<PAGE>
As filed with the Securities and Exchange Commission on May 4, 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. 11 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 13 [ 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:
ARTHUR J. BROWN, 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)
[ ] On pursuant to Rule 485(b)
[ X ] 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
Part A Item No. and Caption Prospectus Caption
- --------------------------- ------------------
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 Financial Highlights
Performance
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
Statement of Additional Information
Part B Item No.and Caption 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 Trustees and Officers; Principal
of Securities Holders of Securities
16. Investment Advisory and Other Investment Advisory and
Services Distribution Arrangements;
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Conversion of Class B Shares;
Other Information
<PAGE>
Statement of Additional Information
Part B Item No.and Caption Caption
- -------------------------- -----------------------------------
19. Purchase, Redemption and Pricing of Reduced Sales Charges, Additional
Securities Being Offered Exchange and Redemption
Information and Other Services;
Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and
Distribution Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
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--------------------------
PaineWebber Mid Cap Fund
1285 AVENUE OF THE AMERICAS, NEW YORK, NY 10019
PROSPECTUS -- , 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 of this Prospectus for
future reference.
A Statement of Additional Information dated ,
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 in this Prospectus is in
the STOCK FUNDS category.
- - ASSET ALLOCATION FUNDS for 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>
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------------------------
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>
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Prospectus Page 2
<PAGE>
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------------------------
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.
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 $ million in assets.
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.
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 result, 100% of their purchase is immediately
invested. However, Class C shares have higher ongoing expenses
- --------------------------------------------------------------------------------
Prospectus Page 3
<PAGE>
- --------------------------------------------------------------------------------
--------------------------
PaineWebber Mid Cap Fund
THE FUND AT A GLANCE
(Continued)
- --------------------------------------------------------------------------------
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>
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------------------------
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.......................................................
----- ----- ----- -----
Total Operating Expenses.............................................
----- ----- ----- -----
----- ----- ----- -----
</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% is imposed on the net
asset value of the shares at the time of purchase or sale, whichever is
less.
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
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...........................................
Class B (Assuming sale of all shares at end of
period).........................................
Class B (Assuming no sale of shares)..............
Class C (Assuming sale of all shares at end of
period).........................................
Class C (Assuming no sale of shares)..............
Class Y...........................................
</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 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>
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------------------------
PaineWebber Mid Cap Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables provide 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, have been audited by Ernst & Young LLP. 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.... $ 15.61 $ 12.81 $ 11.65 $ 10.53 $ 9.55
-------- -------- -------- -------- -------- ------------
Net investment loss...... (0.17) (0.16) (0.09) (0.09) (0.06)
Net realized and
unrealized gains from
investment
transactions........... 0.32 3.71 1.29 1.21 1.04
-------- -------- -------- -------- -------- ------------
Net increase from
investment operations
from investment
transactions........... 0.15 3.55 1.20 1.12 0.98
-------- -------- -------- -------- -------- ------------
Distributions from net
realized gains from
investments............ (2.32) (0.75) (0.04) -- --
-------- -------- -------- -------- -------- ------------
Net asset value, end of
period................. $ 13.44 $ 15.61 $ 12.81 $ 11.65 $ 10.53
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Total investment return
(1).................... (0.21)% 28.16% 10.36% 10.64% 10.26%
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $ 76,909 $ 76,558 $ 62,673 $ 58,523 $ 48,582
Expenses to average net
assets............... 1.60% 1.58% 1.58% 1.54% 1.72%*
Net investment loss to
average net assets... (1.20)% (1.11)% (0.79)% (0.84)% (0.78)%*
Portfolio turnover..... 56% 57% 42% 60% 51%
Average commission rate
paid (2)............. $ 0.0475 -- -- -- --
</TABLE>
- -----------
+ Commencement of operations.
# Commencement of offering of shares.
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
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>
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--------------------------
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.... $ 15.88 $ 13.11 $ 12.02 $ 10.94 $ 10.00
-------- -------- -------- -------- -------- ------------
Net investment loss...... (0.31) (0.29) (0.20) (0.17) (0.11)
Net realized and
unrealized gains from
investment
transactions........... 0.34 3.81 1.33 1.25 1.05
-------- -------- -------- -------- -------- ------------
Net increase from
investment operations
from investment
transactions........... 0.03 3.52 1.13 1.08 0.94
-------- -------- -------- -------- -------- ------------
Distributions from net
realized gains from
investments............ (2.32) (0.75) (0.04) -- --
-------- -------- -------- -------- -------- ------------
Net asset value, end of
period................. $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Total investment return
(1).................... (0.99)% 27.28% 9.46% 9.87% 9.40%
-------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- ------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $134,495 $157,021 $139,302 $133,828 $105,490
Expenses to average net
assets............... 2.36% 2.34% 2.34% 2.30% 2.49%*
Net investment loss to
average net assets... (1.95)% (1.87)% (1.56)% (1.60)% (1.55)%*
Portfolio turnover..... 56% 57% 42% 60% 51%
Average commission rate
paid (2)............. $ 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.... $ 15.14 $ 12.54 $ 11.50 $ 10.47 $ 8.89
-------- -------- -------- -------- -------- ------------ ------------
Net investment loss...... (0.29) (0.27) (0.19) (0.10) (0.05)
Net realized and
unrealized gains from
investment
transactions........... 0.34 3.62 1.27 1.13 1.63
-------- -------- -------- -------- -------- ------------ ------------
Net increase from
investment operations
from investment
transactions........... 0.05 3.35 1.08 1.03 1.58
-------- -------- -------- -------- -------- ------------ ------------
Distributions from net
realized gains from
investments............ (2.32) (0.75) (0.04) -- --
-------- -------- -------- -------- -------- ------------ ------------
Net asset value, end of
period................. $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47
-------- -------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- -------- ------------ ------------
Total investment return
(1).................... (0.91)% 27.16% 9.45% 9.84% 17.77%
-------- -------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- -------- ------------ ------------
Ratios/Supplemental Data:
Net assets, end of
period (000's)....... $ 24,810 $ 27,601 $ 24,993 $ 29,884 $ 13,806
Expenses to average net
assets............... 2.37% 2.36% 2.35% 2.28% 2.31%*
Net investment loss to
average net assets... (1.97)% (1.89)% (1.57)% (1.58)% (1.53)%*
Portfolio turnover..... 56% 57% 42% 60% 51%
Average commission rate
paid (2)............. $ 0.0475 -- -- -- --
</TABLE>
- -----------
- --------------------------------------------------------------------------------
Prospectus Page 9
<PAGE>
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------------------------
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 public 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 considers selling
equity securities of companies that cease to be "medium-sized."
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.
- --------------------------------------------------------------------------------
Prospectus Page 10
<PAGE>
- --------------------------------------------------------------------------------
------------------------
PaineWebber Mid Cap Fund
PERFORMANCE
- --------------------------------------------------------------------------------
These charts show 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.
Returns would be lower if sales charges were deducted. Past results are not a
guarantee of future results.
Average annual total returns both before and after deducting the maximum sales
charges are shown below in the tables that follow the performance charts.
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
</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 on 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............................................ % % % N/A
After deducting maximum sales charges............................................. % % % N/A
FIVE YEAR
Before deducting maximum sales charge............................................. % % % N/A
After deducting maximum sales charge.............................................. % % % N/A
LIFE OF CLASS
Before deducting maximum sales charges............................................ % % % %
After deducting maximum sales charges............................................. % % % %
</TABLE>
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Prospectus Page 11
<PAGE>
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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
<PAGE>
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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.
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 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.
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Prospectus Page 13
<PAGE>
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PaineWebber Mid Cap Fund
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.
* * *
In addition to these general risks, investments in the Fund are subject to
special risk considerations:
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.
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 objectives 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
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Prospectus Page 14
<PAGE>
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PaineWebber Mid Cap Fund
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 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 has been restructuring about 50% of the
Fund's portfolio of investments since assuming day-to-day portfolio management
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 individuals 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
<PAGE>
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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
not withdraw annually 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.
An investor 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 net asset value of the shares at
the time of purchase or sale, 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 capital gain 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 not withdraw 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 Class Y shares are sold to eligible investors 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 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 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 shares of other PaineWebber mutual funds. For
classes of shares where no initial sales charge is imposed, a contingent
deferred sales charge may apply if the investor sells the shares acquired
through the exchange. Class Y shares are not exchangeable.
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Prospectus Page 19
<PAGE>
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PaineWebber Mid Cap Fund
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 by an eligible institution,
such as a commercial bank, trust company or stock exchange member.
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899.
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.
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HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the share
price for that class as next calculated after the order is received and accepted
(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.
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.
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Prospectus Page 20
<PAGE>
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PaineWebber Mid Cap Fund
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. Investors may not withdraw 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 the 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 shares of the Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be moved
to an account with the Transfer Agent. However, if the other firm has entered
into a selected dealer agreement with Mitchell Hutchins relating to the Fund,
the shareholder may be able to hold Fund shares in an account with the other
firm.
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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 April 30, 1998, Mitchell Hutchins was adviser or sub-adviser
of 31 investment companies with 68 separate portfolios and aggregate assets of
over $ 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.
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Prospectus Page 21
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
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.
Under the Plans, Mitchell Hutchins primarily uses the service fees for Class A,
B and C shares 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 sold.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related distribution contracts for each class of shares
("Distribution Contracts") specify that the Fund must pay service and
distribution fees to Mitchell Hutchins for its activities, not as reimbursement
for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses
exceed the service or distribution fees it receives, the Fund will not be
obligated to pay more than those fees. On the other hand, if Mitchell Hutchins'
expenses are less than such fees, it will retain its full fees and realize a
profit. Expenses in excess of service and distribution fees received or accrued
through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not 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.
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Prospectus Page 22
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
DETERMINING THE SHARES' NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined separately
for each class as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund, plus any cash or other assets, minus all liabilities, by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available, assets
are valued at fair value as determined in good faith by or under the direction
of 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 distributes annually
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any. The Fund may make additional
distributions, if necessary, to avoid a 4% excise tax on certain undistributed
income and capital gain.
Dividends and other distributions paid on each class of shares of the Fund are
calculated at the same time and in the same manner. Dividends on Class 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. Shareholders who wish 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 their investment executives 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 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 and
marginal rate of federal income tax -- generally, 28% for gain recognized on
securities held for more than one year but not more than 18 months and 20% (10%
for taxpayers in the 15% marginal tax bracket) for gain recognized on securities
held for more than 18 months. Pursuant to an Internal Revenue Service notice,
the Fund may divide each net capital gain distribution into a 28% rate gain
distribution and a 20% rate gain distribution (in accordance with the Fund's
holding periods for the securities it sold that generated the distributed gain)
and its shareholders must treat those portions accordingly.
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Prospectus Page 23
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
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.
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 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 same
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.
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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.
SHARES
The shares of the Fund are divided into four classes, designated Class A, Class
B, Class C and Class Y shares. Each class of shares 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 sales
charges and other expenses applicable to the different classes of shares of the
Fund will affect the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on the Fund's 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 Fund may
elect all of the board members of the Fund. The
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Prospectus Page 24
<PAGE>
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------------------------
PaineWebber Mid Cap Fund
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 -- , 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 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 principally in equity securities. The Fund, a diversified series of
PaineWebber Managed Assets Trust ("Trust"), invests 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 , 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 , 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 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. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
other nationally recognized statistical rating organizations ("NRSROs") are
private services that provide ratings of the credit quality of debt obligations.
A description of the ratings assigned to corporate debt obligations by Moody's
and S&P is included in the Appendix to this Statement of Additional Information.
The Fund may use these ratings in determining whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices.
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
<PAGE>
over-the-counter ("OTC") in 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
2
<PAGE>
of dealers that make quotes for the security, (3) the number of dealers that
have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities in the Fund's portfolio and reports periodically on such
decisions to the board.
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. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date 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
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securities, and the Fund's use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision.
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.
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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 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
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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 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.
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(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.
(5) purchase portfolio securities while borrowings in excess of 5% of
its total assets are outstanding.
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.
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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.
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.
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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 will be limited by tax considerations. See
"Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with options, futures contracts and other hedging techniques. These
new opportunities may become available as Mitchell Hutchins develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts or other techniques are
developed. Mitchell Hutchins may utilize these opportunities to the extent that
they are consistent with the Fund's investment objective and permitted by the
Fund's investment limitations and applicable regulatory authorities. The Fund's
Prospectus or Statement of Additional Information will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.
SPECIAL RISKS OF 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 unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which
Derivative Instruments are traded. 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
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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 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 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 or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices.
The purchase of call options serves as a long hedge, and the purchase of put
options serves as a short hedge. Writing covered call options serves as a
limited short hedge, because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security at less than its market value.
Writing covered put options serves as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a price
lower than the exercise price of the put option, it can be expected that the put
option will be exercised and the Fund will be obligated to purchase the security
at more than its market value. The securities or other assets used as cover for
OTC options written by the Fund would be considered illiquid to the extent
described under "Investment Policies and Restrictions-Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an
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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
will enter into OTC option transactions only with counterparties that have a net
worth of at least $20 million.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or call
option written by the Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
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.
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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 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
12
<PAGE>
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 Fund's 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.
13
<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. Mrs.
Alexander is president and a director or
trustee of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Richard Q. Armstrong; 62 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 is also a director of Hi
Lo Automotive, Inc. He 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 29 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
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 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>
Richard R. Burt; 51 Trustee Mr. Burt is chairman of IEP Advisors Inc.
1101 Connecticut Avenue, N.W. (international investments and consulting
Washington, D.C. 20036 firm) (since March 1994) and a partner of
McKinsey & Company (management consulting
firm) (since 1991). He is also a director of
American Publishing Company and
Archer-Daniels-Midland Co. (agricultural
commodities). 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 29 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
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 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of K-III Communications
Corporation, Federated Department Stores,
Inc. and Revlon, Inc. Dean Feldberg is a
director or trustee of 29 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>
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 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Frederic V. Malek; 61 Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Avenue, N.W. Partners (merchant bank). From January 1992
Suite 350 to November 1992, he was campaign manager of
Washington, D.C. 20004 Bush-Quayle '92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest Airlines
Inc.) and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to 1989, he was
employed by the Marriott Corporation
(hotels, restaurants, airline catering and
contract feeding), where he most recently
was an executive vice president and
president of Marriott Hotels and Resorts.
Mr. Malek is also a director of American
Management Systems, Inc. (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), Integra, Inc.
(bio-medical), Manor Care, Inc. (health
care), National Education Corporation and
Northwest Airlines Inc. Mr. Malek is a
director or trustee of 29 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
P.O. Box 1164 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and
research). He is a director of Roadway
Express, Inc. (trucking), The Guardian Group
of Mutual Funds, Evans Systems, Inc. (a
motor fuels, convenience store and
diversified company), Electronic Clearing
House, Inc. (financial transactions
processing), Wainoco 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 29 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Christopher G. Altschul; [ ] Vice President Mr. Altschul is a vice president and a
portfolio manager of Mitchell Hutchins.
Prior to April 1995, he was an analyst at
Chase Manhattan Bank.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a manager
Assistant Treasurer of the mutual fund finance division 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; 45 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 30 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 29 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 first vice president and
Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. From August
1992 to August 1994, he was a vice president
of BlackRock Financial Management Inc. Mr.
Schubert is a vice president and treasurer
of 30 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Antony J. Scott; [ ] Vice President Mr. Scott is a vice president and a
portfolio manager of Mitchell Hutchins.
Prior to May 1996, he was a research analyst
at Morgan Stanley.
Barney A. Taglialatela; 37 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance division
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 30
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 14 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
29 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Ian W. Williams; 40 Vice President and Mr. Williams is a vice president and a
Assistant Treasurer manager of the mutual fund finance division
of Mitchell Hutchins. Mr. Williams is a vice
president and assistant treasurer of 30
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.................................................. $ $
Richard R. Burt, Trustee.......................................................
Meyer Feldberg, Trustee........................................................
George W. Gowen, Trustee.......................................................
Frederic V. Malek, Trustee.....................................................
Carl W. Schafer, Trustee.......................................................
</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 May 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 $ ,
$2,684,390 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) $ , $ and $ , during the four months ended
July 31, 1997 and the fiscal years ended March 31, 1996 and March 31, 1995,
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:
20
<PAGE>
(1) the cost (including brokerage commissions) of securities purchased or sold
by the Fund and any losses incurred in connection therewith; (2) fees payable to
and expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to 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 $ , $1,342,195 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)................................................ $
Global...........................................................................
Equity/Balanced..................................................................
Fixed Income (excluding Money Market)............................................
Taxable Fixed Income...........................................................
Tax-Free Fixed Income..........................................................
Money Market Funds.............................................................
</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
21
<PAGE>
funds and other Mitchell Hutchins' advisory accounts by all Mitchell Hutchins'
directors, officers and employees, establishes procedures for personal investing
and restricts certain transactions. For example, employee accounts generally
must be maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participation in initial public
offerings generally are prohibited. In addition, the code of ethics puts
restrictions on the timing of personal investing in relation to trades by
PaineWebber 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....................................................................... $
Class B....................................................................... $
Class C....................................................................... $
</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................................................................... $
Printing of prospectuses and statement of additional information............................ $
Branch network costs allocated and interest expense......................................... $
Service fees paid to PaineWebber investment executives...................................... $
CLASS B
Marketing and advertising $
Amortization of commissions................................................................. $
Printing of prospectuses and statement of additional information............................ $
Branch network costs allocated and interest expense......................................... $
Service fees paid to PaineWebber investment executives...................................... $
CLASS C
Marketing and advertising................................................................... $
Amortization of commissions................................................................. $
Printing of prospectuses and statement of additional information............................ $
Branch network costs allocated and interest expense......................................... $
Service fees paid to PaineWebber investment executives...................................... $
</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.
23
<PAGE>
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, (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.
24
<PAGE>
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 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 $ $ 124,319 $ 112,032
Retained................................ $ $ 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................................. $
Class B................................. $
Class C................................. $
</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 , $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 provisions in the Advisory Contract authorizes Mitchell
Hutchins and any of its affiliates that is a member of a national
25
<PAGE>
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 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 $ in portfolio transactions indicated below to brokers chosen
because they provide research and analysis, for which the Fund paid $ 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
26
<PAGE>
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.
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 % 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;
27
<PAGE>
(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 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
28
<PAGE>
(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.
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.
29
<PAGE>
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 through the RMA Resource Accumulation
Plan ("Plan") by customers of PaineWebber and its correspondent firms who
maintain Resource Management Accounts ("RMA accountholders"). The Plan allows an
RMA accountholder to continually invest in one or more of the PW Funds at
regular intervals, with payment for shares purchased automatically deducted from
the client's RMA account. The client may elect to invest at monthly or quarterly
intervals and may elect either to invest a fixed dollar amount (minimum $100 per
period) or to purchase a fixed number of shares. A client can elect to have Plan
purchases executed on the first or fifteenth day of the month. Settlement occurs
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether through
the Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
- 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;
30
<PAGE>
- 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 Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
- 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
- expanded account protection to $25 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money
market funds or the PW Funds because those shares are held at the transfer
agent and not through PaineWebber; and
- automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares of
the Fund, based on the relative net asset values per share of the two classes,
as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of such Class B shares occurs. For the purpose of calculating
the holding period required for conversion of Class B shares, the date of
initial issuance shall mean (i) the date on which such Class B shares were
issued, or (ii) for Class B shares obtained through an exchange, or a series of
exchanges, the date on which the original Class B shares were issued. For
purposes of conversion into Class A shares, Class B shares purchased through the
reinvestment of dividends and other distributions paid in respect of Class B
shares will be held in a separate sub-account. Each time any Class B shares in
the shareholder's regular account (other than 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.
31
<PAGE>
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 of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.
VALUATION OF SHARES
The Fund determines the net asset 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.
32
<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
and Class C (formerly Class D) shares of the Fund for the periods indicated. All
returns for periods of more than one year are expressed as an average return.
33
<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*............................................. % % % NA
Non-Standardized Return.......................................... % % % NA
Five years ended March 31, 1998:
Standardized Return*............................................. % % % %
Non-Standardized Return.......................................... % % % %
Inception** to March 31, 1998:
Standardized Return*............................................. % % % %
Non-Standardized Return.......................................... % % % %
</TABLE>
- ------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B 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-- .
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
34
<PAGE>
the averages of yields of CDs of major banks published by Banxquote Money
Markets. In comparing the Fund's performance to CD performance, investors should
keep in mind that bank CDs are insured in whole or in part by an agency of the
U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares of the Fund
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. The securities held by the Fund generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.
The Fund may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
[IBBOTSON ASSOCIATES GRAPH GOES HERE]
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 $ , significantly more than any other investment.
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. For the Fund these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or other income (including gains
from options or futures or forward currency contracts) 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
35
<PAGE>
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
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 of 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
(effective for their taxable years beginning November 1, 1998)--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 (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
36
<PAGE>
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.
Effective for its taxable years beginning April 1, 1998, 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 a PFIC's stock over a Fund's adjusted basis therein as of
the end of that year. Pursuant to the election, a 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 by the Fund for prior taxable years. A Fund's adjusted basis
in each PFIC's stock with respect to which it has made this election will be
adjusted to reflect the amounts of income included and deductions taken under
the election. Regulations proposed in 1992 would have 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 character and timing of recognition of the gains and
losses the Fund realizes in connection therewith 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.
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, 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
37
<PAGE>
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 reports of
independent auditors appearing therein are incorporated herein by this
reference.
38
<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 A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; Baa Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
NOTE: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF 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
39
<PAGE>
exhibits adequate protection parameters, however adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to meet
its financial commitment on the obligation; BB, B, CCC, CC, C. 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 obligation. 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 Standard & Poor's 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.
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.
40
<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.......................... 14
Investment Advisory and Distribution
Arrangements........................... 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...................... 32
Performance Information.................. 33
Taxes.................................... 35
Other Information........................ 37
Financial Statements..................... 38
Appendix................................. 39
</TABLE>
- -C-1998 PaineWebber Incorporated
PAINEWEBBER
MID CAP FUND
-------------------------------
Statement of Additional Information
, 1998
------------------------------------
<PAGE>
PART C. OTHER INFORMATION
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: (to be filed)
Included in Part A of this Registration Statement:
Financial Highlights for one Class A and one Class B share for each of the
five years in the period ended March 31, 1998 and for the period April 7,
1992 (commencement of operations) to March 31, 1993.
Financial Highlights for one Class C share for each of the five years in
the period ended March 31, 1998 and for the period July 2, 1992
(commencement of offering) to March 31, 1993.
Financial Highlights for one Class Y share for the period , 19
(commencement of offering) to March 31, 1998.
Included in part B of this Registration Statement through incorporation by
reference from the Annual Report to Shareholders (previously filed with
the Securities and Exchange Commission through EDGAR on May ___________,
1998, Accession No. )
Portfolio of Investments at March 31, 1998
Statement of Assets and Liabilities at March 31, 1998
Statement of Operations for year ended March 31, 1998
Statement of Changes in Net Assets for the two years in the period ended
March 31, 1998
Notes to Financial Statements
Financial Highlights for one Class A, one Class B and one Class C share
for each of the five years in the period ended March 31, 1998
Financial Highlights for one Class Y share for the period, _____________,
19___ (commencement of offering) to March 31, 1998.
Report of Ernst & Young LLP, Independent Auditors, dated May ___, 1998.
(b) Exhibits:
(1) (a) Amended and Restated Declaration of Trust (filed herewith)
(b) Amendment effective April 8, 1998 to Declaration of Trust (to
be filed)
(2) Restated By-Laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(5) (a) Investment Advisory and Administration Contract (to be filed)
(b) Sub-Advisory Contract (previously filed)
(6) (a) Distribution Contract with respect to Class A Shares (to be
filed)
C-1
<PAGE>
(b) Distribution Contract with respect to Class B Shares (to be
filed)
(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 (to
be filed)
(f) Exclusive Dealer Agreement with respect to Class B Shares (to
be filed)
(g) Exclusive Dealer Agreement with respect to Class C Shares 2/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 3/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 4/
(9) Transfer Agency Agreement (filed herewith)
(10) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant (to be filed)
(11) Other opinions, appraisals, rulings and consents: Auditors' Consent
(to be filed)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (to be filed)
(14) Prototype Retirement Plan - None
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares (to be filed)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares (to be filed)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C Shares (to be filed)
(16) Schedule for Computation of Performance Quotations for Class A,
Class B and Class C Shares (previously filed)
(17) and
(27) Financial Data Schedule (to be filed)
(18) Plan pursuant to Rule 18f-3 5/
- ----------------
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.
C-2
<PAGE>
4/ Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 33-42160, filed April 29, 1992.
5/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No.33-42160, filed July 31, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of April 6, 1998
-------------- ------------------------
Shares of beneficial interest ($.001 par value)
PaineWebber Mid Cap Fund
Class A Shares 12,835
Class B Shares 8,345
Class C Shares 2,190
Class Y Shares 4
Item 27. Indemnification
---------------
Section 3 of Article X of the Declaration of Trust, "Indemnification,"
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article X, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office or
did not act in good faith in the reasonable belief that his action was in the
best interest of the Registrant. Section 3 of Article X also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.
Additionally, "Limitation of Liability" in Article X of the Declaration of
Trust provides that the trustees or officers of the Registrant shall not be
personally liable to any person extending credit to, contracting with or having
a claim against the Registrant or a particular series; and that, provided they
have exercised reasonable care and have acted under the reasonable belief that
their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee or investment adviser of the Registrant.
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.
C-3
<PAGE>
Section 9 of the Investment Advisory and Administration Contract with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides that
Mitchell Hutchins shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any series of the Registrant in connection with
the matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 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.
Denver Investment Advisors, LLC ("DIA") served as sub-adviser until May 1,
1998. Section 8 of the Sub-Advisory Agreement provides that DIA shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Registrant, its shareholders or Mitchell Hutchins in connection with the
matters to which the Contract relates; provided that the Contract shall not be
deemed to indemnify or purport to protect DIA against any liability to the
Registrant, its shareholders or Mitchell Hutchins resulting from DIA's willful
misfeasance, bad faith or gross negligence in the performance of its duties or
from reckless disregard by it of its obligations and duties under the Contract.
Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and Trustees free and harmless of any claims arising out of any alleged
untrue statement or any alleged omission of material fact contained in
information furnished by Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with the Contract. Section 10 of each Distribution
Contract contains provisions similar to Section 10 of the Investment Advisory
and Administration Contract, with respect to Mitchell Hutchins and PaineWebber,
as appropriate.
Section 9 of each Exclusive Dealer Agreement contains provisions similar
to Section 9 of each Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV, as
C-4
<PAGE>
filed with the Securities and Exchange Commission (registration number
801-13219), and is incorporated herein by reference.
DIA, a Colorado limited liability company, is a registered investment
adviser. DIA is primarily engaged in the investment advisory business.
Information as to the officers and directors of DIA is included in its Form ADV,
as filed with the Securities and Exchange Commission (registration Number
801-47933), and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:
ALL-AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD 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.
C-5
<PAGE>
<TABLE>
<CAPTION>
Position and Offices With
Name Position With Registrant Underwriter or 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
Ann E. Moran Vice President and Vice President of Mitchell
Assistant Treasurer Hutchins and a Manager of the
Mutual Fund Finance Division
of Mitchell Hutchins
Emil Polito Vice President Senior Vice President and
Director of Operations and
Control of Mitchell Hutchins
Dianne E. O'Donnell Vice President and Senior Vice President and
Secretary 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 First Vice President and
Assistant Treasurer Director of the Mutual Fund
Finance Division of Mitchell
Hutchins
Barney A. Taglialatela Vice President and Vice President and Manager of
Assistant Treasurer the Mutual Fund Finance
Division 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 First Vice President and
Assistant Secretary Associate General Counsel of
Mitchell Hutchins
Ian W. Williams Vice President and Vice President and Manager of
Assistant Treasurer the Mutual Fund Finance
Division of Mitchell Hutchins
</TABLE>
C) None
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and (d) of Rule
31a-1 under the Investment Company Act of 1940 are maintained in the physical
possession of Mitchell Hutchins, 1285 Avenue of the Americas, New York, New York
10019. All other accounts, books and documents required by Rule 31a-1 are
maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement 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 1st day of May, 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 May 1, 1998
- ---------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee And Chairman May 1, 1998
- ---------------------- Of The Board Of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee May 1, 1998
- ----------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee May 1, 1998
- ----------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee May 1, 1998
- ----------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee May 1, 1998
- ----------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee May 1, 1998
- ----------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee May 1, 1998
- ----------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee May 1, 1998
- ----------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President And May 1, 1998
- ---------------------- Treasurer (Chief Financial
Paul H. Schubert and 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 (filed herewith)
(b) Amendment effective April 8, 1998 to Declaration of Trust (to be
filed)
(2) Restated By-Laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(5) (a) Investment Advisory and Administration Contract (to be filed)
(b) Sub-Advisory Contract (previously filed)
(6) (a) Distribution Contract with respect to Class A Shares (to be
filed)
(b) Distribution Contract with respect to Class B Shares (to be
filed)
(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 (to be
filed)
(f) Exclusive Dealer Agreement with respect to Class B Shares (to be
filed)
(g) Exclusive Dealer Agreement with respect to Class C Shares 2/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 3/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 4/
(9) Transfer Agency Agreement (filed herewith)
(10) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant (to be filed)
(11) Other opinions, appraisals, rulings and consents: Auditors' Consent
(to be filed)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (to be filed)
(14) Prototype Retirement Plan - None
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares (to be filed)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares (to be filed)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C Shares (to be filed)
<PAGE>
(16) Schedule for Computation of Performance Quotations for Class A, Class
B and Class C Shares (previously filed)
(17) and
(27) Financial Data Schedule (to be filed)
(18) Plan pursuant to Rule 18f-3 5/
- -----------------
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. 1 to the
registration statement, SEC File No. 33-42160, filed April 29, 1992.
5/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No.33-42160, filed July 31, 1996.
<PAGE>
Exhibit No. 1(a)
----------------
PAINEWEBBER MANAGED ASSETS TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
DECLARATION OF TRUST, made at Boston, Massachusetts, this 9th day of August,
1991 and amended and restated this 19th day of November, 1997 by the Trustees:
WHEREAS, the Trustees desire to establish a trust fund for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed in trust under
this Declaration of Trust as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
NAME
- ----
Section 1. This Trust shall be known as "PaineWebber Managed Assets
Trust." The resident agent for the Trust in Massachusetts shall be CT
Corporation System, whose address is 2 Oliver Street, Boston, Massachusetts, or
such other person as the Trustees may from time to time designate.
DEFINITIONS
- -----------
Section 2. Wherever used herein, unless otherwise required by the
context or specifically provided:
(a) The Terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Majority Shareholder Vote" (the 67% or 50% requirement of
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them in
the 1940 Act, as amended from time to time;
(b) The "Trust" refers to PaineWebber Managed Assets Trust and
reference to the Trust, when applicable to one or more Series of the Trust,
shall refer to any such Series;
(c) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 3;
(d) "Shareholder" means a record owner of Shares of the Trust;
(e) The "Trustees" means the person who has signed this Declaration of
Trust so long as he shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
of Article IV hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in his capacity or their capacities as trustees
hereunder.
(f) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class thereof
<PAGE>
shall be divided from time to time and includes fractions of shares as well as
whole shares (all of the transferable units of a Series or of a single Class may
be referred to as "Shares" as the context may require);
(g) The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time;
(h) "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article III;
(i) "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the Provisions of Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source
of managed investment in securities.
ARTICLE III
BENEFICIAL INTEREST
SHARES OF BENEFICIAL INTEREST
- -----------------------------
Section 1. The beneficial interest in the Trust shall be divided into
such transferable Shares of one or more separate and distinct Series or Classes
thereof as the Trustees shall from time to time create and establish. The number
of Shares is unlimited and each Share shall have a par value of $0.001 per Share
and upon issuance in accordance with the terms hereof shall be fully paid and
nonassessable. The Trustees shall have full power and authority, in their sole
discretion and without obtaining any prior authorization or vote of the
Shareholders of the Trust, to create and establish (and to change in any manner)
Shares with such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may from time to time determine, to divide or combine
the Shares into a greater or lesser number, to classify or reclassify any
unissued Shares into one or more Series or Classes of Shares, to abolish any one
or more Series or Classes of Shares, and to take such other action with respect
to the Shares as the Trustees may deem desirable. The Trustees, in their
discretion without a vote of the Shareholders, may divide the Shares of any
Series into Classes. In such event, each Class of a Series shall represent
interests in the assets of that Series and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class of a Series may be borne solely by such Class as
shall be determined by the Trustees and a Class of a Series may have exclusive
voting rights with respect to matters affecting only that Class. Without
limiting the authority of the Trustees set forth in this Section 1 to establish
and designate any further Series or Classes, the Trustees have established and
designated the Series of Shares and Classes listed in Schedule A attached hereto
and made a part hereof.
ESTABLISHMENT OF SERIES OR CLASS
- --------------------------------
Section 2. The establishment of any Series or Class in addition to
those set forth in Section 1 shall be effective upon the adoption of a
resolution by a majority of the then Trustees setting forth such establishment
2
<PAGE>
and designation and the relative rights and preferences of the Shares of such
Series or Class thereof. At any time that there are no Shares outstanding of any
particular Series previously established and designated, the Trustees may by a
majority vote abolish that Series and the establishment and designation thereof.
At any time that there are no shares outstanding of any particular Class of a
Series, the Trustees may by a majority vote abolish that Class and the
establishment and designation thereof. The Trustees by a majority vote may
change the name of any Series or Class.
OWNERSHIP OF SHARES
- -------------------
Section 3. The ownership of Shares shall be recorded in the books of
the Trust. The Trustees may make such rules as they consider appropriate for the
transfer of Shares and similar matters. The record books of the Trust shall be
conclusive as to who are the holders of Shares and as to the number of Shares
held from time to time by each Shareholder.
INVESTMENT IN THE TRUST
- -----------------------
Section 4. The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize. Such
investments may be in the form of cash or securities in which the appropriate
Series is authorized to invest, valued as provided in Article IX, Section 3.
After the date of the initial contribution of capital, the number of Shares to
represent the initial contribution may in the Trustees' discretion be considered
as outstanding and the amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust or a Series thereof, as
appropriate. Subsequent investments in the Trust shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received; provided, however, that
the Trustees may, in their sole discretion, (a) impose a sales charge upon
investments in the Trust or Series and (b) issue fractional Shares. The Trustees
shall have the right to refuse to accept investments in the Trust or any Series
at any time without any cause or reason therefor whatsoever.
ASSETS AND LIABILITIES OF SERIES
- --------------------------------
Section 5. All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition, any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as they, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and shall be referred to as assets belonging to that Series.
The assets belonging to a particular Series shall be so recorded upon the books
of the Trust, and shall be held by the Trustees in Trust for the benefit of the
holders of Shares of that Series. The assets belonging to each particular Series
shall be charged with the liabilities of that Series and all expenses, costs,
charges and reserves attributable to that Series except that liabilities and
expenses allocated solely to a particular Class shall be borne by that Class.
Any general liabilities, expenses, costs, charges or reserves of the Trust or
Series which are not readily identifiable as belonging to any particular Series
or Class shall be allocated and charged by the Trustees between or among any one
or more of the Series or Classes in such manner as the Trustees in their sole
discretion deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes. Any
creditor of any Series may look only to the assets of that Series to satisfy
such creditor's debt. See Article X, Section 1.
3
<PAGE>
NO PREEMPTIVE RIGHTS
- --------------------
Section 6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust or
the Trustees.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
- -----------------------------------------------------
Section 7. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust. Every Shareholder by virtue of
having become a Shareholder shall be held expressly to have assented and agreed
to the terms of this Declaration of Trust and to have become a party hereto. The
death of a Shareholder during the continuance of the Trust shall not operate to
terminate the Trust nor entitle the representative of any deceased Shareholder
to an accounting or to take any action in court or elsewhere against the Trust
or the Trustees, but only to the rights of said decedent under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay by way of
subscription for any Shares or otherwise.
ARTICLE IV
----------
THE TRUSTEES
------------
MANAGEMENT OF THE TRUST
- -----------------------
Section 1. The business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. A Trustee shall not be required to be a Shareholder of
the Trust.
ELECTION OF TRUSTEES AND APPOINTMENT OF INITIAL TRUSTEE
- -------------------------------------------------------
Section 2. On a date fixed by the Trustees, the Shareholders shall
elect the Trustees. Until such election, the Trustees shall be the initial
Trustee and such other persons as may be hereafter appointed pursuant to Section
4 of this Article IV. The initial Trustee shall be Mary Joan Floyd.
TERM OF OFFICE OF TRUSTEES
- --------------------------
Section 3. The Trustees shall hold office during the lifetime of this
Trust, and until its termination as hereinafter provided; except (a) that any
Trustee may resign his trust by written instrument signed by him and delivered
to the other Trustees or to any officer of the Trust, which shall take effect
upon such delivery or upon such later date as is specified therein; (b) that any
Trustee may be removed with or without cause at any time by written instrument,
signed by at least two-thirds of the number of Trustees prior to such removal,
specifying the date when such removal shall become effective; (c) that any
Trustee who requests in writing to be retired or who has become incapacitated by
illness or injury may be retired by written instrument signed by a majority of
other Trustees, specifying the date of his retirement; and (d) that any Trustee
may be removed at any Special Meeting of the Trust by a vote of at least
two-thirds of the outstanding Shares.
4
<PAGE>
RESIGNATION AND APPOINTMENT OF TRUSTEES
- ---------------------------------------
Section 4. In case of the declination, death, resignation, retirement,
removal, incapacity, or inability of any of the Trustees, or in case a vacancy
shall exist by reason of an increase in number or for any other reason, the
remaining Trustees shall fill such vacancy by appointment of such other person
as they in their discretion shall see fit consistent with the limitations under
the 1940 Act. Such appointment shall be evidenced by a written instrument signed
by a majority of the Trustees in office or by a recording in the records of the
Trust, whereupon the appointment shall take effect. An appointment of a Trustee
may be made by the Trustees then in office as aforesaid in anticipation of a
vacancy to occur by reason of retirement, resignation or increase in number of
Trustees effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement, resignation or
increase in number of Trustees. As soon as any Trustee so appointed shall have
accepted this trust, the trust estate shall vest in the new Trustee or Trustees,
together with the continuing Trustees, without any further act or conveyance,
and he shall be deemed a Trustee hereunder. The power of appointment is subject
to the provisions of Section 16(a) of the 1940 Act.
TEMPORARY ABSENCE OF TRUSTEE
- ----------------------------
Section 5. Any Trustee may, by power of attorney, delegate his power
for a period not exceeding six months at any one time to any other Trustee or
Trustees, provided that in no case shall less than two Trustees personally
exercise the other powers hereunder except as herein otherwise expressly
provided.
NUMBER OF TRUSTEES
- ------------------
Section 6. The number of Trustees shall initially be one (1) and
thereafter shall be such number as shall be fixed from time to time by a written
instrument signed by a majority of the Trustees (or by an officer of the Trust
pursuant to a vote of the majority of such Trustees); provided, however, that
the number of Trustees serving hereunder at any time shall in no event be less
than one (1) nor more than fifteen (15).
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled, or while any Trustee is absent from his state of domicile
(unless said Trustee has made arrangements to be informed about, and to
participate in, the affairs of the Trust during such absence), or is physically
or mentally incapacitated by reason of disease or otherwise, the other Trustees
shall have all the powers hereunder and the certificate of the other Trustees of
such vacancy, absence or incapacity, shall be conclusive.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
- -----------------------------------------------
Section 7. The death, declination, resignation, retirement, removal,
incapacity, or inability of the Trustee, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust.
OWNERSHIP OF ASSETS OF THE TRUST
- --------------------------------
Section 8. The assets of the Trust shall be held separate and apart
from any assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets of the
Trust shall at all times be considered as vested in the Trustees.
5
<PAGE>
ARTICLE V
----------
POWERS OF THE TRUSTEES
----------------------
POWERS
- ------
Section 1. The Trustees in all instances shall act as principals, and
are and shall be free from the control of the Shareholders. The Trustees shall
have full power and authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The Trustees shall
not in any way be bound or limited by present or future laws or customs in
regard to trust investments, but shall have full authority and power to make any
and all investments which they, in their uncontrolled discretion, shall deem
proper to accomplish the purposes of this Trust. Subject to any applicable
limitation in this Declaration of Trust or the By-Laws of the Trust, the
Trustees shall have power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the assets of the Trust; to purchase and sell (or write) options
on securities, currencies, indices, futures contracts and other financial
instruments and enter into closing transactions in connection therewith; to
enter into all types of commodities contracts, including without limitation the
purchase and sale of futures contracts and forward contracts on securities,
indices, currencies, and other financial instruments; to engage in forward
commitment, "when issued" and delayed delivery transactions; to enter into
repurchase agreements and reverse repurchase agreements; and to employ all kinds
of hedging techniques and investment management strategies.
(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve the right to the Shareholders.
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate.
(d) To employ as custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the By-Laws, if any, a
bank, trust company, or other entity permitted by the Commission to serve as
such.
(e) To retain a transfer agent and Shareholder servicing agent, or
both.
(f) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both.
(g) To set record dates in the manner hereinafter provided for.
(h) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, independent contractor, custodian or
underwriter.
(i) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, Section 4(b) hereof.
6
<PAGE>
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper.
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities.
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of
Massachusetts trust companies or investment companies.
(m) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article III and to establish separate Classes
thereof.
(n) To allocate assets, liabilities and expenses of the Trust to a
particular Series and liabilities and expenses to a particular Class thereof or
to apportion the same between or among two or more Series or Classes, provided
that any liabilities or expenses incurred by a particular Series or Class shall
be payable solely out of the assets belonging to that Series or Class as
provided for in Article III.
(o) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust.
(p) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes.
(q) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for.
(r) To borrow money.
(s) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
TRUSTEES AND OFFICERS AS SHAREHOLDERS
- -------------------------------------
Section 2. Any Trustee, officer, other agent or independent contractor
of the Trust may acquire, own and dispose of Shares to the same extent as if he
were not a Trustee, officer, agent or independent contractor; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
By-Laws.
7
<PAGE>
ACTION BY THE TRUSTEES
- ----------------------
Section 3. The Trustees shall act by majority vote at a meeting duly
called or by unanimous written consent without a meeting or by telephone consent
provided a quorum of Trustees participate in any such telephonic meeting, unless
the 1940 Act requires that a particular action be taken only at a meeting in
person of the Trustees. At any meeting of the Trustees, a majority of the
Trustees shall constitute a quorum. Meetings of the Trustees may be called
orally or in writing by the Chairman of the Trustees or by any two other
Trustees. Notice of the time, date and place of all meetings of the Trustees
shall be given by the party calling the meeting to each Trustee by telephone or
telegram sent to his home or business address at least twenty-four hours in
advance of the meeting or by written notice mailed to his home or business
address at least seventy-two hours in advance of the meeting. Notice need not be
given to any Trustee who attends the meeting without objecting to the lack of
notice or who executes a written waiver of notice with respect to the meeting
either before or after such meeting. Subject to the requirements of the 1940
Act, the Trustees by majority vote may delegate to any one of their number their
authority to approve particular matters or take particular actions on behalf of
the Trust.
CHAIRMAN OF THE TRUSTEES
- ------------------------
Section 4. The Trustees may appoint one of their number to be Chairman
of the Board of Trustees. The Chairman shall preside at all meetings of the
Trustees, shall be responsible for the execution of policies established by the
Trustees and the administration of the Trust, and may be the chief executive,
financial and/or accounting officer of the Trust.
ARTICLE VI
----------
EXPENSES OF THE TRUST
---------------------
TRUSTEE REIMBURSEMENT
- ---------------------
Section 1. Subject to the provisions of Article III, Section 5, the
Trustees shall be reimbursed from the Trust estate or the assets belonging to
the appropriate Series for their expenses and disbursements, including, without
limitation, fees and expenses of Trustees who are not Interested Persons of the
Trust, interest expense, taxes, fees and commissions of every kind, expenses of
pricing Trust portfolio securities, expenses of issue, repurchase and redemption
of Shares including expenses attributable to a program of periodic repurchases
or redemptions, expenses of distributing its Shares and providing services to
Shareholders, expenses of registering and qualifying the Trust and its Shares
under Federal and State laws and regulations, charges of investment advisers,
administrators, custodians, transfer agents, and registrars, expenses of
preparing and setting in type prospectuses and statements of additional
information, expenses of printing and distributing prospectuses and statements
of additional information sent to existing Shareholders, auditing and legal
expenses, reports to Shareholders, expenses of meetings of Shareholders and
proxy solicitations therefor, insurance expense, association membership dues and
for such non-recurring items as may arise, including litigation to which the
Trust is a party (except those losses and expenses the indemnification of which
is not permitted under Article X hereof), and for all losses and liabilities by
them incurred in administering the Trust; and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series prior to any rights or interests of
the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
8
<PAGE>
ARTICLE VII
-----------
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER AND TRANSFER AGENT
------------------------------------------------------------
INVESTMENT ADVISER
- ------------------
Section 1. Subject to a Majority Shareholder Vote, the Trustees may in
their discretion from time to time enter into an investment advisory or
management contract(s) with respect to the Trust or any Series thereof whereby
the other party(ies) to such contract(s) shall undertake to furnish the Trustees
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions, as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize the investment adviser(s) (subject to such general or specific
instruments as the Trustees may from time to time adopt) to effect purchases,
sales or exchanges of portfolio securities and other investment instruments of
the Trust on behalf of the Trustees or may authorize any officer, agent, or
Trustee to effect such purchases, sales or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the Trustees). Any
such purchases, sales and exchanges shall be deemed to have been authorized by
all of the Trustees.
The Trustees may, subject to applicable requirements of the 1940 Act,
including those relating to Shareholder approval, authorize the investment
adviser to employ one or more sub-advisers from time to time to perform such of
the acts and services of the investment adviser, and upon such terms and
conditions, as may be agreed upon between the investment adviser and
sub-adviser.
PRINCIPAL UNDERWRITER
- ---------------------
Section 2. The Trustees may in their discretion from time to time enter
into one or more contract(s) providing for the sale of the Shares, whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
By-Laws, if any, and such further terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this Article
VII, or of the By-Laws, if any; and such contract may also provide for the
repurchase or sale of Shares by such other party as principal or as agent of the
Trust. The Trustees may in their discretion adopt a plan or plans of
distribution and enter into any related agreements whereby the Trust finances
directly or indirectly any activity that is primarily intended to result in
sales of Shares. Such plan or plans of distribution and any related agreements
may contain such terms and conditions as the Trustees may in their discretion
determine subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder and any other applicable rules and regulations.
TRANSFER AGENT
- --------------
Section 3. The Trustees may in their discretion from time to time enter
into a transfer agency and Shareholder service contract whereby the other party
shall undertake to furnish the Trustees and Trust with transfer agency and
shareholder services. The contract shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Declaration of Trust or of the By-Laws, if any. Such services may be
provided by one or more entities, including one or more agents of such other
party.
9
<PAGE>
PARTIES TO CONTRACT
- -------------------
Section 4. Any contract of the character described in Sections 1, 2 and
3 of this Article VII or that relates to the provision of custodian services to
the Trust may be entered into with any corporation, firm, partnership, trust or
association, although one more of the Trustees or officers of the Trust may be
an officer, director, trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was reasonable and fair and not inconsistent with the
provisions of this Article VII or the By-Laws, if any. The same person
(including a firm, corporation, partnership, trust, or association) may be the
other party to contracts entered into pursuant to Sections 1, 2 and 3 above or
with respect to the provision of custodian services to the Trust, and any
individual may be financially interested in or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 4.
PROVISIONS AND AMENDMENTS
- -------------------------
Section 5. Any contract entered into pursuant to Sections 1 and 2 of
this Article VII shall be consistent with and subject to the applicable
requirements of Sections 12 and 15 of the 1940 Act and the rules and orders
thereunder (including any amendments thereto or other applicable Act of Congress
hereafter enacted) with respect to its continuance in effect, its termination,
and the method of authorization and approval of such contract or renewal
thereof.
ARTICLE VIII
------------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
VOTING POWERS
- -------------
Section 1. The Shareholders shall have power to vote (i) for the
election of Trustees as provided in Article IV, Section 2, (ii) for the removal
of Trustees as provided in Article IV, Section 3(d), (iii) with respect to any
investment advisory or management contract as provided in Article VII, Section
1, (iv) with respect to any termination or reorganization of the Trust as
provided in Article XI, Section 4, (v) with respect to the amendment of this
Declaration of Trust to the extent and as provided in Article XI, Section 7,
(vi) to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, provided, however, that a Shareholder of a particular
Series shall not be entitled to bring any derivative or class action on behalf
of any other Series of the Trust, and provided further that, within a Series, a
Shareholder of a particular Class shall not be entitled to bring any derivative
or class action on behalf of any other Class except with respect to matters
sharing a common fact pattern with said Shareholder's own Class; and (vii) with
respect to such additional matters relating to the Trust as may be required or
authorized by law, by this Declaration of Trust, or the By-Laws of the Trust, if
any, or any registration of the Trust with the Commission or any State, or as
the Trustees may consider desirable. On any matter submitted to a vote of the
Shareholders, all Shares shall be voted by individual Series, except (i) when
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (ii) when the Trustees have determined that the matter
affects only the interests of one or more Classes, then only the Shareholders of
such Class or Classes shall be entitled to vote thereon. Each whole Share shall
be entitled to one vote as to any matter on which it is entitled to vote, and
each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. Until Shares are issued, the Trustees may exercise
10
<PAGE>
all rights of Shareholders and may take any action required or permitted by law,
this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
MEETINGS
- --------
Section 2. The first Shareholders' meeting shall be held as specified
in Section 2 of Article IV at the principal office of the Trust or such other
place as the Trustees may designate. Special meetings of the Shareholders or any
Series or Class thereof may be called by the Trustees and shall be called by the
Trustees upon the written request of Shareholders owning at least one-tenth of
the outstanding Shares entitled to vote. Whenever ten or more Shareholders
meeting the qualifications set forth in Section 16(c) of the 1940 Act, as the
same may be amended from time to time, seek the opportunity of furnishing
materials to the other Shareholders with a view to obtaining signatures on such
a request for a meeting, the Trustees shall comply with the provisions of said
Section 16(c) and any rules or orders thereunder with respect to providing such
Shareholders access to the list of the Shareholders of record of the Trust or
the mailing of such materials to such Shareholders of record. Shareholders shall
be entitled to at least fifteen days' notice of any meeting.
QUORUM AND REQUIRED VOTE
- ------------------------
Section 3. A majority of Shares entitled to vote in person or by proxy
shall be a quorum for the transaction of business at a Shareholders' meeting,
except that where any provision of law or of this Declaration of Trust permits
or requires that holders of any Series or Class thereof shall vote as a Series
or Class, then a majority of the aggregate number of Shares of that Series or
Class thereof entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within one hundred twenty (120) days after the date set for the original
meeting, without the necessity of further notice. Except when a larger vote is
required by any provision of this Declaration of Trust or the By-Laws, a
majority of the Shares voted in person or by proxy shall decide any questions
and a plurality shall elect a Trustee, provided that where any provision of law
or of this Declaration of Trust permits or requires that the holders of any
Series or Class shall vote as a Series or Class, then a majority of the Shares
of that Series or Class voted on the matter shall decide that matter insofar as
that Series or Class is concerned.
ARTICLE IX
----------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
DISTRIBUTIONS
- -------------
Section 1.
(a) The Trustees may from time to time declare and pay dividends and
other distributions. The amount of such dividends and the payment of them shall
be wholly in the discretion of the Trustees.
(b) The Trustees shall have power, to the fullest extent permitted by
the laws of the Commonwealth of Massachusetts, at any time to declare and cause
to be paid dividends on Shares of a particular Series, from the assets belonging
to that Series, which dividends and other distributions, at the election of the
Trustees, may be paid daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, and may be payable in Shares of that Series or Class thereof, as
appropriate, at the election of each Shareholder of that Series or Class. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the number
11
<PAGE>
of Shares of that Series held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that such
dividends and distributions shall appropriately reflect expenses allocated to a
particular Class of such Series.
(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a "stock dividend" pro rata
among the Shareholders of a particular Series or of a Class thereof as of the
record date of that Series (fixed as provided in Section 3 of Article XI
hereof).
REDEMPTIONS
- -----------
Section 2. In case any holder of record of Shares of a particular
Series or Class desires to dispose of his Shares, he may deposit at the office
of the transfer agent or other authorized agent of that Series a written request
or such other form of request as the Trustees may from time to time authorize,
requesting that the Series purchase the Shares in accordance with this Section
2; and the Shareholder so requesting shall be entitled to require the Series to
purchase, and the Series or the principal underwriter of the Series shall
purchase his said Shares, but only at the Net Asset Value of the Series or Class
held by the Shareholder (as described in Section 3 hereof) minus any applicable
sales charge or redemption or repurchase fee. The Series shall make payment for
any such Shares to be redeemed, as aforesaid, in cash or property from the
assets of that Series and payment for such Shares shall be made by the Series or
the principal underwriter of the Series to the Shareholder of record within
seven (7) days after the date upon which the request is effective; provided,
however, that if Shares being redeemed have been purchased by check, the Trust
may postpone payment until the Trust has assurance that good payment has been
collected for the purchase of the Shares. The Trust may require Shareholders to
pay a sales charge to the Trust, the underwriter or any other person designated
by the Trustees upon redemption or repurchase of Shares of any Series or Class
thereof, in such amount as shall be determined from time to time by the
Trustees. The amount of such sales charge may but need not vary depending on
various factors, including without limitation the holding period of the redeemed
or repurchased Shares. The Trustees may also charge a redemption or repurchase
fee in such amount as may be determined from time to time by the Trustees.
DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO ASSETS
- ------------------------------------------------------------------
Section 3. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. Net Asset Value per Share
shall be determined separately for each Series of Shares and shall be determined
on such days and at such times as the Trustees may determine. Such determination
may be made on a Series-by-Series or Class-by-Class basis, as appropriate, and
shall include any expenses allocated to a specific Series or Class. The
determination shall be made with respect to securities for which market
quotations are readily available at the market value of such securities; and
with respect to other securities and assets, at the fair value as determined in
good faith by the Trustees, provided, however, that the Trustees, without
Shareholder approval, may alter the method of appraising portfolio securities
insofar as permitted under the 1940 Act and the rules, regulations and
interpretations thereof promulgated or issued by the Commission or insofar as
permitted by any order of the Commission applicable to the Series. The Trustees
may delegate any of their powers and duties under this Section 3 with respect to
appraisal of assets and liabilities. At any time the Trustees may cause the Net
Asset Value per Share last determined to be determined again in a similar manner
and may fix the time when such redetermined values shall become effective.
12
<PAGE>
SUSPENSION OF THE RIGHT OF REDEMPTION
- -------------------------------------
Section 4. Notwithstanding Section 2 hereof, the Trustees may declare a
suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share existing after the termination of the
suspension.
ARTICLE X
----------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
LIMITATION OF LIABILITY
- -----------------------
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular Series shall look only to the assets
of the Trust or such Series, as the case may be, for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, nor any
other Series shall be personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust, any Series, or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that the
same was executed or made by them on behalf of the Trust or by them as Trustees
or Trustee or as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or the particular Series in question, as the case may be, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually.
Section 2. Provided they have exercised reasonable care and have acted
under the reasonable belief that their actions are in the best interest of the
Trust, the Trustees and officers of the Trust shall not be responsible for or
liable in any event for neglect or wrongdoing of them or any officer, agent,
employee, investment adviser or independent contractor of the Trust, but nothing
contained in this Declaration of Trust shall protect any Trustee or officer
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.
INDEMNIFICATION
- ---------------
Section 3.
(a) Subject to the exceptions and limitations contained in Section
3(b) below:
(i) every person who is, or has been a Trustee or officer of
the Trust (hereinafter referred to as "Covered Person") shall be indemnified by
the appropriate Series to the fullest extent permitted by law against liability
13
<PAGE>
and against all expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office,
(A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who are
neither interested persons of the Trust nor are parties to the
matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to
a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled to by contract or otherwise under
law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 3 may be paid by the applicable Series from time
to time prior to final disposition thereof upon receipt of an undertaking by or
on behalf of such Covered Person that such amount will be paid over by him to
the applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section 3; provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither interested persons of
the Trust nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available facts
(as opposed to a trial-type inquiry or full investigation), that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section 3.
14
<PAGE>
SHAREHOLDERS
- ------------
Section 4. In case any Shareholder or former Shareholder of any Series
of the Trust shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Series shall, upon request by the Shareholder, assume the defense
of any claim made against the Shareholder for any act or obligation of the
Series and satisfy any judgment thereon.
ARTICLE XI
----------
MISCELLANEOUS
-------------
TRUST NOT A PARTNERSHIP
- -----------------------
Section 1. It is hereby expressly declared that a trust and not a
partnership is created hereby. No Trustee hereunder shall have any power to bind
personally either the Trust's officers or any Shareholder.
TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
- -------------------------------------------------------------
Section 2. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the provisions
of Article X, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and subject to the provisions of Article X, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is obtained.
ESTABLISHMENT OF RECORD DATES
- -----------------------------
Section 3. The Trustees may close the stock transfer books of the Trust
for a period not exceeding sixty (60) days preceding the date of any meeting of
Shareholders, or the date for the payment of any dividends, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect; or in lieu of closing the stock transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding ninety (90)
days preceding the date of any meeting of Shareholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or to receive payment of such dividend, or to receive
such allotment or rights, or to exercise such rights in respect of any such
change, conversion or exchange of Shares, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any Shares on
the books of the Trust after any such record date fixed or aforesaid.
15
<PAGE>
TERMINATION OF TRUST
- --------------------
Section 4.
(a) This Trust shall continue without limitation of time but subject to
the provisions of sub-section (b) of this Section 4.
(b) Subject to a Majority Shareholder Vote of each Series affected by
the matter or, if applicable, to a Majority Shareholder Vote of the Trust, the
Trustees may
(i) sell, convey, merge and transfer all or substantially all
of the assets of the Trust or any affected Series to another Series or to a
trust, partnership, association or corporation organized under the laws of any
state which is an investment company as defined in the 1940 Act, for adequate
consideration which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of beneficial interest or stock of such
Series, trust, partnership, association or corporation; or
(ii) at any time sell and convert into money all or
substantially all of the assets of the Trust or any affected Series.
Upon making provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the holders of the Shares of the Trust or any
affected Series then outstanding; however, the payment to any particular Class
within such Series may be reduced by any fees, expenses or charges allocated to
that Class. Nothing in this Declaration of Trust shall preclude the Trustees
from distributing such remaining proceeds or assets so that holders of the
Shares of a particular Class of the Trust or any affected Series receive as
their ratable distribution shares solely of an analogous class, as determined by
the Trustees, of such trust, partnership, association or corporation.
The Trustees may take any of the actions specified in clauses (i) and
(ii) above without obtaining a Majority Shareholder Vote of any Series or the
Trust if a majority of the Trustees makes a determination that the continuation
of a Series or the Trust is not in the best interests of such Series, the Trust
or their respective Shareholders as a result of factors or events adversely
affecting the ability of such Series or the Trust to conduct its business and
operations in an economically viable manner. Such factors and events may include
the inability of a Series or the Trust to maintain its assets at an appropriate
size, changes in laws or regulations governing the Series or Trust or affecting
assets of the type in which such Series or the Trust invests or economic
developments or trends having a significant adverse impact on the business or
operations of such Series or the Trust.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in sub-section (b), the Trust or any affected
Series shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder with respect thereto and the right,
title and interest of all parties therein shall be canceled and discharged.
FILING OF COPIES, REFERENCES, HEADINGS
- --------------------------------------
Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trustees with the Secretary of the Commonwealth of
16
<PAGE>
Massachusetts and the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments to this Declaration of Trust have been made
and as to any matters in connection with the Trust hereunder, and with the same
effect as if it were the original, may rely on a copy certified by an officer or
Trustee of the Trust to be a copy of this instrument or of any such amendments.
In this instrument or in any such amendments, references to this instrument, and
all expressions like "herein," "hereof" and "hereunder," shall be deemed to
refer to this instrument as amended from time to time. The masculine gender
shall include the feminine and neuter genders. Headings are placed herein for
convenience of reference only, and in case of any conflict, the text of this
instrument, rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
APPLICABLE LAW
- --------------
Section 6. The Trust set forth in this instrument is made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and,
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
AMENDMENTS
- ----------
Section 7. All rights granted to the Shareholders under this
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not adversely affect the rights of any Shareholder with respect
to which such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940 Act, by
an instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to the vote of a majority of such Trustees).
Except as provided in the first sentence of this Section 7, any amendment to
this Declaration of Trust that adversely affects the rights of Shareholders may
be adopted at any time by an instrument signed in writing by a majority of the
then Trustees (or by an officer of the Trust pursuant to the vote of a majority
of such Trustees) when authorized to do so by Majority Shareholder Vote;
provided, however, that an amendment that shall affect the Shareholders of one
or more Series (or of one or more Classes), but not the Shareholders of all
outstanding Series (or Classes), shall be authorized by a Majority Shareholder
Vote of each Series (or Class, as the case may be) affected, and no vote of a
Series (or Class) not affected shall be required. Subject to the foregoing, any
such amendment shall be effective as provided in the instrument containing the
terms of such amendment or, if there is no provision therein with respect to
effectiveness, upon the execution of such instrument and of a certificate (which
may be a part of such instrument) executed by a Trustee or officer to the effect
that such amendment has been duly adopted. Copies of the amendment to this
Declaration of Trust shall be filed as specified in Section 5 of this Article
XI. A restated Declaration of Trust, integrating into a single instrument all of
the provisions of the Declaration of Trust which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall be effective upon filing as specified in such Section 5.
17
<PAGE>
FISCAL YEAR
- -----------
Section 8. The fiscal year of the Trust shall be determined by the
Trustees in accordance with the By-Laws, provided, however, that the Trustees
may, without Shareholder approval, change the fiscal year of the Trust.
18
<PAGE>
SCHEDULE A
Series of the Trust
- -------------------
PaineWebber Capital Appreciation 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 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
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the all the Trustees of the
Trust, have executed this Amended and Restated Declaration of Trust as of the
day and year first above written.
/s/ Margo N. Alexander /s/ Meyer Feldberg
- ------------------------------ ------------------------------
Margo N. Alexander Meyer Feldberg
/s/ E. Garrett Bewkes, Jr. /s/ George W. Gowen
- ------------------------------ ------------------------------
E. Garrett Bewkes, Jr. George W. Gowen
/s/ Richard Q. Armstrong /s/ Frederic V. Malek
- ------------------------------ ------------------------------
Richard Q. Armstrong Frederic V. Malek
/s/ Richard R. Burt /s/ Carl W. Schafer
- ------------------------------ ------------------------------
Richard R. Burt Carl W. Schafer
/s/ Mary C. Farrell
- ------------------------------
Mary C. Farrell
21
<PAGE>
PaineWebber Managed Assets Trust
Attachment 1
------------
1. The principal place of business of PaineWebber Managed Assets Trust ("Trust")
is:
1285 Avenue of the Americas
New York, New York 10019
2. The Trustees of the Trust and their business addresses* are:
Margo N. Alexander
Richard Q. Armstrong
78 West Brother Drive
Greenwich, CT 06830
E. Garrett Bewkes, Jr.
Richard R. Burt
1101 Connecticut Avenue, N.W.
Washington, D. C. 20036
Mary C. Farrell
Meyer Feldberg
Columbia University
101 Uris Hall
New York, New York 10027
George W. Gowen
666 Third Avenue
New York, New York 10017
Frederic V. Malek
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D. C. 20004
Carl W. Schafer
P. O. Box 1164
Princeton, N. J. 08542
* Unless otherwise indicated, the business address of each Trustee is
1285 Avenue of the Americas, New York, New York 10019
<PAGE>
Exhibit No. 2
-------------
PAINEWEBBER MANAGED ASSETS TRUST
A Massachusetts Business Trust
RESTATED BY-LAWS
November 19, 1997
<PAGE>
BY-LAWS OF PAINEWEBBER MANAGED ASSETS TRUST
ARTICLE I
----------
DECLARATION OF TRUST,
---------------------
LOCATION OF OFFICES AND SEAL
----------------------------
Section 1.01. DECLARATION OF TRUST: These By-Laws shall be subject to
the Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of PaineWebber Managed Assets Trust, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
Section 1.02. PRINCIPAL OFFICE OF THE TRUST: Resident Agent: The
principal office of the Trust shall be located in the City of New York, New
York. Its resident agent in Massachusetts shall be CT Corporation System, 2
Oliver Street, Boston, Massachusetts, or such other person as the Trustees may
from time to time designate. The Trust may establish and maintain such other
offices and places of business as the Trustees may, from time to time,
determine.
Section 1.03. SEAL: The seal of the Trust shall be circular in form and
shall bear the name of the Trust. The form of the seal shall be subject to
alteration by the Trustees and the seal may be used by causing it or a facsimile
to be impressed or affixed or printed or otherwise reproduced. Any officer or
Trustee of the Trust shall have authority to affix the seal of the Trust to any
document, instrument or other paper executed and delivered by or on behalf of
the Trust; however, unless otherwise required by the Trustees, the seal shall
not be necessary to be placed on and its absence shall not impair the validity
of any document, instrument, or other paper executed by or on behalf of the
Trust.
ARTICLE II
----------
SHAREHOLDERS
------------
Section 2.01. SHAREHOLDER MEETINGS: Meetings of the shareholders may be
called at any time by the Trustees or, if the Trustees shall fail to call any
meeting for a period of 30 days after written request of Shareholders owning at
least one-tenth of the outstanding shares entitled to vote, then such
Shareholders may call such meeting. Each call of a meeting shall state the
place, date, hour and purposes of the meeting.
Section 2.02. PLACE OF MEETINGS: All meetings of the Shareholders shall
be held at the principal office of the Trust, except that the Trustees may
designate a different place of meeting within the United States.
Section 2.03. NOTICE OF MEETING: The secretary or an assistant
secretary or such other officer as may be designated by the Trustees shall cause
notice of the place, date and hour, and purpose or purposes for which the
meeting is called, to be mailed, not less than fifteen days before the date of
the meeting, to each Shareholder entitled to vote at such meeting, at his
address as it appears on the records of the Trust at the time of such mailing.
Notice of any Shareholders' meeting need not be given to any Shareholder if a
written waiver of notice, executed before or after such meeting, is filed with
the records of such meeting, or to any Shareholder who shall attend such meeting
in person or by proxy. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting.
<PAGE>
Section 2.04. BALLOTS: The vote upon any question shall be by ballot
whenever requested by any person entitled to vote, but, unless such a request is
made, voting may be conducted in any way approved by the meeting.
Section 2.05. VOTING; Proxies: Shareholders entitled to vote may vote
either in person or by proxy, provided that such proxy to act is authorized to
act by (1) a written instrument, dated not more than eleven months before the
meeting and executed either by the Shareholder or by his or her duly authorized
attorney in fact (who may be so authorized by a writing or by any non-written
means permitted by the laws of the Commonwealth of Massachusetts) or (2) such
electronic, telephonic, computerized or other alternative means as may be
approved by a resolution adopted by the Trustees. Proxies shall be delivered to
the secretary of the Trust or other person responsible for recording the
proceedings before being voted. A proxy with respect to shares held in the name
of two or more persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Trust receives a specific written notice to
the contrary from any one of them. Unless otherwise specifically limited by
their terms, proxies shall entitle the holder thereof to vote at any adjournment
of a meeting. A proxy purporting to be exercised by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting.
Section 2.06. ACTION WITHOUT A MEETING: Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting.
ARTICLE III
-----------
TRUSTEES
--------
Section 3.01. REGULAR MEETINGS: Regular meetings of the Trustees may be
held without further call or notice at such places and at such times as the
Trustees may from time to time determine, provided that notice of the first
regular meeting following any such determination shall be given to absent
Trustees. A regular meeting of the Trustees may be held without further call or
notice immediately after and at the same place as any meeting of the
Shareholders.
Section 3.02. SPECIAL MEETINGS: Special meetings of the Trustees may be
held at any time and at any place designated in the call of the meeting, when
called by the chairman of the Trustees or by two or more Trustees, provided that
notice thereof shall being given to each Trustee as set forth in the Declaration
of Trust.
Section 3.03. COMMITTEES: The Trustees, by vote of a majority of the
Trustees then in office, may elect from their number an executive committee or
other committees and may delegate thereto some or all of their powers except
those which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its actions to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
2
<PAGE>
such rescission shall have retroactive effect. Any such committee may act by
meeting in person, by unanimous written consent, or by telephonic meeting
provided a quorum of members participates in any such telephonic meeting.
Section 3.04. OTHER COMMITTEES: The Trustees may appoint other
committees, each consisting of one or more persons, who need not be Trustees.
Each such committee shall have such powers perform such duties and abide by such
procedures as may be determined from time to time by the Trustees, but shall not
exercise any power which may lawfully be exercised only by the Trustees or a
committee of Trustees.
Section 3.05. COMPENSATION: Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
ARTICLE IV
----------
OFFICERS
--------
Section 4.01. GENERAL: The officers of the Trust shall be a president,
a treasurer, a secretary and such other officers, if any, as the Trustees from
time to time may in their discretion elect or appoint. The Trust may also have
such agents, if any, as the Trustees from time to time may in their discretion
appoint. Any officer may be but need not be a Trustee or shareholder. Any two or
more offices may be held by the same person.
Section 4.02. ELECTION AND TERM OF OFFICE: The president, the treasurer
and the secretary shall be elected annually by the Trustees at their first
meeting in each calendar year or at such later meeting in such year as the
Trustees shall determine ("Annual Meeting"). Other officers or agents, if any,
may be elected or appointed by the Trustees at said meeting or at any other
time. The president, treasurer and secretary shall hold office until the next
Annual Meeting and until their respective successors are chosen and qualified,
or in each case until he dies, resigns, is removed or become disqualified. Each
other officer shall hold office and each agent shall retain his authority at the
pleasure of the Trustees.
Section 4.03. POWERS: Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to his office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
Section 4.04. CHAIRMAN OF THE BOARD: The chairman of the Board of
Trustees, if one is so appointed, shall be chosen from among the Trustees and
may hold office only so long as he continues to be a Trustee. Unless the
Trustees otherwise provide, the chairman, if any is so appointed, shall preside
at all meetings of the Shareholders and of the Trustees at which he is present;
may be ex officio a member of all committees established by the Trustees; and
shall have such other duties and powers as specified herein and as may be
assigned to him by the Trustees.
Section 4.05. PRESIDENT: The president shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall have
general charge of the business, affairs and property of the Trust and general
supervision over its officers, employees and agents. He shall exercise such
other powers and perform such other duties as from time to time may be assigned
to him by the Trustees.
3
<PAGE>
Section 4.06. VICE PRESIDENTS: The Trustees may from time to time
designate and elect one or more vice presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Trustees
or the president. At the request or in the absence or disability of the
president, the vice president (or, if there are two or more vice presidents,
then the senior of the vice presidents present and able to act) may perform all
the duties of the president and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the president.
Section 4.07. TREASURER AND ASSISTANT TREASURERS: The treasurer shall
be the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of account of the Trust. Except as
otherwise provided by the Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the custodian of its
duties with respect thereto. He shall render to the Trustees, whenever directed
by the Trustees, an account of the financial condition of the Trust and of all
his transactions as treasurer; and as soon as possible after the close of each
financial year he shall make and submit to the Trustees a like report for such
financial year. He shall perform all the acts incidental to the office of
treasurer, subject to the control of the Trustees.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the Trustees may assign, and, in the absence of the treasurer, (or,
if there are two or more assistant treasurers, then the senior of the assistant
treasurers present and able to act) may perform all the duties of the treasurer,
subject to the control of the Trustees.
Section 4.08. SECRETARY AND ASSISTANT SECRETARIES: The secretary shall
attend to the giving and serving of all notices of the Trust and shall record
all proceedings of the meetings of the Shareholders and Trustees in books to be
kept for that purpose. He shall keep in safe custody the seal of the Trust, and
shall have charge of the records of the Trust, all of which shall at all
reasonable times be open to inspection by the Trustees. He shall perform such
other duties as appertain to his office or as may be required by the Trustees.
Any assistant secretary may perform such duties of the secretary as the
secretary or the Trustees may assign, and, in the absence of the secretary, (or,
if there are two or more assistant secretaries. then the senior of the assistant
secretaries present and able to act) may perform all the duties of the
secretary.
Section 4.09. SUBORDINATE OFFICERS: The Trustees from time to time may
appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one or more officers or agents the power to appoint any
such subordinate officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
Section 4.10. REMUNERATION: The salaries or other compensation of the
officers of the Trust shall be fixed from time to time by resolution of the
Trustees, except that the Trustees may by resolution delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
Section 4.09 hereof.
Section 4.11. SURETY BONDS: The Trustees may require any officer or
agent of the Trust to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended, ("1940 Act") and the
rules and regulations of the Securities and Exchange Commission ("Commission"))
to the Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of his duties to the Trust
4
<PAGE>
including responsibility for negligence and for the accounting of any of the
Trust's property, funds or securities that may come into his hands.
Section 4.12. RESIGNATION: Any officer may resign his office at any
time by delivering a written resignation to the Trustees, the president, the
secretary, or any assistant secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 4.13. REMOVAL: Any officer may be removed from office whenever
in the judgment of the Trustees the best interest of the Trust will be served
thereby, by the vote of a majority of the Trustees given at a regular meeting or
any special meeting of the Trustees called for such purpose. In addition, any
officer or agent appointed in accordance with the provision of Section 4.09
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
Section 4.14. VACANCIES AND NEWLY CREATED OFFICES: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
of the Trustees or, in the case of any office created pursuant to Section 4.09
hereof, by any officer upon whom such power shall have been conferred by the
Trustees.
ARTICLE V
---------
CUSTODIAN
---------
Section 5.01. EMPLOYMENT OF CUSTODIAN: The Trustees shall at all times
employ one or more banks or trust companies organized under the laws of the U.S.
or one of the states thereof provided that each such bank or trust company has
capital, surplus and undivided profits of at least two million dollars
($2,000,000) as custodian with authority as the Trust's agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and deliver the same
upon written order, or oral order if confirmed in writing, or
order delivered by such electromechanical or electronic
devices as are agreed to by the Trust and the custodian, if
such procedures have been authorized in writing by the Trust;
(2) to receive and give receipt for any moneys due to the Trust
and deposit the same in its own banking department or
elsewhere as the Trustees may direct; and
(3) to disburse such moneys upon orders or vouchers;
and the Trust may also enjoy such custodian as its agent:
(1) to keep the books and accounts of the Trust and furnish
clerical and accounting services; and
(2) to compute, if authorized to do so by the Trustees, the Net
Asset Value of any Series or Class (which terms are defined in
the Declaration of Trust) in accordance with the provisions of
the Declaration of Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a vote of a majority of the outstanding
5
<PAGE>
shares of the Trust entitled to vote, the custodian shall deliver and pay over
all property of the Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000) or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act.
Section 5.02. USE OF CENTRAL SECURITIES HANDLING SYSTEM: Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to deposit any or all of the securities owned by the Trust
(1) in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust; or (2) with such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act.
ARTICLE VI
----------
EXECUTION OF PAPERS
-------------------
Section 6.01. GENERAL: Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, transfers, contracts, bonds, notes, checks, drafts, and other
obligations made, accepted, or endorsed by the Trust shall be executed by the
president, any vice president, or the treasurer, or by whomever else shall be
designated for that purpose by the Trustees, and need not bear the seal of the
Trust.
ARTICLE VII
------------
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 7.01. SHARE CERTIFICATES: No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
authorize. In the event that the Trustees authorize the issuance of Share
certificates, subject to the provisions of Section 7.03, each Shareholder shall
be entitled to a certificate stating the number of shares owned by him, in such
form as shall be prescribed from time to time by the Trustees. Such certificate
shall be signed by the president or a vice president and by the treasurer,
assistant treasurer, secretary or assistant secretary. Such signatures may be
facsimiles if the certificate is signed by a transfer or shareholder services
agent or by a registrar, other than a Trustee, officer or employee of the Trust.
In case any officer who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Trust with the same effect as if he were such
officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees, the transfer
agent or shareholder services agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
6
<PAGE>
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
Section 7.02. LOSS OF CERTIFICATES: In the case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
Section 7.03. DISCONTINUANCE OF ISSUANCE OF CERTIFICATES: The Trustees
may at any time discontinue the issuance of Share certificates and may, by
written notice to each Shareholder, require the surrender of Share certificates
to the Trust for cancellation. Such surrender and cancellation shall not affect
the ownership of Shares in the Trust.
Section 7.04. EQUITABLE INTEREST NOT RECOGNIZED: The Trust shall be
entitled to treat the holder of record of any Share or Shares of the Trust as
the holder in fact thereof, and shall not be bound to recognize any equitable or
other claim of interest in such Share or Shares on the part of any other person
except as may be otherwise expressly provided by law.
Section 7.05. TRANSFER OF SHARES: The Shares of the Trust shall be
transferable only by transfer recorded on the books of the Trust, in person or
by attorney.
ARTICLE VIII
------------
FISCAL YEAR; ACCOUNTANT
-----------------------
Section 8.01. FISCAL YEAR: The fiscal year of the Trust shall end on
such date in each year as the Trustees shall from time to time determine.
Section 8.02. ACCOUNTANT:
(a) The Trust shall employ an independent public accountant or firm of
independent public accountants as its accountant to examine the accounts of the
Trust and to sign and certify the financial statements of the Trust. The
accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders of the Trust.
(b) Any vacancy occurring due to the death or resignation of the
accountant may be filled by a majority vote of the Trustees who are not
interested persons of the Trust.
ARTICLE IX
----------
INSURANCE
---------
Section 9.01. INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES: The Trust
may purchase and maintain insurance on behalf of any person who is or was a
Trustee, officer or employee of the Trust, or is or was serving at the request
of the Trust 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 Trust would have the power to indemnify him against
such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
7
<PAGE>
liability to the Trust or its Shareholders 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.
ARTICLE X
AMENDMENTS; REPORTS; MISCELLANEOUS
----------------------------------
Section 10.1. AMENDMENTS: These By-Laws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at any meeting of
the Trustees, or by one or more writings signed by such majority.
Section 10.2. REPORTS: The Trustees shall at least semiannually submit
to the Shareholders a written report of the transactions of the Trust, including
financial statements that shall at least annually be certified by independent
public accountants.
Section 10.3. GENDER: As used in these By-Laws, the masculine gender
shall include the feminine and neuter genders.
Section 10.3. HEADINGS: Headings are placed in these bylaws for
convenience of reference only and in case of any conflict, the text of these
By-Laws rather than the headings shall control.
Section 10.4. INSPECTION OF BOOKS: The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders, and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees.
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EXHIBIT 9
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TRANSFER AGENCY AND RELATED SERVICES AGREEMENT
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THIS AGREEMENT is made as of August 1, 1997 by and between PFPC INC., a
Delaware corporation ("PFPC"), and PAINEWEBBER MANAGED ASSETS TRUST, a
Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to the Fund's
Portfolios (as hereinafter defined) and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund and any
other person duly authorized by the Fund's Board of Directors or Trustees
("Board") to give Oral Instructions and Written Instructions on behalf of the
Fund and listed on the Authorized Persons Appendix attached hereto and made a
part hereof or any amendment thereto as may be received by PFPC. An Authorized
Person's scope of authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
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(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by
PFPC from an Authorized Person.
(f) "PORTFOLIO" means a series or investment portfolio of the
Fund identified on Annex A hereto, as the same may from time to time be amended,
if the Fund consists of more than one series or investment portfolio; however,
if the Fund does not have separate series or investment portfolios, then this
term shall be deemed to refer to the Fund itself.
(g) "SEC" means the Securities and Exchange Commission.
(h) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(i) "SHARES" mean the shares of common stock or beneficial
interest of any series or class of the Fund.
(j) "WRITTEN INSTRUCTIONS" mean written instructions signed by
an Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer
agent, registrar, dividend disbursing agent and related services agent to the
Fund, and should the Fund have separate Portfolios, those Portfolios which are
listed on Annex A hereto, in accordance with the terms set forth in this
Agreement. PFPC accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund (or a particular Portfolio, as
appropriate) has provided or, where applicable, will provide PFPC with the
following:
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(a) Certified or authenticated copies of the resolutions
of the Fund's Board approving the appointment of PFPC
to provide services to the Fund and approving this
Agreement;
(b) A copy of each executed broker-dealer agreement with
respect to each Fund; and
(c) Copies (certified or authenticated if requested by
PFPC) of any post- effective amendment to the Fund's
registration statement, advisory agreement,
distribution agreement, shareholder servicing
agreement and all amendments or supplements to the
foregoing upon request.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any of
its Portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions
and Written Instructions it receives from an Authorized Person pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or of any vote, resolution or proceeding of the Fund's
Board or of the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
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(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the next day after such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions comply with
the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action
it should or should not take, PFPC may request directions or advice, including
Oral Instructions or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Fund, and the advice it receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Fund or from counsel
and which PFPC believes, in good faith, to be consistent with those directions,
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advice or Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action. Nothing
in this subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to each
Portfolio, including (a) all those records required to be prepared and
maintained by the Fund under the 1940 Act, by other applicable Securities Laws,
rules and regulations and by state laws and (b) such books and records as are
necessary for PFPC to perform all of the services it agrees to provide in this
Agreement and the appendices attached hereto, including but not limited to the
books and records necessary to effect the conversion of Class B shares, the
calculation of any contingent deferred sales charges and the calculation of
front-end sales charges. The books and records pertaining to the Fund, which are
in the possession or under the control of PFPC, shall be the property of the
Fund. The Fund and Authorized Persons shall have access to such books and
records in the possession or under the control of PFPC at all times during
PFPC's normal business hours. Upon the reasonable request of the Fund, copies of
any such books and records in the possession or under the control of PFPC shall
be provided by PFPC to the Fund or to an Authorized Person. Upon reasonable
notice by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
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Agreement for reasonable visits by the Fund, any agent or person designated by
the Fund or any regulatory agency having authority over the Fund.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders (past, present
and future), its investment adviser and its principal underwriter, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund prior to its release. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for periodic backup of computer files and data with respect to the
Fund and emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. PFPC shall have no liability
with respect to the loss of data or service interruptions caused by equipment
failure, provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations under this Agreement and provided further that PFPC has complied
with the provisions of this paragraph 10.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
agreed to from time to time in writing by the Fund and PFPC.
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12. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless PFPC and
its affiliates from all taxes, charges, expenses, assessments, penalties, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from (i) any
action or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Fund or (b) upon Oral
Instructions or Written Instructions or (ii) the acceptance, processing and/or
negotiation of checks or other methods utilized for the purchase of Shares.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement. The Fund's
liability to PFPC for PFPC's acceptance, processing and/or negotiation of checks
or other methods utilized for the purchase of Shares shall be limited to the
extent of the Fund's policy(ies) of insurance that provide for coverage of such
liability, and the Fund's insurance coverage shall take precedence.
(b) PFPC agrees to indemnify and hold harmless the Fund from
all taxes, charges, expenses, assessments, penalties, claims and liabilities
arising from PFPC's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws, and any state and
foreign securities and blue sky laws, and amendments thereto) and expenses,
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of PFPC's or its nominee's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
(c) In order that the indemnification provisions contained in
this Paragraph 12 shall apply, upon the assertion of a claim for which either
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<PAGE>
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate with
the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
(d) The members of the Board of the Fund, its officers and
Shareholders, or of any Portfolio thereof, shall not be liable for any
obligations of the Fund, or any such Portfolio, under this Agreement, and PFPC
agrees that in asserting any rights or claims under this Agreement, it shall
look only to the assets and property of the Fund or the particular Portfolio in
settlement of such rights or claims and not to such members of the Board, its
officers or Shareholders. PFPC further agrees that it will look only to the
assets and property of a particular Portfolio of the Fund, should the Fund have
established separate series, in asserting any rights or claims under this
Agreement with respect to services rendered with respect to that Portfolio and
will not seek to obtain settlement of such rights or claims from the assets of
any other Portfolio of the Fund.
13. INSURANCE. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
no provision of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Fund, PFPC or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
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<PAGE>
14. SECURITY.
(a) PFPC represents and warrants that, to the best of its
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis, and the Fund shall have reasonable access to review these
systems and procedures.
(b) Y2K Compliance. PFPC further represents and warrants that
any and all electronic data processing systems and programs that it uses or
retains in connection with the provision of services hereunder on or before
January 1, 1999 will be year 2000 compliant.
15. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf
of the Fund except as specifically set forth herein or as may be specifically
agreed to by PFPC in writing. PFPC shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good faith and
to use its best efforts in performing services provided for under this
Agreement. PFPC shall be liable for any damages arising out of PFPC's failure to
perform its duties under this Agreement to the extent such damages arise out of
PFPC's willful misfeasance, bad faith, negligence or reckless disregard of such
duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, PFPC shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
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<PAGE>
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund may incur or
suffer by or as a consequence of PFPC's or its affiliates' performance of the
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
(d) Notwithstanding anything in this Agreement to the
contrary, the Fund shall not be liable to PFPC nor its affiliates for any
consequential, special or indirect losses or damages which PFPC or its
affiliates may incur or suffer by or as a consequence of PFPC's performance of
the services provided hereunder, whether or not the likelihood of such losses or
damages was known by the Fund.
16. DESCRIPTION OF SERVICES.
(a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE.
(i) Calculate 12b-1 payments to financial
intermediaries, including brokers, and
financial intermediary trail
commissions;
(ii) Develop, monitor and maintain, in
consultation with the Fund, all systems
necessary to implement and operate the
four-tier distribution system, including
Class B conversion feature, as described
in the registration statement and
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related documents of the Fund, as they
may be amended from time to time;
(iii) Calculate contingent deferred sales
charge amounts upon redemption of Fund
shares and deduct such amounts from
redemption proceeds;
(iv) Calculate front-end sales load amounts
at time of purchase of shares;
(v) Determine dates of Class B conversion
and effect the same;
(vi) Establish and maintain proper
shareholder registrations;
(vii) Review new applications and correspond
with shareholders to complete or correct
information;
(viii) Direct payment processing of checks or
wires;
(ix) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(x) Prepare and mail to shareholders
confirmation of activity;
(xi) Provide toll-free lines for direct
shareholder use, plus customer liaison
staff for on-line inquiry response;
(xii) Send duplicate confirmations to
broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with PFPC;
(xiii) Provide periodic shareholder lists,
outstanding share calculations and
related statistics to the Fund;
(xiv) Provide detailed data for
underwriter/broker confirmations;
(xv) Prepare and mail required calendar and
taxable year-end tax and statement
information (including forms 1099-DIV
and 1099-B and accompanying statements);
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(xvi) Notify on a daily basis the investment
adviser, accounting agent, and custodian
of fund activity;
(xvii) Perform, itself or through a delegate,
all of the services, whether or not
included within the scope of another
paragraph of this Paragraph 16(a),
specified on Annex B hereto; and
(xviii) Perform other participating
broker-dealer shareholder services as
may be agreed upon from time to time.
(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR
WRITTEN INSTRUCTIONS.
(i) Accept and post daily Fund and class
purchases and redemptions;
(ii) Accept, post and perform shareholder
transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Cancel certificates.
(c) PURCHASE OF SHARES. PFPC shall issue and credit an account
of an investor, in the manner described in the Fund's prospectus, once it
receives:
(i) A purchase order;
(ii) Proper information to establish a
shareholder account; and
(iii) Confirmation of receipt or crediting of
funds for such order to the Fund's
custodian.
(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if
that function is properly authorized by the Fund's organizational documents or
resolutions of the Fund's Board. Shares shall be redeemed and payment therefor
shall be made in accordance with the Fund's or Portfolio's prospectus.
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(i) BROKER-DEALER ACCOUNTS.
When a broker-dealer notifies PFPC of a
redemption desired by a customer, and
the Fund's or Portfolio's custodian (the
"Custodian") has provided PFPC with
funds, PFPC shall (a) transfer by
Fedwire or other agreed upon electronic
means such redemption payment to the
broker-dealer for the credit to, and for
the benefit of, the customer's account
or (b) shall prepare and send a
redemption check to the broker-dealer,
made payable to the broker-dealer on
behalf of its customer.
(ii) FUND-ONLY ACCOUNTS.
If Shares (or appropriate instructions)
are received in proper form, at the
Fund's request Shares may be redeemed
before the funds are provided to PFPC
from the Custodian. If the recordholder
has not directed that redemption
proceeds be wired, when the Custodian
provides PFPC with funds, the redemption
check shall be sent to and made payable
to the recordholder, unless:
(a) the surrendered certificate is
drawn to the order of an
assignee or holder and transfer
authorization is signed by the
recordholder; or
(b) transfer authorizations are
signed by the recordholder when
Shares are held in book-entry
form.
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution
of the Fund's Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the Fund
in Shares, or, upon shareholder election, pay such dividends and distributions
in cash, if provided for in the appropriate Fund's or Portfolio's prospectus.
Such issuance or payment, as well as payments upon redemption as described
above, shall be made after deduction and payment of the required amount of funds
to be withheld in accordance with any applicable tax law or other laws, rules or
regulations. PFPC shall mail to the Fund's shareholders and the IRS and other
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appropriate taxing authorities such tax forms, or permissible substitute forms,
and other information relating to dividends and distributions paid by the Fund
(including designations of the portions of distributions of net capital gain
that are 20% rate gain distributions and 28% rate gain distributions pursuant to
IRS Notice 97-64) as are required to be filed and mailed by applicable law, rule
or regulation within the time required thereby. PFPC shall prepare, maintain and
file with the IRS and other appropriate taxing authorities reports relating to
all dividends above a stipulated amount paid by the Fund to its shareholders as
required by tax or other law, rule or regulation.
(f) SHAREHOLDER ACCOUNT SERVICES.
(i) PFPC will arrange, in accordance with
the appropriate Fund's or Portfolio's
prospectus, for issuance of Shares
obtained through:
- The transfer of funds from shareholders'
accounts at financial institutions,
provided PFPC receives advance Oral or
Written Instruction of such transfer;
- Any pre-authorized check plan; and
- Direct purchases through broker wire
orders, checks and applications.
(ii) PFPC will arrange, in accordance with
the appropriate Fund's or Portfolio's
prospectus, for a shareholder's:
- Exchange of Shares for shares of another
fund with which the Fund has exchange
privileges;
- Automatic redemption from an account
where that shareholder participates in a
systematic withdrawal plan; and/or
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- Redemption of Shares from an account
with a checkwriting privilege.
(g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written
Instructions, PFPC shall mail all communications by the Fund to its
shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax forms (including substitute forms) and
accompanying information containing the information
required by paragraph 16(e).
If requested by the Fund, PFPC will receive and tabulate the proxy
cards for the meetings of the Fund's shareholders and supply personnel to serve
as inspectors of election.
(h) RECORDS. PFPC shall maintain those records required by the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC hereunder
with respect to shareholder accounts or by transfer agents generally, including
records of the accounts for each shareholder showing the following information:
(i) Name, address and United States Taxpayer
Identification or Social Security
number;
(ii) Number and class of Shares held and
number and class of Shares for which
certificates, if any, have been issued,
including certificate numbers and
denominations;
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(iii) Historical information regarding the
account of each shareholder, including
dividends and distributions paid, their
character (e.g. ordinary income, net
capital gain (including 20% rate gain
and 28% rate gain), exempt-interest,
foreign tax-credit and dividends
received deduction eligible) for federal
income tax purposes and the date and
price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed
against a shareholder's account;
(v) Any correspondence relating to the
current maintenance of a shareholder's
account;
(vi) Information with respect to
withholdings; and
(vii) Any information required in order for
the transfer agent to perform any
calculations contemplated or required by
this Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop
notice against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. The lost or stolen certificate will be canceled and
uncertificated Shares will be issued to a shareholder's account only upon:
(i) The shareholder's pledge of a lost
instrument bond or such other
appropriate indemnity bond issued by a
surety company approved by PFPC; and
(ii) Completion of a release and
indemnification agreement signed by the
shareholder to protect PFPC and its
affiliates.
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(j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request
from any Fund shareholder to inspect stock records, PFPC will notify the Fund,
and the Fund will issue instructions granting or denying each such request.
Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees and
does hereby release PFPC from any liability for refusal of permission for a
particular shareholder to inspect the Fund's shareholder records.
(k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES.
Upon receipt of Written Instructions, PFPC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by the
number of shares surrendered by the Fund.
17. DURATION AND TERMINATION.
(a) This Agreement shall be effective on the date first
written above and shall continue for a period of three (3) years (the "Initial
Term"). Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each
provided that it may be terminated by either party during a Renewal Term upon
written notice given at least ninety (90) days prior to termination. During
either the Initial Term or the Renewal Terms, this Agreement may also be
terminated on an earlier date by either party for cause.
(b) With respect to the Fund, cause includes, but is not
limited to, (i) PFPC's material breach of this Agreement causing it to fail to
substantially perform its duties under this Agreement. In order for such
material breach to constitute "cause" under this Paragraph, PFPC must receive
written notice from the Fund specifying the material breach and PFPC shall not
have corrected such breach within a 15-day period; (ii) financial difficulties
of PFPC evidenced by the authorization or commencement of a voluntary or
involuntary bankruptcy under the U.S. Bankruptcy Code or any applicable
bankruptcy or similar law, or under any applicable law of any jurisdiction
relating to the liquidation or reorganization of debt, the appointment of a
receiver or to the modification or alleviation of the rights of creditors; and
(iii) issuance of an administrative or court order against PFPC with regard to
the material violation or alleged material violation of the Securities Laws or
other applicable laws related to its business of performing transfer agency
services;
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(c) With respect to PFPC, cause includes, but is not limited
to, the failure of the Fund to pay the compensation set forth in writing
pursuant to Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective
thirty (30) days from the date of any such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC
such compensation as may be due for the period prior to the date of such
termination. In the event that the Fund designates a successor to any of PFPC's
obligations under this Agreement, PFPC shall, at the direction and expense of
the Fund, transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including, a certified list of the
shareholders of the Fund or any Portfolio thereof with name, address, and if
provided, taxpayer identification or Social Security number, and a complete
record of the account of each shareholder. To the extent that PFPC incurs
expenses related to a transfer of responsibilities to a successor, other than
expenses involved in PFPC's providing the Fund's books and records described in
the preceding sentence to the successors, PFPC shall be entitled to be
reimbursed for such extraordinary expenses, including any out-of-pocket expenses
reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall
not affect the rights and obligations of the parties under Paragraph 12 hereof.
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(g) Notwithstanding the foregoing, this Agreement shall
terminate with respect to the Fund or any Portfolio thereof upon the
liquidation, merger, or other dissolution of the Fund or Portfolio or upon the
Fund's ceasing to be a registered investment company.
18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered or able to so
conduct such activities for the duration of this Agreement. PFPC agrees that it
will promptly notify the Fund in the event of any material change in its status
as a registered transfer agent. Should PFPC fail to be registered with the SEC
as a transfer agent at any time during this Agreement, and such failure to
register does not permit PFPC to lawfully conduct its activities, the Fund may,
on written notice to PFPC, terminate this Agreement upon five days written
notice to PFPC.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address
of the Fund or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming telegram,
cable, telex or facsimile sending device during regular business hours, it shall
be deemed to have been given immediately; if sent at a time other than regular
business hours, such notice shall be deemed to have been given at the opening of
the next business day. If notice is sent by first-class mail, it shall be deemed
to have been given three days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day it is delivered. All
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postage, cable, telegram, telex and facsimile sending device charges arising
from the sending of a notice hereunder shall be paid by the sender.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
21. ADDITIONAL PORTFOLIOS. In the event that the Fund establishes one
or more investment series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and related services agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment series shall become a Portfolio hereunder, subject
to such additional terms, fees and conditions as are agreed to by the parties.
22. DELEGATION; ASSIGNMENT.
(a) PFPC may, at its own expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the Securities
Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such
information as the Fund may request, and respond to such questions as the Fund
may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee). The assignment and
delegation of any of PFPC's duties under this subparagraph (a) shall not relieve
PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to
perform the services described on Annex B hereto. In addition, PFPC may assign
its rights and delegate its other duties hereunder to PaineWebber Incorporated
or Mitchell Hutchins Asset Management Inc. or an affiliated person of either,
provided that (i) PFPC gives the Fund thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PFPC and
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the Fund to comply with all relevant provisions of the Securities Laws; and
(iii) PFPC and such delegate (or assignee) promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee). In assigning its rights and
delegating its duties under this paragraph, PFPC may impose such conditions or
limitations as it determines appropriate including the condition that PFPC be
retained as a sub-transfer agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to services to be performed and fees payable under this Agreement.
(b) CAPTIONS. 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.
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(c) GOVERNING LAW. This Agreement shall be deemed to be a
contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) PARTIAL INVALIDITY. 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.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party
to this Agreement shall constitute the valid and binding execution hereof by
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ Robert F. Crouse
-------------------------
Title: Vice President
PAINEWEBBER MANAGED ASSETS TRUST
By: /s/ Dianne E. O'donnell
----------------------------
Title: Secretary and Vice President
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ANNEX A
Portfolios
PaineWebber Capital Appreciation Fund
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AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
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ANNEX B
a. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all shareholder
inquiries received by telephone, mail or in-person regarding the Funds
and their accounts
b. Provide timely execution of redemptions, exchanges and non-financial
transactions directed to investment executives and specifically
requested by Fund shareholders
c. Issue checks from proceeds of Fund share redemptions to shareholders as
directed by the shareholders or their agents
d. Process and maintain shareholder account registration information
e. With respect to customer accounts maintained through PaineWebber
Incorporated ("PaineWebber"), review new applications and correspond
with shareholders to complete or correct information
f. Prepare and mail monthly or quarterly consolidated account statements
that reflect PaineWebber Mutual Fund balances and transactions (such
information to be combined with other activity and holdings in
investors' brokerage accounts if this responsibility is delegated to
PaineWebber)
g. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all branch
inquiries regarding operational issues and performance
h. Capture, process and mail required tax information to shareholders and
report this information to the Internal Revenue Service
i. Provide the capability to margin PaineWebber Mutual Funds held within
the client's brokerage account (if this responsibility is delegated to
PaineWebber)
j. Prepare and provide shareholder registrations for mailing of proxies,
reports and other communications to shareholders
k. Develop, maintain and issue checks from the PaineWebber systematic
withdrawal plan offered within the client's brokerage account (if this
responsibility is delegated to PaineWebber)
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l. Maintain duplicate shareholder records and reconcile those records with
those at the transfer agent (if this responsibility is delegated to
PaineWebber)
m. Process and mail duplicate PaineWebber monthly or quarterly statements
to PaineWebber Investment Executives
n. Establish and maintain shareholder distribution options (i.e., election
to have dividends paid in cash, rather than reinvested in Fund shares)
o. Process and mail purchase, redemption and exchange confirmations to
Fund shareholders and PaineWebber Investment Executives
p. Issue dividend checks to shareholders that select cash distributions to
their brokerage account (if this responsibility is delegated to
PaineWebber)
q. Develop and maintain the automatic investment plan offered within the
client's brokerage account (if this responsibility is delegated to
PaineWebber)
r. Provide bank-to-bank wire transfer capabilities related to transactions
in Fund shares
s. Maintain computerized compliance programs for blue sky and non-resident
alien requirements (only with respect to PaineWebber Cashfund, Inc.)
26
