
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY & PROCESS
- --------------------------------------------------------------------------------
Mitchell Hutchins follows a disciplined investment process that relies on the
Mitchell Hutchins Equity Research Team and the Mitchell Hutchins Factor
Valuation Model. The Model screens a universe of companies from ten business
sectors to identify undervalued companies with strong earnings momentum that
rank well in three measures:
- VALUE: projected dividends, cash flow, earnings and book value;
- MOMENTUM: earnings and prices to identify companies that could surprise on
the upside; and
- ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.
The equity securities in the Model's universe are screened twice a month. Then
the Team takes a closer look at those equity securities that meet the
capitalization requirements of the Fund and that rank in the top 20% of the
Model's universe based on value and momentum. The Team applies traditional
fundamental analysis and may speak to the management of these companies, as well
as their competitors. Based on the Team's findings in the context of Mitchell
Hutchins' economic forecast, Mitchell Hutchins decides whether to purchase or
sell equity securities for the Fund.
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Prospectus Page 10
<PAGE>
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PaineWebber Mid Cap Fund
PERFORMANCE
- --------------------------------------------------------------------------------
This chart shows the total returns for each calendar year for the Fund. Sales
charges have not been deducted from total returns for Class A, B, and C shares.
Average annual total returns both before and after deducting the maximum sales
charges are shown below in the table that follows the performance chart. Returns
would be lower if sales charges were deducted. Past results are not a guarantee
of future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1992 9.95% 9.30% 17.66%
1993 16.10% 15.19% 15.20%
1994 -1.36% -2.03% -2.13%
1995 28.79% 27.73% 27.82%
1996 17.87% 17.01% 16.98%
1997 15.14% 14.28% 14.39%
</TABLE>
The 1992 returns for each class represent the period from its inception to
December 31, 1992. The inception date for Class A and B shares was April 7,
1992. The inception date for Class C shares was July 2, 1992. The Fund did not
have any Class Y shares outstanding during the calendar year 1997.
AVERAGE ANNUAL TOTAL RETURNS
As of March 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Inception Date.................................................................. 4/7/92 4/7/92 7/2/92 3/17/98
ONE YEAR
Before deducting maximum sales charges........................................ 41.50% 40.39% 40.46% N/A
After deducting maximum sales charges......................................... 35.17% 35.39% 39.46% N/A
FIVE YEAR
Before deducting maximum sales charge......................................... 17.18% 16.30% 16.30% N/A
After deducting maximum sales charge.......................................... 16.10% 16.08% 16.30% N/A
LIFE OF CLASS
Before deducting maximum sales charges........................................ 16.04% 15.16% 17.32% 0.67%
After deducting maximum sales charges......................................... 15.15% 15.07% 17.32% 0.67%
</TABLE>
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Prospectus Page 11
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PaineWebber Mid Cap Fund
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized return
shows the change in value of an investment in the Fund as a steady compound
annual rate of return. Actual year-by-year returns fluctuate and may be higher
or lower than standardized return. Standardized return for Class A shares of the
Fund reflects deduction of the Fund's maximum initial sales charge of 4.5% at
the time of purchase, and standardized return for the Class B and Class C shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on the sale of shares held for the period. One-, five- and
ten-year periods will be shown, unless the Fund or class has been in existence
for a shorter period. If so, returns will be shown for the period since
inception, known as "Life." Total return calculations assume reinvestment of
dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were deducted.
Total return information reflects past performance and does not indicate future
results. The investment return and principal value of shares of the Fund will
fluctuate. The amount investors receive when selling shares may be more or less
than what they paid. Further information about the Fund's performance is
contained in its Annual Report to Shareholders, which may be obtained without
charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.
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Prospectus Page 12
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PaineWebber Mid Cap Fund
THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and common
stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation.
Preferred stock has certain fixed-income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, which are convertible into
common stock.
BONDS (including notes and debentures) are used by corporations and governments
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Bonds have
varying degrees of investment risk and varying levels of sensitivity to changes
in interest rates.
RISKS
Under normal circumstances, the Fund invests primarily in equity securities.
Following is a discussion of these and other risks of the Fund:
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities and reflect changes in a company's financial condition and in
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that the Fund may experience a
substantial or complete loss on an individual equity investment.
INVESTMENTS IN MEDIUM-SIZED AND SMALLER COMPANIES. Common stocks of medium-sized
companies may offer potentially higher returns for investors. While 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. Such companies are typically less closely
followed by investment experts. In addition, the Fund may invest up to 35% of
its total assets in stocks of companies that are smaller or larger than
medium-sized companies. 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.
FOREIGN SECURITIES. The Fund may invest a portion of its assets in the
securities of foreign companies. Investing in the securities of foreign
companies involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or
monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Investing in securities issued by companies located in developing countries
involves additional risks.
BONDS. Bonds are subject to interest rate risk and credit risk. Interest rate
risk is the risk that interest rates will rise and that, as a result, bond
prices will fall, lowering the value of the Fund's investments. Long-term bonds
generally are more sensitive to interest rate changes than short-term bonds.
Credit risk is the risk that the issuer or a guarantor may be unable or
unwilling to pay interest or repay principal on the bond. This can be affected
by many factors, including adverse changes in the issuer's own financial
condition or in economic conditions.
A bond's credit risk may be rated Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's"). The Fund also may invest in securities that are comparably rated by
another nationally recognized rating agency and in unrated securities if
Mitchell Hutchins considers them to be of comparable quality. The Fund may only
purchase investment grade bonds.
Investment grade bonds are those rated within the four highest categories by S&P
or Moody's or, if unrated, are
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<PAGE>
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PaineWebber Mid Cap Fund
considered by Mitchell Hutchins to be of comparable quality. Moody's fourth
highest category (Baa) includes securities which, in its opinion, have
speculative features. For example, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher-rated debt instruments.
Credit ratings attempt to evaluate the safety of principal and interest
payments; they do not guarantee the performance of the issuer and they do not
attempt to evaluate the volatility of the bond's value or its liquidity. The
rating agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates. There is a risk that the rating agencies
will downgrade bonds.
DERIVATIVES. Some of the instruments in which the Fund may invest may be
referred to as "derivatives" because their value depends on (or "derives" from)
the value of an underlying asset, reference rate or index. These instruments
include options and futures contracts that may be used in hedging strategies.
There is only limited consensus as to what constitutes a "derivative" security.
The market value of derivative instruments and securities sometimes is more
volatile than that of other investments, and each type of derivative instrument
may pose its own special risks. Mitchell Hutchins take these risks into account
in its management of the Fund.
COUNTERPARTIES. The Fund may be exposed to the risk of financial failure or
insolvency of another party with which the Fund enters into a transaction, such
as a repurchase agreement or a derivative contract. Subject to board
supervision, Mitchell Hutchins monitors and evaluates the creditworthiness of
these counterparties to help minimize those risks.
YEAR 2000 RISK. Like other mutual funds and other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and entities
with computer systems that are linked to Fund records do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is taking
steps that it believes are reasonably designed to address the Year 2000 Issue
with respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by each of the Fund's other
major service providers. However, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Fund.
* * *
INVESTMENT TECHNIQUES AND STRATEGIES
HEDGING STRATEGIES USING DERIVATIVE CONTRACTS. The Fund may use certain
investments and strategies designed to adjust the overall risk of its investment
portfolio. These "hedging" strategies involve derivative contracts, including
options (on securities, futures and stock indexes) and futures contracts (on
stock indexes and interest rates). New financial products and risk management
techniques continue to be developed and may be used if consistent with the
Fund's investment objective and policies. The Statement of Additional
Information for the Fund contains further information on these derivative
contracts and related hedging strategies.
The Fund might not use any derivative contract or related strategy, and there
can be no assurance that any strategy will succeed. If Mitchell Hutchins is
incorrect in its judgment on market values, interest rates or other economic
factors in using a hedging strategy, the Fund may have lower net income and a
net loss on the investment. Each strategy involves certain risks, which include:
- - the fact that the skills needed to implement a strategy using derivative
instruments are different from those needed to select securities for the Fund;
- - the possibility of imperfect correlation, or even no correlation, between
price movements of derivative instruments used in hedging strategies and price
movements of the securities or currencies being hedged;
- - possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities; and
- - the possibility that the Fund is unable to close out or liquidate its hedged
position.
LENDING PORTFOLIO SECURITIES. The Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets taken at market value. Lending securities enables the Fund
to earn additional income, but could result in a loss or delay in recovering
these securities.
TEMPORARY AND DEFENSIVE POSITIONS. When Mitchell Hutchins believes that unusual
circumstances warrant a defensive posture, the Fund may temporarily commit all
or any portion of its assets to cash or investment grade money market
instruments, including repurchase agreements. The Fund also may commit up to 35%
of its total assets to cash or investment grade money market instruments,
including repurchase agreements, for liquidity purposes or pending investment in
other securities. In a typical repurchase agreement, the Fund buys a security
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Prospectus Page 14
<PAGE>
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PaineWebber Mid Cap Fund
and simultaneously agrees to sell it back at an agreed-upon price and time,
usually no more than seven days after purchase.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in illiquid
securities. These include certain cover for OTC options and securities whose
disposition is restricted under the federal securities laws. The Fund does not
consider securities that are eligible for resale pursuant to SEC Rule 144A to be
illiquid securities if Mitchell Hutchins has determined such securities to be
liquid, based upon the trading markets for the securities under procedures
approved by the Fund's board.
PORTFOLIO TURNOVER. Mitchell Hutchins restructured about 50% of the Fund's
portfolio of investments since assuming day-to-day portfolio management on May
1, 1998 to reflect Mitchell Hutchins' investment philosophy and process. This
restructuring could result in higher than usual portfolio turnover for the
current fiscal year. The restructuring could involve correspondingly increased
transaction costs, which would be borne directly by the Fund, and may increase
the potential for realizing short-term and long-term capital gains, which could
increase taxable distributions to Fund shareholders.
OTHER INFORMATION. The Fund may also purchase securities on a when-issued basis
or may purchase or sell securities for delayed delivery. The Fund generally
would not pay for such securities or start earning interest on them until they
are delivered, but it would immediately assume the risks of ownership, including
the risk of price fluctuation. The Fund may borrow money for temporary or
emergency purposes, but not in excess of 10% of its total assets, including
reverse repurchase agreements involving up to 5% of its net assets. The Fund may
sell short securities that it already owns (short sales "against the box").
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Prospectus Page 15
<PAGE>
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PaineWebber Mid Cap Fund
FLEXIBLE PRICING-SM-
- --------------------------------------------------------------------------------
The Fund offers through this Prospectus four classes of shares that differ in
terms of sales charges and expenses. An eligible investor can select the class
that is best suited to his or her investment needs, based upon the holding
period and the amount of investment.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial sales
charge (the maximum is 4.5% of the public offering price) next calculated after
PaineWebber's New York City headquarters or PFPC Inc., the Fund's Transfer Agent
("Transfer Agent"), receives the purchase order. Although investors pay an
initial sales charge when they buy Class A shares, the ongoing expenses for this
class are lower than the ongoing expenses of Class B and Class C shares. Class A
shares sales charges are calculated as follows:
<TABLE>
<CAPTION>
DISCOUNT TO SELECTED
SALES CHARGE AS A PERCENTAGE OF: DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- ---------------------------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....................... 4.50% 4.71% 4.25%
$50,000 to $99,999...................... 4.00 4.17 3.75
$100,000 to $249,999.................... 3.50 3.63 3.25
$250,000 to $499,999.................... 2.50 2.56 2.25
$500,000 to $999,999.................... 1.75 1.78 1.50
$1,000,000 and over(1).................. None None 1.00(2)
</TABLE>
- ---------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
net asset value at the time of sale by the shareholder, whichever is less,
is charged on sales of shares made within one year of the purchase date.
Class A shares representing reinvestment of any dividends or other
distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may not withdraw more than 12% of the value of the Fund account
under the Plan in the first year after purchase.
(2) Mitchell Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS
Investors who are purchasing Class A shares in more than one PaineWebber mutual
fund may combine those purchases to get a reduced sales charge. Investors who
already own Class A shares in one or more PaineWebber mutual funds may combine
the amount they are currently purchasing with the value of such previously owned
shares to qualify for a reduced sales charge. To determine the sales charge
reduction in either case, please refer to the chart above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
- - their spouses, parents or children under age 21;
- - their Individual Retirement Accounts (IRAs);
- - certain employee benefit plans, including 401(k) plans;
- - any company controlled by the investor;
- - trusts created by the investor;
- - Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of investors for the benefit of the investors'
children; or
- - accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
- - is an employee, director, trustee or officer of PaineWebber, its affiliates or
any PaineWebber mutual fund;
- - is the spouse, parent or child of any of the above;
- - buys these shares through a PaineWebber investment executive who was formerly
employed as a broker with a competing brokerage firm that was registered as a
broker-dealer with the SEC; and
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Prospectus Page 16
<PAGE>
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PaineWebber Mid Cap Fund
- the investor was the investment executive's client at the competing
brokerage firm;
- within 90 days of buying Class A shares in the Fund, the investor sells
shares of one or more mutual funds that (a) were principally underwritten by
the competing brokerage firm or its affiliates and (b) the investor either
paid a sales charge to buy those shares, paid a contingent deferred sales
charge when selling them or held those shares until the contingent deferred
sales charge was waived; and
- the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;
- - is a certificate holder of unit investment trusts sponsored by PaineWebber and
has elected to have dividends and other distributions from that investment
automatically invested in Class A shares;
- - is an employer establishing an employee benefit plan qualified under section
401, including a salary reduction plan qualified under section 401(k), or
section 403(b) of the Internal Revenue Code ("Code") (each a "qualified
plan"). (This waiver is subject to minimum requirements, with respect to the
number of employees and amount of plan assets, established by Mitchell
Hutchins. Currently, a plan must have 50 or more eligible employees and at
least $1 million in plan assets.) For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested;
- - is a participant in the PaineWebber Members Only Program-TM-. For investments
made pursuant to this waiver, Mitchell Hutchins may make payments out of its
own resources to PaineWebber and to participating membership organizations in
a total amount not to exceed 1% of the amount invested;
- - is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver, Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
- - acquires Class A shares through an investment program that is not sponsored by
PaineWebber or its affiliates and that charges participants a fee for program
services, provided that the program sponsor has entered into a written
agreement with PaineWebber permitting the sale of Class A shares at net asset
value to that program. For investments made pursuant to this waiver, Mitchell
Hutchins may make a payment to PaineWebber out of its own resources in an
amount not to exceed 1% of the amount invested. For subsequent investments or
exchanges made to implement a rebalancing feature of such an investment
program, the minimum subsequent investment requirement is waived; or
- - acquires Class A shares in connection with a reorganization pursuant to which
the Fund acquires substantially all of the assets and liabilities of another
investment company in exchange solely for shares of the Fund.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568. Investors must provide satisfactory information to
PaineWebber or the Fund if they seek any of these sales charge reductions or
waivers.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or the Transfer Agent receives the
purchase order. The ongoing expenses investors pay for Class B shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class B shares, 100% of their purchase is immediately
invested.
Depending on how long they own their Fund investment, investors may have to pay
a sales charge when they sell their Fund shares. This sales charge is called a
"contingent deferred sales charge." The amount of the charge depends on how long
the investor has owned the shares. The sales charge is calculated by multiplying
the net asset value of the shares at the time of sale or purchase, whichever is
less, by the percentage shown on the following table. Investors who own shares
for more than six years do not have to pay a sales charge when selling those
shares.
<TABLE>
<CAPTION>
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES'
SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED:
- ----------------------------- ---------------------------------
<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A shares
of equal dollar value after the investor has owned them for six years. Dividends
and other distributions paid to the investor by the Fund in the
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Prospectus Page 17
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PaineWebber Mid Cap Fund
form of additional Class B shares will also convert to Class A shares on a
pro-rata basis. This benefits shareholders because Class A shares have lower
ongoing expenses than Class B shares. If the investor has exchanged Class B
shares between PaineWebber funds, the Fund uses the purchase date at which the
initial investment was made to determine the conversion date.
MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE
When investors sell Class B shares they have owned for less than six years, the
Fund automatically will minimize the sales charge by assuming the investors are
selling:
- - First, Class B shares owned through reinvested dividends and capital gain
distributions; and
- - Second, Class B shares held in the portfolio the longest.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
- - sales of shares under the Fund's "Systematic Withdrawal Plan" (investors may
withdraw annually no more than 12% of the value of the Fund account under the
Plan);
- - a distribution from an IRA, a self-employed individual retirement plan ("Keogh
Plan") or a custodial account under section 403(b) of the Code (after the
investor reaches age 59 1/2);
- - a tax-free return of an excess IRA contribution;
- - a tax-qualified retirement plan distribution following retirement; or
- - Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.
Investors must provide satisfactory information to PaineWebber or the Fund to
seek any of these waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value next
calculated after PaineWebber's New York City headquarters or the Transfer Agent
receives the purchase order. Investors do not pay an initial sales charge when
they buy Class C shares, but the ongoing expenses of Class C shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class C shares, 100% of their purchase is immediately
invested. Class C shares never convert to any other class of shares.
A contingent deferred sales charge of 1% of the offering price (the net asset
value at the time of purchase) or the net asset value of the shares at the time
of sale by the shareholder, whichever is less, is charged on sales of shares
made within one year of the purchase date. Other PaineWebber mutual funds may
impose a different contingent deferred sales charge on Class C shares sold
within one year of the purchase date. A sale of Class C shares acquired through
an exchange and held less than one year will be subject to the same contingent
deferred sales charge that would have been imposed on Class C shares of the
PaineWebber mutual fund originally purchased. Class C shares representing
reinvestment of any dividends or other distributions will not be subject to the
1% charge. Withdrawals under the Systematic Withdrawal Plan also will not be
subject to this charge. However, investors may withdraw no more than 12% of the
value of the Fund account under the Plan in the first year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED Eligible investors may purchase Class Y shares at the
net asset value next calculated after the purchase order is received at
PaineWebber's New York City headquarters or at the Transfer Agent. Because
investors do not pay an initial sales charge when they buy Class Y shares, 100%
of their purchase is immediately invested. No contingent deferred sales charge
is imposed on Class Y shares, and the ongoing expenses for Class Y shares are
lower than for the other classes because Class Y shares are not subject to rule
12b-1 distribution fees or service fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
- - a participant in any one of the PW Programs listed below when Class Y shares
are purchased through that PW Program;
- - an investor who buys $10 million or more at any one time in any combination of
PaineWebber mutual funds in the Flexible Pricing System;-SM-
- - a qualified plan that has either
5,000 or more eligible employees or
$50 million or more in assets; and
- - an investment company advised by PaineWebber or an affiliate of PaineWebber.
PACE MULTI-ADVISOR PROGRAM. An investor who participates in the PACE
Multi-Advisor Program is eligible to purchase Class Y shares. The PACE
Multi-Advisor Program is an advisory program sponsored by PaineWebber that
provides comprehensive investment services, including investor profiling, a
personalized asset allocation strategy using an appropriate combination of
funds, and a quarterly investment performance review. Participation in the PACE
Multi-Advisor Program is
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Prospectus Page 18
<PAGE>
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PaineWebber Mid Cap Fund
subject to payment of an advisory fee at the maximum annual rate of 1.5% of
assets. Employees of PaineWebber and its affiliates are entitled to a waiver of
this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE Multi-Advisor Program.
INSIGHT. An investor who participates in the INSIGHT Advisory Program
("INSIGHT"), a total portfolio asset allocation program sponsored by
PaineWebber, is eligible to purchase Class Y shares. Participation in INSIGHT is
subject to payment of an advisory fee to PaineWebber at the maximum annual rate
of 1.5% of assets held through the program. Employees of PaineWebber and its
affiliates are entitled to a 50% reduction in the fee otherwise payable for
participation in INSIGHT.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Prices are calculated for each class of the Fund's shares once each Business
Day, at the close of regular trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time). A "Business Day" is any day, Monday through Friday, on
which the New York Stock Exchange is open for business. 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 an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to PaineWebber
or the Fund that they are eligible to purchase Class Y shares.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's New
York City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its correspondent
firms.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up an
account through the Transfer Agent (PFPC Inc.) by completing an account
application, which you may obtain by calling 1-800-647-1568. The application and
check must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899.
Investors who are new to PaineWebber may complete and sign an account
application and mail it along with a check. Investors also may open an account
in person.
Investors who already have money invested in a PaineWebber mutual fund, and want
to invest in another PaineWebber mutual fund, can:
- - mail an application with a check; or
- - open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional investments
in the Fund.
MINIMUM INVESTMENTS
To open an account: ............................................. $1,000
To add to an account: ............................................. $100
A Fund may waive or reduce these minimums for:
- - employees of PaineWebber or its affiliates; or
- - participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan; or
- - transactions in Class A and Class Y shares made in certain investment
programs.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, B and C
shares for the same class of most other PaineWebber mutual funds. Class Y shares
are not exchangeable. For classes of shares where no initial sales
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Prospectus Page 19
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PaineWebber Mid Cap Fund
charge is imposed, a contingent deferred sales charge may apply if the investor
sells the shares acquired through the exchange.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
- - Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or wire.
- - Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to the Transfer Agent. The letter of
instruction must include:
- the investor's name and address;
- the Fund's name;
- the Fund account number;
- the dollar amount or number of shares to be sold; and
- a guarantee of each registered owner's signature. A signature guarantee may
be obtained from a domestic bank or trust company, broker, dealer, clearing
agency or savings association which is a participant in a medallion program
recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange
Medallion Signature Program (MSP). Signature guarantees which are not a part
of these programs will not be accepted.
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899.
No contingent deferred sales charge is imposed when Class A, B or C shares are
exchanged for the corresponding class of shares of other PaineWebber mutual
funds. The Fund will use the purchase date of the initial investment to
determine any contingent deferred sales charge due when the shares are sold.
Fund shares may be exchanged only after the settlement date has passed and
payment for the shares has been made. The exchange privilege is available only
in those jurisdictions where the sale of the Fund shares to be acquired is
authorized. This exchange privilege may be modified or terminated at any time
and, when required by SEC rules, upon 60 days' notice. See the back cover of
this Prospectus for a listing of other PaineWebber mutual funds. PaineWebber S&P
500 Index Fund does not currently participate in the Flexible Pricing System-SM-
and is not available for exchanges.
- --------------------------------------------------------------------------------
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the share
price for that class as next calculated (less any applicable contingent deferred
sales charge) after the order is received by PaineWebber's New York City
headquarters or the transfer agent. Share prices are normally calculated at the
close of regular trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time).
Investors who own more than one class of shares should specify which class they
are selling. If they do not, the Fund will assume they are first selling their
Class A shares, then Class C, then Class B and last, Class Y.
If a shareholder wants to sell shares that were purchased recently, the Fund may
delay payment until it verifies that good payment was received. In the case of
purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Fund's Transfer Agent, may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder accounts,
the Fund reserves the right to purchase back all Fund shares in any shareholder
account with a net asset value of less than $500.
If the Fund elects to do so, it will notify the shareholder of the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not purchase back accounts that fall below $500 solely due to a
reduction in net asset value per share.
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Prospectus Page 20
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive at
PaineWebber or one of its correspondent firms at the time of purchase.
- --------------------------------------------------------------------------------
OTHER SERVICES
- --------------------------------------------------------------------------------
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Fund's Class A, B and C shares.
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which the Fund will deduct $50 or more on a
monthly, quarterly, semiannual or annual basis from the investor's bank account
to invest directly in the Fund. In addition to providing a convenient and
disciplined manner of investing, participation in the Automatic Investment Plan
enables the investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or annual
(December) withdrawals from their PaineWebber Mutual Fund accounts. Minimum
balances and withdrawals vary according to the class of shares:
- - CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.
- - CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly, semiannual and annual withdrawals of $200, $400, $600 and $800,
respectively.
Withdrawals under the Systematic Withdrawal Plan are not be subject to a
contingent deferred sales charge. An investor may withdraw no more than 12% of
the value of the Fund account when the investor signed up for the Plan (annually
for Class B shares; during the first year under the Plan for Class A and C
shares). Shareholders who elect to receive dividends or other distributions in
cash may not participate in this Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed IRAs are available through PaineWebber in which purchases of
PaineWebber mutual funds and other investments may be made. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding Fund shares in a PaineWebber brokerage account transfer
their brokerage accounts to another firm, the Fund shares will be moved to an
account with the Transfer Agent. 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.
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
The Fund is governed by a board of trustees, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority of
the board).
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is a wholly owned asset management subsidiary of PaineWebber, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On
- --------------------------------------------------------------------------------
Prospectus Page 21
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
May 31, 1998, Mitchell Hutchins was adviser or sub-adviser of 31 investment
companies with 68 separate portfolios and aggregate assets of over $39.7
billion.
In accordance with procedures adopted by the board, brokerage transactions for
the Fund may be conducted through PaineWebber or its affiliates and the Fund may
pay fees to PaineWebber for its services as lending agent in its portfolio
securities lending programs.
Mitchell Hutchins personnel may engage in securities transactions for their own
accounts pursuant to the firm's code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Mark A. Tincher, Christopher G. Altschul and Antony J. Scott have been primarily
responsible for the day-to-day portfolio management of the Fund since May 1,
1998. Mr. Tincher is a managing director and chief investment officer of
equities at Mitchell Hutchins, responsible for overseeing the management of
equity investments. Upon his arrival at Mitchell Hutchins, Mr. Tincher formed
the Mitchell Hutchins Equity Research Team. Each analyst on the Team focuses on
different industries in which the PaineWebber Stock Funds invest. As a result,
the Team provides PaineWebber Stock Funds with more specialized knowledge of
various industries in which the Funds invest. The Equity Research Team is also
assisted by members of Mitchell Hutchins' fixed income groups, who provide
market outlook, interest rate forecasts and other considerations pertaining to
domestic equity and fixed income investments. From March 1988 to March 1995, Mr.
Tincher worked for Chase Manhattan Private Bank where he was a vice president.
Mr. Tincher directed the U.S. funds management and equity research area at Chase
and oversaw the management of all Chase U.S. equity funds (the Vista Funds and
Trust Investment Funds).
Mr. Altschul joined Mitchell Hutchins in April 1995, is currently responsible
for the quantitative equity valuation model and has various analytical
responsibilities. Prior to joining Mitchell Hutchins, Mr. Altschul worked as an
equity analyst at Chase Manhattan Bank beginning in 1989. Mr. Scott joined
Mitchell Hutchins in May 1996 and is currently an equity analyst responsible for
technology, media, entertainment and medical products industries. Prior to
joining Mitchell Hutchins, Mr. Scott worked at Morgan Stanley as a research
analyst in the technology group beginning in 1992.
MANAGEMENT FEES & OTHER EXPENSES
The Fund pays Mitchell Hutchins a monthly fee for its services. For the fiscal
year ended March 31, 1998, the Fund paid advisory fees to Mitchell Hutchins at
the annual rate of 1.00% of its average daily net assets. Prior to May 1, 1998,
Mitchell Hutchins (not the Fund) paid Denver Investment Advisors, LLC a fee for
sub-advisory services in an amount equal to 50% of the fee it received from the
Fund for advisory and administrative services.
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. There is no
distribution plan with respect to the Funds' Class Y shares. Under distribution
plans for Class A, Class B and Class C shares ("Class A Plan," "Class B Plan"
and "Class C Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins:
- - Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
- - Monthly distribution fees at the annual rate of 0.75% of the average daily net
assets of Class B and Class C shares.
Mitchell Hutchins uses the service fees for Class A, B and C shares 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 then compensates its investment executives for shareholder
servicing that they perform and offsets its own expenses in servicing and
maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class B and Class C Plans
to:
- - Offset the commissions it pays to PaineWebber for selling the Fund's Class B
and Class C shares, respectively.
- - Offset the Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from the Fund or investors at the time Class B
or C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related distribution contracts for Class A, Class B, and Class
C shares ("Distribution Contracts") specify that the Fund must pay service and
distribution fees to Mitchell Hutchins for its activities, not as reimbursement
for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses
exceed the service or distribution fees it receives, the Fund will not
- --------------------------------------------------------------------------------
Prospectus Page 22
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
be obligated to pay more than those fees. On the other hand, if Mitchell
Hutchins' expenses are less than such fees, it will retain its full fees and
realize a profit. Expenses in excess of service and distribution fees received
or accrued through the termination date of any Plan will be Mitchell Hutchins'
sole responsibility and not that of the Fund. Annually, the board of the Fund
reviews the Plans and Mitchell Hutchins' corresponding expenses for each class
separately from the Plans and expenses of the other classes.
- --------------------------------------------------------------------------------
DETERMINING THE SHARES' NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined separately
for each class as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund, plus any cash or other assets, minus all liabilities, by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available, assets
are valued at fair value as determined in good faith by or under the direction
of its board. The amortized cost method of valuation generally is used to value
debt obligations with 60 days or less remaining to maturity, unless the board
determines that this does not represent fair value.
- --------------------------------------------------------------------------------
DIVIDENDS & TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
The Fund pays an annual dividend from its net investment income and net
short-term capital gain, if any. The Fund also annually distributes
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any. The Fund may make additional
distributions, if necessary, to avoid a 4% excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on each class of shares are calculated at
the same time and in the same manner. Dividends on Class A, B and C shares of
the Fund are expected to be lower than those on its Class Y shares because the
other shares have higher expenses resulting from their service fees and, in the
case of Class B and Class C shares, their distribution fees. Dividends on Class
B and Class C shares of the Fund are expected to be lower than those on its
Class A shares because Class B and Class C shares have higher expenses resulting
from their distribution fees. Dividends on each class also might be affected
differently by the allocation of other class-specific expenses. See "General
Information."
The Fund's dividends and other distributions are paid in additional Fund shares
of the same class at net asset value, unless the shareholder has requested cash
payments. A shareholder who wishes to receive dividends and other distributions
in cash, either mailed to the shareholder by check or credited to the
shareholder's PaineWebber account, should contact his or her investment
executive at PaineWebber or one of its correspondent firms or complete the
appropriate section of the account application.
TAXES
The Fund intends to continue to qualify for treatment as a regulated investment
company under the Code so that it will not have to pay federal income tax on the
part of its investment company taxable income (generally consisting of net
investment income and net short-term capital gain) and the net capital gain that
it distributes to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to its shareholders as ordinary
income. Distributions of the Fund's net capital gain (whether paid in cash or
additional shares) are taxable to its shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. Under the Taxpayer
Relief Act of 1997, different maximum tax rates apply to a non-corporate
taxpayer's net capital gain depending on the taxpayer's holding period. These
rates are generally 28% for gain recognized on capital assets held for more than
one year but not more than 18 months and 20% (10%
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Prospectus Page 23
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
for taxpayers in the 15% marginal tax bracket) for gain recognized on capital
assets held for more than 18 months. A Fund may divide each net capital gain
distribution into 28% and 20% rate gain distributions (in accordance with the
holding periods for the securities it sold that generated the distributed gain).
The Fund's shareholders must then treat these portions accordingly, irrespective
of how long a shareholder has held Fund shares.
Shareholders who are not subject to tax on their income generally will not be
required to pay tax on distributions from the Fund.
YEAR-END TAX REPORTING
Following the end of each calendar year, the Fund notifies its shareholders of
the dividends and capital gain distributions paid (or deemed paid), and any
portion of those dividends that qualifies for special treatment. The information
regarding capital gain distributions designates the portions thereof subject to
the different maximum rates of tax applicable to non-corporate taxpayers' net
capital gain indicated above.
BACKUP WITHHOLDING
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to such shareholders who otherwise are
subject to backup withholding.
TAX ON THE SALE OR EXCHANGE
OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends on whether the shareholder receives more or less than the
adjusted basis for the shares (which normally includes any initial sales charge
paid on Class A shares). An exchange of the Fund's shares for shares of another
PaineWebber mutual fund generally will have similar tax consequences. In
addition, if the Fund's shares are bought within 30 days before or after selling
other shares of the Fund (regardless of class) at a loss, all or a portion of
that loss will not be deductible and will increase the basis of the newly
purchased shares.
SPECIAL TAX RULES
FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of the Fund
or another PaineWebber 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 sale or exchange of the original Class A shares would be increased
(or any loss would be decreased) by the amount of the sales charge paid when
those shares were bought, and that amount will increase the basis of the
PaineWebber mutual fund shares subsequently acquired.
No gain or loss will be recognized by a shareholder as a result of a conversion
from Class B shares into Class A shares.
* * * *
The foregoing only summarizes some of the important tax considerations affecting
the Fund and its shareholders. Please see the further discussion in the
Statement of Additional Information. Prospective shareholders are urged to
consult their tax advisers.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION
The Fund is a diversified series of PaineWebber Managed Assets Trust, an
open-end management investment company that was formed on August 9, 1991, as a
business trust under the laws of the Commonwealth of Massachusetts. The trustees
have authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to May 1, 1998, the Fund was
known as the "PaineWebber Capital Appreciation Fund."
SHARES
The Fund's shares are divided into four classes, designated Class A, Class B,
Class C and Class Y shares. A share of each class of the Fund represents an
identical interest in the Fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to sales
charges, if any, distribution and/or service fees, if any, other expenses
allocable exclusively to each class, voting rights on matters exclusively
affecting that class, and its exchange privilege, if any. The different
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Prospectus Page 24
<PAGE>
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PaineWebber Mid Cap Fund
sales charges and other expenses applicable to the different classes of Fund
shares will affect the performance of those classes.
Each Fund share is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on the Class A, B, C and Y
shares will differ.
VOTING RIGHTS
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, as a result, the holders of more than 50% of all the shares of the Trust
may elect all of the board members of the Trust. The shares of the Fund will be
voted together except that only the shareholders of a particular class of the
Fund may vote on matters affecting only that class, such as the terms of a Plan
as it relates to a class.
SHAREHOLDER MEETINGS
The Fund does not hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Fund may remove a board member through a declaration in writing or by vote
cast in person or by proxy at a meeting called for that purpose. A meeting will
be called to vote on the removal of a board member at the written request of
holders of 10% of the outstanding shares of the Fund.
REPORTS TO SHAREHOLDERS
The Fund sends its shareholders audited annual and unaudited semiannual reports,
each of which includes a list of the investment securities held by the Fund as
of the end of the period covered by the report. The Statement of Additional
Information is available to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT;
TRANSFER & DIVIDEND AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Fund's custodian and recordkeeping
agent. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Fund's transfer
and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.
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Prospectus Page 25
<PAGE>
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PaineWebber Mid Cap Fund
PROSPECTUS -- JULY 3, 1998
- --------------------------------------------------------------------------------
/ / PAINEWEBBER BOND FUNDS
High Income Fund
Investment Grade Income Fund
Low Duration U.S. Government
Income Fund
Strategic Income Fund
U.S. Government Income Fund
/ / PAINEWEBBER TAX-FREE BOND FUNDS
California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
New York Tax-Free Income Fund
/ / PAINEWEBBER ASSET ALLOCATION FUNDS
Balanced Fund
Tactical Allocation Fund
/ / PAINEWEBBER STOCK FUNDS
Financial Services Growth Fund
Growth Fund
Growth and Income Fund
Mid Cap Fund
Small Cap Fund
S&P 500 Index Fund
Utility Income Fund
/ / PAINEWEBBER GLOBAL FUNDS
Asia Pacific Growth Fund
Emerging Markets Equity Fund
Global Equity Fund
Global Income Fund
/ / PAINEWEBBER MONEY MARKET FUND
/ / MITCHELL HUTCHINS PORTFOLIOS
Aggressive Portfolio
Moderate Portfolio
Conservative Portfolio
A prospectus containing more complete information for any
of these funds, including charges and expenses, can be
obtained from a PaineWebber investment executive or
correspondent firm. Please read it carefully before
investing. It is important you have all the information
you need to make a sound investment decision.
- -C- 1998 PaineWebber Incorporated
--------------
- --------------------------------------------------------------------------------
<PAGE>
PAINEWEBBER MID CAP FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Mid Cap Fund ("Fund") is a diversified series of PaineWebber
Managed Assets Trust ("Trust"), a professionally managed, open-end management
investment company, organized as a Massachusetts business trust. The Fund is
designed for investors generally seeking capital appreciation by investing
primarily in common stocks of medium-sized companies.
The investment adviser, administrator and distributor for the Fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the Fund, Mitchell Hutchins has appointed PaineWebber to serve
as the exclusive dealer for the sale of Fund shares.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Fund's current Prospectus, dated July 3, 1998.
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 July 3, 1998.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations. Except as otherwise
indicated in the Prospectus or this Statement of Additional Information, there
are no policy limitations on the Fund's ability to use the investments or
techniques discussed in these documents.
YIELD FACTORS AND RATINGS. Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), and other
nationally recognized statistical rating organizations ("NRSROs") are private
services that provide ratings of the credit quality of debt obligations (bonds)
and certain other securities. A description of the ratings assigned to corporate
debt obligations by S&P and Moody's is included in the Appendix to this
Statement of Additional Information. The Fund may use these ratings in
determining whether to purchase, sell or hold a security. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices.
RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. The Fund may hold
securities of foreign issuers that are not registered with the Securities and
Exchange Commission ("SEC"), and foreign issuers may not be subject to SEC
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. companies. Foreign companies are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.
The Fund may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"). 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 representing ownership of common stock will be
treated as common stock. ADRs are publicly traded on exchanges or
over-the-counter ("OTC") in
<PAGE>
the United States and are issued through "sponsored" and "unsponsored"
arrangements. In a sponsored ADR arrangement, the foreign issuer assumes the
obligation to pay some or all of the depositary's transaction fees, whereas
under an unsponsored arrangement, the foreign issuer assumes no obligations and
the depositary's transaction fees are paid directly by the ADR holders. In
addition, less information is available in the United States about an
unsponsored ADR than about a sponsored ADR.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, purchased OTC options, repurchase
agreements maturing in more than seven days and restricted securities other than
those Mitchell Hutchins has determined are liquid pursuant to guidelines
established by the Fund's board of trustees ("board"). 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 options they write at a maximum price to be calculated by a formula set
forth in the option agreements. 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.
Restricted securities are not registered under the Securities Act of 1933
("1933 Act") and may be sold only in privately negotiated transactions or other
exempted transactions or after a 1933 Act registration statement has become
effective. 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. A large institutional market has
developed for many securities that are not registered under the 1933 Act.
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.
Institutional markets for restricted securities have developed as a result
of Rule 144A, which establishes a safe harbor from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers, providing both readily ascertainable values for restricted securities
and the ability to liquidate an investment to satisfy share redemption orders.
Such markets include automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. An
insufficient number of qualified institutional buyers interested in purchasing
Rule 144A-eligible restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
The board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the
2
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security, (4) the number of other potential purchasers and (5) the nature of the
security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). Mitchell
Hutchins monitors the liquidity of restricted securities in the Fund's portfolio
and reports periodically on such decisions to the board.
MONEY MARKET INSTRUMENTS. Money market instruments in which the Fund may
invest include: U.S. Treasury bills and other obligations issued or guaranteed
as to interest and principal by the U.S. government, its agencies and
instrumentalities; obligations of U.S. banks (including certificates of deposit
and bankers' acceptances); interest-bearing savings deposits in U.S. commercial
and savings banks; investment grade commercial paper and other short-term
corporate obligations; and variable and floating-rate securities and repurchase
agreements. In addition, the Fund may hold cash and may invest in participation
interests in the money market securities mentioned above without limitation.
REPURCHASE AGREEMENTS. A repurchase agreement is a transaction 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 or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Fund maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the repurchase
price on the date agreed to is, in effect, secured by such securities. If the
value of these securities is less than the repurchase price, plus any
agreed-upon additional amount, the other party to the agreement must provide
additional collateral so that at all times the collateral is at least equal to
the repurchase price, plus any agreed-upon additional amount. The difference
between the total amount to be received upon repurchase of the securities and
the price that was paid by the Fund upon acquisition is accrued as interest and
included in its net investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party to
a repurchase agreement becomes insolvent. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins to present minimal credit risks in accordance with guidelines
established by the board. Mitchell Hutchins reviews and monitors the
creditworthiness of those institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's net 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 or upon demand and at a price reflecting a
market rate of interest. Such agreements are considered to be borrowings and may
be entered into only for temporary or emergency purposes. While a reverse
repurchase agreement is outstanding, the Fund's custodian segregates assets to
cover the Fund's obligations under the reverse repurchase agreement. See
"Investment Policies and Restrictions--Segregated Accounts."
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by the Fund might be unable to deliver them when the Fund seeks
to repurchase. If the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, the buyer or a trustee or receiver
may receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
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LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to lend portfolio
securities up to 33 1/3% of its total assets to broker-dealers or institutional
investors that Mitchell Hutchins deems qualified, but only when the borrower
maintains with the Fund's custodian bank acceptable collateral, marked to market
daily, in an amount at least equal to the market value of the securities loaned,
plus accrued interest and dividends. Acceptable collateral is limited to cash,
U.S. government securities and irrevocable letters of credit that meet certain
guidelines established by Mitchell Hutchins. The Fund may reinvest cash
collateral in money market instruments or other short-term liquid investments.
In determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loans at any time. The Fund may pay reasonable fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
money market instruments held as collateral to the borrower or placing broker.
The Fund will receive amounts equivalent to any dividends, interest or other
distributions on the securities loaned. The Fund will regain record ownership of
loaned securities to exercise beneficial rights, such as voting and subscription
rights and rights to dividends, interest or other distributions, when regaining
such rights is considered to be in the Fund's interest.
Pursuant to procedures adopted by the board governing the Fund's securities
lending program, PaineWebber has been retained to serve as lending agent for the
Fund. The board also has authorized the payment of fees (including fees
calculated as a percentage of invested cash collateral) to PaineWebber for these
services. The board periodically reviews all portfolio securities loan
transactions for which PaineWebber acted as lending agent.
SHORT SALES "AGAINST THE BOX". The Fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To 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 establishes a margin account with the broker effecting the
short sale and deposits collateral with the broker. In addition, the Fund
maintains with its custodian, in a segregated account, the securities that could
be used to cover the short sale. The Fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales against the box. The Fund currently does not expect to have obligations
under short sales at any time during the coming year that exceed 5% of its 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.
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.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions to make
future payments to third parties, including reverse repurchase agreements or the
purchase of securities on a when-issued or delayed delivery basis, it will
maintain with an approved custodian in a segregated account cash or liquid
securities, marked to market daily, in an amount at least equal to the Fund's
obligation or commitment under such
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transactions. As described below under "Hedging Strategies Using Derivative
Instruments," segregated accounts may also be required in connection with
certain transactions involving options or futures contracts.
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 or delayed delivery basis, its custodian segregates assets to cover
the amount of the commitment. See "Investment Policies and
Restrictions--Segregated Accounts." The Fund purchases when-issued securities
only with the intention of taking delivery, but may sell the right to acquire
the security prior to delivery if Mitchell Hutchins deems it advantageous to do
so, which may result in capital gain or loss to the Fund.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be
changed for the Fund without the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Fund or (2) 67% or more of the shares of
the Fund 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, later
changes in percentage resulting from a change in values of portfolio securities
or the amount of total assets will not be considered a violation of any of the
following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25%
of the Fund's total assets may be invested without regard to this
limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment
companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage-and asset-backed securities will
not be considered to have been issued by the same issuer by reason of
the securities having the same sponsor, and mortgage- and
asset-backed securities issued by a finance or other special purpose
subsidiary that are not guaranteed by the parent company will be
considered to be issued by a separate issuer from the parent company.
(2) purchase any security if, as a result of that purchase, 25% or more
of the Fund's total assets would be invested in securities of
issuers having their principal business activities in the same
industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to municipal securities.
(3) issue senior securities or borrow money, except as permitted under
the Investment Company Act of 1940 ("1940 Act") and then not in
excess of 33 1/3% of the Fund's total assets (including the amount
of the senior securities issued but reduced by any liabilities not
constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an
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additional 5% of its total assets (not including the amount
borrowed) for temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this
restriction, the acquisition of bonds, debentures, other debt
securities or instruments, or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or similar instruments
will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities.
(6) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to
enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated
in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts
or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions may
be changed by the board without shareholder approval.
The Fund will not:
(1) invest more than 10% of its net assets in illiquid securities.
(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
financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative
instruments.
(3) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative
instruments.
(4) purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and except that this limitation
does not apply to securities received or acquired as dividends,
through offers of exchange, or as a result of reorganization,
consolidation, or merger (and except that a Fund will not purchase
securities of registered open-end investment companies or registered
unit investment trusts in reliance on Sections 12(d)(1)(F) or
12(d)(1)(G) of the 1940 Act).
(5) purchase portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.
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HEDGING STRATEGIES USING DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a
variety of financial instruments ("Derivative Instruments"), including certain
options, futures contracts (sometimes referred to as "futures") and options on
futures contracts, to attempt to hedge the Fund's portfolio. In particular, the
Fund may use the Derivative Instruments described below. The Fund may enter into
transactions using one or more types of Derivative Instruments under which the
full value of its portfolio is at risk. Under normal circumstances, however, the
Fund's use of these instruments will place at risk a much smaller portion of its
assets. The particular Derivative Instruments used by the Fund are described
below.
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 or currency against payment of
the exercise price. A put option is a similar contract that gives its purchaser,
in return for a premium, the right to sell the underlying security or currency
at a specified price during the option term. The writer of the put option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to buy the underlying security or currency at the exercise price.
OPTIONS ON STOCK INDEXES-- A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
STOCK INDEX FUTURES CONTRACTS-- A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE FUTURES CONTRACTS-- An interest rate futures contracts is a
bilateral agreement 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 or
currency, in most cases the contracts are closed out before the settlement date
without the making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS-- Options on futures contracts are similar to
options on securities, 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, 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.
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GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be
broadly categorized as "short hedges" and "long hedges." A short hedge is a
purchase or sale of a Derivative Instrument intended partially or fully to
offset potential declines in the value of one or more investments held in the
Fund's portfolio. Thus, in a short hedge the Fund takes a position in a
Derivative Instrument whose price is expected to move in the opposite direction
of the price of the investment being hedged. For example, the Fund might
purchase a put option on a security to hedge against a potential decline in the
value of that security. If the price of the security declined below the exercise
price of the put, the Fund could exercise the put and thus limit its loss below
the exercise price to the premium paid plus transaction costs. In the
alternative, because the value of the put option can be expected to increase as
the value of the underlying security declines, the Fund might be able to close
out the put option and realize a gain to offset the decline in the value of the
security.
Conversely, a long hedge is a purchase or sale of a Derivative 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 Derivative Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on a
security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, the Fund could exercise the call and thus limit its
acquisition cost to the exercise price plus the premium paid and transaction
costs. Alternatively, the Fund might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.
The Fund may purchase and write (sell) covered straddles on securities or
indices of securities. A long straddle is a combination of a call and a put
option purchased on the same security or on the same futures contract, where the
exercise price of the put is equal to the exercise price of the call. The Fund
might enter into a long straddle when Mitchell Hutchins believes it likely that
the prices of the securities will be more volatile during the term of the option
than the option pricing implies. A short straddle is a combination of a call and
a put written on the same security where the exercise price of the put is equal
to the exercise price of the call. The Fund might enter into a short straddle
when Mitchell Hutchins believes it unlikely that the prices of the securities
will be as volatile during the term of the option as the option pricing implies.
Derivative 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. Derivative 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. Derivative
Instruments on debt securities may be used to hedge either individual securities
or broad fixed income market sectors.
The use of Derivative Instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded
and the Commodity Futures Trading Commission ("CFTC"). In addition, the Fund's
ability to use Derivative Instruments may be limited by tax considerations. See
"Taxes."
In addition to the products, strategies and risks described below and in the
Fund's Prospectus, Mitchell Hutchins expects to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. These new opportunities may become available as Mitchell Hutchins
develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts or other techniques
are developed. Mitchell Hutchins may utilize these opportunities to the extent
that they are consistent with the Fund's investment objective and permitted by
the Fund's investment limitations and applicable regulatory authorities. The
Fund's Prospectus or this Statement of Additional Information
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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 STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative Instruments involves special considerations and risks, as described
below. Risks pertaining to particular Derivative Instruments are described in
the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the ability
of Mitchell Hutchins 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 Mitchell Hutchins is experienced in the
use of Derivative 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 Derivative Instrument and price movements of the
investments being hedged. For example, if the value of a Derivative 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 affecting the markets in which Derivative Instruments
are traded rather than the value of the investments being hedged. The
effectiveness of hedges using Derivative Instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Derivative Instrument. Moreover, if the price of the
Derivative 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 Derivative Instruments involving obligations to third parties
(i.e., Derivative Instruments other than purchased options). If the Fund was
unable to close out its positions in such Derivative 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 Derivative Instrument prior to expiration or maturity depends on
the existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of a contra party to enter into a transaction
closing out the position. Therefore, there is no assurance that any hedging
position in a Derivative Instrument can be closed out at a time and price that
is favorable to the Fund.
COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
other options or futures contracts or (2) cash and liquid securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for
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hedging transactions and will, if the guidelines so require, set aside cash or
liquid 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 Derivative 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 positions or to segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices.
The purchase of call options may serve as a long hedge, and the purchase of put
options may serve 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 may serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security depreciates to
a price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
security at more than its market value. If the covered call option is an OTC
option, the securities or other assets used as cover would be considered
illiquid to the extent described under "Investment Policies and
Restrictions-Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
The Fund may purchase and write both exchange-traded and OTC options.
Exchange markets for options on debt securities 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 counterparty (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 counterparty to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by the
Fund as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into
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OTC options only with contra parties that are expected to be capable of entering
into closing transactions with the Fund, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the contra party, the Fund
might be unable to close out an OTC option position at any time prior to its
expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or call
option written by the Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
The Fund may purchase and write put and call options on stock indices in
much the same manner as the more traditional options discussed above, except the
index options may serve as a hedge against overall fluctuations in the equity
securities market (or market sectors) rather than anticipated increases or
decreases in the value of a particular security.
LIMITATIONS ON THE USE OF OPTIONS. The Fund's use of options is governed by
the following guidelines, which can be changed by its board 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 its total assets.
(2) The aggregate value of securities underlying put options written by the
Fund determined as of the date the put options are written will not exceed 50%
of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock and bond indices and options on futures
contracts) purchased by the Fund that are held at any time will not exceed 20%
of the Fund's net assets.
FUTURES. The Fund may purchase and sell stock index futures contracts and
interest rate futures contracts. The Fund may also purchase put and call
options, and write covered put and call options, on futures contracts in which
it is allowed to purchase and sell. The purchase of futures or call options
thereon can serve as a long hedge, and the sale of futures or the purchase of
put options thereon can serve as a short hedge. Writing covered call options on
futures contracts can serve as a limited short hedge, and writing covered put
options on futures contracts can serve as a limited long hedge, using a strategy
similar to that used for writing covered options on securities or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, obligations of
the U.S. government or obligations fully guaranteed as to principal and interest
by the United States, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when
11
<PAGE>
the Fund purchases or sells a futures contract or writes a call option thereon,
it is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The use of futures
and related options is governed by the following guidelines, which can be
changed by the board without shareholder vote:
(1) If 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 its net assets.
(2) The aggregate premiums paid on all options (including options on
securities and stock or bond indices and options on futures contracts) purchased
by the Fund that are held at any time will not exceed 20% of its 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 its total assets.
12
<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 51 Trustee and President Mrs. Alexander is president, chief executive
officer and a director of Mitchell Hutchins
(since January 1995) and also an executive vice
president and a director of PaineWebber (since
March 1989). Mrs. Alexander is president and a
director or trustee of 31 investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard Q. Armstrong; 63 Trustee Mr. Armstrong is chairman and principal of RQA
78 West Brother Drive Enterprises (management consulting firm) (since
Greenwich, CT 06830 April 1991 and principal occupation since March
1995). Mr. Armstrong was chairman of the board,
chief executive officer and co-owner of
Adirondack Beverages (producer and distributor
of soft drinks and sparkling/still waters)
(October 1993-March 1995). He was a partner of
the New England Consulting Group (management
consulting firm) (December 1992-September
1993). He was managing director of LVMH U.S.
Corporation (U.S. subsidiary of the French
luxury goods conglomerate, Louis Vuitton Moet
Hennessey Corporation) (1987-1991) and chairman
of its wine and spirits subsidiary, Schieffelin
& Somerset Company (1987-1991). Mr. Armstrong
is a director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 71 Trustee and Chairman of Mr. Bewkes is a director of Paine Webber Group
the Board of Trustees Inc. ("PW Group") (holding company of
PaineWebber and Mitchell Hutchins). Prior to
December 1995, he was 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 a
director of Interstate Bakeries Corporation and
NaPro BioTherapeutics, Inc. Mr. Bewkes is a
director or trustee of 31 investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard R. Burt; 51 Trustee Mr. Burt is chairman of IEP Advisors Inc.
1275 Pennsylvania Ave., N.W. (international investments and consulting firm)
Washington, D.C. 20004 (since March 1994) and a partner of McKinsey &
Company (management consulting firm) (since
1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural
commodities, Hollinger International Co.
(publishing), Homestake Mining Corp.,
Powerhouse Technologies Inc. and Wierton Steel
Corp.). He was the chief negotiator in the
Strategic Arms Reduction Talks with the former
Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of Germany
(1985-1989). Mr. Burt is a director or trustee
of 30 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
Mary C. Farrell**; 48 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982. She is a
member of the Financial Women's Association and
Women's Economic Roundtable, and is employed as
a regular panelist on Wall $treet Week with
Louis Rukeyser. She also serves on the Board of
Overseers of New York University's Stern School
of Business. Ms. Farrell is a director or
trustee of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and Professor of Management
Columbia University of the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was president of
New York, New York 10027 the Illinois Institute of Technology. Dean
Feldberg is also a director of Primedia Inc.,
Federated Department Stores, Inc. and Revlon,
Inc. Dean Feldberg is a director or trustee of
30 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
George W. Gowen; 68 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, New York 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a director of
Columbia Real Estate Investments, Inc. Mr.
Gowen is a director or trustee of 30 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
Frederic V. Malek; 61 Trustee Mr. Malek is chairman of Thayer Capital Partners
1455 Pennsylvania Avenue, N.W. (merchant bank). From January 1992 to November
Suite 350 1992, he was campaign manager of Bush-Quayle
Washington, D.C. 20004 '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. (management consulting and
computer-related services), Automatic Data
Processing, Inc., CB Commercial Group, Inc.
(real estate services), Choice Hotels
International (hotel and hotel franchising),
FPL Group, Inc. (electric services), Manor
Care, Inc. (health care), and Northwest
Airlines Inc. Mr. Malek is a director or
trustee of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
Carl W. Schafer; 62 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street Foundation (charitable foundation supporting
#1100 mainly oceanographic exploration and research).
Princeton, NJ 08542 He is a director of Base Ten Systems, Inc.
(software), Roadway Express, Inc. (trucking),
The Guardian Group of Mutual Funds, the
Hording, Loevner Funds, Evans Systems, Inc. (a
motor fuels, convenience store and diversified
company), Electronic Clearing House, Inc.
(financial transactions processing), Frontier
Oil Corporation and Nutraceutix, Inc.
(biotechnology company). Prior to January 1993,
Mr. Schafer was chairman of the Investment
Advisory Committee of the Howard Hughes Medical
Institute. Mr. Schafer is a director or trustee
of 30 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
John J. Lee; 29 Vice President and Mr. Lee is a vice president and manager of the
Assistant Treasurer mutual fund finance division of Mitchell
Hutchins. Prior to September 1997, he was an
audit manager in the financial services
practice of Ernst & Young LLP. Mr. Lee is a
vice president and assistant treasurer of 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Ms. Moran is a vice president and
assistant treasurer of 30 investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dianne E. O'Donnell; 46 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice president and secretary
of 29 investment companies and vice president
and assistant secretary of one investment
company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
Emil Polito; 37 Vice President Mr. Polito is a senior vice president and
director of operations and control for Mitchell
Hutchins. From March 1991 to September 1993 he
was director of the mutual funds sales support
and service center for Mitchell Hutchins and
PaineWebber. Mr. Polito is vice president of 31
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; 47 Vice President Ms. Schonfeld is a managing director and general
counsel of Mitchell Hutchins. Prior to May
1994, she was a partner in the law firm of
Arnold & Porter. Ms. Schonfeld is a vice
president of 30 investment companies and vice
president and secretary of one investment
company for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert; 35 Vice President and Mr. Schubert is a senior vice president and the
Treasurer director of the mutual fund finance department
of Mitchell Hutchins. From August 1992 to
August 1994, he was a vice president of
BlackRock Financial Management L.P. Mr.
Schubert is a vice president and treasurer of
31 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Barney A. Taglialatela; 37 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance department
of Mitchell Hutchins. Prior to February 1995,
he was a manager of the mutual fund finance
division of Kidder Peabody Asset Management,
Inc. Mr. Taglialetela is a vice president and
assistant treasurer of 31 investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ ------------------------- ------------------------------------------------
<S> <C> <C>
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing director and chief
investment officer--equities of Mitchell
Hutchins. Prior to March 1995, he was a vice
president and directed the U.S. funds
management and equity research areas of Chase
Manhattan Private Bank. Mr. Tincher is a vice
president of 13 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell Hutchins.
Prior to May 1995, he was an attorney in
private practice. Mr. Weller is a vice
president and assistant secretary of 30
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Ian W. Williams; 41 Vice President and Mr. Williams is a vice president and a manager
Assistant Treasurer of the mutual fund finance department of
Mitchell Hutchins. Mr. Williams is a vice
president and assistant treasurer of 31
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.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Fund as defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.
The Trust pays board members who are not "interested persons" of the Trust
("disinterested members") $1,000 annually for each series and $150 for each
board meeting and each meeting of a board committee (other than committee
meetings held on the same day as a board meeting). The Trust has only one series
and thus pays each such board member $1,000 annually, plus any additional
amounts due for board or committee meetings. Each chairman of the audit and
contract review committees of individual funds within the PaineWebber fund
complex receives additional compensation aggregating $15,000 annually. All board
members are reimbursed for any expenses incurred in attending meetings. Board
members and officers of the Trust own in the aggregate less than 1% of the
outstanding shares of the Fund. Because PaineWebber and Mitchell Hutchins
perform substantially all the services necessary for the operation of the Trust
and the Fund, the Trust require no employees. No officer, director or employee
of Mitchell Hutchins or PaineWebber presently receives any compensation from the
Trust for acting as a board member or officer.
19
<PAGE>
The table below includes certain information relating to the compensation of
the current board members who held office with the Trust or with other
PaineWebber funds during the years indicated.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE
AGGREGATE TRUST
COMPENSATION AND
FROM THE FUND
NAME OF PERSON, POSITION THE TRUST* COMPLEX**
- -------------------------------------------------------------------------------- ------------- -----------------
<S> <C> <C>
Richard Q. Armstrong, Trustee................................................... $ 2,550 $ 94,885
Richard R. Burt, Trustee........................................................ 2,400 87,085
Meyer Feldberg, Trustee......................................................... 3,911 117,853
George W. Gowen, Trustee........................................................ 2,550 101,567
Frederic V. Malek, Trustee...................................................... 2,550 95,845
Carl W. Schafer, Trustee........................................................ 2,550 94,885
</TABLE>
- ------------
Only independent members of the board are compensated by the Trust and
identified above; board members who are "interested persons," as defined by
the 1940 Act, do not receive compensation.
* Represents fees paid to each board member during the year ended March 31,
1998.
** Represents total compensation paid to each board member during the calendar
year ended December 31, 1997; no fund within the fund complex has a pension
or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1998, the records of the Trust indicate that no shareholder
owned 5% or more of the Fund's shares. The Trust is not aware of any shareholder
who is the beneficial owner of 5% or more of the Fund's shares.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENT
INVESTMENT ADVISORY ARRANGEMENT. Mitchell Hutchins acts as the investment
adviser and administrator to the Fund pursuant to a contract dated March 20,
1992 ("Advisory Contract") with the Trust. 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. For the fiscal years ended
March 31, 1998, March 31, 1997 and March 31, 1996, the Fund paid (or accrued) to
Mitchell Hutchins investment advisory and administration fees of $2,680,122,
$2,684,390 and $2,443,715, respectively.
Prior to August 1, 1997, under a service agreement ("Service Agreement")
with the Trust that was reviewed by the applicable boards annually, PaineWebber
provided certain services to the Fund not otherwise provided by the Funds'
transfer agent. Pursuant to an agreement relating to those services, PaineWebber
earned (or accrued) $28,077, $89,240 and $93,745, during the four months ended
July 31, 1997 and the fiscal years ended March 31, 1997 and March 31, 1996,
respectively. Subsequent to July 31, 1997, PFPC (not the Fund) pays PaineWebber
for certain transfer agency related services that PFPC has delegated to
PaineWebber.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins;
20
<PAGE>
(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 board members 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 board members' services, including
travel expenses; (7) taxes (including any income or franchise taxes) and
governmental fees; (8) costs of any liability, uncollectible items of deposit
and other insurance or fidelity bonds; (9) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against the
Trust or Fund for violation of any law; (10) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent board
members; (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 board members and officers; and (18) costs of mailing, stationery
and communications equipment.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder. The Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the Fund's board 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.
Prior to May 1, 1998, Denver Investment Advisors, LLC served as investment
sub-adviser for the Fund pursuant to a separate contract with Mitchell Hutchins
dated March 21, 1995. Under that contract and a substantially identical prior
contract, for the fiscal years ended March 31, 1998, March 31, 1997 and March
31, 1996, Mitchell Hutchins (not the Fund) paid Denver Investment Advisors LLC
sub-advisory fees in the amount of $1,340,049, $1,342,195 and $1,221,858,
respectively.
NET ASSETS. The following table shows the approximate net assets as of
March 31, 1998, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Domestic (excluding Money Market)................................................. $ 7,303.9
Global............................................................................ 3,699.7
Equity/Balanced................................................................... 6,105.7
Fixed Income (excluding Money Market)............................................. 4,897.9
Taxable Fixed Income............................................................ 3,313.5
Tax-Free Fixed Income........................................................... 1,584.4
Money Market Funds................................................................ 28,988.6
</TABLE>
PERSONAL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins' advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participation in initial public
offerings generally are prohibited. In addition, the code of
21
<PAGE>
ethics puts restrictions on the timing of personal investing in relation to
trades by PaineWebber funds and other Mitchell Hutchins' advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of the Fund's shares under separate distribution contracts with the
Fund (collectively, "Distribution Contracts"). Each Distribution Contract
requires 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 relating to each class of the Fund's shares
(collectively, "Exclusive Dealer Agreements"), PaineWebber and its correspondent
firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by each Trust in the manner prescribed under Rule 12b-1
under the 1940 Act ("Class A Plan," "Class B Plan" and "Class C Plan,"
collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily net
assets of each class of shares. Under the Class B Plan and the Class C Plan, the
Fund pays Mitchell Hutchins a distribution fee, accrued daily and payable
monthly, at the annual rate of 0.75% of the average daily net assets of the
Class B shares and Class C shares. There is no distribution plan with respect to
the Fund's Class Y shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the board members will review,
reports regarding all amounts expended under the Plan and the purposes for which
such expenditures were made, (2) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendment thereto is
approved, by the board, including those board members who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan, acting in person
at a meeting called for that purpose, (3) payments by the Fund under the Plan
shall not be materially increased without the affirmative vote of the holders of
a majority of the outstanding shares of the relevant class and (4) while the
Plan remains in effect, the selection and nomination of board members who are
not "interested persons" of the Fund shall be committed to the discretion of the
board members who are not "interested persons" of the Fund.
In reporting amounts expended under the Plans to the board members, Mitchell
Hutchins allocates expenses attributable to the sale of each class of the Fund's
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 the Fund's
shares will not be used to subsidize the sale of any other class of Fund shares.
22
<PAGE>
The Fund paid (or accrued) the following fees to Mitchell Hutchins under the
Class A, Class B and Class C Plans during the fiscal year ended March 31, 1998:
<TABLE>
<CAPTION>
MID CAP FUND
-------------
<S> <C>
Class A........................................................................ $ 231,601
Class B........................................................................ $ 1,478,236
Class C........................................................................ $ 269,903
</TABLE>
Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Fund during the fiscal year ended March 31, 1998:
<TABLE>
<CAPTION>
MID CAP
FUND
----------
<S> <C>
CLASS A
Marketing and advertising................................................................... $ 67,337
Printing of prospectuses and statement of additional information............................ $ 1,597
Branch network costs allocated and interest expense......................................... $ 359,909
Service fees paid to PaineWebber investment executives...................................... $ 88,008
CLASS B
Marketing and advertising $ 107,737
Amortization of commissions................................................................. $ 409,312
Printing of prospectuses and statement of additional information............................ $ 2,247
Branch network costs allocated and interest expense......................................... $ 599,585
Service fees paid to PaineWebber investment executives...................................... $ 140,433
CLASS C
Marketing and advertising................................................................... $ 19,645
Amortization of commissions................................................................. $ 76,923
Printing of prospectuses and statement of additional information............................ $ 437
Branch network costs allocated and interest expense......................................... $ 105,859
Service fees paid to PaineWebber investment executives...................................... $ 25,640
</TABLE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing the Fund's shares. These
internal costs encompass office rent, salaries and other overhead expenses of
various departments and areas of operations of Mitchell Hutchins. "Branch
network costs allocated and interest expense" consist of an allocated portion of
the expenses of various PaineWebber departments involved in the distribution of
the Fund's shares, including the PaineWebber retail branch system.
In approving the Fund's overall Flexible Pricing-SM- system of distribution,
the board considered several factors, including that implementation of Flexible
Pricing would (1) enable investors to choose the purchasing option best suited
to their individual situation, thereby encouraging current shareholders to make
additional investments in the Fund and attracting new investors and assets to
the Fund to the benefit of the Fund and its shareholders, (2) facilitate
distribution of the Fund's shares and (3) maintain the competitive position of
the Fund in relation to other funds that have implemented or are seeking to
implement similar distribution arrangements.
In approving the Class A Plan, the board 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,
23
<PAGE>
(2) Mitchell Hutchins' belief that the initial sales charge combined with a
service fee would be attractive to PaineWebber investment executives and
correspondent firms, resulting in greater growth of the Fund than might
otherwise be the case, (3) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued growth,
(4) the services provided to the Fund and its shareholders by Mitchell Hutchins,
(5) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan, the board considered all the features of the
distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2) the
advantage to investors in having no initial sales charges deducted from Fund
purchase payments and instead having the entire amount of their purchase
payments immediately invested in Fund shares, (3) Mitchell Hutchins' belief that
the ability of PaineWebber investment executives and correspondent firms to
receive sales commissions when Class B shares are sold and continuing service
fees thereafter while their customers invest their entire purchase payments
immediately in Class B shares would prove attractive to the investment
executives and correspondent firms, resulting in greater growth of the Fund than
might otherwise be the case, (4) the advantages to the shareholders of economies
of scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service and distribution-related expenses and costs. The board members also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and its
investment executives, without the concomitant receipt by Mitchell Hutchins of
initial sales charges, was conditioned upon its expectation of being compensated
under the Class B Plan.
In approving the Class C Plan, the board considered all the features of the
distribution system, including (1) 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, (2) the advantage to investors in being free from contingent deferred
sales charges upon redemption for shares held more than one year and paying for
distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability
of PaineWebber investment executives and correspondent firms to receive sales
compensation for their sales of Class C shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class C shares and generally do not face contingent
deferred sales charges, would prove attractive to the investment executives and
correspondent firms, resulting in greater growth to the Fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued growth,
(5) the services provided to the Fund and its shareholders by Mitchell Hutchins,
(6) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service-
and distribution-related expenses and costs. The board members also recognized
that Mitchell Hutchins' willingness to compensate PaineWebber and its investment
executives without the concomitant receipt by Mitchell Hutchins of initial sales
charges or contingent deferred sales charges upon redemption, was conditioned
upon its expectation of being compensated under the Class C Plan.
With respect to each Plan, the board members 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 board members 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
24
<PAGE>
the Fund, which fees would increase if the Plan were successful and the Fund
attained and maintained significant asset levels.
Under the Distribution Contract for Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell Hutchins
earned the following approximate amounts of sales charges and retained the
following approximate amounts, net of concessions to PaineWebber as exclusive
dealer.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MARCH 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Earned $ 79,480 $ 124,319 $ 112,032
Retained................................ $ 4,826 $ 7,597 $ 6,149
</TABLE>
Mitchell Hutchins earned and retained the following contingent deferred
sales charges paid upon certain redemptions of Class A, Class B and Class C
shares for the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
Class A................................. $ 0
Class B................................. $ 180,119
Class C................................. $ 0
</TABLE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the board, Mitchell Hutchins is
responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
Mitchell Hutchins seeks to obtain the best net results for the Fund, taking into
account such factors as the price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. While Mitchell Hutchins generally seek
reasonably competitive commission rates, payment of the lowest commission is not
necessarily consistent with obtaining the best net results. 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. During the fiscal years ended March 31,
1998, 1997 and 1996, the Fund paid brokerage commissions of $338,468, $330,810
and $329,556, respectively.
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 board has adopted procedures in conformity with Rule 17e-1 under the 1940
Act to ensure that all brokerage commissions paid to PaineWebber are reasonable
and fair. Specific provision in the Advisory Contract authorizes Mitchell
Hutchins and any of its affiliates that is a member of a national securities
exchange to effect portfolio transactions for the Fund on such exchange and to
retain compensation in connection with such transactions. Any such transactions
will be effected and related compensation paid only in accordance with
applicable SEC regulations. For the last three fiscal years, the Fund paid no
brokerage commissions to PaineWebber.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute their
25
<PAGE>
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
board, Mitchell Hutchins may cause the Fund to purchase and sell portfolio
securities through brokers who provide the Fund with research, analysis, advice
and similar services. In return for such services, the Fund may pay to those
brokers a higher commission than may be charged by other brokers, provided that
Mitchell Hutchins determines in good faith that such commission is reasonable in
terms either of that particular transaction or of the overall responsibility of
Mitchell Hutchins to the Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. During the fiscal year ended March 31, 1998, the
Fund directed $189,974,320 in portfolio transactions to brokers chosen because
they provide research and analysis, for which the Fund paid $104,232 in
brokerage commissions.
For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight was
attributed to the services provided by the executing dealer. Moreover, Mitchell
Hutchins will not enter into any explicit soft dollar arrangements relating to
principal transactions and will not receive in principal transactions the types
of services that could be purchased for hard dollars. Mitchell Hutchins may
engage in agency transactions in OTC equity and debt securities in return for
research and execution services. These transactions are entered into only in
compliance with procedures ensuring that the transaction (including commissions)
is at least as favorable as it would have been if effected directly with a
market-maker that did not provide research or execution services. These
procedures include Mitchell Hutchins receiving multiple quotes from dealers
before executing the transactions on an agency basis.
Information and research services furnished by brokers or dealers through
which or with which the Fund effects securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts and, conversely, research
services furnished to Mitchell Hutchins by brokers or dealers in connection with
other funds or accounts that either of them advises may be used in advising the
Fund. Information and research received from brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contract.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or upon
their ability to complete their entire order, in other cases it is believed that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in
which PaineWebber is a member of the underwriting or selling group, except
pursuant to procedures adopted by each board pursuant to Rule 10f-3 under the
1940 Act. Among other things, these procedures require that the spread or
commission paid in connection with such a purchase be reasonable and fair, the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offering and that PaineWebber or
any affiliate thereof not participate in or benefit from the sale to the Fund.
26
<PAGE>
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rates may vary
greatly from year to year, but they will not be a limiting factor when
management deems portfolio changes appropriate. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of securities in the portfolio during the year. The Fund's
portfolio turnover rates for the fiscal years March 31, 1998 and March 31, 1997,
were 64% and 56%, respectively.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE-CLASS A SHARES. Investors and eligible groups
of related Fund investors may combine purchases of Class A shares of the Fund
with concurrent purchases of Class A shares of any other PaineWebber mutual fund
and thus take advantage of the reduced sales charges indicated in the table of
sales charges for Class A shares in the Prospectus. The sales charge payable on
the purchase of Class A shares of the Fund and Class A shares of such other
funds will be at the rates applicable to the total amount of the combined
concurrent purchases.
An "eligible group of related Fund investors" can consist of any combination
of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds
25% or more of the outstanding voting securities of a corporation
will be deemed to control the corporation, and a partnership will be
deemed to be controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual
and/or the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's
spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer
controlling, controlled by or under common control with another
employer is deemed related to that other employer); or
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly
through a newsletter or investment update establishing a relationship
with all of the accounts.
RIGHTS OF ACCUMULATION-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Funds among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount equal
to the then-current net asset value of the
27
<PAGE>
purchaser's combined holdings of Class A Fund shares and Class A shares of any
other PaineWebber mutual fund. The purchaser must provide sufficient information
to permit confirmation of his or her holdings, and the acceptance of the
purchase order is subject to such confirmation. The right of accumulation may be
amended or terminated at any time.
WAIVERS OF SALES CHARGES-CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the individual shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber mutual funds. Shareholders will
receive at least 60 days' notice of any termination or material modification of
the exchange offer, except no notice need be given of an amendment whose only
material effect is to reduce the exchange fee and no notice need be given if,
under extraordinary circumstances, either redemptions are suspended under the
circumstances described below or the Fund temporarily delays or ceases the sales
of its shares because it is unable to invest amounts effectively in accordance
with the Fund's investment objective, policies and restrictions.
If conditions exist that make cash payments undesirable, the Fund reserve
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. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. The Fund 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 Funds during any 90-day period for
one shareholder. This election is irrevocable unless the SEC permits its
withdrawal.
The Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ("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.
AUTOMATIC INVESTMENT PLAN. Participation in the Automatic Investment Plan
enables an investor to use the technique of "dollar cost averaging." When the
investor invests the same dollar amount each month under the Plan, the investor
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,
an investor's average purchase price per share over any given period will be
lower than if the investor 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, because 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.
28
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. An investor's participation in the systematic
withdrawal plan will terminate automatically if the "Initial Account Balance" (a
term that means the value of the Fund account at the time the investor elects to
participate in the systematic withdrawal plan) less aggregate redemptions made
other than pursuant to the systematic withdrawal plan is less than $5,000 for
Class A and Class C shareholders or $20,000 for Class B shareholders. Purchases
of additional shares of the Fund concurrent with withdrawals are ordinarily
disadvantageous to shareholders because of tax liabilities and, for Class A
shares, initial sales charges. On or about the 20th of each month for monthly,
quarterly, semiannual and annual plans, PaineWebber will arrange for redemption
by the Fund of sufficient Fund shares to provide the withdrawal payment
specified by participants in the Funds' systematic withdrawal plan. The payment
generally is mailed approximately five Business Days (defined under "Valuation
of Shares") after the redemption date. Withdrawal payments should not be
considered dividends, but redemption proceeds, with the tax consequences
described under "Dividends & Taxes" in the Prospectus. If periodic withdrawals
continually exceed reinvested dividends and other distributions, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal plan at any time without charge or penalty by written instructions
with signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent").
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days after
written instructions with signatures guaranteed are received by the Transfer
Agent. Shareholders may request the forms needed to establish a systematic
withdrawal plan from their PaineWebber investment executives, correspondent
firms or the Transfer Agent at 1-800-647-1568.
REINSTATEMENT PRIVILEGE-CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Fund without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to the
shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege. Gain or loss on a redemption also will be adjusted for federal income
tax purposes by the amount of any sales charge paid on Class A shares, under the
circumstances and to the extent described in "Dividends & Taxes" in the
Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN-SM-;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT (RMA-REGISTERED TRADEMARK-)
Shares of PaineWebber mutual funds (each a "PW Fund" and, collectively, the
"PW Funds") are available for purchase by customers of PaineWebber and its
correspondent firms who maintain Resource Management Accounts ("RMA
accountholders") through the RMA Resource Accumulation Plan ("Accumulation
Plan"). The Accumulation 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 Accumulation 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.
29
<PAGE>
To participate in the Accumulation 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 Accumulation 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 Accumulation Plan. Information about
mutual fund positions and outstanding instructions under the Plan are noted on
the RMA accountholder's account statement. Instructions under the Accumulation
Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Accumulation Plan, or an RMA accountholder's participation
in the Accumulation 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 Accumulation 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 both low and high 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 Accumulation Plan, an investor must have opened an
RMA account with PaineWebber or one of its correspondent firms. The RMA account
is PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
- monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard-Registered Trademark- 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 six RMA money market funds-RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA New Jersey Municipal Money Fund and RMA New York Municipal
Money Fund. Each money market fund attempts to maintain a stable price per
share of $1.00, although there can be no assurance that it will be able to
do so. Investments in the money market funds are not insured or guaranteed
by the U.S. government;
- check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders
can code their checks to classify expenditures. All canceled checks are
returned each month;
- Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the
30
<PAGE>
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 $100 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
- automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares will automatically convert to Class A shares, based on the
relative net asset values per share of the two classes, as of the close of
business on the first Business Day (as defined under "Valuation of Shares") of
the month in which the sixth anniversary of the initial issuance of the Class B
shares occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean (1) the
date on which the 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. For purposes of conversion 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 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 the continuing
availability of an opinion of counsel to the effect 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 the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares would not convert 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 this
condition for the availability of the conversion feature will not continue to be
met.
VALUATION OF SHARES
The Fund determines the net asset values 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, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities that are listed on U.S. stock exchanges are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in the
OTC market and listed on The Nasdaq Stock Market ("Nasdaq") are valued at the
last trade price on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the board.
31
<PAGE>
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in each Fund's Performance Advertisements are
calculated according to the following formula:
<TABLE>
<S> <C> <C> <C>
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>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B and Class C shares, the applicable contingent deferred sales charge
imposed on a redemption of Class B or Class C shares held for the period is
deducted. All dividends and other distributions are assumed to have been
reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund shares
and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the initial value. Neither
initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return; the inclusion of those charges would reduce
the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
The following table shows performance information for the Class A, Class B,
Class C and Class Y shares of the Fund for the periods indicated. All returns
for periods of more than one year are expressed as an average return.
32
<PAGE>
MID CAP FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended March 31, 1998:
Standardized Return*................................................ 35.17% 35.39% 39.46% NA
Non-Standardized Return............................................. 41.50% 40.39% 40.46% NA
Five years ended March 31, 1998:
Standardized Return*................................................ 16.10% 16.08% 16.30% NA
Non-Standardized Return............................................. 17.18% 16.30% 16.30% NA
Inception** to March 31, 1998:
Standardized Return*................................................ 15.15% 15.07% 17.32% 0.67%
Non-Standardized Return............................................. 16.04% 15.16% 17.32% 0.67%
</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 and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the period.
** The inception date for each class of shares is as follows: Class A and Class
B--April 7, 1992, Class C--July 2, 1992 and Class Y-- March 17, 1998.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or their 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 Dow Jones Industrial
Average, the Nasdaq Composite Index, the Russell 2000 Index, the Wilshire 5000
Index, Standard & Poor's Mid Cap Financials Index, Standard & Poor's Super
Composite Financials Index, Standard & Poor's Financials Index, 30-year and
10-year U.S. Treasury bonds, the Morgan Stanley Capital International World
Index and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The Fund also may refer in such materials to mutual fund
performance rankings and other data, such as comparative asset, expense and fee
levels, published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of the Funds 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.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Fund's investment are
reinvested in additional Fund shares, any future income or capital appreciation
of the Fund would increase the value, not only of the original Fund investment,
but also of the additional Fund shares received through reinvestment. As a
result, the value of the Fund investment would increase more quickly than if
dividends or other distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote Money Markets. In comparing the Fund's
performance to
33
<PAGE>
CD performance, investors should keep in mind that bank CDs are insured in whole
or in part by an agency of the U.S. government and offer fixed principal and
fixed or variable rates of interest, and that bank CD yields may vary depending
on the financial institution offering the CD and prevailing interest rates.
Shares of the Fund are not insured or guaranteed by the U.S. government and
returns and net asset value will fluctuate. The securities held by the Fund
generally have longer maturities than most CDs and may reflect interest rate
fluctuations for longer term securities. An investment in the Fund involves
greater risks than an investment in either a money market fund or a CD.
The Fund may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S.
S&P 500 TR U.S. LT GVT TR U.S. 30 DAY TBILL TR INFLATION
<S> <C> <C> <C> <C>
1925 $10,000 $10,000 $10,000 $10,000
1926 $11,162 $10,777 $10,327 $9,851
1927 $15,347 $11,739 $10,649 $9,646
1928 $22,040 $11,751 $11,028 $9,553
1929 $20,185 $12,153 $11,552 $9,572
1930 $15,159 $12,719 $11,830 $8,994
1931 $8,590 $12,044 $11,957 $8,138
1932 $7,886 $14,073 $12,072 $7,300
1933 $12,144 $14,062 $12,108 $7,337
1934 $11,969 $15,472 $12,128 $7,486
1935 $17,674 $16,243 $12,148 $7,710
1936 $23,669 $17,464 $12,170 $7,803
1937 $15,379 $17,504 $12,207 $8,045
1938 $20,165 $18,473 $12,205 $7,821
1939 $20,082 $19,570 $12,208 $7,784
1940 $18,117 $20,761 $12,208 $7,859
1941 $16,017 $20,955 $12,216 $8,622
1942 $19,275 $21,629 $12,248 $9,423
1943 $24,267 $22,080 $12,291 $9,721
1944 $29,060 $22,702 $12,332 $9,926
1945 $39,649 $25,139 $12,372 $10,149
1946 $36,449 $25,113 $12,416 $11,993
1947 $38,529 $24,454 $12,478 $13,073
1948 $40,649 $25,285 $12,580 $13,426
1949 $48,287 $26,916 $12,718 $13,184
1950 $63,601 $26,932 $12,870 $13,948
1951 $78,875 $25,873 $13,063 $14,767
1952 $93,363 $26,173 $13,279 $14,898
1953 $92,439 $27,125 $13,521 $14,991
1954 $141,084 $29,075 $13,638 $14,916
1955 $185,614 $28,699 $13,852 $14,972
1956 $197,783 $27,096 $14,193 $15,400
1957 $176,457 $29,117 $14,639 $15,866
1958 $252,975 $27,342 $14,864 $16,145
1959 $283,219 $26,725 $15,303 $16,387
1960 $284,549 $30,407 $15,711 $16,629
1961 $361,060 $30,703 $16,045 $16,741
1962 $329,545 $32,818 $16,483 $16,946
1963 $404,685 $33,216 $16,997 $17,225
1964 $471,388 $34,381 $17,598 $17,430
1965 $530,061 $34,625 $18,289 $17,765
1966 $476,737 $35,889 $19,159 $18,361
1967 $591,038 $32,594 $19,966 $18,920
1968 $656,415 $32,509 $21,005 $19,814
1969 $600,590 $30,860 $22,388 $21,024
1970 $624,653 $34,596 $23,849 $22,179
1971 $714,058 $39,173 $24,895 $22,924
1972 $849,559 $41,400 $25,851 $23,706
1973 $725,003 $40,942 $27,643 $25,792
1974 $533,110 $42,725 $29,855 $28,939
1975 $731,443 $46,653 $31,588 $30,969
1976 $905,842 $54,470 $33,193 $32,458
1977 $840,766 $54,095 $34,893 $34,656
1978 $895,922 $53,458 $37,398 $37,784
1979 $1,061,126 $52,799 $41,279 $42,812
1980 $1,405,137 $50,715 $45,917 $48,120
1981 $1,336,161 $51,657 $52,671 $52,421
1982 $1,622,226 $72,507 $58,224 $54,451
1983 $1,987,451 $72,979 $63,347 $56,518
1984 $2,111,991 $84,274 $69,586 $58,753
1985 $2,791,166 $110,371 $74,960 $60,968
1986 $3,306,709 $137,446 $79,580 $61,657
1987 $3,479,675 $133,716 $83,929 $64,376
1988 $4,064,583 $146,650 $89,257 $67,221
1989 $5,344,555 $173,215 $96,728 $70,345
1990 $5,174,990 $183,924 $104,286 $74,640
1991 $6,755,922 $219,420 $110,121 $76,927
1992 $7,274,115 $237,092 $113,982 $79,159
1993 $8,000,785 $280,339 $117,284 $81,334
1994 $8,105,379 $258,556 $121,862 $83,510
1995 $11,139,184 $340,436 $128,681 $85,630
1996 $13,709,459 $337,265 $135,381 $88,475
1997 $18,272,762 $390,736 $142,496 $90,092
</TABLE>
The chart is shown for illustrative purposes only and does not represent the
Fund's performance. These returns consist of income and capital appreciation (or
depreciation) and should not be considered an indication or guarantee of future
investment results. Year-to-year fluctuations in certain markets have been
significant and negative returns have been experienced in certain markets from
time to time. Stocks are measured by the S&P 500, an unmanaged weighted index
comprising 500 widely held common stocks and varying in composition. Unlike
investors in bonds and U.S. Treasury bills, common stock investors do not
receive fixed income payments and are not entitled to repayment of principal.
These differences contribute to investment risk. Returns shown for long-term
government bonds are based on U.S. Treasury bonds with 20-year maturities.
Inflation is measured by the Consumer Price Index. The indexes are unmanaged and
are not available for investment.
- ------------
Source: Stocks, Bonds, Bills and Inflation 1998--Yearbook-TM- Ibbotson Assoc.,
Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1997, stocks beat all
other traditional asset classes. A $10,000 investment in the stocks comprising
the S&P 500 grew to $18,272,762, significantly more than any other investment.
34
<PAGE>
TAXES
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. These requirements include the following: (1) the Fund must derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities, or other income (including gains from options or
futures) derived with respect to its business of investing in securities
("Income Requirement"); (2) 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 (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer.
Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or 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
federal 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.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs") if such stock is a permissible investment. A PFIC is a foreign
corporation--other than a "controlled foreign corporation (I.E., a foreign
corporation which, on any day during its taxable year, more than 50% of the
total voting power of its voting stock or the total value of all of its stock is
owned, directly, indirectly, or constructively, by "U.S. shareholders," defined
as U.S. persons that individually own, directly, indirectly, or constructively,
at least 10% of that voting power) as to which a Fund is a shareholder--that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, the
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain from disposition of
that stock
35
<PAGE>
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), 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 QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss)--which
may have to be distributed by the Fund to satisfy the Distribution Requirement
and avoid imposition of the Excise Tax--even if those earnings and gain are not
distributed to the Fund by the QEF. In most instances it will be very difficult,
if not impossible, to make this election because of certain requirements
thereof.
The Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over the
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income by the
Fund for prior taxable years. The Fund's adjusted basis in each PFIC's stock
subject to the election would be adjusted to reflect the amounts of income
included and deductions taken thereunder the election. Regulations proposed in
1992 provided a similar election with respect to the stock of certain PFIC's.
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 amount, character and timing of recognition of the gains
and losses the Fund realizes in connection therewith. Gains from options and
futures derived by the Fund with respect to its business of investing in
securities, will qualify as permissible income under the Income Requirement.
If the Fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures contract or short sale) with
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis--and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract, or futures contract entered into by the Fund or a related
person with respect to the same or substantially similar property. In addition,
if the appreciated financial position is itself a short sale or such a contract,
acquisition of the underlying property or substantially similar property will be
deemed a constructive sale.
OTHER INFORMATION
Prior to May 1, 1998, the Fund was known as "PaineWebber Capital
Appreciation Fund." Prior to November 10, 1995, the Fund's Class C shares were
known as "Class D" shares.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of the Fund could, under
certain circumstances, be held personally liable for the obligations of the
Trust or 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,
36
<PAGE>
contract, instrument, certificate or undertaking made or issued by the trustees
or by any officers or officer by or on behalf of the Trust or the Fund, the
trustees or any of them in connection with the Trust. The Declaration of Trust
provides for indemnification from the Fund's property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations, a possibility that Mitchell Hutchins believes
is remote and not material. Upon payment of any liability incurred by a
shareholder solely by reason of being or having been a shareholder of the Fund,
the shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The trustees intend to conduct the Fund's operations
in such a way as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific classes of the
Fund's shares to which those expenses are attributable. For example, the Fund's
Class B shares bear higher transfer agency fees per shareholder account than
those borne by Class A, Class C or Class Y 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 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Fund.
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,
1998 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.
37
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as a
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues;
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities;
Aa Bonds which are rated Aa possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future;
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well;
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class;
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small;
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest;
Ca. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings;
C. Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
38
<PAGE>
DESCRIPTION OF S&P CORPORATE DEBT RATINGS
AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to pay interest and repay principal is extremely strong;
AA.An obligation rated AA differs from the highest rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong; A. An obligation rated A is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories, however, the obligor's capacity to meet its
financial commitment on the obligation is still strong;
BBB. An obligation rated BBB exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation;
BB, B, CCC, CC, C, D. Obligations rated BB, B, CCC, CC and C are regarded
as having significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions. BB. An obligation
rated BB is less vulnerable to nonpayment that other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation; B. An obligation
rated B is more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligations. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation; CCC. An obligation rated CCC is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation; CC. An obligation rated CC is currently highly vulnerable to
nonpayment; C. The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on the
obligation are being continued; D. An obligation rated D is in payment default.
The D rating category is used when payments on an obligation are not made on the
date due over the applicable grace period has not expired unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized;
r. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
39
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Investment Policies and Restrictions..... 1
Hedging and Strategies Using Derivative
Instruments............................ 7
Trustees and Officers; Principal Holders
of Securities.......................... 13
Investment Advisory and Distribution
Arrangement............................ 20
Portfolio Transactions................... 25
Reduced Sales Charges, Additional
Exchange and Redemption Information and
Other Services......................... 27
Conversion of Class B Shares............. 31
Valuation of Shares...................... 31
Performance Information.................. 32
Taxes.................................... 35
Other Information........................ 36
Financial Statements..................... 37
Appendix................................. 38
</TABLE>
- -C-1998 PaineWebber Incorporated
PAINEWEBBER
MID CAP FUND
-------------------------------
Statement of Additional Information
July 3, 1998
------------------------------------
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(1) (a) Amended and Restated Declaration of Trust 5/
(b) Amendment effective April 8, 1998 to Declaration of Trust
(filed herewith)
(2) Restated By-Laws 5/
(3) Instruments defining the rights of holders of Registrant's shares
of beneficial interest 1/
(4) Investment Advisory and Administration Contract (filed herewith)
(5) (a) Distribution Contract with respect to Class A Shares (filed
herewith)
(b) Distribution Contract with respect to Class B Shares (filed
herewith)
(c) Distribution Contract with respect to Class C Shares 2/
(d) Distribution Contract with respect to Class Y Shares 3/
(e) Exclusive Dealer Agreement with respect to Class A Shares
(filed herewith)
(f) Exclusive Dealer Agreement with respect to Class B Shares
(filed herewith)
(g) Exclusive Dealer Agreement with respect to Class C Shares 2/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 3/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement 5/
(9) Opinion and consent counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents:
Auditors' Consent (filed herewith)
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent (filed herewith)
(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares (filed herewith)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares (filed herewith)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C, formerly Class D, Shares (filed herewith)
(14) and
(27) Financial Data Schedule (filed herewith)
(15) Plan pursuant to Rule 18f-3 4/
________________
C-1
<PAGE>
1/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Amended and Restated Declaration of Trust, as amended April 8,
1998 and from Articles II, VII and X of Registrant's Restated By-Laws.
2/ Incorporated by reference from Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 33-42160, filed February 7, 1996.
3/ Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 33-42160, filed May 30, 1996.
4/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No.33-42160, filed July 31, 1996.
5/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No.33-42160, filed May 4, 1998.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 25. 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.
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
C-2
<PAGE>
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 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219), and is incorporated herein by reference.
Item 27. 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.
C-3
<PAGE>
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND INC.
2002 TARGET TERM TRUST INC.
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, as filed 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, as filed with
the Securities and Exchange Commission (registration number
801-7163). The foregoing information is hereby incorporated
herein by reference. The information set forth below is
furnished for those directors and officers of Mitchell Hutchins
or PaineWebber who also serve as directors or officers of the
Registrant. Unless otherwise indicated, the principal business
address of each person named is 1285 Avenue of the Americas,
New York, NY 10019.
<TABLE>
<CAPTION>
Position and Offices With
Underwriter or
Name Position With Registrant Exclusive Dealer
- ---- ------------------------ ----------------
<S> <C> <C>
Margo N. Alexander President and Trustee Director, President, Chief
Executive Officer of Mitchell
Hutchins and Executive Vice
President of PaineWebber
Mary C. Farrell Trustee Managing Director, Senior
Investment Strategist and Member of
Investment Policy Committee of
PaineWebber
John J. Lee Vice President and Assistant Vice President of Mitchell Hutchins
Treasurer and a Manager of the Mutual Fund
Finance Department of Mitchell
Hutchins
Ann E. Moran Vice President and Assistant Vice President of Mitchell Hutchins
Treasurer and a Manager of the Mutual Fund
Finance Department of Mitchell
Hutchins
Emil Polito Vice President Senior Vice President and Director
of Operations and Control of
Mitchell Hutchins
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Position and Offices With
Underwriter or
Name Position With Registrant Exclusive Dealer
- ---- ------------------------ ----------------
<S> <C> <C>
Dianne E. O'Donnell Vice President and Secretary Senior Vice President and Deputy
General Counsel of Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director and General
Counsel of Mitchell Hutchins
Paul H. Schubert Vice President and Treasurer First Vice President and Director
of the Mutual Fund Finance Department of
Mitchell Hutchins
Barney A. Taglialatela Vice President and Assistant Vice President and Manager of the
Treasurer Mutual Fund Finance Department of Mitchell Hutchins
Mark Tincher Vice President Managing Director and Chief
Investment Officer -- U.S. Equity
Investments of Mitchell Hutchins
Keith A. Weller Vice President and Assistant First Vice President and Associate
Secretary General Counsel of Mitchell Hutchins
Ian W. Williams Vice President and Assistant Vice President and Manager of the
Treasurer Mutual Fund Finance Department of Mitchell Hutchins
</TABLE>
C) None
Item 28. 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 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
None.
C-5
<PAGE>
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 of effectiveness of this Post-Effective Amendment 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 signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 29th day of June, 1998.
PAINEWEBBER MANAGED ASSETS TRUST
By: /s/ Dianne E. O'Donnell
----------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee June 29, 1998
- -------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrert Bewkes, Jr. Trustee and Chairman June 29, 1998
- -------------------------- of the Board of Trustees
E. Garrert Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee June 29, 1998
- --------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee June 29, 1998
- --------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee June 29, 1998
- --------------------------
/ Mary C. Farrell *
/s/ Meyer Feldberg Trustee June 29, 1998
- --------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee June 29, 1998
- --------------------------
George W. Gowen *
/s/Federic V. Malek Trustee June 29, 1998
- --------------------------
s/Federic V. Malek *
/s/ Carl W. Schafer Trustee June 29, 1998
- --------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and Treasurer June 29, 1998
- -------------------------- (Chief Financial and
Paul H. Schubert Accounting Officer)
<PAGE>
SIGNATURES (CONTINUED)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney
dated May 21, 1996 and incorporated by reference from Post-Effective
Amendment No. 30 to the registration statement of PaineWebber Managed
Municipal Trust, SEC File 2-89016, filed June 27, 1996.
<PAGE>
PAINEWEBBER MANAGED ASSETS TRUST
EXHIBIT INDEX
Exhibit
Number
------
(1) (a) Amended and Restated Declaration of Trust 5/
(b) Amendment effective April 8, 1998 to Declaration of Trust
(filed herewith)
(2) Restated By-Laws 5/
(3) Instruments defining the rights of holders of Registrant's shares
of beneficial interest 1/
(4) Investment Advisory and Administration Contract (filed herewith)
(5) (a) Distribution Contract with respect to Class A Shares (filed
herewith)
(b) Distribution Contract with respect to Class B Shares (filed
herewith)
(c) Distribution Contract with respect to Class C Shares 2/
(d) Distribution Contract with respect to Class Y Shares 3/
(e) Exclusive Dealer Agreement with respect to Class A Shares
(filed herewith)
(f) Exclusive Dealer Agreement with respect to Class B Shares
(filed herewith)
(g) Exclusive Dealer Agreement with respect to Class C Shares 2/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 3/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement 5/
(9) Opinion and consent counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents:
Auditors' Consent (filed herewith)
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent (filed herewith)
(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares (filed herewith)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares (filed herewith)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C, formerly Class D, Shares (filed herewith)
(14) and
(27) Financial Data Schedule (filed herewith)
<PAGE>
(15) Plan pursuant to Rule 18f-3 4/
________________
1/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Amended and Restated Declaration of Trust, as amended April 8,
1998 and from Articles II, VII and X of Registrant's Restated By-Laws.
2/ Incorporated by reference from Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 33-42160, filed February 7, 1996.
3/ Incorporated by reference from Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 33-42160, filed May 30, 1996.
4/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No.33-42160, filed July 31, 1996.
5/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No.33-42160, filed May 4, 1998.
<PAGE>
Exhibit No. 1(b)
PAINEWEBBER MANAGED ASSETS TRUST
CERTIFICATE OF VICE PRESIDENT AND SECRETARY
I, Dianne E. O'Donnell, Vice President and Secretary of PaineWebber Managed
Assets Trust ("Trust"), hereby certify that the board of trustees of the Trust
adopted the following resolutions at a meeting held on April 8, 1998, that the
resolutions became effective on that date and that the Amended and Restated
Schedule A attached to this certificate is a true copy of the Amended and
Restated Schedule A to the Trust's Declaration of Trust that was approved by the
board of trustees at its April 8, 1998 meeting:
RESOLVED, that pursuant to Section 7 of Article XI of the Declaration of
Trust, the name of the Series of the Trust designated as "PaineWebber
Capital Appreciation Fund" be, and hereby is, changed to "PaineWebber Mid
Cap Fund;" and be it further
RESOLVED, that Schedule A of the Declaration of Trust be amended and
restated to reflect the name change of the Series.
Dated: June 4, 1998
By: /s/ Dianne E. O'Donnell
---------------------------------
Dianne E. O'Donnell
Vice President and Secretary
PaineWebber Managed Assets Trust
District of Columbia (ss)
Subscribed and sworn before me this 4th day of June, 1998.
/s/ Loretto E. Gaiser
- --------------------------
Notary Public
<PAGE>
SCHEDULE A
(AS AMENDED AND RESTATED APRIL 8, 1998)
SERIES OF THE TRUST
PaineWebber Mid Cap Fund
CLASSES OF SHARES OF EACH SERIES
An unlimited number of shares of beneficial interest have been established by
the Board as Class A shares, Class B shares, Class C shares and Class Y shares
of each of the above Series. Each of the Class A shares, Class B shares, Class
C shares and Class Y shares of a Series represents interests in the assets of
only that Series and has the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of shares, except as provided in the Trust's
Declaration of Trust and as set forth below with respect to the Class B shares
of each Series:
1. Each Class B share, other than a share purchased through the
reinvestment of a dividend or a distribution with respect to the Class
B share, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares of the
same Series, based on the relative net asset value of each such class
at the time of the calculation of the net asset value of such class of
shares on the date that is the first Business Day (as defined in the
Series' prospectus and/or statement of additional information) of the
month in which the sixth anniversary of the issuance of such Class B
shares occurs (which, for the purpose of calculating the holding
period required for conversion, shall mean (i) the date on which the
issuance of such Class B shares occurred or (ii) for Class B shares
obtained through an exchange, the date on which the issuance of the
Class B shares of an eligible PaineWebber fund occurred, if such
shares were exchanged directly, or through a series of exchanges for
the Series' Class B shares (the "Conversion Date")).
2. Each Class B share purchased through the reinvestment of a dividend or
a distribution with respect to the Class B shares and the dividends
and distributions on such shares shall be segregated in a separate
sub-account on the stock records of the Series for each of the holders
of record thereof. On any Conversion Date, a number of the shares
held in the sub-account of the holder of record of the share or shares
being converted, calculated in accordance with the next following
sentence, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares of the
same Series. The number of shares in the holder's sub-account so
converted shall bear the same relation to the total number of shares
maintained in the sub-account on the Conversion Date as the number of
shares of the holder converted on the Conversion Date pursuant to
Paragraph 2(a) hereof bears to the total number of Class B shares of
the holder on the Conversion Date not
<PAGE>
purchased through the automatic reinvestment of dividends or
distributions with respect to the Class B shares.
3. The number of Class A shares into which a Class B share is converted
pursuant to paragraphs 1 and 2 hereof shall equal the number
(including for this purpose fractions of a share) obtained by dividing
the net asset value per share of the Class B shares for purposes of
sales and redemptions thereof at the time of the calculation of the
net asset value on the Conversion Date by the net asset value per
share of the Class A shares for purposes of sales and redemptions
thereof at the time of the calculation of the net asset value on the
Conversion Date.
4. On the Conversion Date, the Class B shares converted into Class A
shares will cease to accrue dividends and will no longer be
outstanding and the rights of the holders thereof will cease (except
the right to receive declared but unpaid dividends to the Conversion
Date).
For purposes of Paragraph 1 above, the term "eligible PaineWebber fund" includes
any and all mutual funds for which PaineWebber Incorporated or Mitchell Hutchins
Asset Management Inc. serves as investment adviser that offer shares with a
contingent deferred sales charge imposed upon certain redemptions of such shares
and that are exchangeable with the Class B shares of the Series.
2
<PAGE>
Exhibit No. 4
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of March 20, 1992 between PAINEWEBBER MANAGED ASSETS
TRUST, a Massachusetts business trust ("Trust"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended ("1934
Act"), and as an investment adviser under the Investment Advisers Act of 1940,
as amended.
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company, and
intends to offer for public sale distinct series of shares of beneficial
interest ("Series"), each corresponding to a distinct portfolio; and
WHEREAS the Trust desires to retain Mitchell Hutchins as investment adviser
and administrator to furnish certain administrative, investment advisory and
portfolio management services to the Trust and each Series as now exists and as
hereafter may be established, and Mitchell Hutchins in willing to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as
investment adviser and administrator of the Trust and each Series for the period
and on the terms set forth in this Contract. Mitchell Hutchins accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES AS INVESTMENT ADVISER.
(a) Subject to the supervision of the Trust's Board of Trustees ("Board"),
Mitchell Hutchins will provide a continuous investment program for each Series,
including investment research and management with respect to all securities and
investments and cash equivalents in each Series. Mitchell Hutchins will
determine from time to time what securities and other investments will be
purchased, retained or sold by each Series.
(b) Mitchell Hutchins agrees that in placing orders with brokers, it will
attempt to obtain the best net result in terms of price and execution; provided
that, on behalf of any Series, Mitchell Hutchins may, in its discretion, use
brokers who provide the Series with research, analysis, advice and similar
services to execute portfolio transactions on behalf of the Series, and Mitchell
Hutchins may pay to those brokers in return for brokerage and research services
a higher commission that may be charged by other brokers, subject to Mitchell
Hutchins' determining in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of
Mitchell Hutchins to such Series and its other clients and that the total
commissions paid by such Series will be reasonable in relation to the
<PAGE>
benefits to the Series over the long term. In no instance will portfolio
securities be purchased from or sold to Mitchell Hutchins, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder. Whenever Mitchell Hutchins simultaneously
places orders to purchase or sell the same security on behalf of a Series and
one or more other accounts advised by Mitchell Hutchins, such orders will be
allocated as to price and amount among all such accounts in a manner believed to
be equitable to each account. The Trust recognizes that in some cases this
procedure may adversely affect the results obtained for the Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series, and will
furnish the Board with such periodic and special reports as the Board reasonably
may request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Mitchell Hutchins hereby agrees that all records which it maintains for the
Trust are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) Mitchell Hutchins will oversee the computation of the net asset value
and the net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement")
or as more frequently requested by the Board.
(e) The Trust hereby authorizes Mitchell Hutchins and any entity or person
associated with Mitchell Hutchins which is a member of a national securities
exchange to effect any transaction on such exchange for the account of any
Series, which transaction is permitted by Section 11(a) of the 1934 Act and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation by Mitchell Hutchins or any person or entity associated with
Mitchell Hutchins for such transactions in accordance with Rule
11a2-2(T)(a)(2)(iv).
3. DUTIES AS ADMINISTRATOR. Mitchell Hutchins will administer the
affairs of the Trust and each Series subject to the supervision of the Board and
the following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of the
Trust and each Series, including oversight of transfer agency, custodial and
accounting services, except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Trust and
each Series.
(b) Mitchell Hutchins will provide the Trust and each Series with such
corporate, administrative and clerical personnel (including officers of the
Trust) and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the Trust and
each Series.
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement, proxy material, tax
2
<PAGE>
returns and required reports to each Series' shareholders and the Securities and
Exchange Commission and other appropriate federal or state regulatory
authorities.
(d) Mitchell Hutchins will provide the Trust and each Series with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery supplies and
similar items.
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
4. FURTHER DUTIES. In all matter relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Declaration of
Trust, By-Laws and Registration Statement of the Trust and with the instructions
and directions of the Board and will comply with the requirements of the 1940
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
5. DELEGATION OF MITCHELL HUTCHINS' DUTIES AS INVESTMENT ADVISER AND
ADMINISTRATOR. With respect to any or all Series, Mitchell Hutchins may enter
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
a sub-adviser or sub-administrator in which Mitchell Hutchins delegates to such
sub-adviser or sub-administrator any or all its duties specified in paragraph 2
and 3 of this Contract, provided that each Sub-Advisory or Sub-Administration
Contract imposes on the sub-adviser or sub-administrator bound thereby all the
duties and conditions to which Mitchell Hutchins is subject by Paragraph 2, 3
and 4 of this Contract, and further provided that each Sub-Advisory or
Sub-Administration Contract meets all requirements of the 1940 Act and rules
thereunder.
6. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a Trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature.
7. EXPENSES.
(a) During the term of this Contract, each Series will bear all expenses,
not specifically assumed by Mitchell Hutchins, incurred in its operations and
the offering of its shares.
(b) Expenses borne by each Series will include but not be limited to the
following (or each Series' proportionate share of the following): (i) the cost
(including brokerage commissions) of securities purchased or sold by the Series
and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Mitchell Hutchins
3
<PAGE>
under this Contract; (iii) expenses of organizing the Trust and the Series; (iv)
filing fees and expenses relating to the registrations and qualification of the
Series' shares and the Trust under federal and/or securities laws maintaining
such registration and qualifications; (v) fees and salaries payable to the
Trust's Trustees and officers who are not interested persons of the Trust or
Mitchell Hutchins; (vi) all expenses incurred in connection with the Trustees'
services, including travel expenses; (vii) taxes (including any income or
franchise taxes) and governmental fees; (viii) costs of any liability,
uncollectible items of deposit and other insurance and fidelity bonds; (ix) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Trust or Series for violation of any law; (x)
legal, accounting and auditing expenses, including legal fees of special counsel
for those Trustees of the Trust who are not interested persons of the Trust;
(xi) charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders;
(xiv) costs of mailing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials to
existing shareholders; (xv) any extraordinary expenses (including fees and
disbursements of counsel, costs of actions, suits or proceedings to which the
Trust is a party and the expenses the Trust may incur as a result of its legal
obligation to provide indemnification to its officers, Trustees, agents and
shareholders) incurred by the Trust or Series; (xvi) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; (xvii) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xviii) the cost
of investment company literature and other publications provided by the Trust to
its Trustees and officers; and (xix) costs of mailing, stationery and
communications equipment.
(c) The Trust or a Series may pay directly any expenses incurred by it in
its normal operations and, if any such payment is consented to by Mitchell
Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to
this Contract, the Series may reduce the fee payable to Mitchell Hutchins
pursuant to Paragraph 8 thereof by such amount. To the extent that such
deductions exceed the fee payable to Mitchell Hutchins on any monthly payment
date, such excess shall be carried forward and deducted in the same manner from
the fee payable on succeeding monthly payment dates.
(d) Mitchell Hutchins will assume the cost of any compensation for
services provided to the Trust received by the officers of the Trust and by
those Trustees who are interested persons of the Trust.
(e) The payment or assumption by Mitchell Hutchins of any expense of the
Trust or a Series that Mitchell Hutchins is not required by this Contract to pay
or assume shall not obligate Mitchell Hutchins to pay or assume the same or any
similar expense of the Trust or a Series on any subsequent occasion.
8. COMPENSATION.
(a) For the services provided and the expenses assumed pursuant to this
Contract,
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with respect to the PaineWebber Capital Appreciation Fund series, the Trust will
pay to Mitchell Hutchins a fee, computed daily and paid monthly, at an annual
rate of 1.00% of such Series' average daily net assets.
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any Series hereafter established, the Trust will pay to
Mitchell Hutchins from the assets of such Series a fee in an amount to be agreed
upon in a written fee agreement ("Fee Agreement") executed by the Trust on
behalf of such Series and by Mitchell Hutchins. All such Fee Agreements shall
provide that they are subject to all terms and conditions of this Contract.
(c) The fee shall be computed daily and paid monthly to Mitchell Hutchins
on or before the first business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective day to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. LIMITATION OF LIABILITY OF MITCHELL HUTCHINS. Mitchell Hutchins shall
no be liable for any error of judgment or mistake of law or for any loss
suffered by any Series or the Trust in connection with the matters to which this
Contract relates except a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Contract. Any person,
even though also an officer, director, employee, or agent of Mitchell Hutchins,
who may be or become an officer, Trustee, employee or agent of the Trust shall
be deemed, when rendering services to any Series or the Trust or acting with
respect to any business of such Series or the Trust, to be rendering such
service to or acting solely for the Series or the Trust and not as an officer,
director, employee, or agent or one under the control or direction of Mitchell
Hutchins even though paid by it.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
TRUST. The Trustees of the Trust and the shareholders of any Series shall not
be liable for any obligations of any Series or the Trust under this Contract,
and Mitchell Hutchins agrees that, in asserting any rights or claims under
this Contract, it shall look only to the assets and property of the Trust in
settlement of such right or claim, and not to such Trustees or shareholders.
11. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date hereabove written
provided that, with respect to any Series, this Contract shall not take effect
unless it has first been approved (i) by a vote of a majority of those Trustees
of the Trust who are not parties to this Contract or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of that Series' outstanding voting
securities.
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(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
Trust 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 any given Series by vote of a
majority of the outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the outstanding voting
securities of such Series on a sixty days' written notice to Mitchell Hutchins
or by Mitchell Hutchins at any time, without the payment of any penalty, on
sixty days' written notice to the Trust. Termination of this Contract with
respect to any given Series shall in no way affect the continued validity of
this Contract or the performance thereunder with respect to any other Series.
This Contract will automatically terminate in the event of its assignment.
12. 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 this Contract as to any
given Series shall be effective until approved by vote of a majority of such
Series' outstanding voting securities.
13. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act, provided, however,
that Section 10 above will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent that the applicable laws of the
State of Delaware or the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities", "affiliated person",
"interested person", "assignment," "broker", "investment adviser", "national
securities exchange", "net assets", "prospectus", "sale," "sell" and "security"
shall have the same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the Securities and Exchange Commission by any
rule, regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Contract is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
Attest: MITCHELL HUTCHINS ASSET
MANAGEMENT, INC.
/s/ Connie Guglielmino By /s/ S.M. Joenk
- ------------------------- ---------------------------
Assistant Secretary Vice President
Attest: PAINEWEBBER MANAGED ASSETS
TRUST
/s/ Connie Guglielmino By /s/ Dianne E. O'Donnell
- ------------------------- ---------------------------
Assistant Secretary Vice President
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Exhibit No. 5(a)
PAINEWEBBER MANAGED ASSETS TRUST
DISTRIBUTION CONTRACT
CLASS A SHARES
CONTRACT made as of July 7, 1993, between PAINEWEBBER MANAGED ASSETS TRUST,
a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET MANAGEMENT
INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and currently
has one distinct series of shares of beneficial interest ("Series"), which
corresponds to a distinct portfolio and has been designated as the PaineWebber
Capital Appreciation Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
A shares ("Class A Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act for its Class A Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class A Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class A Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class A Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class A Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class A Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class A Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class A Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class A Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class A Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office plus the applicable initial
sales charge, if any, computed as set forth in the Registration Statement. The
Fund shall promptly furnish Mitchell Hutchins with a statement of each
computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class A Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services
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under this Contract; provided, however, that Mitchell Hutchins shall not sell or
knowingly provide such list or lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class A Shares of any or
all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class A Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class A Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class A Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
retain the initial sales charge, if any, on purchases of Class A Shares as set
forth in the Registration Statement. Mitchell Hutchins is authorized to collect
the gross proceeds derived from the sale of the Class A Shares, remit the net
asset value thereof to the fund upon receipt of the proceeds and retain the
initial sales charge, if any.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class A
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
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(d) Mitchell Hutchins may reallow any or all of the initial sales
charges, contingent deferred sales charges, or service fees which it is paid
under this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Class A Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class A Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class A Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class A Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class A Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class A Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register
the Class A Shares under the 1933 Act to the end that there will be available
for sale such number of Class A Shares as Mitchell Hutchins may be expected
to sell. The Fund agrees to file, from time to time, such amendments,
reports, and other documents as may be necessary in order that there will be
no untrue statement of a material fact in the Registration Statement, nor any
omission of a material fact which omission would make the statements therein
misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class A Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class A Shares.
Mitchell Hutchins shall
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furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Class A Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class A Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all costs
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class A Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class A Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class A Shares as
may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is
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<PAGE>
also an officer or trustee of the Fund or who controls the Fund within the
meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent, that
such result would not be against public policy as expressed in the 1933 Act; and
further provided, that in no event shall anything contained herein be so
construed as to protect Mitchell Hutchins against any liability to the Fund or
to the shareholders of any Series to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Contract. The Fund shall not be liable to Mitchell
Hutchins under this indemnity agreement with respect to any claim made against
Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other
such person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon Mitchell
Hutchins or such other person (or after Mitchell Hutchins or the person shall
have received notice of service on any designated agent). However, failure to
notify the Fund of any claim shall not relieve the Fund from any liability which
it may have to Mitchell Hutchins or any person against whom such action is
brought otherwise than on account of this indemnity agreement. The Fund shall
be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity agreement. If the Fund elects to assume the defense of any
such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to indemnified defendants in the suit whose approval shall not be
unreasonably withheld. In the event that the Fund elects to assume the defense
of any suit and retain counsel, the indemnified defendants shall bear the fees
and expenses of any additional counsel retained by them. If the Fund does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of
the commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issuance or sale of any of its Class
A Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event
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<PAGE>
that Mitchell Hutchins elects to assume the defense of any suit and retain
counsel, the defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them. If Mitchell Hutchins does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE FUND.
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF MITCHELL HUTCHINS. Any
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees") cast in person at a meeting called for the
purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class A Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class A Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
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(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act, provided, however, that
Section 10 above will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent that the applicable laws of the
State of Delaware or the Commonwealth of Massachusetts conflict with the
applicable provisions of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER MANAGED ASSETS TRUST
/s/ Jenny Ann Frank By:/s/ Dianne E. O'Donnell
--------------------------- -----------------------------------
Dianne E. O'Donnell
Secretary and Vice President
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Jenny Ann Frank By: /s/ Jack W. Murphy
---------------------------- ----------------------------------
Jack W. Murphy
First Vice President
8
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Exhibit No. 5(b)
PAINEWEBBER MANAGED ASSETS TRUST
DISTRIBUTION CONTRACT
CLASS B SHARES
CONTRACT made as of July 7, 1993, between PAINEWEBBER MANAGED ASSETS TRUST,
a Massachusetts business trust ("Fund") and MITCHELL HUTCHINS ASSET MANAGEMENT
INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and currently
has one distinct series of shares of beneficial interest ("Series"), which
corresponds to a distinct portfolio and has been designated as the PaineWebber
Capital Appreciation Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
B shares ("Class B Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act for its Class B Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class B Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class B Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class B Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class B Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class B Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class B Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class B Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class B Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services
2
<PAGE>
under this Contract; provided, however, that Mitchell Hutchins shall not sell or
knowingly provide such list or lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class B Shares of any or
all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class B Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class B Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class B Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive from the Fund a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Fund with respect to the Class B Shares of
the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class B
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
3
<PAGE>
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Class B Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class B Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class B Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all
information, financial statements, and other papers which Mitchell Hutchins
may reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and
such reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
Mitchell Hutchins may request, and the Fund shall cooperate fully in the
efforts of Mitchell Hutchins to sell and arrange for the sale of the Class B
Shares of the Series and in the performance of Mitchell Hutchins under this
Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register
the Class B Shares under the 1933 Act to the end that there will be available
for sale such number of Class B Shares as Mitchell Hutchins may be expected
to sell. The Fund agrees to file, from time to time, such amendments,
reports, and other documents as may be necessary in order that there will be
no untrue statement of a material fact in the Registration Statement, nor any
omission of a material fact which omission would make the statements therein
misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class B Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class B Shares.
Mitchell Hutchins shall
4
<PAGE>
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Class B Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class B Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all costs
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class B Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class B Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class B Shares as
may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement;
5
<PAGE>
provided, however, that this indemnity agreement shall not inure to the benefit
of any person who is also an officer or trustee of the Fund or who controls the
Fund within the meaning of Section 15 of the 1933 Act, unless a court of
competent jurisdiction shall determine, or it shall have been determined by
controlling precedent, that such result would not be against public policy as
expressed in the 1933 Act; and further provided, that in no event shall anything
contained herein be so construed as to protect Mitchell Hutchins against any
liability to the Fund or to the shareholders of any Series to which Mitchell
Hutchins would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations under this Contract. The Fund shall not
be liable to Mitchell Hutchins under this indemnity agreement with respect to
any claim made against Mitchell Hutchins or any person indemnified unless
Mitchell Hutchins or other such person shall have notified the Fund in writing
of the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the Fund
and satisfactory to indemnified defendants in the suit whose approval shall not
be unreasonably withheld. In the event that the Fund elects to assume the
defense of any suit and retain counsel, the indemnified defendants shall bear
the fees and expenses of any additional counsel retained by them. If the Fund
does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Fund agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class B Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the
6
<PAGE>
defense, the defense shall be conducted by counsel chosen by Mitchell Hutchins
and satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event that Mitchell Hutchins elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If Mitchell
Hutchins does not elect to assume the defense of any suit, it will reimburse the
indemnified defendants in the suit for the reasonable fees and expenses of any
counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE FUND.
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF MITCHELL HUTCHINS. Any
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class B Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class B Shares of such
Series on sixty days' written notice
7
<PAGE>
to Mitchell Hutchins or by Mitchell Hutchins at any time, without the payment of
any penalty, on sixty days' written notice to the Fund or such Series. This
Contract will automatically terminate in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER MANAGED ASSETS TRUST
/s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
------------------------- -------------------------------------
Dianne E. O'Donnell
Secretary and Vice President
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Jenny Ann Frank By: /s/ Jack W. Murphy
------------------------- -------------------------------------
Jack W. Murphy
First Vice President
8
<PAGE>
Exhibit No. 5(e)
EXCLUSIVE DEALER AGREEMENT
CLASS A SHARES OF PAINEWEBBER MANAGED ASSETS TRUST
AGREEMENT made as of July 7, 1993, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Managed Assets Trust ("Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has one distinct series of shares of beneficial
interest ("Series"), which corresponds to a distinct portfolio and has been
designated as the PaineWebber Capital Appreciation Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
A shares ("Class A Shares") and has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class A Shares of the
above-referenced Series and of such other Series as may hereafter be designated
by the Board and have Class A Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class A
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class A Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class A Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
<PAGE>
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class A Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class A Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class A Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class A Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class A Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in
the manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class A Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office, plus the applicable initial sales
charge, if any, as set forth in the Registration Statement. Mitchell Hutchins
shall promptly furnish or arrange for the furnishing to PaineWebber of a
statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class A Shares.
2
<PAGE>
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class A Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class A Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class A Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class A Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class A Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class A Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any
3
<PAGE>
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar or a
dissimilar nature.
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class A Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class A Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class A Shares, PaineWebber shall retain that
portion of the offering price constituting the Discount to Selected Dealers
("Discount"), if any, set forth in the Registration Statement for Class A shares
sold with an initial sales charge under this Agreement. PaineWebber is
authorized to collect the gross proceeds derived from the sale of such Class A
Shares; remit the net asset value thereof to the Fund's Transfer Agent; remit to
Mitchell Hutchins the difference between the offering price of the Class A
Shares and the applicable Discount; and retain said Discount. Whether the
offering price of the Class A Shares includes any initial sales charge out of
which a Discount may be retained by PaineWebber shall be determined in
accordance with the Registration Statement.
(c) Mitchell Hutchins shall pay to PaineWebber such commissions and
other compensation for sales of the Class A Shares by PaineWebber employees,
correspondent firms and other dealers as Mitchell Hutchins and PaineWebber may
from time to time agree upon.
(d) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(e) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class A Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the
4
<PAGE>
distribution of Class A Shares, including, without limitation, certified copies
of any financial statements prepared for the Fund by its independent public
accountant and such reasonable number of copies of the most current prospectus,
statement of additional information, and annual and interim reports of any
Series as PaineWebber may request, and Mitchell Hutchins shall cooperate fully
in the efforts of PaineWebber to sell and arrange for the sale of the Class A
Shares and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class A Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class A Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class A Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class A Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class A Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class A Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class A Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell
Hutchins shall advise the Board of any such agreement as to additional costs and
expenses borne by PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.
5
<PAGE>
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class A Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
6
<PAGE>
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto (all such trustees
collectively being referred to herein as the "Independent Trustees"), cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class A Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Class A Shares of such Series on 30 days' written
notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing
7
<PAGE>
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class A Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
---------------------- -------------------------------
Dianne E. O'Donnell
First Vice President
PAINEWEBBER INCORPORATED
Attest: /s/ Jenny Ann Frank By: /s/ Steven M. Joenk
---------------------- -------------------------------
Steven M. Joenk
Corporate Vice President
8
<PAGE>
Exhibit No. 5(f)
EXCLUSIVE DEALER AGREEMENT
CLASS B SHARES OF PAINEWEBBER MANAGED ASSETS TRUST
AGREEMENT made as of July 7, 1993, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Managed Assets Trust ("Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has one distinct series of shares of beneficial
interest ("Series"), which corresponds to a distinct portfolio and has been
designated as the PaineWebber Capital Appreciation Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
B shares ("Class B Shares") and has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class B Shares of the
above-referenced Series and of such other Series as may hereafter be designated
by the Board and have Class B Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class B
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class B Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class B Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
<PAGE>
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class B Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class B Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class B Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class B Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class B Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in
the manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class B Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class B Shares.
-2-
<PAGE>
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class B Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) Painewebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class B Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class B Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class B Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class B Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class B Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any
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<PAGE>
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar or a
dissimilar nature.
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class B Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class B Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class D shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class B Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class B Shares
and in the performance of PaineWebber under this Agreement.
-4-
<PAGE>
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class B Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class B Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class B Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class B Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class B Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class B Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class B Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell
Hutchins shall advise the Board of any such agreement as to additional costs and
expenses borne by PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any
-5-
<PAGE>
sales or advertising materials with respect to the Class B Shares provided by
Mitchell Hutchins to PaineWebber. However, this indemnity agreement shall not
apply to any claims, demands, liabilities, or expenses that arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished in
writing by PaineWebber to Mitchell Hutchins or the Fund for use in the
Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto (all such trustees
collectively being referred to herein as the "Independent Trustees"), cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class B Shares of such Series.
-6-
<PAGE>
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Class B Shares of such Series on 30 days' written
notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class B Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto
-7-
<PAGE>
and their respective successors. As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested person" and "assignment"
shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
------------------------ ----------------------------
Dianne E. O'Donnell
First Vice President
PAINEWEBBER INCORPORATED
Attest: /s/ Jenny Ann Frank By: /s/ Steven M. Joenk
------------------------ ----------------------------
Steven M. Joenk
Corporate Vice President
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<PAGE>
Exhibit No. 7
CUSTODIAN CONTRACT
Between
PAINEWEBBER MANAGED ASSETS Trust
and
STATE STREET BANK AND TRUST COMPANY
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<S> <C>
1. Employment of Custodian and Property to be Held By It . . . . . . . . . . . . . . . . . . . .2
2. Duties of the Custodian with Respect to Property of the
Fund Held by the Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.1 Holding Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.2 Delivery of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.3 Registration of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Payments for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Availability of Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Collection of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.8 Payment of Fund Monies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.9 Liability for Payment in Advance of Receipt of
Securities Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.10 Payments for Repurchases or Redemptions of Shares of
the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.12 Deposit of Fund Assets in Securities Systems. . . . . . . . . . . . . . . . . . . . 18
2.12A Fund Assets Held in the Custodian's Direct Paper
System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.13 Segregated Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.14 Ownership Certificates for Tax Purposes . . . . . . . . . . . . . . . . . . . . . . 24
2.15 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.16 Communications Relating to Portfolio Securities . . . . . . . . . . . . . . . . . . 25
2.17 Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.18 Actions Permitted without Express Authority . . . . . . . . . . . . . . . . . . . . 27
2.19 Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3. Duties of Custodian with Respect to the Books of Account
and Calculation of net Asset Value and Net Income . . . . . . . . . . . . . . . . . . . . . 29
4. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5. Opinion of Fund's Independent Accountant. . . . . . . . . . . . . . . . . . . . . . . . . . 30
6. Reports to Fund by Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . 31
7. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9. Effective Period, Termination and Amendment . . . . . . . . . . . . . . . . . . . . . . . . 33
10. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
11. Interpretive and Additional Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12. Additional Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
This Contract between PaineWebber Managed Assets Trust, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 1285 Avenue of the Americas, New York, New York, 10019
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts Trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
PaineWebber Capital Appreciation Fund (such series together with all other
series subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 12, being herein referred to as the "Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
<PAGE>
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund pursuant to the provision of the Declaration of Trust.
The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the Fund
representing interests in the Portfolios, ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section 2.17),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, but only in accordance with an applicable
vote by the Board of Trustees of the Fund on behalf of the applicable
Portfolio(s), and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.
-2-
<PAGE>
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, including all
securities owned by such Portfolio, other than (a) securities which are
maintained pursuant to Section 2.12 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, col1ectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State Street Bank
and Trust Company acts as issuing and paying agent ("Direct Paper") which
is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.12A.
2.2 DELIVERY OF SECURITIES.
The Custodian shall release and deliver securities owned by a Portfolio
held by the Custodian or in a Securities System account of the Custodian or
in the Custodian's Direct Paper book entry system account ("Direct Paper
System Account") only upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
-3-
<PAGE>
1) Upon sale of such securities for the account of the account of
the Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed
-4-
<PAGE>
pursuant to Article l; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; PROVIDED that, in any
such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new
-5-
<PAGE>
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
-6-
<PAGE>
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, BUT ONLY against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant, registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract market,
or any similar organization or
-7-
<PAGE>
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate
-8-
<PAGE>
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Portfolio or in
the name of any nominee of the Fund on behalf of the Portfolio or of any
nominee of the Custodian which nominee shall be assigned exclusively to the
Portfolio, UNLESS the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies
having the same investment adviser as the Portfolio, or in the name or
nominee name of any agent appointed pursuant to Section 2.11 or in the name
or nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Portfolio under the
terms of this Contract shall be in "street name" or other good delivery
form.
If, however, the Fund directs the Custodian to maintain securities in other
than a nominee name, the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange
offers.
-9-
<PAGE>
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Portfolio of the Fund, subject only
to draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for a Portfolio may be
deposited by it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every such
bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall on
behalf of each applicable Portfolio be approved by vote of a majority of
the Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 PAYMENTS FOR SHARES. The Custodian shall receive from the distributor for
the Shares or from the Transfer Agent of
-10-
<PAGE>
the Fund and deposit into the account of the appropriate Portfolio such
payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification
to the Fund on behalf of each such Portfolio and the Transfer Agent of any
receipt by it of payments for Shares of such Portfolio.
2.6 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.7 COLLECTION OF INCOME Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of payment
by the issuer, such
-11-
<PAGE>
securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.8 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of securities, options, futures contracts or
options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title
-12-
<PAGE>
to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian referred
to in Section 2.3 hereof or in proper form for transfer; (b) in
the case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.12 hereof;
(c) in the case of a purchase involving the Direct Paper System,
in accordance with the conditions set forth in Section 2.12A; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or through
an entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the receipt
evidencing purchase by the Portfolio of securities
-13-
<PAGE>
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Portfolio or (e) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may
be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from
the Fund as defined in Section 2.17;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
-14-
<PAGE>
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to
-15-
<PAGE>
so pay in advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received
by the Custodian.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND. From such
funds as may be available for the purpose but subject to the limitations of
the Declaration of Trust and any applicable votes of the Board of Trustees
of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire
funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of
a Portfolio, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
-16-
<PAGE>
2.11 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time
direct; PROVIDED, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities and Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are represented
in an account
-17-
<PAGE>
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the Securities
System that such securities have been transferred to he Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such payment and transfer for the account of the
Portfolio. The Custodian shall transfer securities sold for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of the Portfolio. Copies of all advices from the
Securities System of transfers of securities for the account of
the Portfolio shall
-18-
<PAGE>
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of
the Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any
-19-
<PAGE>
loss or damage to the Portfolio resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its
or their employees or from failure of the Custodian or any such
agent to enforce effectively such rights as it may have against
the Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.12A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
-20-
<PAGE>
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of
-21-
<PAGE>
a written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transaction in the Securities System for
the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.13 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio establish
and maintain a segregated account or accounts for and on behalf of each
such Portfolio, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.12 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of
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<PAGE>
the Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
Contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
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<PAGE>
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of each Portfolio held by it and in connection with
transfers of securities.
2.15 PROXIES. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.16 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES Subject to the provision
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from
-24-
<PAGE>
issuers of the securities being held for the Portfolio. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.
2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Article 2
means a writing signed or initialled by one or more person or persons as
the Board of Trustees shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the
-25-
<PAGE>
authorization by the Board of Trustees of the Fund accompanied by a
detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.13.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, PROVIDED that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
-26-
<PAGE>
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Portfolio
except as otherwise directed by the Board of Trustees of the
Fund.
2.19 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or
on behalf of the Fund. The Custodian may receive and accept a certified
copy of a vote of the Board of Trustees of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance with such vote or
(b) of any determination or of any action by the Board of Trustees pursuant
to the Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
-27-
<PAGE>
3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
4. RECORDS
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the
-28-
<PAGE>
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each Portfolio
and held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
5. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-lA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
-29-
<PAGE>
6. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
7. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
8. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence
-30-
<PAGE>
of title thereto received by it or delivered by it pursuant to this Contract and
shall be held harmless in acting upon any notice, request, consent, certificate
or other instrument reasonably believed by it to be genuine and to be signed by
the proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
-31-
<PAGE>
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) for
the benefit of a Portfolio or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of the
applicable Portfolio shall be security therefor and should the Fund fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent necessary
to obtain reimbursement.
9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; PROVIDED, however that the
Custodian shall not with
-32-
<PAGE>
respect to a Portfolio act under Section 2.12 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has reviewed
the use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.12A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
PROVIDED FURTHER, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund on
behalf of one or more of the Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or Trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the
-33-
<PAGE>
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
10. SUCCESSOR CUSTODIAN
If a successor Custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
-34-
<PAGE>
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000 all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor Custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to
-35-
<PAGE>
the duties and obligations of the Custodian shall remain in full force and
effect.
11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
12. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to PaineWebber Capital Appreciation Fund with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to
-36-
<PAGE>
provide such services, such series of Shares shall become a Portfolio hereunder.
13. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
14. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 17th day of March, 1992.
ATTEST PAINEWEBBER MANAGED ASSETS Trust
/s/Dianne E. O'Donnell By /s/ Donald P. Spencer
- ------------------------ ------------------------------
Vice President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ M.E. Bonomo By /s/ K. Donelin
- ------------------------ ------------------------------
Assistant Secretary Vice President
-37-
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
WWW.KL.COM
June 30, 1998
PaineWebber Managed Assets Trust
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion, as counsel to PaineWebber Managed Assets
Trust ("Trust"), as to certain matters regarding the issuance of certain Shares
of the Trust. As used in this letter, the term "Shares" means the Class A,
Class B, Class C and Class Y shares of beneficial interest of the series of the
Trust listed below during the time that Post-Effective Amendment No. 12 to the
Trust's Registration Statement on Form N-1A ("PEA") is effective and has not
been superseded by another post-effective amendment. The series of the Trust is
PaineWebber Mid Cap Fund.
As such counsel, we have examined certified or other copies, believed by us
to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We note, however, that the Trust is an entity of the type commonly known as
a "Massachusetts business trust." Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations of
the Trust. The Declaration of Trust states that creditors of, contractors with
and claimants against the Trust or any series shall look only to the assets of
the Trust for the appropriate series for payment. It also requires that notice
of such disclaimer be given in each note, bond, contract, certificate
undertaking or instrument made or issued by the officers or the trustees of the
Trust on behalf of the Trust. The Declaration of Trust further provides: (1) for
indemnification from the assets of the Trust or the appropriate
<PAGE>
Paine Webber Managed Assets Trust
June 30, 1998
Page 2
series for all loss and expense of any shareholder held personally liable for
the obligations of the Trust or any series by virtue of ownership of shares of
the Trust or such series; and (2) for the Trust or appropriate series to assume
the defense of any claim against the shareholder for any act or obligation of
the Trust or series. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
or series would be unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our report dated
May 13, 1998 on PaineWebber MidCap Fund, in this Registration Statement
(Form N-1A No. 33-42160) of PaineWebber Managed Assets Trust.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
June 29, 1998
<PAGE>
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019
212-713-3510
Donald P. Spencer
First Vice President
Exhibit No. 12
MITCHELL HUTCHINS
March 19, 1992
PaineWebber Managed Assets Trust
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Please be advised that the 5,235.602 Class A shares and 5,000 Class B
shares of beneficial interest of the PaineWebber Capital Appreciation Fund,
which we have today purchased from you in the aggregate amount of $100,000 were
purchased as an investment with no present intention of redeeming or selling
such shares and we do not have any intention of redeeming or selling such
shares.
Very truly yours,
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
By: /s/ Donald P. Spencer
-----------------------------------
Donald P. Spencer, Esq.
First Vice President and
Associate General Counsel
<PAGE>
Exhibit No. 13(a)
PAINEWEBBER MANAGED ASSETS TRUST -- CLASS A SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Municipal Series ("Trust") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and currently offers for public sale a single
distinct series of shares of beneficial interest ("Series"), which corresponds
to a distinct portfolio and has been designated as the PaineWebber Capital
Appreciation Fund; and
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class A shares
established; and
WHEREAS, the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class A shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the Class
A shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
A shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series' Class A shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Any Series may pay a service fee to Mitchell Hutchins at a lesser
rate than the fee specified in paragraph 1A of this Plan, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in paragraph
4 of this Plan.
2. As Distributor of the Class A shares of each Series, Mitchell Hutchins
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Series' Class A shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing
<PAGE>
shareholders; and the preparation, printing and distribution of sales literature
and advertising materials.
3. This Plan shall take effect with respect to the Class A shares of any
Series unless it first has been approved by a vote of the then sole shareholder
of the Class A shares of such Series.
4. This Plan shall not take effect with respect to any Series unless it
first has been approved, together with any related agreements, by votes of a
majority of both (a) the Board and (b) those Trustees of the Trust who are not
"interested persons" of the Trust and have no direct or indirect financial
interest in the operation of this Plan or any agreements related thereto
("Independent Trustees"), cast in person at a meeting (or meetings) called for
the purpose of voting on such approval; and until the Trustees who approve the
Plan's taking effect with respect to such Series' Class A shares have reached
the conclusion required by Rule 12b-1(e) under the 1940 Act.
5. After approval as set forth in paragraphs 3 and 4 prior to the
commencement of operations of such Series, this Plan shall continue in full
force and effect until the first meeting of the Class A shareholders held after
the initial offering of such shares of such Series to the public. If approved
at such meeting by a vote of a majority of the outstanding voting securities of
the Class A shares of such Series, the Plan shall continue in full force and
effect with respect to such Series for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class A shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"service activities," as defined in this Paragraph 6, to the Board in support of
the service fee payable hereunder.
For purposes of this Plan, "service activities" shall mean activities
in connection with the provision by Mitchell Hutchins or PaineWebber of
personal, continuing services to investors in the Class A Shares of the Series;
provided, however, that if the National Association of Securities Dealers, Inc.
("NASD") adopts a definition of "service fee" for purposes of Section 26(d) of
the NASD Rules of Fair Practice that differs from the definition of "service
activities" hereunder, or if the NASD adopts a related definition intended to
define the same concept, the definition of "service activities" in this
Paragraph shall be automatically amended, without further action of the parties,
to conform to such NASD definition. Overhead and other expenses of Mitchell
Hutchins and PaineWebber related to their "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
-2-
<PAGE>
7. This Plan may be terminated with respect to the Class A shares of any
Series at any time by vote of the Board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class A shares of that Series.
8. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof unless such amendment is
approved by a vote of a majority of the outstanding voting securities of each
Series, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in paragraph 5 hereof.
9. The amount of the service fees payable by any Series to Mitchell
Hutchins under paragraph 1A hereof and the Contract is not related directly to
expenses incurred by Mitchell Hutchins on behalf of such Series in serving as
Distributor of the Class A shares, and paragraph 2 hereof and the Contract do
not obligate the Series to reimburse Mitchell Hutchins for such expenses. The
service fees set forth in paragraph 1A hereof will be paid by the Series to
Mitchell Hutchins until either the Plan or the Contract is terminated or not
renewed. If either the Plan or the Contract is terminated or not renewed with
respect to the Class A shares of any Series, any distribution expenses incurred
by Mitchell Hutchins on behalf of the Series in excess of payments of the
service fees specified in paragraph 1A hereof and the Contract which Mitchell
Hutchins has received or accrued through the termination date are the sole
responsibility and liability of Mitchell Hutchins, and are not obligations of
the Series.
10. While this Plan is in effect, the selection and nomination of the
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.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
13. The Trustees of the Trust and the shareholders of each Series shall
not be liable for any obligations of the Trust or any Series under this Plan,
and Mitchell Hutchins or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Series in settlement of such right or claim, and not to such Trustees or
shareholders.
-3-
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution on the
day and year set forth below in New York, New York.
Date: March 20, 1992
ATTEST: PAINEWEBBER MANAGED ASSETS TRUST
/s/ Connie Guglielmino By: /s/ Dianne E. O'Donnell
- ----------------------------- ---------------------------------
-4-
<PAGE>
Exhibit No. 13(b)
PAINEWEBBER MANAGED ASSETS TRUST --.CLASS B SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Managed Assets Trust ("Trust") is registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and currently offers for public sale a single
distinct series of shares of beneficial interest ("Series"), which corresponds
to a distinct portfolio and has been designated as the PaineWebber Capital
Appreciation Fund; and
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class B shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class B shares
established; and
WHEREAS, the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class B shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class B shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, a distribution fee at the rate of 0.75% on an annualized basis of the
average daily net assets of the Series' Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
C. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified in Paragraphs 1A and 1B,
respectively, of this Plan, in either case as agreed upon by the Board and
Mitchell Hutchins and as approved in the manner specified in Paragraph 4 of this
Plan.
<PAGE>
2. As Distributor of the Class B shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Class B shares of the
Series or the servicing and maintenance of shareholder accounts, including, but
not limited to, compensation to employees of Mitchell Hutchins; compensation to
and expenses, including overhead and telephone and other communication expenses,
of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other
selected dealers who engage in or support the distribution of shares or who
service shareholder accounts; the printing of prospectuses, statements of
additional information, and reports for other than existing shareholders; and
the preparation, printing and distribution of sales literature and advertising
materials.
3. This Plan shall not take effect with respect to the Class B shares
of any Series unless it first has been approved by a vote of the then sole
shareholder of the Class B shares of the Series.
4. This Plan shall not take effect with respect to the Class B shares
of any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Series' Class
B shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
take effect and continue in full force and effect until a meeting of the Class B
shareholders held after the initial offering of such shares of such Series to
the public. If approved at such meeting by a vote of a majority of the
outstanding voting securities of the Class B shares of such Series, the Plan
shall continue in full force and effect with respect to the Class B shares of
such Series for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in Paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class B shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts expended for "service activities," as defined in
this Paragraph 6, to the Board in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "service activities."
"Service activities" shall mean activities in connection with the provision by
Mitchell Hutchins or PaineWebber of personal, continuing services to
2
<PAGE>
investors in the Class B shares of the Series; provided, however, that if the
National Association of Securities Dealers, Inc. ("NASD") adopts a definition of
"service fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice
that differs from the definition of "service activities" hereunder, or if the
NASD adopts a related definition intended to define the same concept, the
definition of "service activities" in this Paragraph shall be automatically
amended, without further action of the parties, to conform to such NASD
definition. Overhead and other expenses of Mitchell Hutchins and PaineWebber
related to their "distribution activities" or "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class B shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class B shares of that Series.
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraph 1A hereof or the amount of service
fees provided for in Paragraph 1B hereof unless such amendment is approved in
the manner provided for initial approval in paragraphs 3 and 4 hereof, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in Paragraph 5 hereof.
9. The amount of the distribution and service fees payable by the
Series to Mitchell Hutchins under Paragraphs 1A and 1B hereof and the Contract
is not related directly to expenses incurred by Mitchell Hutchins on behalf of
such Series in serving as Distributor of the Class B shares, and Paragraph 2
hereof and the Contract do not obligate the Series to reimburse Mitchell
Hutchins for such expenses. The distribution and service fees set forth in
Paragraphs 1A and 1B hereof will be paid by the Series to Mitchell Hutchins
until either the Plan or the Contract is terminated or not renewed. If either
the Plan or the Contract is terminated or not renewed with respect to the Class
B shares of any Series, any distribution expenses incurred by Mitchell Hutchins
on behalf of the Class B shares of the Series in excess of payments of the
distribution and service fees specified in Paragraphs 1A and 1B hereof and the
Contract which Mitchell Hutchins has received or accrued through the termination
date are the sole responsibility and liability of Mitchell Hutchins, and are not
obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
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.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
3
<PAGE>
13. The Trustees of the Trust and the shareholders of each Series shall
not be liable for any obligations of the Trust or any Series under this Plan,
and Mitchell Hutchins or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Series in settlement of such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution on
the day and year set forth below in New York, New York.
Date: March 20, 1992
ATTEST: PAINEWEBBER MANAGED ASSETS TRUST
/s/ Connie Guglielmino By: /s/ Dianne E. O'Donnell
- ---------------------------------- ------------------------------
4
<PAGE>
Exhibit No. 13(c)
PAINEWEBBER MANAGED ASSETS TRUST -- CLASS D SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Managed Assets Trust ("Fund") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and currently offers for public sale a single
distinct series of shares of beneficial interest ("Series"), which corresponds
to a distinct portfolio and has been designated as the PaineWebber Capital
Appreciation Fund; and
WHEREAS, the Fund desires to adopt a Plan of Distribution ("Plan") pursuant
to Rule 12b-1 under the 1940 Act with respect to the Class D shares of the
above-referenced Series and of such other Series as may hereafter be designated
by the Fund's board of trustees ("Board") and have Class D shares established;
and
WHEREAS, the Fund has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class D shares
of each such Series;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class
D shares of each Series in accordance with Ru1e 12b-1 under the 1940 Act.
1. A. The following Series of the Fund is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class D shares, distribution fees at the rate (on an annualized basis)
set forth below of the average daily net assets of the Series' Class D shares.
Such fee shall be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
PaineWebber Capital Appreciation Fund 0.75%
B. Any Series hereafter established is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class D Shares, a distribution fee in the amount to be agreed upon in a
written distribution fee addendum to this Plan ("Distribution Fee Addendum")
executed by the Fund on behalf of such Series. All such Distribution Fee Addenda
shall provide that they are subject to all terms and conditions of this Plan.
C. Each series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
D shares, a service fee at the rate of 0.25%, on an annualized basis, of the
average daily net assets of the Series' Class D shares. Such
<PAGE>
fee shall be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
D. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified above, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in Paragraph
4 of this Plan.
2. As Distributor of the Class D shares of each Series, Mitchell Hutchins
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Class D shares of the Series or
the servicing and maintenance of shareholder accounts, including, but not
limited to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials.
3. This Plan shall not take effect with respect to the Class D shares of
any Series unless it first has been approved by a vote of the then sole
shareholder of the Class D shares of the Series.
4. This Plan shall not take effect with respect to the Class D shares of
any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Fund who are not "interested persons" of the Fund and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Series' Class
D shares have reached the conclusion required by Rule 12b-l(e) under the 1940
Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
take effect and continue in full force and effect until a meeting of the Class D
shareholders held after the initial offering of such shares of such Series to
the public. If approved at such meeting by a vote of a majority of the
outstanding voting securities of the Class D shares of such Series, the Plan
shall continue in full force and effect with respect to the Class D shares of
such Series for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in Paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class D shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts
2
<PAGE>
expended for "service activities," as defined in this Paragraph 6, to the Board
in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "services activities."
"Service activities" shall mean activities in connection with the provision by
Mitchell Hutchins or PaineWebber of personal, continuing services to investors
in the Class D shares of the Series; provided, however, that if the National
Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service
fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice that
differs from the definition of "service activities" hereunder, or if the NASD
adopts a related definition intended to define the same concept, the definition
of "service activities" in this Paragraph shall be automatically amended,
without further action of the parties, to conform to such NASD definition.
Overhead and other expenses of Mitchell Hutchins and PaineWebber related to
their "distribution activities" or "service activities," including telephone and
other communications expenses, may be included in the information regarding
amounts expended for such activities.
7. This Plan may be terminated with respect to the Class D shares of any
Series at any time by vote of the board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class D shares of that Series.
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraph lA or lB hereof or the amount of
service fees provided for in Paragraph lC hereof unless such amendment is
approved in the manner provided for initial approval in paragraphs 3 and 4
hereof, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in Paragraph 5 hereof.
9. The amount of the distribution and service fees payable by the Series
to Mitchell Hutchins under Paragraphs 1 hereof and the Contract is not related
directly to expenses incurred by Mitchell Hutchins on behalf of such Series in
serving as Distributor of the Class D shares, and Paragraph 2 hereof and the
Contract do not obligate the Series to reimburse Mitchell Hutchins for such
expenses. The distribution and service fees set forth in Paragraph 1 hereof will
be paid by the Series to Mitchell Hutchins until either the Plan or the Contract
is terminated or not renewed. If either the Plan or the Contract is terminated
or not renewed with respect to the Class D shares of any Series, any
distribution expenses incurred by Mitchell Hutchins on behalf of the Class D
shares of the Series in excess of payments of the distribution and service fees
specified in Paragraphs 1 hereof and the Contract which Mitchell Hutchins has
received or accrued through the termination date are the sole responsibility and
liability of Mitchell Hutchins, and are not obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Fund shall be committed to the
discretion of the Trustees who are not interested persons of the Fund.
3
<PAGE>
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Fund shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to Paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
13. The Trustees of the Fund and the shareholders of each Series shall not
be liable for any obligations of the Fund or any Series under this Plan, and
Mitchell Hutchins or any other person, in asserting any rights or claims under
this Plan, shall look only to the assets and property of the Fund or such Series
in settlement of such right or claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Fund has caused this Plan of Distribution to be
executed on the day and year set forth below in New York, New York.
Date: July 1, 1992
ATTEST: PAINEWEBBER MANAGED ASSETS TRUST
/s/ Teresa M. Boyle By: /s/ Dianne E. O'Donnell
----------------------- ----------------------------
Teresa M. Boyle Dianne E. O'Donnell
Secretary and Vice President
4
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<MULTIPLIER> 1000
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<NET-ASSETS> 101698
<DIVIDEND-INCOME> 188
<INTEREST-INCOME> 163
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<EXPENSES-NET> 1506
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<REALIZED-GAINS-CURRENT> 21675
<APPREC-INCREASE-CURRENT> 13083
<NET-CHANGE-FROM-OPS> 33604
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 19367
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<NUMBER-OF-SHARES-SOLD> 1810
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<SHARES-REINVESTED> 1422
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<GROSS-EXPENSE> 1506
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<PERIOD-START> APR-01-1997
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<INVESTMENTS-AT-VALUE> 152535
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<TOTAL-ASSETS> 158673
<PAYABLE-FOR-SECURITIES> 1569
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<OTHER-ITEMS-LIABILITIES> 14047
<TOTAL-LIABILITIES> 15616
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<PAID-IN-CAPITAL-COMMON> 83069
<SHARES-COMMON-STOCK> 9492
<SHARES-COMMON-PRIOR> 9897
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12270
<OVERDISTRIBUTION-GAINS> 0
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<NET-CHANGE-FROM-OPS> 46118
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<DISTRIBUTIONS-OF-GAINS> 29492
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<NUMBER-OF-SHARES-REDEEMED> 2967
<SHARES-REINVESTED> 2126
<NET-CHANGE-IN-ASSETS> 18312
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<ACCUMULATED-GAINS-PRIOR> 11377
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3271
<AVERAGE-NET-ASSETS> 148135
<PER-SHARE-NAV-BEGIN> 13.59
<PER-SHARE-NII> (0.31)
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<SHARES-COMMON-PRIOR> 1928
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<ACCUMULATED-NET-GAINS> 2386
<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 618
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<NET-CHANGE-FROM-OPS> 8984
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<DISTRIBUTIONS-OF-GAINS> 5842
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<GROSS-EXPENSE> 618
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<PER-SHARE-NII> (0.26)
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 25
<PER-SHARE-NAV-BEGIN> 14.90
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.00
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
