<PAGE>
As filed with the Securities and Exchange Commission on November 13, 1995
1933 Act Registration No. 33-55374
1940 Act Registration No. 811-7374
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. 8 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 10
(Check appropriate box or boxes.)
PAINEWEBBER SECURITIES TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
[__X__] Immediately upon filing pursuant to Rule 485(b)
[_____] On pursuant to Rule 485(b)
[_____] 60 days after filing pursuant to Rule 485(a)(i)
[_____] On _________________ pursuant to Rule 485(a)(i)
[_____] 75 days after filing pursuant to Rule 485(a)(ii)
[_____] On _________________ pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[___] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the notice required by such Rule
for its most recent fiscal year on September 28, 1995.
<PAGE>
PaineWebber Securities Trust
Contents of Registration Statement
This Registration Statement consists of the following papers and
documents:
Cover Sheet
Contents of Registration Statement
PaineWebber Strategic Income Fund
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
This filing is made to update the Prospectus and Statement of
Additional Information of PaineWebber Small Cap Value Fund. No changes
are hereby made to the currently effective Prospectus or Statement of
Additional Information of PaineWebber Strategic Income Fund, another
series of PaineWebber Securities Trust.
<PAGE>
<TABLE>
<CAPTION>
PaineWebber Securities Trust:
PaineWebber Small Cap Value Fund
Form N-1A Cross Reference Sheet
Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . Prospectus Summary
3. Condensed Financial Information . . . . . . . . . Performance Information; Financial
Highlights
4. General Description of Registrant . . . . . . . . Prospectus Summary; Investment
Objective, Policies and Risk
Considerations; General Information
5. Management of the Fund . . . . . . . . . . . . . Management; General Information
6. Capital Stock and Other Securities . . . . . . . Cover Page; Conversion of Class B
Shares; Dividends and Taxes; General
Information
7. Purchase of Securities Being Offered . . . . . . Purchases; Exchanges; Valuation of
Shares; Other Services and Information;
Management
8. Redemption of Repurchase . . . . . . . . . . . . Redemptions, Other Services and
Information
9. Pending Legal Proceedings . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Additional
Part B Item No. and Caption Information Caption
--------------------------- -----------------------
<S> <C> <C>
10. Cover page . . . . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . . . . Not Applicable
13. Investment Objective and Policies . . . . . . . . Investment Policies and Restrictions;
Portfolio Transactions
14. Management of the Fund . . . . . . . . . . . . . Trustees and Officers
15. Control Persons and Principal Holders of Trustees and Officers
Securities . . . . . . . . . . . . . . . . . . .
16. Investment Advisory and Other Services . . . . . Investment Advisory and Distribution
Arrangements; Other Information
17. Brokerage Allocation . . . . . . . . . . . . . . Portfolio Transactions
18. Capital Stock and Other Securities . . . . . . . Conversion of Class B Shares; Other
Information
19. Purchase, Redemption and Pricing of Securities Reduced Sales Charges, Additional
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
</TABLE>
Part C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
<PAGE>
The Fund is a series of PaineWebber Securities Trust ("Trust"). This Prospec-
tus concisely sets forth information about the Fund a prospective investor
should know before investing. Please retain this Prospectus for future refer-
ence. A Statement of Additional Information dated November , 1995 (which is
incorporated by reference herein) has been filed with the Securities and Ex-
change Commission. The Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by contacting the Fund,
your PaineWebber investment executive or PaineWebber's correspondent firms or
by calling toll-free 1-800-647-1568.
- -------------------------------------------------------------------------------
A professionally managed series of a mutual fund seeking long-term
capital appreciation; it invests primarily in equity securities of small
capitalization companies.
- -------------------------------------------------------------------------------
November , 1995
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PaineWebber
Small Cap
Value Fund
1285 Avenue of the Americas
New York, New York 10019
- -------------------------------------------------------------------------------
. Long-Term Capital Appreciation
. Professional Management
. Portfolio Diversification
. Dividend and Capital Gain Reinvestment
. Flexible Pricingsm
. Low Minimum Investment
. Automatic Investment Plan
. Systematic Withdrawal Plan
. Suitable For Retirement Plans
- -------------------------------------------------------------------------------
A PAINEWEBBER MUTUAL FUND
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBU-
TOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------
PAINEWEBBER SMALL CAP VALUE FUND
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed
in this summary.
The Fund: This Prospectus describes PaineWebber Small Cap Value
Fund ("Fund"), a diversified series of an open-end,
management investment company.
Investment Objective Long-term capital appreciation; invests primarily in
and Policies: equity securities of small capitalization ("small cap")
companies.
Total Net Assets:
$ million at October 31, 1995.
Investment Adviser
and Administrator: Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), manages over
$ billion in assets. See "Management."
Sub-Adviser:
Quest Advisory Corp. ("Sub-Adviser") manages
approximately $ billion in assets. See "Management."
Purchases: Shares of beneficial interest are available exclusively
through PaineWebber and its correspondent firms for
investors who are clients of PaineWebber or those firms
("PaineWebber clients") and, for other investors,
through PFPC Inc., the Fund's transfer agent ("Transfer
Agent").
Flexible Pricing Sys-
tem: Investors may select Class A, Class B or Class C
shares, each with a public offering price that reflects
different sales charges and expense levels. See
"Flexible Pricing System," "Purchases," "Redemptions"
and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 4.5% of public offering price).
Class B Shares Offered at net asset value (a maximum contingent
deferred sales charge of 5% of redemption proceeds is
imposed on certain
2
<PAGE>
redemptions made within six years of date of purchase).
Class B shares automatically convert into Class A
shares (which pay lower ongoing expenses) approximately
six years after purchase.
Class C Shares Offered at net asset value without an initial sales
charge (a contingent deferred sales charge of 1.00% of
redemption proceeds is imposed on certain redemptions
made within one year of date of purchase). Class C
shares pay higher ongoing expenses than Class A shares
and do not convert into another Class.
Exchanges: Shares may be exchanged for shares of the corresponding
Class of most PaineWebber mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid annually; net capital gain is also
distributed annually. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.
Minimum Purchase: $1,000 for the first purchase; $100 for subsequent
purchases.
Other Features:
Class A Shares Automatic investment Quantity discounts on initial
plan sales charge
Systematic withdrawal 365-day reinstatement privilege
plan
Rights of accumulation
Class B Shares Automatic investment Systematic withdrawal plan
plan
Automatic investment Systematic withdrawal plan
Class C Shares plan
WHO SHOULD INVEST. The Fund invests primarily in equity securities of a di-
versified group of small cap companies selected on a value basis. Value invest-
ing is based on factors such as balance sheet and cash flow analysis and the
relationships that these factors have to the price of a given security. While
the Fund is not intended to provide a complete or balanced investment program,
it can serve as one component of an investor's long-term program to accumulate
assets for retirement, college tuition or other major goals. The Fund is de-
signed for investors seeking long-term growth of capital who are able to bear
the risks inherent in equity investments.
RISK FACTORS. There can be no assurance that the Fund will achieve its in-
vestment objective. The Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Investing in securities of
small cap companies entails greater market volatility and risks of adverse fi-
nancial developments than is the case for securities of larger companies. The
Fund's ability to invest in U.S. dollar-denominated foreign equity securities
also involves special risks.
3
<PAGE>
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to as-
sist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES(1)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge on purchases of shares (as a
percentage of public offering price)................ 4.5% None None
Sales charge on reinvested dividends................. None None None
Exchange fee......................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds).................. None(2) 5% 1%(3)
</TABLE>
ANNUAL FUND OPERATING EXPENSES(4)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management fees......................................... 1.00% 1.00% 1.00%
12b-1 fees(5)........................................... 0.25 1.00 1.00
Other expenses.......................................... 0.73 0.74 0.73
---- ---- ----
Total operating expenses................................ 1.98 2.74 2.73
==== ==== ====
</TABLE>
- --------
(1) Sales charge waivers are available for Class A and Class B shares, re-
duced sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent de-
ferred sales charge on Class B shares applies to redemptions during the first
year after purchase; the charge generally declines by 1% annually thereafter,
reaching zero after six years. See "Purchases."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If these shares are redeemed within one year of purchase, a con-
tingent deferred sales charge of 1% will be applied to the redemption. See
"Purchases."
(3) A contingent deferred sales charge of 1% will be applied to certain re-
demptions of Class C shares within one year of purchase. See "Purchases."
(4) See "Management" for additional information. All expenses are those actu-
ally incurred for the fiscal year ended July 31, 1995. The management fee paid
by the Fund is higher than that paid by most mutual funds.
(5) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees...................................... 0.25% 0.25% 0.25%
12b-1 distribution fees................................. 0.00 0.75 0.75
</TABLE>
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 (includ-
ing distribution fees) than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
4
<PAGE>
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(1)................. $64 $104 $147 $265
Class B Shares:
Assuming a complete redemption
at end of period(2)(3)......... $78 $115 $165 $272
Assuming no redemption(3)....... $28 $ 85 $145 $272
Class C Shares:
Assuming a complete redemption
at the end of period(2)........ $38 $ 85 $144 $306
Assuming no redemption.......... $28 $ 85 $144 $306
</TABLE>
- --------
(1) Assumes deduction at the time of purchase of the maximum 4.5% initial
sales charge.
(2) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(3) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund's actual expenses will depend upon, among other things, the level of
average net assets and the extent to which the Fund incurs variable expenses,
such as transfer agency costs.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class A
share, one Class B share and one Class C share for each of the periods shown.
This information is supplemented by the financial statements and accompanying
notes appearing in the Fund's Annual Report to Shareholders for the fiscal
year ended July 31, 1995, which are incorporated by reference into the State-
ment of Additional Information. The financial statements and notes, as well as
the information appearing in the table below, have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon is included in
the Annual Report to Shareholders. Further information about the Fund's per-
formance is also included in the Annual Report to Shareholders, which may be
obtained without charge.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C(2)
-------------------------------- ---------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR PERIOD YEAR YEAR PERIOD FOR THE YEAR PERIOD FOR THE
ENDED ENDED ENDED ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
JULY 31, JULY 31, JANUARY 31, JULY 31, JULY 31, JANUARY 31, JULY31, JULY31, JANUARY 31,
1995 1994 1994 1995 1994 1994 1995 1994 1994
-------- -------- ----------- -------- -------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.27 $10.61 $10.00 $ 10.22 $10.60 $10.00 $ 10.22 $10.59 $10.00
------- ------ ------ ------- ------ ------ ------- ------ ------
Income from investment
operations:
Net investment income
(loss)............... 0.05 0.02 0.13 (0.04) (0.02) 0.06 (0.05) (0.02) 0.06
Net realized and
unrealized gains
(losses) from
investment
transactions......... 1.50 (0.36) 0.62 1.49 (0.36) 0.62 1.49 (0.35) 0.62
---- ----- ---- ---- ----- ---- ---- ----- ----
Total income (loss) from
investment operations.. 1.55 (0.34) 0.75 1.45 (0.38) 0.68 1.44 (0.37) 0.68
---- ----- ---- ---- ----- ---- ---- ----- ----
Less dividends and
distributions to
shareholders from:
Net investment income... -- -- (0.12) -- -- (0.06) -- 0.00 (0.07)
Net realized gains on
investment transac-
tions.................. (0.52) 0.00 (0.02) (0.52) 0.00 (0.02) (0.52) 0.00 (0.02)
----- ---- ----- ----- ---- ----- ----- ---- -----
Total dividends and dis-
tributions............. (0.52) 0.00 (0.14) (0.52) 0.00 (0.08) (0.52) 0.00 (0.09)
----- ---- ----- ----- ---- ----- ----- ---- -----
Net asset value, end of
period................. $ 11.30 $10.27 $10.61 $ 11.15 $10.22 $10.60 $ 11.14 $10.22 $10.59
======= ====== ====== ======= ====== ====== ======= ====== ======
Total investment return
(1).................... 15.80% (3.20)% 7.58% 14.86% (3.58)% 6.81% 14.76 % (3.49)% 6.77%
===== ===== ==== ===== ===== ==== ===== ===== ====
Ratios/Supplemental
Data:
Net assets, end of
period (000's) ........ $20,494 $22,848 $25,226 $46,142 $52,624 $59,993 $13,263 $16,285 $20,941
Ratio of expenses to
average net assets..... 1.98% 1.91%* 1.75% 2.74% 2.69%* 2.50% 2.73% 2.69%* 2.50%
Ratio of net investment
income (loss) to
average net assets..... 0.41% 0.41%* (1.41)% (0.35)% (0.37)%* 0.67% (0.34)% (0.36)%* 0.64%
Portfolio turnover rate. 19% 20% 98% 19% 20% 98% 19% 20% 98%
</TABLE>
- -------
* Annualized
(1) Total 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 date, and a sale at net asset value on the
last day of each period reported. The figures do not include sales charges;
results would be lower if sales charges were included. Total return informa-
tion for periods less than one year is not annualized.
(2) Formerly Class D shares.
6
<PAGE>
FLEXIBLE PRICING SYSTEM
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge struct-ures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales Service fee of 0.25% Initial sales charge
charge of 4.5% of the waived or reduced for
public offering price certain purchases
CLASS B Maximum contingent Service fee of 0.25%; Shares convert to Class A
deferred sales charge of distribution fee of 0.75% shares approximately six
5% of redemption years after issuance
proceeds; declines to
zero after six years
CLASS C Contingent deferred sales Service fee of 0.25%; --
charge of 1.00% of distribution fee of 0.75%
redemption proceeds for
first year
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the on-going annual expenses
described below, as well as any other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this ini-
tial sales charge, not all of a Class A shareholder's purchase price is in-
vested in the Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge of up to 5% of the redemption proceeds applies
to redemptions made within six years of purchase. Class C shareholders pay no
initial sales charges, although a contingent deferred sales charge of 1.00% ap-
plies to certain redemptions made within one year after purchase. Thus, the en-
tire amount of a Class B or Class C shareholder's purchase price is immediately
invested in the Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$50,000 and Class A share purchases made under the Fund's reduced sales charge
plans may be made at a reduced sales charge. In considering the combined cost
of sales charges and ongoing annual expenses, investors should take into ac-
count any reduced sales charges on Class A shares for which they may be eligi-
ble.
The entire initial sales charge on Class A shares is waived for certain eli-
gible investors. Because Class A shares bear lower ongoing annual expenses than
Class B shares or Class C shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of 0.25% of average daily net assets. Class B and Class C shares
pay an annual 12b-1
7
<PAGE>
distribution fee of 0.75% of average daily net assets. Annual 12b-1 distribu-
tion fees are a form of asset-based sales charge. An investor should consider
both ongoing annual expenses and initial or contingent deferred sales charges
in estimating the costs of investing in the respective Classes of Fund shares
over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on the Fund's Class B or Class C shares and the 4.5% maximum initial sales
charge on the Fund's Class A shares would all be approximately equal if the
shares were held for six years. Because Class B shares convert to Class A
shares (which do not bear the expense of ongoing distribution fees) approxi-
mately six years after purchase, an investor expecting to hold Fund shares for
longer than six years would generally pay lower cumulative expenses by purchas-
ing Class A or Class B shares than by purchasing Class C shares. An investor
expecting to hold Fund shares for less than six years would generally pay lower
cumulative expenses by purchasing Class C shares than by purchasing Class A
shares, and due to the contingent deferred sales charges that would become pay-
able on redemption of Class B shares, such an investor would generally pay
lower cumulative expenses by purchasing Class C shares than Class B shares.
The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net as-
set value of Fund shares, which will affect the actual amount of expenses paid.
Expenses borne by Classes will differ slightly because of the allocation of
other Class-specific expenses. The "Example of Effect of Fund Expenses" under
"Prospectus Summary" shows the cumulative expenses an investor would pay over
time on a hypothetical investment in each Class of Fund shares, assuming an an-
nual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensa-
tion for selling one particular Class of Fund shares rather than another. In-
vestors should understand that distribution fees and initial and contingent de-
ferred sales charges all are intended to compensate Mitchell Hutchins for dis-
tribution services.
See "Purchases," "Redemptions" and "Management" for a more complete descrip-
tion of the initial and contingent deferred sales charges, service fees and
distribution fees for the three Classes of shares of the Fund. See also "Con-
version of Class B Shares," "Dividends and Taxes," "Valuation of Shares" and
"General Information" for other differences among the three Classes.
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective is to achieve long-term capital appreciation.
Under normal circumstances, at least 65% of the Fund's total assets is invested
in equity securities, including common stocks, convertible preferred stocks,
convertible debt securities, warrants and U.S. dollar-denominated foreign eq-
uity securities, including American Depository Receipts ("ADRs"), of small cap
companies. For purposes of the foregoing, "small cap" companies are companies
that, at the time of purchase, have market capitalizations between $250 million
and $1 billion.
Small cap companies may be more vulnerable than larger companies to adverse
business or economic developments. Small cap companies may also have limited
product lines, mar-
8
<PAGE>
kets or financial resources, and may be dependent on a relatively small manage-
ment group. Securities of such companies may be less liquid and more volatile
than securities of larger companies or the market averages in general and
therefore may involve greater risk than investing in larger companies. In addi-
tion, small cap companies may not be well-known to the investing public, may
not have institutional ownership and may have only cyclical, static or moderate
growth prospects.
In selecting securities for the Fund, the Sub-Adviser uses a value approach
in attempting to identify and invest in securities that it considers to be un-
dervalued based on balance sheet and cash flow analysis and the relationships
these factors have to the price of a given security. The Sub-Adviser's invest-
ment approach is based on its belief that the securities of small cap companies
may sell at a discount from its estimate of such companies' business worth. The
Sub-Adviser invests in such securities with the expectation that this value
discount will narrow over time and thus provide capital appreciation for the
Fund's portfolio. Under normal circumstances, the Fund expects to maintain se-
curities of at least 100 different issuers in its portfolio.
The Fund may invest up to 35% of its total assets in common stocks, convert-
ible preferred stocks, convertible debt securities, warrants and ADRs of compa-
nies that are smaller or larger than small cap companies as defined above, non-
convertible preferred stocks, non-convertible debt securities, U.S. government
securities and high quality money market instruments such as U.S. government
obligations, commercial paper, certificates of deposit and bankers' accept-
ances. U.S. government securities include direct obligations of the U.S. Trea-
sury as well as obligations of U.S. government agencies and instrumentalities
backed by the U.S. Treasury or solely or primarily by the credit of the issuer.
There can be no assurance that the Fund will achieve its investment objec-
tive. The Fund's net asset value will fluctuate based on changes in the value
of its portfolio securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Fund may invest up to 25% of
its total assets in U.S. dollar-denominated equity securities of foreign is-
suers that are traded on recognized U.S. exchanges or in the U.S. over-the-
counter market. These investments may involve special risks, arising both from
political and economic developments abroad and differences between foreign and
U.S. regulatory systems. Foreign economies may differ favorably or unfavorably
from the U.S. economy in various respects, and many foreign securities may be
less liquid and their prices more volatile than comparable U.S. securities.
OTHER INFORMATION. When the Sub-Adviser believes unusual circumstances war-
rant a defensive posture, the Fund temporarily may commit all or a portion of
its assets to cash or money market instruments, including repurchase agree-
ments. Repurchase agreements are transactions in which the Fund purchases secu-
rities from a bank or recognized securities dealer and simultaneously commits
to resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity
of the purchased securities. Repurchase agreements carry certain risks not as-
sociated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the Fund
if the other party to the repurchase agreement becomes insolvent. The Fund in-
tends to enter into repurchase agreements only with banks and dealers in trans-
actions believed by the Sub-Adviser to present minimal credit risks in accor-
dance with guidelines established by the Trust's board of trustees.
9
<PAGE>
The Fund may borrow money for temporary purposes and may engage in reverse
repurchase agreements, but not in excess of 10% of its total assets, and is
authorized to lend up to 10% of the total value of its portfolio securities to
broker-dealers or institutional lenders.
The Fund will not invest in debt securities rated Ba or lower by Moody's In-
vestors Service, Inc. ("Moody's"), BB or lower by Standard & Poor's Ratings
Group ("S&P"), comparably rated by another nationally recognized statistical
rating organization ("NRSRO") or, if unrated, determined by the Sub-Adviser to
be of comparable quality if, as a result, more than 5% of the Fund's net as-
sets would be invested in such debt securities. Debt securities rated Ba or
lower by Moody's, BB or lower by S&P or comparably rated by another NRSRO are
below investment grade, are deemed by those agencies to be predominantly spec-
ulative with respect to the issuer's capacity to pay interest and repay prin-
cipal and may involve major risk exposure to adverse conditions. The Fund does
not expect to invest any of its assets in debt securities that are rated lower
than Caa by Moody's, CCC by S&P, comparably rated by another NRSRO or, if
unrated, determined by the Sub-Adviser to be of comparable quality. In the
event that, due to a downgrade of one or more debt securities, an amount in
excess of 5% of the Fund's net assets is held in securities rated below in-
vestment grade and comparable unrated securities, the Sub-Adviser will engage
in an orderly disposition of such securities to the extent necessary to ensure
that the Fund's holdings of such securities do not exceed 5% of the Fund's net
assets.
The Fund's investment objective and certain investment limitations as de-
scribed in the Statement of Additional Information are fundamental policies
that may not be changed without shareholder approval. All other investment
policies may be changed by the Trust's board of trustees without shareholder
approval.
PURCHASES
GENERAL. Class A shares of the Fund are sold to investors subject to an ini-
tial sales charge. Class B shares of the Fund are sold without an initial
sales charge but are subject to higher ongoing expenses than Class A shares
and a contingent deferred sales charge payable upon certain redemptions. Class
B shares automatically convert to Class A shares approxi- mately six years af-
ter issuance. Class C shares are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and a contingent de-
ferred sales charge of 1.00% payable on certain redemptions made within one
year of purchase. Class C shares do not convert into another Class. See "Flex-
ible Pricing System" and "Conversion of Class B Shares."
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Trans-
fer Agent. Investors may contact a local PaineWebber office to open a
PaineWebber account. The minimum initial investment is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, by certain pension
plans and retirement accounts and by participants in the Fund's automatic in-
vestment plan. Purchase orders will be priced at the net asset value per share
next determined (see "Valuation of Shares") after the order is received by
PaineWebber's New York City offices or by the Transfer Agent, plus any appli-
cable sales charge for the Class A shares. The Fund and Mitchell Hutchins re-
serve the right to reject any purchase order and to suspend the offering of
the Fund's shares for a period of time.
When placing purchase orders, investors should specify whether the order is
for Class A, Class B or Class C shares. All share purchase
10
<PAGE>
orders that fail to specify a Class will automatically be invested in Class A
shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or corre- spondent firms may be made in per-
son or by mail, telephone or wire; the minimum wire purchase is $1 million. In-
vestment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for a purchase with checks drawn on U.S. banks or with funds held in bro-
kerage accounts at PaineWebber or its correspondent firms. Payment is due on
the third Business Day after the order is received at PaineWebber's New York
City offices. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber cli-
ents may purchase shares of the Fund through the Transfer Agent. Shares of the
Fund may be purchased, and an account with the Fund established, by completing
and signing the purchase application at the end of this Prospectus and mailing
it, together with a check to cover the purchase, to the Transfer Agent: PFPC
Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware
19899. Subsequent investments need not be accompanied by an application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:
INITIAL SALES CHARGE SCHEDULE--CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF DISCOUNT TO SELECTED
----------------------------------------- DEALERS AS A PERCENTAGE
OFFERING NET AMOUNT INVESTED OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE
- -------------------- -------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00 4.17 3.75
$100,000
to $249,999 3.50 3.63 3.25
$250,000
to $499,999 2.50 2.56 2.25
$500,000
to $999,999 1.75 1.78 1.50
$1,000,000 and
over(1) None None 1.00
</TABLE>
- --------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own re-
sources. Redemptions of shares purchased at net asset value within one year of
purchase will be subject to a contingent deferred sales charge of 1.00%. See
"Contingent Deferred Sales Charge--Class A Shares."
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the Securities Act of 1933.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are avail-
able without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares
11
<PAGE>
made without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber mutual funds, their spouses, parents and children and advisory cli-
ents of Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the purchase
is made through a PaineWebber investment executive who formerly was employed as
a broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing bro-
kerage firm, (2) within 90 days of the purchase of Class A shares the purchaser
redeemed shares of one or more mutual funds for which that competing firm or
its affiliates was principal underwriter, provided the purchaser either paid a
sales charge to invest in those funds, paid a contingent deferred sales charge
upon redemption or held shares of those funds for the period required not to
pay the otherwise applicable contingent deferred sales charge and (3) the total
amount of shares of all PaineWebber mutual funds purchased under this sales
charge waiver does not exceed the amount of the purchaser's redemption proceeds
from the competing firm's funds. To take advantage of this waiver, an investor
must provide satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment executives for
more information.
Certificate holders of unit investment trusts ("UITs") sponsored by
PaineWebber may acquire Class A shares of the Fund without regard to minimum
investment requirements and without sales charges by electing to have dividends
and other distributions from their UIT investment automatically invested in
Class A shares.
Class A shares of the Fund may be acquired without a sales charge if issued
by the Fund in connection with a reorganization pursuant to which the Fund ac-
quires substantially all of the assets and liabilities of another investment
company in exchange solely for shares of the Fund.
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES. Purchase of Class A shares
of $1 million or more may be made without a sales charge. Purchases of Class A
shares of two or more PaineWebber mutual funds may be combined for the purpose,
and the right of accumulation also applies to such purchases. See "Reduced
Sales Charge Plans--Class A Shares" below. If a shareholder redeems any Class A
shares that were purchased without a sales charge by reason of a purchase of $1
million or more within one year after the date of purchase, a contingent de-
ferred sales charge of 1% of the net asset value of the redeemed shares (com-
puted as described below under "Contingent Deferred Sales Charge--Class B
Shares") will be applied to the redemption. Class A shares that are redeemed
will not be subject to the contingent deferred sales charge, however, to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets, (2) reinvestment of dividends or capital gain distributions or (3)
Class A shares redeemed more than one year after their purchase. The contingent
deferred sales charge for Class A shares will be waived for redemptions in con-
nection with the systematic withdrawal plan. Class A shares of the Fund that
are purchased without a sales charge may be exchanged for Class A shares of an-
other fund without the imposition of a contingent deferred sales charge, al-
though contingent deferred sales charges may apply to the Class A shares ac-
quired through an exchange. For federal income tax purposes, the amount of the
contingent deferred sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on the redemption. The amount of any
contingent deferred sales charge will be paid to Mitchell Hutchins.
12
<PAGE>
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group
of related Fund investors purchases Class A shares of the Fund concurrently
with Class A shares of other PaineWebber mutual funds, the purchases may be
combined to take advantage of the reduced sales charge applicable to larger
purchases. In addition, the right of accumulation permits a Fund investor or
eligible group of related Fund investors to pay the lower sales charge applica-
ble to larger purchases by basing the sales charge on the dollar amount of
Class A shares currently being purchased, plus the net asset value of the in-
vestor's or group's total existing Class A shareholdings in other PaineWebber
mutual funds.
An "eligible group of related Fund investors" includes an individual, the in-
dividual's spouse, parents and children, the individual's individual retirement
account ("IRA"), certain companies controlled by the individual and employee
benefit plans of those companies, and trusts or Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts created by the individual or eli-
gible group of individuals for the benefit of the individual and/or the indi-
vidual's spouse, parents or children. The term also includes an employer or
group of related employers and one or more qualified retirement plans of such
employer or employers. For more information, an investor should consult the
Statement of Additional Information or contact a PaineWebber investment execu-
tive or correspondent firm or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price
of the Class B shares of the Fund is the next determined net asset value, and
no initial sales charge is imposed. A contingent deferred sales charge, howev-
er, is imposed upon certain redemptions of Class B shares.
Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1) capital
appreciation of Fund assets, (2) reinvestment of dividends or capital gain dis-
tributions or (3) shares redeemed more than six years after their purchase.
Otherwise, redemptions of Class B shares of the Fund will be subject to a con-
tingent deferred sales charge. The amount of any applicable contingent deferred
sales charge will be calculated by multiplying the applicable percentage shown
in the table below by the lower of (a) the net asset value of the shares at the
time of purchase or (b) the net asset value of the shares at the time of re-
demption:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
REDEMPTION NET ASSET VALUE
DURING AT REDEMPTION
---------- -----------------
<S> <C>
1st Year Since Purchase....................................... 5%
2nd Year Since Purchase....................................... 4
3rd Year Since Purchase....................................... 3
4th Year Since Purchase....................................... 2
5th Year Since Purchase....................................... 2
6th Year Since Purchase....................................... 1
7th Year Since Purchase....................................... None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will
be calculated from the date that the Class B shares were initially acquired in
one of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at the lowest possible
13
<PAGE>
rate. For federal income tax purposes, the amount of the contingent deferred
sales charge will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any contingent deferred sales
charge will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge
will be waived for exchanges, as described below, and for redemptions in con-
nection with the Fund's systematic withdrawal plan. In addition, the contingent
deferred sales charge will be waived for a total or partial redemption made
within one year of the death of the shareholder. The contingent deferred sales
charge waiver is available where the decedent is either the sole shareholder or
owns the shares with his or her spouse as a joint tenant with right of survi-
vorship. This waiver applies only to redemption of shares held at the time of
death. The contingent deferred sales charge will also be waived in connection
with a lump-sum or other distribution in the case of an IRA, a self-employed
individual retirement plan (so-called "Keogh Plan") or a custodial account un-
der Section 403(b) of the Internal Revenue Code following attainment of age 59
1/2; any total or partial redemption resulting from any distribution following
retirement in the case of a tax-qualified retirement plan; and a redemption re-
sulting from a tax-free return of an excess contribution to an IRA.
Contingent deferred sales charge waivers will be granted subject to confirma-
tion (by PaineWebber in the case of shareholders who are PaineWebber clients or
by the Transfer Agent in the case of all other shareholders) of the sharehold-
er's status or holdings, as the case may be.
PURCHASES OF CLASS C SHARES. The public offering price of the Class C shares
of the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. If a shareholder redeems
Class C shares within a year after the date of the purchase, a contingent de-
ferred sales charge of 1.00% of the net asset value of the redeemed shares
(computed as described above under "Contingent Deferred Sales Charge--Class B
shares") will be applied to the redemption. Class C shares that are redeemed
will not be subject to the contingent deferred sales charge, however, to the
extent that the value of such shares represents (1) capital appreciation of
Fund assets, (2) reinvestment of dividends or capital gain distributions or (3)
Class C shares redeemed more than one year after their purchase. THE CONTINGENT
DEFERRED SALES CHARGE FOR CLASS C SHARES WILL BE WAIVED FOR REDEMPTION IN CON-
NECTION WITH SYSTEMATIC WITHDRAWAL PLAN. Class C shares of the Fund that are
purchased without a sales charge may be exchanged for Class C shares of another
fund without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply to the Class C shares acquired
through an exchange. For federal income tax purposes, the amount of the contin-
gent deferred sales charge will reduce the gain or increase the loss, as the
case may be, on the amount realized on the redemption. The amount of any con-
tingent deferred sales charge will be paid to Mitchell Hutchins.
EXCHANGES
Shares of the Fund may be exchanged for shares of the corresponding Class of
the PaineWebber mutual funds listed below, or may be acquired through an ex-
change of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares
14
<PAGE>
being acquired, and no contingent deferred sales charge is imposed on the
shares being disposed of, through an exchange. However, contingent deferred
sales charges may apply to redemptions of Class B shares acquired through an
exchange. A $5.00 exchange fee is charged for each exchange, and exchanges may
be subject to minimum investment requirements of the fund into which exchanges
are made.
Exchanges are permitted with other PaineWebber funds, including:
PaineWebber Income Funds
. GLOBAL INCOME FUND
. 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 Income Funds
. CALIFORNIA TAX-FREE INCOME FUND
. MUNICIPAL HIGH INCOME FUND
. NATIONAL TAX-FREE INCOME FUND
. NEW YORK TAX-FREE INCOME FUND
PaineWebber Growth Funds
. CAPITAL APPRECIATION FUND
. EMERGING MARKETS EQUITY FUND
. FINANCIAL SERVICES GROWTH FUND
. GLOBAL EQUITY FUND
. GROWTH FUND
. SMALL CAP GROWTH FUND
PaineWebber Growth and Income Funds
. TACTICAL ALLOCATION FUND
. BALANCED FUND
. GROWTH AND INCOME FUND
. UTILITY INCOME FUND
PaineWebber Money Market Fund
PaineWebber clients must place exchange orders through their PaineWebber in-
vestment executives or correspondent firms. Shareholders who are not
PaineWebber clients must place exchange orders in writing with the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. All exchanges will be effected based on the relative net asset
values per share next determined after the exchange order is received at
PaineWebber's New York City offices or by the Transfer Agent. See "Valuation of
Shares." Shares of the Fund purchased through PaineWebber or its correspondent
firms may be exchanged only after the settlement date has passed and payment
for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange offer may be modified or terminated
at any time, upon at least 60 days' notice when such notice is required by SEC
rules. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber mutual fund shares to be acquired may be legally
made. Before making any exchange, shareholders should contact their PaineWebber
investment executives or correspondent firms or the Transfer Agent to obtain
more information and prospectuses of PaineWebber funds to be acquired through
the exchange.
REDEMPTIONS
Fund shares may be redeemed at their net asset value (subject to any applica-
ble contingent deferred sales charge) and redemption proceeds will be paid af-
ter receipt of a redemption request, as described below. PaineWebber clients
may redeem shares through PaineWebber or its correspondent firms; all other
shareholders must redeem through the Transfer Agent. If a redeeming shareholder
15
<PAGE>
owns shares of more than one Class, the shares will be redeemed in the follow-
ing order unless the shareholder specifically requests otherwise: Class A
shares, then Class C shares and finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within three Business Days, re-
purchase proceeds (less any applicable contingent deferred sales charge) will
be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and correspon-
dent firms are responsible for promptly forwarding redemption requests to
PaineWebber's New York City offices.
PaineWebber reserves the right not to honor a redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients must redeem their shares through the Transfer Agent by
mail; other shareholders also may redeem Fund shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. A redemption request will be executed at the net asset value
next computed after it is received in "good order" and redemption proceeds will
be paid within seven days of receipt of the request. "Good order" means that
the request must be accompanied by the following: (1) a letter of instruction
or a stock assignment specifying the number of shares or amount of investment
to be redeemed (or that all shares credited to a Fund account be redeemed),
signed by all registered owners of the shares in the exact names in which they
are registered, (2) a guarantee of the signature of each registered owner by an
eligible institution acceptable to the Transfer Agent and in accordance with
SEC rules, such as a commercial bank, trust company or member of a recognized
stock exchange, and (3) other supporting legal documents for estates, trusts,
guardianships, custodianships, partnerships and corporations. Shareholders are
responsible for ensuring that a request for redemption is received in "good or-
der."
ADDITIONAL INFORMATION ON REDEMPTIONS. Redemption proceeds of $1 million or
more may be wired to the shareholder's PaineWebber brokerage account or a com-
mercial bank account designated by the shareholder. Questions about this op-
tion, or redemption requirements generally, should be referred to the share-
holder's PaineWebber investment executive or correspondent firm, or to the
Transfer Agent if the shares are not held in a PaineWebber brokerage account.
If a shareholder requests redemption of shares which were purchased recently,
the Fund may delay payment until it is assured that good payment has been re-
ceived. In the case of purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder ac-
counts, the Fund reserves the right to redeem all Fund shares in any share-
holder account of less than $500 net asset value. If the Fund elects to do so,
it will notify the shareholder and provide the shareholder the opportunity to
increase the amount invested to $500 or more within 60 days of the notice. The
Fund will not redeem accounts that fall below $500 solely as a result of a re-
duction in net asset value per share.
16
<PAGE>
Shareholders who have redeemed Class A shares may reinstate their Fund ac-
count without a sales charge up to the dollar amount redeemed by purchasing
Class A shares of the Fund within 365 days after the redemption. To take advan-
tage of this reinstatement privilege, shareholders must notify their
PaineWebber investment executive or correspondent firm at the time the privi-
lege is exercised.
CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A shares
of the Fund approximately six years after the date of issuance, together with a
pro rata portion of all Class B shares representing dividends and other distri-
butions paid in additional Class B shares. The Class B shares so converted will
no longer be subject to the higher expenses borne by Class B shares. The con-
version will be effected at the relative net asset values per share of the two
Classes on the first Business Day of the month in which the sixth anniversary
of the issuance of the Class B shares occurs. See "Valuation of Shares." If a
shareholder effects one or more exchanges among Class B shares of the
PaineWebber mutual funds during the six-year period, the holding periods for
the shares so exchanged will be counted toward the six-year period.
OTHER SERVICES AND INFORMATION
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost aver-
aging." When under the plan a shareholder invests the same dollar amount each
month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through pe-
riods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class C Fund
shares with a value of $5,000 or more or Class B Fund shares with a value of
$20,000 or more may have PaineWebber redeem a portion of their Fund shares
monthly, quarterly or semi-annually under the Fund's systematic withdrawal
plan. No contingent deferred sales charge will be imposed on such withdrawals
for Class B or Class C shares. The minimum amount for all withdrawals of Class
A or Class C shares is $100, and minimum monthly, quarterly and semi-annual
withdrawal amounts for Class B shares are $200, $400 and $600, respectively.
Quarterly withdrawals are made in March, June, September and December, and
semi-annual withdrawals are made in June and December. A Class B shareholder of
the Fund may not withdraw an amount exceeding 12% annually of his or her "Ini-
tial Account Balance," a term
17
<PAGE>
that means the value of the Fund account at the time the shareholder elects to
participate in the systematic withdrawal plan. A Class B shareholder's partici-
pation in the systematic withdrawal plan will terminate automatically if the
Initial Account Balance (plus the net asset value on the date of purchase of
Fund shares acquired after the election to participate in the systematic with-
drawal plan), less aggregate redemptions made other than pursuant to the sys-
tematic withdrawal plan, is less than $20,000. Shareholders who receive divi-
dends or other distributions in cash may not participate in the Fund's system-
atic withdrawal plan. Purchases of additional shares concurrent with withdraw-
als are ordinarily disadvantageous to shareholders because of tax liabilities
and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Fund shares may be purchased through IRAs
available through the Fund. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering es-
tablishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding Fund shares in a PaineWebber
brokerage account transfers his brokerage account to another firm, the Fund
shares normally will be transferred to an account with the Transfer Agent. How-
ever, if the other firm has entered into a selected dealer agreement with
Mitchell Hutchins relating to the Fund, the shareholder may be able to hold
Fund shares in an account with the other firm.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund pays an annual dividend from its net investment income
and net short-term capital gain, if any. The Fund also distributes substan-
tially all of its net capital gain (the excess of net long-term capital gain
over net short-term capital loss) with the regular annual dividend. The Fund
may make additional distributions if necessary to avoid a 4% excise tax on cer-
tain undistributed income and capital gain. Dividends and other distributions
paid on all Classes of Fund shares are calculated at the same time and in the
same manner. Dividends on Class B and Class C shares of the Fund are expected
to be lower than those for its Class A shares because of the higher expenses
resulting from distribution fees borne by the Class B and Class C shares. Divi-
dends on each Class also might be affected differently by the allocation of
other class-specific expenses. See "Valuation of Shares."
Dividends and capital gain distributions are paid in additional Fund shares
of the same Class at net asset value unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and/or capital gain dis-
tributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber invest-
ment executives or correspondent firms or complete the appropriate section of
the application form.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code so that it will be relieved
of federal income tax on that part of its investment company taxable income
(consisting generally of net investment income and net short-term capital gain)
and net capital gain that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or in additional shares) generally are taxable to shareholders as ordinary
income. Distributions of the Fund's net capital gain (whether paid in cash or
in additional shares) are taxable to
18
<PAGE>
shareholders as long-term capital gain, regardless of how long they have held
their Fund shares. Shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.
The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year and of any portion of those dividends that qualifies for the divi-
dends-received deduction allowed to corporations.
The Fund is required to withhold 31% of all dividends, capital gain distribu-
tions and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and capital gain
distributions also is required for those shareholders who otherwise are subject
to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the redeem-
ing shareholder, depending upon whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares (which nor-
mally includes any initial sales charge paid on Class A shares). An exchange of
Fund shares for shares of another PaineWebber mutual fund generally will have
similar tax consequences. However, special tax rules apply when a shareholder
(1) disposes of Class A shares through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires Class A shares of a PaineWebber mu-
tual fund without paying a sales charge due to the 365-day reinstatement privi-
lege or exchange privilege. In these cases, any gain on the disposition of the
original Class A shares will be increased, or loss decreased, by the amount of
the sales charge paid when the shares were acquired, and that amount will in-
crease the basis of the PaineWebber mutual fund shares subsequently acquired.
In addition, if Fund shares are purchased within 30 days before or after re-
deeming Fund shares (regardless of Class) at a loss, that loss will not be de-
ductible to the extent the redemption proceeds are reinvested and will increase
the basis of the newly purchased shares.
No gain or loss will be recognized to a shareholder as a result of a conver-
sion of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax consid-
erations generally affecting the Fund and its shareholders; see the Statement
of Additional Information for a further discussion. There may be other federal,
state or local tax considerations applicable to a particular investor. Prospec-
tive shareholders are therefore urged to consult their tax advisers.
VALUATION OF SHARES
The net asset value of the Fund's shares fluctuates and is determined sepa-
rately for each Class as of the close of regular trading on the NYSE (currently
4:00 p.m., Eastern time) each Business Day. Net asset value per share is deter-
mined 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 outstand-
ing.
The Fund values its assets based on their current market value where market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation gener-
ally is used to value debt obligations with 60 days or less remaining until ma-
turity, unless the board of trustees determines that this does not represent
fair value.
19
<PAGE>
MANAGEMENT
The Trust's board of trustees, as part of its overall management responsi-
bility, oversees various organizations responsible for the Fund's day-to-day
management. Mitchell Hutchins, the Fund's investment adviser and administra-
tor, supervises the activities of the Sub-Adviser and all other aspects of the
Fund's operations. Quest Advisory Corp., as Sub-Adviser, makes and implements
all investment decisions. Brokerage transactions for the Fund may be conducted
through PaineWebber or its affiliates in accordance with procedures adopted by
the Trust's board of trustees.
Mitchell Hutchins receives a monthly fee for its services, computed daily
and payable monthly, at an annual rate of 1.00% of the Fund's average daily
net assets. This fee is higher than that paid by most other mutual funds, al-
though it is not higher than that paid by many funds whose investment objec-
tive is similar to that of the Fund.
Mitchell Hutchins (not the Fund) pays the Sub-Adviser a fee for its sub-in-
vestment advisory services, in an amount equal to 50% of the fee received by
Mitchell Hutchins from the Fund for advisory and administrative services.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund incurs other expenses and, for the fiscal year ended July 31,
1995, the Fund's total expenses for its Class A, Class B and Class C shares,
stated as a percentage of average net assets (annualized), were 1.98%, 2.74%
and 2.73%, respectively.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn a
wholly owned subsidiary of Paine Webber Group Inc., a publicly owned financial
services holding company. As of October 31, 1995, Mitchell Hutchins was ad-
viser or sub-adviser of investment companies with separate portfolios and
aggregate assets of over billion.
The Sub-Adviser is located at 1414 Avenue of the Americas, New York, New
York 10019. The Sub-Adviser is one of the largest and most experienced invest-
ment advisers dedicated to investing in securities of small cap companies. The
Sub-Adviser has managed client accounts investing primarily in equity securi-
ties of small cap companies since 1972. As of October 31, 1995, the Sub-Ad-
viser managed approximately billion of assets.
The Fund's portfolio has been managed since its inception by the Sub-Advis-
er's senior investment staff, including Charles M. Royce, the Sub-Adviser's
Chief Investment Officer, who is primarily responsible for supervising the
Sub-Adviser's investment management activities. Mr. Royce is assisted by W.
Whitney George and Jack E. Fockler, all of whom are Vice Presidents of the
Sub-Adviser and participate in the Sub-Adviser's investment management activi-
ties, with their specific responsibilities varying from time to time.
Mr. Royce is the President, Secretary and Treasurer and the sole director
and sole voting shareholder of the Sub-Adviser. He has been a director of the
Sub-Adviser since 1967.
Mr. George has been employed as a securities analyst by the Sub-Adviser
since 1991. Prior thereto he was a securities analyst with Dominick and Domi-
nick, Inc. (1989 to 1991) and WR Lazard, Laidlaw & Mead Incorporated (1988 to
1989).
20
<PAGE>
Mr. Fockler has been employed as a securities analyst and senior associate by
the Sub-Adviser since 1989. Prior thereto he was Regional Vice President of J.
& W. Seligman, Inc.
Mitchell Hutchins investment personnel may engage in securities transactions
for their own accounts pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares, Class B shares and Class C shares ("Class A Plan," "Class B Plan" and
"Class C Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins a
monthly service fee at the annual rate of 0.25% of the average daily net assets
of each Class of Fund shares and a monthly distribution fee at the annual rate
of 0.75% of the average daily net assets of the Class B and Class C shares.
Under all three Plans, Mitchell Hutchins uses the service fee primarily to
pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber passes on a portion of these fees to its investment execu-
tives to compensate them for shareholder servicing that they perform and re-
tains the remainder to offset its expenses in servicing and maintaining share-
holder accounts. These expenses may include costs of the PaineWebber branch of-
fice in which the investment executive is based, such as rent, communications
equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fee under the Class B and Class C
Plans to offset the commissions it pays to PaineWebber for selling Class B and
Class C shares. PaineWebber passes on to its investment executives a portion of
these commissions and retains the remainder to offset its expenses in selling
Class B and Class C shares. These expenses may include the branch office costs
noted above. Mitchell Hutchins may also use the distribution fees under the
Class B and Class C Plans to offset the Fund's marketing costs attributable to
such Classes, such as preparation of sales literature, advertising and printing
and distributing prospectuses and other shareholder materials to prospective
investors. Mitchell Hutchins also may use the distribution fees to pay other
costs allocated to Mitchell Hutchins' and PaineWebber's distribution activi-
ties, including employee salaries, bonuses and other overhead expenses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class C shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class C shares
until it has been reimbursed and thereafter will pass a portion of the service
and distribution fees on Class C shares on to its investment executives.
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution con-
tracts pertaining to each Class of Fund shares ("Distribution Contracts") obli-
gate the Fund to pay service and distribution fees to Mitchell Hutchins as com-
pensation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if Mitchell
21
<PAGE>
Hutchins' expenses exceed its service or distribution fees, the Fund will not
be obligated to pay more than those fees and, if Mitchell Hutchins' expenses
are less than such fees, it will retain its full fees and realize a profit. The
Fund will pay the service and distribution fees to Mitchell Hutchins until ei-
ther the applicable Plan or Distribution Contract is terminated or not renewed.
In that event, Mitchell Hutchins' distribution expenses in excess of service
and distribution fees received or accrued through the termination date will be
Mitchell Hutchins' sole responsibility and not obligations of the Fund. In
their annual consideration of the continuation of each Plan, the trustees will
review the Plan and Mitchell Hutchins' corresponding expenses for each Class
separately from the Plans and corresponding expenses for the other two Classes.
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compounded annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class A
shares of the Fund reflects deduction of the Fund's maximum initial sales charge
at the time of purchase, and standardized return for the Class C shares of the
Fund reflects deduction of the applicable contingent deferred sales charge
imposed on a redemption of shares held for the period. One-, five- and ten-year
periods will be shown, unless the Class has been in existence for a shorter
period. Total return calculations assume reinvestment of dividends and other
distributions.
The Fund may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
The Fund will include performance data for all three Classes of Fund shares
in any advertisements or promotional materials including Fund performance data.
Total return information reflects past performance and does not necessarily in-
dicate future results. Investment return and principal values will fluctuate,
and proceeds upon redemption may be more or less than a shareholder's cost.
GENERAL INFORMATION
ORGANIZATION. PaineWebber Securities Trust is registered with the SEC as an
open-end management investment company and was organized as a business trust
under the laws of the Commonwealth of Massachusetts by Declaration of Trust
dated December 3, 1992. The trustees have authority to issue an unlimited num-
ber of shares of beneficial interest of separate series, par value $.001 per
share. In addition to the Fund, shares of one other series have been autho-
rized.
The shares of beneficial interest in the Fund are divided into three Classes,
designated Class A shares, Class B shares and Class C shares. Each Class repre-
sents interests in the same assets of the Fund. The Classes differ as follows:
(1) each Class of shares has exclusive voting rights on matters pertaining to
its plan of distribution, (2) Class A shares are subject to an initial sales
charge, (3) Class B shares bear ongoing distribution fees, are subject to a
contingent deferred sales charge upon certain redemptions and will automati-
cally convert to Class A shares approximately six years after issuance, (4)
Class C shares are not subject to
22
<PAGE>
an initial sales charge, but are subject to a contingent deferred sales charge
of 1% payable on certain redemptions made within one year of purchase bear on-
going distribution fees and do not convert into another Class and (5) each
Class may bear differing amounts of certain Class-specific expenses. The board
of trustees of the Trust does not anticipate that there will be any conflicts
among the interests of the holders of the different Classes of shares of the
Fund. On an ongoing basis, the board of trustees will consider whether any
such conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be
no meetings of shareholders to elect trustees unless fewer than a majority of
the trustees holding office have been elected by shareholders. Shareholders of
record holding at least two-thirds of the outstanding shares of the Trust may
remove a trustee by votes cast in person or by proxy at a meeting called for
that purpose. The trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustee when so re-
quested in writing by shareholders of record holding at least 10% of the
Trust's outstanding shares. Each share of the Fund has equal voting rights,
except as noted above. Each share of the Fund is entitled to participate
equally in dividends and other distributions and the proceeds of any liquida-
tion, except that, due to the differing expenses borne by the four Classes,
dividends and liquidation proceeds of Class B and Class C shares are likely to
be lower than for the Class A shares.
To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded
on a stock register by the Transfer Agent and shareholders have the same
rights of ownership with respect to such shares as if certificates had been
issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heri-
tage Drive, North Quincy, Massachusetts 02171, is the custodian of the Fund's
assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose prin-
cipal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809, is
the Fund's transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of pur-
chases and redemptions of Fund shares. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
23
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Application Form
THE PAINEWEBBER [ ][ ] -[ ][ ][ ][ ][ ]-[ ][ ]
MUTUAL FUNDS PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).
Return this completed
ALSO, DO NOT USE THIS FORM TO OPEN A form to: PFPC Inc.
RETIREMENT PLAN ACCOUNT. FOR RETIREMENT P.O. Box 8950
PLAN FORMS OR FOR ASSISTANCE IN Wilmington, Delaware
COMPLETING THIS FORM CONTACT PFPC INC. 19899 ATTN:
AT 1-800-647-1568. PaineWebber Mutual
Funds
PLEASE PRINT
- --------------------------------------------------------------------------------
[1] INITIAL INVESTMENT ($1,000 MINIMUM)
ENCLOSED IS A CHECK FOR $ (payable to "PaineWebber
----
Small Cap Value Fund") to purchase Class A [_] Class B [_]
or Class C [_] shares
(Check one Class; if no Class is specified Class A will be
purchased)
[2] ACCOUNT REGISTRATION
Not valid 1. Individual
without / /
signature and ------------ ---------------- ---------------
Soc. Sec. or First Name Last Name MI Soc. Sec. No.
Tax ID #
- --As joint
tenants, use 2. Joint Tenancy
Lines 1 and 2 / /
- --As custodian ---------- ---------------- ---------------
for a minor, First Name Last Name MI Soc. Sec. No.
use Lines 1 and ("Joint Tenants with Rights of Survivorship"
3 unless otherwise specified)
- --In the name
of a
corporation, 3. Gifts to Minors
trust or other / /
organization or -------------------------- ---------------
any fiduciary Minor's Name Soc. Sec. No.
capacity, use
Line 4
Under the
-------------------------- Uniform Gifts to
State of Residence of Minor Minors Act /
Uniform Transfers
to Minors Act
4. Other Registrations
------------------------ ---------------
Name Tax Ident. No.
5. If Trust, Date of Trust Instrument:
---------------
[3] ADDRESS
------------------------------ U.S. Citizen
Street [_] YES [_] NO*
------------------------------ ------------------
City State Zip Code *Country of Citizenship
[4] DISTRIBUTION OPTIONS (See Prospectus)
Please select one of the following:
[ ] Reinvest both dividends and capital gain distributions
in additional shares
[ ] Pay dividends to my address above; reinvest capital gain
distributions
[ ] Pay both dividends and capital gains distributions to my
address above
[ ] Reinvest dividends and pay capital gain distributions in
cash to my address above
NOTE: If a selection is not made, both dividends and
capital gain distributions will be paid in additional
Fund shares of the same Class.
<PAGE>
[5] SPECIAL OPTIONS (For More Information--Check Appropriate Box)
[ ] Automatic Investment Plan [ ] Prototype IRA Application
[ ] Systematic Withdrawal Plan
[6] RIGHTS OF ACCUMULATION--CLASS A SHARES See Prospectus
Indicate here any other account(s) in the
group of funds that would qualify for the
cumulative quantity discount as outlined in
the Prospectus.
----------------------- ------------ -----------------------
Fund Name Account No. Registered Owner
----------------------- ------------ -----------------------
Fund Name Account No. Registered Owner
----------------------- ------------ -----------------------
Fund Name Account No. Registered Owner
[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
"Affiliated" persons are defined as officers, directors/trustees and
employees of the PaineWebber funds, PaineWebber or its affiliates, and
their parents, spouses and children.
--------------------------------------------------
Nature of Relationship
[8] SIGNATURE (S) AND TAX CERTIFICATION (S)
I warrant that I have full authority and am of legal age to purchase shares
of the Fund and have received and read a current Prospectus of the Fund and
agree to its terms. The Fund and its Transfer Agent will not be liable for
acting upon instructions or inquiries believed genuine. Under penalties of
perjury, I certify that (1) my taxpayer identification number provided in
this application is correct and (2) I am not subject to backup withholding
because (i) I have not been notified that I am subject to backup
withholding as a result of failure to report interest or dividends or (ii)
the IRS has notified me that I am no longer subject to backup withholding
(STRIKE OUT CLAUSE (2) IF INCORRECT).
------------------------------------ ------------------------ --------
Individual (or Custodian) Joint Registrant (if any) Date
------------------------------------ ------------------------ --------
Corporate Officer, Partner, Trustee, Title Date
etc.
[9] INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By Investment
Executive Only)
---------------------------- ----------------------------
Broker No./Name Branch Wire Code
( )
---------------------------- ----------------------------
Branch Address Telephone
[10] CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By Correspondent
Firm Only)
---------------------------- ----------------------------
Name Address
----------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950, WILMINGTON, DELAWARE
19899.
<PAGE>
Shares of the Fund can be exchanged for shares
of the following PaineWebber Mutual Funds:
PAINEWEBBER INCOME FUNDS
.Global Income Fund
.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 INCOME FUNDS
.California Tax-Free Income Fund
.Municipal High Income Fund
.National Tax-Free Income Fund
.New York Tax-Free Income Fund
PAINEWEBBER GROWTH FUNDS
.Capital Appreciation Fund
.Emerging Markets Equity Fund
.Global Equity Fund
.Growth Fund
.Financial Services Growth Fund
.Small Cap Growth Fund
PAINEWEBBER GROWTH AND INCOME FUNDS
.Balanced Fund
.Growth and Income Fund
.Tactical Allocation Fund
.Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
---------------
A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read it carefully before investing.
(C) 1995 PaineWebber Incorporated
LOGO Recycled Paper
PAINEWEBBER
SMALL CAP
VALUE FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 2
Financial Highlights....................................................... 6
Flexible Pricing System.................................................... 7
Investment Objective, Policies and Risk Considerations..................... 8
Purchases.................................................................. 10
Exchanges.................................................................. 14
Redemptions................................................................ 15
Conversion of Class B Shares............................................... 17
Other Services and Information............................................. 17
Dividends and Taxes........................................................ 18
Valuation of Shares........................................................ 19
Management................................................................. 20
Performance Information.................................................... 22
General Information........................................................ 22
</TABLE>
PROSPECTUS
November , 1995
<PAGE>
PAINEWEBBER SMALL CAP VALUE FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Small Cap Value Fund ("Fund") is a diversified series of a
professionally managed, open-end management investment company organized as a
Massachusetts business trust ("Trust"). The Fund seeks long-term capital
appreciation; it invests primarily in equity securities of small capitalization
("small cap") companies. The Fund's investment adviser, administrator and
distributor is Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"). The Fund's
sub-adviser is Quest Advisory Corp. ("Sub-Adviser"). As distributor for the
Fund, Mitchell Hutchins has appointed PaineWebber to serve as the exclusive
dealer for the sale of Fund shares. This Statement of Additional Information is
not a prospectus and should be read only in conjunction with the Fund's current
Prospectus, dated November , 1995. A copy of the Prospectus may be obtained by
calling any PaineWebber investment executive or correspondent firm or by
calling toll-free 1-800-647-1568. This Statement of Additional Information is
dated November , 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. 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.
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject.
<PAGE>
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. The Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by the
Fund upon acquisition is accrued as interest and included in the Fund's net
investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party
to a repurchase agreement becomes insolvent. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
the Sub-Adviser to present minimal credit risks in accordance with guidelines
established by the Trust's board of trustees. The Sub-Adviser will review and
monitor the creditworthiness of those institutions under the board's and
Mitchell Hutchins' general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks or dealers up to an aggregate value of not more than 10%
of the Fund's total assets, provided that the Fund will not purchase securities
while borrowings in excess of 5% of the Fund's total assets are outstanding.
Such agreements involve the sale of securities held by the Fund subject to the
Fund's agreement to repurchase the securities at an agreed-upon date and price
reflecting a market rate of interest. Such agreements are considered to be
borrowings and may be entered into only for temporary purposes. While a reverse
repurchase agreement is outstanding, the Fund will maintain with its custodian,
in a segregated account, cash, U.S. government securities or other liquid,
high-grade debt obligations, marked to market daily, in an amount at least
equal to the Fund's obligations under the reverse repurchase agreement.
LENDING OF PORTFOLIO SECURITIES. Although the Sub-Adviser has not previously
done so for its other accounts, the Fund is authorized to lend up to 10% of the
total value of its portfolio securities to broker-dealers or institutional
investors that the Sub-Adviser deems qualified, but only when the borrower
maintains with the Fund's custodian collateral either in cash or money market
instruments in an amount, marked to market daily, at least equal to the market
value of the securities loaned, plus accrued interest and dividends. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, the Sub-Adviser would consider, and during the period
of the loan would monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loans at any time. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. The Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Fund will regain
record ownership of loaned securities
2
<PAGE>
to exercise beneficial rights, such as voting and subscription rights and
rights to dividends, interest or other distributions, when regaining such
rights is considered to be in the Fund's interest.
INVESTMENT LIMITATIONS
The Fund may not (1) purchase securities of any one issuer (except U.S.
government securities) if as a result more than 5% of the Fund's total assets
would be invested in such issuer or the Fund would own or hold more than 10% of
the outstanding voting securities of that issuer, provided, however, that up to
25% of the value of the Fund's total assets may be invested without regard to
these limitations; (2) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions and except that the
Fund may make margin deposits in connection with its use of options, futures
contracts and options on futures contracts; (3) underwrite securities of other
issuers, except to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter under the federal
securities laws; (4) make short sales of securities or maintain a short
position, except that the Fund may make short sales and maintain short
positions in connection with its use of options, futures contracts and options
on futures contracts; (5) purchase or sell real estate, provided that the Fund
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein; (6) purchase or
sell commodities or commodity contracts, except that the Fund may purchase or
sell financial futures contracts, such as stock index, interest rate and bond
index futures contracts and options thereon; (7) invest in oil, gas or mineral-
related programs or leases; (8) make loans, except through loans of portfolio
securities as described herein and except through repurchase agreements;
provided that for purposes of this restriction the acquisition of bonds,
debentures, or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of loans; (9) purchase any
securities issued by any other investment company, except in connection with
the merger, consolidation or acquisition of all or substantially all the
securities or assets of such an issuer; (10) issue senior securities or borrow
money, except from banks for temporary purposes and for reverse repurchase
agreements, and then in an aggregate amount not in excess of 10% of the Fund's
total assets; provided further that the Fund will not purchase securities while
borrowings in excess of 5% of the Fund's assets are outstanding; or (11) make
an investment in any one industry if the investment would cause the aggregate
value of the Fund's investments in such industry to equal or exceed 25% of the
Fund's total assets. The Fund will interpret fundamental investment limitation
(5) to prohibit investment in real estate limited partnerships.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Fund or (b) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy. If a percentage restriction is adhered to at the
time of an investment or transaction, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations.
The following investment limitations may be changed by the Trust's board of
trustees without shareholder approval: the Fund may not (1) purchase or retain
the securities of any issuer if, to the
3
<PAGE>
knowledge of the Fund's management, the officers and trustees of the Trust and
the officers and directors of Mitchell Hutchins and the Sub-Adviser (each
owning beneficially as principal for its own account more than 0.5% of the
outstanding securities of an issuer) beneficially so own in the aggregate more
than 5% of the securities of the issuer; (2) purchase any security if as a
result more than 5% of the Fund's total assets would be invested in securities
of companies that together with any predecessors have been in continuous
operation for less than three years and in equity securities of issuers that
are not readily marketable; (3) invest more than 5% of its net assets in
securities of issuers that the Fund is restricted from selling to the public
without registration under the Securities Act of 1933; (4) invest in warrants,
valued at the lower of cost or market, in excess of 5% of the value of its net
assets, which amount may include warrants that are not listed on the New York
or American Stock Exchange, provided that such unlisted warrants, valued at the
lower of cost or market, do not exceed 2% of the Fund's net assets, and further
provided that this restriction does not apply to warrants attached to, or sold
as a unit with, other securities; or (5) invest more than 35% of its total
assets in non-convertible debt securities rated Ba or lower by Moody's
Investors Service, Inc. ("Moody's"), BB or lower by Standard & Poor's Ratings
Group ("S&P") or comparably rated by another nationally recognized statistical
rating organization ("NRSRO") (or, if unrated, determined by the Sub-Adviser to
be of comparable quality). See the Appendix to this Statement of Additional
Information for more information regarding Moody's and S&P's ratings. This non-
fundamental policy (5) can be changed only upon 60 days' advance notice to
shareholders.
4
<PAGE>
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
Richard Q. Armstrong; 59 Trustee Mr. Armstrong is chairman and principal
78 West Brother Drive of RQA Enterprises (management con-
Greenwich, CT 06830 sulting firm) (since April 1991 and
principal occupation since March
1995). Mr. Armstrong is also a direc-
tor 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 wa-
ters) (October 1993-March 1995). He
was a partner of the New England Con-
sulting 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, Luis
Vuitton Moet Hennessey Corporation)
(1987-1991) and chairman of its wine
and spirits subsidiary, Schieffelin &
Somerset Company (1987-1991). Mr Arm-
strong is also a director or trustee
of five other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment
adviser.
E. Garrett Bewkes, Jr; Trustee and Mr. Bewkes is a director of Paine Web-
69** Chairman of the ber Group Inc. ("PW Group") (holding
Board of Trustees company of PaineWebber and Mitchell
Hutchins) and a consultant to PW
Group. Prior to 1988, he was chairman
of the board, president and chief ex-
ecutive officer of American Bakeries
Company. Mr. Bewkes is also a director
of Interstate Bakeries Corporation and
a director or trustee of 26 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment
adviser.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
Richard R. Burt; 47 Trustee Mr. Burt is chairman of International
1101 Connecticut Avenue Equity Partners (international invest-
N.W. ments and consulting firm) (since
Washington, D.C. 20036 March 1994) and a partner of McKinsey
& Company (management consulting form)
(since 1991). He is also a director of
American Publishing Company. 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 also
a director or trustee of six other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
John R. Torell III; 56 Trustee Mr. Torell is chairman of Torell Man-
767 Fifth Avenue agement, Inc. (financial advisory
Suite 4605 firm) (since 1989), Chairman of
New York, NY 10153 Telesphere Corporation (financial in-
formation) and a partner of Zilkha &
Company (merchant bank and investment
company). Mr. Torell is also a direc-
tor of American Home Products Corp.,
COLT's Manufacturing Company and Volt
Information Sciences Inc. He is the
former chairman and chief executive
officer of Fortune Bancorp (1990-1991,
and 1991-1994, respectively). He is
the former chairman, president and
chief executive officer of CalFed,
Inc. (savings association holding com-
pany) (1988 to 1989) and former presi-
dent of Manufacturers Hanover Corp.
(bank) (prior to 1988). Mr. Torell is
a director of 8 other investment com-
panies for which Mitchell Hutchins
serves as investment adviser.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
William D. White; 61 Trustee Mr. White is retired. From February
P.O. Box 199 1989 through March 1994, he was pres-
Upper Black Eddy, PA ident of the National League of Pro-
18972 fessional Baseball Clubs. Prior to
1989, he was a television sports-
caster for WPIX-TV, New York. Mr.
White is also a director of 9 other
investment companies for which Mitch-
ell Hutchins serves as investment ad-
viser.
Margo N. Alexander; 48 President Ms. Alexander is president, chief ex-
ecutive officer and a director of
Mitchell Hutchins. Prior to January
1995, Ms. Alexander was an executive
vice president of PaineWebber. Ms.
Alexander is also president of 38
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Teresa M. Boyle; 37 First Vice Ms. Boyle is a vice president and man-
President ager--advisory administration of
Mitchell Hutchins. Prior to November
1993, she was compliance manager of
Hyperion Capital Management, Inc., an
investment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal adminis-
tration of Mitchell Hutchins. Ms.
Boyle is also a vice president of 38
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment
adviser.
Joan L. Cohen; 31 Vice President and Ms. Cohen is a vice president and at-
Assistant torney of Mitchell Hutchins. Prior to
Secretary December 1993, she was an associate
at the law firm of Seward & Kissel.
Ms. Cohen is also a vice president
and assistant secretary of 25 other
investment companies for which Mitch-
ell Hutchins or PaineWebber serves as
investment
adviser.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
Thomas J. Libassi; 36 Vice President Mr. Libassi is a senior vice president
of Mitchell Hutchins. Prior to May
1994, he was a vice president of Key-
stone Custodian Funds Inc. with port-
folio management responsibility. Mr.
Libassi is also a vice president of 3
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president
Assistant and the senior manager of the Fund
Treasurer Administration Division of Mitchell
Hutchins. Mr. Maher is also a vice
president and assistant treasurer of
38 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
</TABLE>
<TABLE>
<S> <C> <C>
Dennis McCauley; 48 Vice President Mr. McCauley is a managing director
and Chief Investment Officer--Fixed
Income of Mitchell Hutchins. Prior to
December 1994, he was Director of
Fixed Income Investments of IBM Cor-
poration. Mr. McCauley is also a vice
president of 20 other investment com-
panies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Ann E. Moran; 38 Vice President and Ms. Moran is a vice president of
Assistant Mitchell Hutchins. Ms. Moran is also
Treasurer a vice president and assistant trea-
surer of 38 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Dianne E. O'Donnell; 43 Vice President and Ms. O'Donnell is a first vice presi-
Secretary dent and senior associate general
counsel of Mitchell Hutchins. Ms.
O'Donnell is also a vice president
and secretary of 38 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
45 and general counsel of Mitchell
Hutchins. From April 1990 to May 1994,
she was a partner in the law firm of
Arnold & Porter. Prior to April 1990,
she was a partner in the law firm of
Shereff, Friedman, Hoffman & Goodman.
Ms. Schonfeld is also a vice president
of 38 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Nirmal Singh; 38 Vice President Mr. Singh is a vice president of Mitch-
ell Hutchins. Prior to 1993, he was a
member of the portfolio management
team at Merrill Lynch Asset Manage-
ment, Inc. Mr. Singh is also vice
president of 5 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of
Assistant Mitchell Hutchins. From August 1992 to
Treasurer August 1994, he was a vice president
at BlackRock Financial Management,
L.P. Prior to August 1992, he was an
audit manager with Ernst & Young LLP.
Mr. Schubert is also a vice president
and assistant treasurer of 38 other
investment companies for which Mitch-
ell Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters; 35 Vice President and Mr. Sluyters is a senior vice president
Treasurer and the director of the mutual fund
finance division of Mitchell Hutchins.
Prior to 1991, he was an audit senior
manager with Ernst & Young LLP. Mr.
Sluyters is also a vice president and
treasurer of 38 other investment com-
panies for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director and
chief investment officer--U.S. equity
investments 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 also vice president of 10
other investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Gregory K. Todd; 39 Vice President and Mr. Todd is a first vice president and
Assistant associate general counsel of Mitchell
Secretary Hutchins. Prior to 1993, he was a
partner in the law firm of Shereff,
Freidman, Hoffman & Goodman. Mr. Todd
is also a vice president and assistant
secretary of 38 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Craig M. Varrelman; 36 Vice President Mr. Varrelman is a first vice president
of Mitchell Hutchins. Mr. Varrelman is
also vice president of 4 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Stuart Waugh; 39 Vice President Mr. Waugh is a first vice president and
a portfolio manager of Mitchell
Hutchins responsible for global fixed
income investments and currency
trading. Mr. Waugh is also a vice
president of 4 other investment
companies for which Mitchell Hutchins
serves as investment adviser.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS EXPERIENCE;
NAME AND ADDRESS* WITH TRUST OTHER DIRECTORSHIPS
- ----------------- ---------- --------------------
<S> <C> <C>
Keith A. Weller; 34 Vice President and Mr. Weller is a first vice president
Assistant and associate general counsel of
Secretary Mitchell Hutchins. From September 1987
to March 1995, he was an attorney in
private practice. Mr. Weller is also a
vice president and assistant secretary
of 23 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mr. Bewkes is an "interested person" of the Trust, as defined in the
Investment Company Act of 1940 ("1940 Act"), by virtue of his position with
PW Group PaineWebber.
The Trust pays trustees who are not "interested persons" of the Trust $1,500
annually and $250 per meeting of the board or any committee thereof. Trustees
also are reimbursed for any expenses incurred in attending meetings. Trustees
and officers of the Fund own in the aggregate less than 1% of the shares of the
Fund. Because Mitchell Hutchins and PaineWebber perform substantially all of
the services necessary for the operation of the Trust, the Trust requires no
employees. No officer, director or employee of Mitchell Hutchins or PaineWebber
presently receives any compensation from the Trust for acting as a trustee or
officer.
The table below includes certain information relating to the compensation of
the Trust's trustees who held office during the fiscal year ended July 31,
1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees..... -- -- -- --
Richard Q. Armstrong,
Trustee................... $1,000 -- --
Richard R. Burt,
Trustee................... $ 563 -- --
John R. Torell III,
Trustee................... $1,563 -- -- $39,000
William D. White,
Trustee................... $1,563 -- -- $35,500
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended July 31,
1995.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.
11
<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract dated January 28,
1993 with the Trust ("Advisory Contract"). Under the Advisory Contract, the
Fund pays Mitchell Hutchins an annual fee of 1.00% of the Fund's average net
assets, computed daily and paid monthly. For the year ended July 31, 1995, the
six months ended July 31, 1994 and the fiscal year ended January 31, 1994, the
Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administrative fees of $829,906, $491,757 and $939,774, respectively.
The Advisory Contract authorizes Mitchell Hutchins to retain one or more sub-
advisers, but does not require Mitchell Hutchins to do so. Mitchell Hutchins
has entered into a separate contract with the Sub-Adviser, dated January 28,
1993 ("Sub-Advisory Contract"), pursuant to which the Sub-Adviser will
determine what securities will be purchased, sold or held by the Fund. Under
the Sub-Advisory Contract, Mitchell Hutchins (not the Fund) pays the Sub-
Adviser a monthly fee of 50% of the fee paid by the Fund to Mitchell Hutchins
under the Advisory Contract. For the year ended July 31, 1995, the six months
ended July 31, 1994 and the fiscal year ended January 31, 1994, Mitchell
Hutchins (not the Fund) paid or accrued to the Sub-Adviser $414,953, $245,878
and $469,887, respectively in investment sub-advisory fees.
Pursuant to a service agreement with the Fund, PaineWebber provides certain
services to the Fund not otherwise provided by its transfer agent. The
agreement is reviewed by the Trust's board of trustees annually. For the year
ended July 31, 1995, the six months ended July 31, 1994 and the fiscal year
ended January 31, 1994, PaineWebber earned fees under the service agreement in
the amount of $72,929, $26,353 and $47,661, respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees and officers who are not interested
persons (as defined in the 1940 Act) of the Trust or Mitchell Hutchins; (6) all
expenses incurred in connection with the trustees' services, including travel
expenses; (7) taxes (including any income or franchise taxes) and governmental
fees; (8) costs of any liability, uncollectable items of deposit and other
insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Trust or
Fund for violation of any law; (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees; (11)
charges of custodians, transfer agents and other agents; (12) costs of
preparing share certificates; (13) expenses of setting in type and printing
prospectuses, statements of additional information and supplements thereto,
reports and proxy materials for existing shareholders, and costs of mailing
such materials to shareholders; (14) any extraordinary expenses (including fees
and disbursements of counsel) incurred by the Fund; (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof;
(17) the cost of investment company literature and other
12
<PAGE>
publications provided to trustees and officers; and (18) costs of mailing,
stationery and communications equipment. The Sub-Adviser will bear all expenses
incurred by it in connection with its services under the Sub-Advisory Contract.
As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees and extraordinary items, are excluded from this limitation. For the year
ended July 31, 1995, the six months ended July 31, 1994 and the fiscal year
ended January 31, 1994, no reimbursements were required to the Fund pursuant to
such limitations.
Under the Advisory Contract, neither Mitchell Hutchins nor the Sub-Adviser
will be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust, the Fund or any of its shareholders in connection with
the performance of the Advisory Contract or the Sub-Advisory Contract, except
to the extent that such loss results from willful misfeasance, bad faith or
gross negligence on the part of Mitchell Hutchins or the Sub-Adviser in the
performance of its duties or from reckless disregard of its obligations and
duties thereunder. Under the Sub-Advisory Contract, the Sub-Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust, the Fund, its shareholders or Mitchell Hutchins in connection with
the performance of the Sub-Advisory Contract, except to the extent that such a
loss results from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under the Sub-Advisory Contract.
The Advisory Contract terminates automatically upon assignment and is
terminable at any time without penalty by the board of trustees or by vote of
the holders of a majority of the Fund's outstanding voting securities on 60
days' written notice to Mitchell Hutchins, or by Mitchell Hutchins on 60 days'
written notice to the Fund. The Sub-Advisory Contract terminates automatically
upon its assignment or the termination of the Advisory Contract and is
terminable at any time without penalty by the board of trustees or by vote of
the holders of a majority of the Fund's outstanding voting securities on 60
days' written notice to the Sub-Adviser, by Mitchell Hutchins on 120 days'
written notice to the Sub-Adviser or by the Sub-Adviser on 120 days' written
notice to Mitchell Hutchins.
The following table shows the approximate net assets as of October 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET
INVESTMENT ASSETS
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>
13
<PAGE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber mutual funds and other Mitchell Hutchins'
advisory accounts by all Mitchell Hutchins' directors, officers and employees,
establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber and other Mitchell
Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Fund's Class A, Class B and Class C shares under separate distribution
contracts with the Trust dated July 7, 1993 and November 10, 1995
(collectively, "Distribution Contracts") that require Mitchell Hutchins to use
its best efforts, consistent with its other businesses, to sell shares of the
Fund. Shares of the Fund are offered continuously. Under separate exclusive
dealer agreements between Mitchell Hutchins and PaineWebber dated July 7, 1993
and November 10, 1995 relating to the Class A, Class B and Class C shares of
the Fund (collectively, "Exclusive Dealer Agreements"), PaineWebber and its
correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares of the Fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class 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 Fund shares. Under the Class B Plan and the
Class C Plan, the Fund also pays Mitchell Hutchins a monthly distribution fee
at the annual rate of 0.75% of the average daily net assets of the Class B and
Class C shares, respectively.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the Trust's board of trustees at least quarterly, and the trustees will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect
only so long as it is approved at least annually, and any material amendment
thereto is approved, by the Trust's board of trustees, including those trustees
who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose, (3)
payments by the Fund under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the Fund's outstanding
voting securities and (4) while the Plan remains in effect, the selection and
nomination of trustees who are not "interested persons" of the Trust shall be
committed to the discretion of the trustees who are not interested persons of
the Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins will allocate expenses attributable to the sale of each Class of Fund
shares to such Class based on the ratio of sales of shares of such Class to the
sales of all three Classes of shares. The fees paid by one Class of Fund shares
will not be used to subsidize the sale of any other Class of Fund shares.
14
<PAGE>
The Fund paid (or accrued) the following fees to Mitchell Hutchins under the
Plans during the fiscal year ended July 31, 1995:
<TABLE>
<S> <C>
Class A................................................................ $ 52,327
Class B................................................................ $477,586
Class C................................................................ $143,010
</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 July 31, 1995:
<TABLE>
<S> <C> <C> <C>
Class A Class B Class C
------- -------- -------
Marketing and advertising............................. $14,837 $ 30,560 $16,471
Amortization of commissions........................... $ N/A $275,572 $19,563
Printing of prospectuses and statements of additional
information.......................................... $ 752 $ 1,534 $ 846
Branch network costs allocated and interest expense... $73,877 $182,972 $82,384
Service fees paid to PaineWebber investment execu-
tives................................................ $23,548 $ 53,729 $16,089
</TABLE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network
costs allocated and interest expense" consist of an allocated portion of the
expenses of various PaineWebber departments involved in the distribution of
the Fund's shares, including the PaineWebber retail branch system.
In approving the Fund's overall Flexible Pricing SM system of distribution,
the Trust's board of trustees considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby
encouraging existing shareholders to make additional investments in the Fund
and attracting new investors and assets to the Fund to the benefit of the Fund
and its shareholders, (2) facilitate distribution of the Fund's shares and (3)
improve the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution
arrangements.
In approving the Class A Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales load combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the conditions under which
contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from the Fund purchase payments and instead having the entire amount
of
15
<PAGE>
their purchase payments immediately invested in Fund shares, (3) Mitchell
Hutchins' belief that the ability of PaineWebber investment executives and
correspondent firms to receive sales commissions when Class B shares are sold
and continuing service fees thereafter while their customers invest their
entire purchase payments immediately in Class B shares would prove attractive
to the investment executives and correspondent firms, resulting in greater
growth of the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The trustees also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives, without the concomitant
receipt by Mitchell Hutchins of initial sales charges, was conditioned upon its
expectation of being compensated under the Class B Plan.
In approving the Class C Plan for the Fund, the trustees considered all the
features of the distribution system, including (1) the advantage to investors
in having no initial sales charges deducted from the Fund's purchase payments
and instead having the entire amount of their purchase payments immediately
invested in Fund shares, (2) the advantage to investors in being free from
contingent deferred sales charges upon redemption for shares held more than one
year and paying for distribution on an ongoing basis, (3) Mitchell Hutchins'
belief that the ability of PaineWebber investment executives and correspondent
firms to receive sales compensation for their sales of Class C shares on an
ongoing basis, along with continuing service fees, while their customers invest
their entire purchase payments immediately in Class C shares and generally do
not face contingent deferred sales charges, would prove attractive to the
investment executives and correspondent firms, resulting in greater growth to
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The trustees also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives without the concomitant
receipt by Mitchell Hutchins of initial sales charges or contingent deferred
sales charges upon redemption was conditioned upon its expectation of being
compensated under the Class C Plan.
With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees which
are calculated based upon a percentage of the average net assets of the Fund,
which fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.
Under the Distribution Contract between the Trust and Mitchell Hutchins for
the Class A shares, for the year ended July 31, 1995, the six months ended July
31, 1994, and the fiscal year ended January 31, 1994 Mitchell Hutchins earned
approximately $41,750, $32,208 and $815,987, respectively, in sales charges and
retained approximately $23,505, $1,845 and $49,325, respectively, net of
concessions to PaineWebber as exclusive dealer.
16
<PAGE>
For the year ended July 31, 1995, the six months ended July 31, 1994 and the
fiscal year ended January 31, 1994, Mitchell Hutchins earned and retained
approximately $344,638, $191,211 and $232,538, respectively in contingent
deferred sales charges paid upon certain redemptions of Class B shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board of trustees of the Trust, the
Sub-Adviser is responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, the Sub-Adviser seeks to obtain the best net results
for the Fund, taking into account such factors as the price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved. Prices paid to
dealers in principal transactions, through which most debt securities and some
equity securities are traded, generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. The Fund may invest in securities traded
in the over-the-counter ("OTC") market and will engage primarily in
transactions directly with the dealers who make markets in such securities,
unless a better price or execution could be obtained by using a broker. While
the Sub-Adviser generally seeks reasonably competitive commission rates and
dealer spreads, payment of the lowest commission or spread is not necessarily
consistent with obtaining the best net results. For the year ended July 31,
1995, the six months ended July 31, 1994 and the fiscal year ended January 31,
1994, the Fund paid approximately $120,717, $113,315 and $349,051 respectively
in brokerage commissions.
The Sub-Adviser has no obligation to deal with any broker or group of brokers
in the execution of portfolio transactions for the Fund. The Sub-Adviser
contemplates that, consistent with the policy of obtaining the best net
results, brokerage transactions for the Fund may be conducted through Mitchell
Hutchins or its affiliates, including PaineWebber. The Trust's board of
trustees has adopted procedures in conformity with Rule 17e-1 under the 1940
Act to ensure that all brokerage commissions paid to Mitchell Hutchins or its
affiliates are reasonable and fair. Specific provisions in the Advisory
Contract authorize Mitchell Hutchins and any of its affiliates that is a member
of a national securities exchange to effect portfolio transactions for the Fund
on such exchange and authorize Mitchell Hutchins and any of its affiliates to
retain compensation in connection with such transactions. Any such transactions
will be effected and related compensation paid only in accordance with
applicable regulations of the SEC. For the fiscal year ended July 31, 1995, the
Fund paid $665 in commissions to PaineWebber, for the six months ended July 31,
1994 and the fiscal year ended January 31, 1994, the Fund paid no brokerage
commissions to PaineWebber or any other affiliate of Mitchell Hutchins.
Consistent with the interests of the Fund and subject to the review by the
Trust's board of trustees, the Sub-Adviser may, in its discretion, use brokers
who provide the Fund with research, analysis, advice and similar services to
execute portfolio transactions on behalf of the Fund. In return for such
brokerage and research services, the Sub-Adviser may pay to those brokers a
higher commission than may be charged by other brokers, provided that the Sub-
Adviser determines in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of the
Sub-Adviser and its affiliates to the Fund and their other clients and
17
<PAGE>
that the total commissions paid by the Fund will be reasonable in relation to
the benefits to the Fund over the long term. Research services furnished by
brokers through which the Fund effects securities transactions may be used by
the Sub-Adviser in advising other funds or accounts it manages and,
conversely, research services furnished to the Sub-Adviser in connection with
other funds or accounts the Sub-Adviser manages may be used by the Sub-Adviser
for the Fund. Information and research received from brokers will be in
addition to, and not in lieu of, the services required to be performed by the
Sub-Adviser under the Sub-Advisory Contract. For the fiscal year ended July
31, 1995, the Fund directed $ , in portfolio transactions to brokers chosen
because they provided research services, for which the Fund paid $ , in
commissions. The Fund may purchase and sell securities to and from dealers who
provide the Fund with research services. Portfolio transactions will not be
directed by the Fund to such dealers solely on the basis of research services
provided. The Fund will not purchase portfolio securities at a higher price or
sell such securities at a lower price in connection with transactions effected
with a dealer, acting as principal, who furnishes research services to the
Sub-Adviser than would be the case if no weight were given by the Sub-Adviser
to the dealer's furnishing of such services. Research services furnished by
the dealers through which or with which the Fund effects securities
transactions may be used by the Sub-Adviser in advising other funds or
accounts, and, conversely, research services furnished to the Sub-Adviser in
connection with other funds or accounts that the Sub-Adviser advises may be
used in advising the Fund.
Investment decisions for the Fund and for other investment accounts managed
by the Sub-Adviser and its affiliates are made independently of each other in
light of differing considerations for the various accounts. However, the same
investment decision may 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 in a manner that is deemed equitable to the Fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Fund is
concerned, or upon its ability to complete its entire order, in other cases it
is believed that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in
which Mitchell Hutchins or any of its affiliates is a member of the
underwriting or selling group, except pursuant to procedures adopted by the
Trust's board of trustees pursuant to Rule 10f-3 under the 1940 Act. Among
other things, these procedures require that the spread or commission paid in
connection with such a purchase be reasonable and fair, the purchase be at not
more than the public offering price prior to the end of the first business day
after the date of the public offering and that Mitchell Hutchins, the Sub-
Adviser or any affiliate thereof not participate in or benefit from the sale
to the Fund.
PORTFOLIO TURNOVER. The Fund's portfolio turnover rate may vary greatly from
year to year but it will not be a limiting factor when management deems
portfolio changes appropriate. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
such securities in the portfolio during the year. For the year ended July 31,
1995, the six months ended July 31, 1994 and the fiscal year ended January 31,
1994, the portfolio turnover rates for the Fund were 19%, 20% and 98%,
respectively.
18
<PAGE>
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND
OTHER SERVICES
COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups
of related Fund investors may combine purchases of Class A shares of the 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 the individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse; or
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that other employer).
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber 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.
19
<PAGE>
Certain PaineWebber mutual funds offered shares subject to contingent
deferred sales charges before the implementation of the Flexible Pricing System
on July 1, 1991 ("CDSC Funds"). The contingent deferred sales charge is waived
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 by officers, directors (trustees) or employees of the CDSC Funds,
Mitchell Hutchins or their affiliates (or their spouses and children under age
21). In addition, the contingent deferred sales charge will be reduced by 50%
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 with a net asset value at the time of purchase of at least $1
million. If Class B shares of a CDSC Fund purchased prior to July 1, 1991 are
exchanged for Class B shares of the Fund, any waiver or reduction of the
contingent deferred sales charge that applied to the Class B Shares of the CDSC
Fund will apply to the Class B shares of the Fund acquired through the
exchange.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber mutual funds. Shareholders will
receive at least 60 days' notice of any termination or material modification of
the exchange offer, except no notice need be given of an amendment whose only
material effect is to reduce the exchange fee and no notice need be given if,
under extraordinary circumstances, either redemptions are suspended under the
circumstances described below or the Fund temporarily delays or ceases the
sales of its shares because it is unable to invest amounts effectively in
accordance with the Fund's investment objective, policies and restrictions.
If conditions exist that make cash payments undesirable, the Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. If payment is
made in securities, a shareholder may incur brokerage expenses in converting
these securities into cash. The Trust has elected, however, to be governed by
Rule 18f-1 under the 1940 Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal. The Fund may suspend
redemption privileges or postpone the date of payment during any period (1)
when the New York Stock Exchange, Inc. ("NYSE") is closed or trading on the
NYSE is restricted as determined by the SEC, (2) when an emergency exists, as
defined by the SEC, that makes it not reasonably practicable for the Fund to
dispose of securities owned by it or fairly to determine the value of its
assets or (3) as the SEC may otherwise permit. The redemption price may be more
or less than the shareholder's cost, depending on the market value of the
Fund's portfolio at the time.
SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by the Fund of sufficient
Fund shares to provide the withdrawal payment specified by participants in the
Fund's systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal plan at any time without charge or penalty by written instructions
with signatures guaranteed to
20
<PAGE>
PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in the
plan, change the withdrawal amount or terminate participation in the plan will
not be effective until five days after written instructions with signatures
guaranteed are received by the Transfer Agent. Shareholders may request the
forms needed to establish a systematic withdrawal plan from their PaineWebber
investment executives, correspondent firms or the Transfer Agent at 1-800-647-
1568.
REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Fund without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption.
The reinstatement will be made at the net asset value per share next computed
after the notice of reinstatement and check are received. The amount of a
purchase under this reinstatement privilege cannot exceed the amount of the
redemption proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to
the shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege. Gain or loss on a redemption also will be adjusted for federal
income tax purposes by the amount of any sales charge paid on Class A shares,
under the circumstances and to the extent described in "Dividends and Taxes" in
the Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLANSM; PAINEWEBBER RESOURCE MANAGEMENT
ACCOUNT (R) (RMA (R))
Shares of the PaineWebber mutual funds (each a "PW Fund" and, collectively,
the "PW Funds") are available for purchase through the RMA Resource
Accumulation Plan ("Plan") by customers of PaineWebber and its correspondent
firms who maintain Resource Management Accounts ("RMA accountholders"). The
Plan allows an RMA accountholder to continually invest in one or more of the PW
Funds at regular intervals, with payment for shares purchased automatically
deducted from the client's RMA account. The client may elect to invest at
monthly or quarterly intervals and may elect either to invest a fixed dollar
amount (minimum $100 per period) or to purchase a fixed number of shares. A
client can elect to have Plan purchases executed on the first or fifteenth day
of the month. Settlement occurs three Business Days (defined under "Valuation
of Shares") after the trade date, and the purchase price of the shares is
withdrawn from the investor's RMA account on the settlement date from the
following sources and in the following order: uninvested cash balances,
balances in RMA money market funds, or margin borrowing power, if applicable to
the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to enrolling
in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may take
up to two weeks to become effective.
21
<PAGE>
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether through the
Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard (R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the seven RMA money market funds--RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA Connecticut Municipal Money Fund, RMA New Jersey Municipal
Money Fund and RMA New York Municipal Money Fund. Each money market fund
attempts to maintain a stable price per share of $1.00, although there can
be no assurance that it will be able to do so. Investments in the money
market funds are not insured or guaranteed by the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
22
<PAGE>
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $25 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of the two Classes, as of the
close of business on the first Business Day (as defined under "Valuation of
Shares") of the month in which the sixth anniversary of the initial issuance of
such Class B shares of the Fund occurs. For the purpose of calculating the
holding period required for conversion of Class B shares, the date of initial
issuance shall mean (1) the date on which such Class B shares were issued, or
(2) for Class B shares obtained through an exchange, or a series of exchanges,
the date on which the original Class B shares were issued. If the shareholder
acquired Class B shares of the Fund through an exchange of Class B shares of a
CDSC Fund that were acquired prior to July 1, 1991, the shareholder's holding
period for purposes of conversion will be determined based on the date the CDSC
Fund shares were initially issued. For purposes of conversion into Class A
shares, Class B shares purchased through the reinvestment of dividends and
other distributions paid in respect of Class B shares will be held in a
separate sub-account. Each time any Class B shares in the shareholder's regular
account (other than those in the sub-account) convert to Class A shares, a pro
rata portion of the Class B shares in the sub-account will also convert to
Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.
The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends
and other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.
23
<PAGE>
VALUATION OF SHARES
The Fund determines its net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., Eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is closed on the observance of
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. exchanges are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day,
at the last available bid price. In cases where securities are traded on more
than one exchange, the securities are generally valued on the exchange
considered by the Sub-Adviser as the primary market. Securities traded in the
OTC market and listed on the 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.
Where market quotations are readily available, debt securities are valued
based upon those quotations, provided such quotations adequately reflect, in
Mitchell Hutchins' judgment, fair value of the security. Where such market
quotations are not readily available, such securities are valued based upon
appraisals received from a pricing service using a computerized matrix system,
or based upon appraisals derived from information concerning the security or
similar securities received from recognized dealers in those securities. All
other securities or assets will be valued at fair value as determined in good
faith by or under the direction of the Trust's board of trustees. The amortized
cost method of valuation generally is used to value debt obligations with 60
days or less remaining to maturity, unless the Trust's board of trustees
determines that this does not represent fair value.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated according
to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is
24
<PAGE>
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, for
Class A shares, the maximum 4.5% sales charge is deducted from the initial
$1,000 payment and, for Class B shares, the applicable contingent deferred
sales charge imposed on a redemption of Class B shares held for the period is
deducted. All dividends and other distributions are assumed to have been
reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years will reflect conversion of the Class B shares to
Class A shares at the end of the sixth year.
The following table shows performance information for the Class A, Class B
and Class C shares of the Fund for the period indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
One year ended July 31, 1995
Standardized Return*............................... 10.63% 9.86% 13.60%
Non-Standardized Return............................ 15.80% 14.86% 14.76%
Inception** to July 31, 1995
Standardized Return*............................... 5.82% 5.50% 6.95%
Non-Standardized Return............................ 7.79% 6.96% 6.95%
</TABLE>
- --------
* Standardized Return for Class A shares reflects 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. Class C shares
impose a contingent deferred sales charge only on redemptions made within one
year of purchase; therefore, for periods longer than one year, Non-
Standardized Return is identical to Standardized Return.
** The inception date for the Fund is February 1, 1993.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Companies Service ("Wiesenberger"), Investment
Company Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), with
the performance of recognized stock and other indices, including the Standard &
Poor's 500 Composite Stock Price Index, the Standard & Poor's Industrials, the
Dow Jones Industrial Average, the NASDAQ Composite Index, the Russell 2000
Index, the Russell 1000 Index, the Wilshire Small Cap Index, PSI Small Cap
Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury bonds and
changes in the Consumer Price Index as published by the U.S.
25
<PAGE>
Department of Commerce. The Fund also may refer in such materials to mutual
fund performance rankings and other data, such as comparative asset, expense
and fee levels, published by Lipper, CDA, Wiesenberger, ICD or Morningstar.
Performance Advertisements also may refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
including THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.
Over the past sixty-five years, the total return of equity investments, as
measured by the Standard & Poor's 500 Composite Stock Price Index ("S&P 500")
exceeded the inflation rate, as measured by the Consumer Price Index, as well
as the total return on long-term Treasury bonds and short-term Treasury bills.
However, there can be no assurance that these relationships will continue or
that the Fund's performance will be comparable to any of these indices.
Furthermore, year-to-year fluctuations in each of these indices and instruments
have been significant and total return for the S&P 500 for some periods has
been negative.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested
by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original
Fund investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote (R) Money
Markets. In comparing the Fund's performance to CD performance, investors
should keep in mind that bank CDs are insured in whole or in part by an agency
of the U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares of the Fund
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-
term capital gain) ("Distribution Requirement") and must meet several
additional requirements. Among these requirements are the following: (1) the
Fund must derive at least 90% of its gross income 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 derived with
respect
26
<PAGE>
to its business of investing in securities; (2) the Fund must derive less than
30% of its gross income each taxable year from the sale or other disposition of
securities that were held for less than three months; (3) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in additional Fund shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If shares of the Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any distribution, the shareholder will pay full price for the
shares and receive some portion of the price back as a taxable dividend or
capital gain distribution.
The Fund will be subject to a nondeductible 4% 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.
Dividends and other distributions declared by the Fund in October, November
and December of any year and payable to shareholders of record on a date in
that month 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.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (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 on disposition of the stock (collectively "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income
as a taxable dividend to its shareholders. The balance of the PFIC income will
be included in the Fund's investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund," then in lieu of the foregoing tax and interest obligation, the
Fund would be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital
27
<PAGE>
gain (the excess of net long-term capital gain over net short-term capital
loss) -- which would have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the 4% excise tax-- even if those earnings
and gain were not received by the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of such a
PFIC's stock over the adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
OTHER INFORMATION
The Trust, PaineWebber Securities 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, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Fund. The trustees intend to
conduct the operations of the Fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
Prior to November 10, 1995, the Fund's "Class C" shares were known as "Class
D" shares.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of the Fund bear higher transfer agency fees per shareholder account
than those borne by Class A or Class C shares. The higher fee is imposed due to
the higher costs incurred by the transfer agent in tracking shares subject to a
contingent deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be
28
<PAGE>
determined in order to determine the applicable charge. Moreover, the tracking
and calculations required by the automatic conversion feature of the Class B
shares will cause the transfer agent to incur additional costs. Although the
transfer agency fee will differ on a per account basis as stated above, the
specific extent to which the transfer agency fees will differ between the
Classes as a percentage of net assets is not certain, because the fee as a
percentage of net assets will be affected by the number of shareholder accounts
in each Class and the relative amounts of net assets in each Class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street, N.W.,
Washington, D.C., 20036-5891, counsel to the Fund, has passed upon the legality
of the shares offered by the Prospectus. Kirkpatrick & Lockhart also acts as
counsel to PaineWebber and Mitchell Hutchins in connection with other matters.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the Americas,
New York, N.Y. 10036, serves as independent accountants for the Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the year ended July 31, 1995 is
a separate document supplied with this Statement of Additional Information and
the financial statements, accompanying notes and report of independent
accountants appearing therein are incorporated by reference in this Statement
of Additional Information.
29
<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
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; AA. Bonds which are
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities; A. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future; BAA. Bonds which are rated
Baa are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; BA. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small; CAA. Bonds which are rated
Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Note: Moody's may 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. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the
highest rated issues only in small degree; A. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories; BBB. Debt rated BBB is
regarded as having adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest
A-1
<PAGE>
and repay principal for debt in this category than for debt in higher rated
categories: BB, B, CCC. Debt rated BB, B and CCC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates a lower
degree of speculation than B and CCC. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
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.
NR: "NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as matter of policy.
A-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS AND THIS
STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAW-
FULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information....................................... 1
Investment Policies and Restrictions...................................... 1
Trustees and Officers..................................................... 5
Investment Advisory and Distribution Arrangements......................... 14
Portfolio Transactions.................................................... 17
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 19
Conversion of Class B Shares.............................................. 23
Valuation of Shares....................................................... 24
Performance Information................................................... 24
Taxes..................................................................... 26
Other Information......................................................... 28
Financial Statements...................................................... 29
Appendix.................................................................. A-1
</TABLE>
(C) 1995 PaineWebber Incorporated
LOGO Recycled Paper
PAINEWEBBER
SMALL CAP
VALUE FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
, 1995
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements (filed herewith)
PaineWebber Small Cap Value Fund
Included in Part A of this Registration Statement:
Financial Highlights for one Class A, Class B and Class C
share of the Fund for the year ended July 31, 1995, the
period February 1, 1994 through July 31, 1994 and the
year ended January 31, 1994.
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 October 5, 1995, Accession No. 0000950130-95-
001994):
Portfolio of Investments at July 31, 1995.
Statement of Assets and Liabilities at July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statement of Changes in Net Assets for the year ended
July 31, 1995 and the period February 1, 1994 through
July 31, 1994.
Notes to Financial Statements.
Financial Highlights for one Class A, Class B and Class C
share of the Fund for the year ended July 31, 1995, the
period February 1, 1994 through July 31, 1994 and the
year ended January 31, 1994.
Report of Price Waterhouse LLP, Independent Accountants,
dated September 20, 1995.
(b) Exhibits:
(1) (a) Declaration of Trust 1/
(b) Amendment effective December 10, 1992 to
Declaration of Trust 2/
(c) Amendment effective November 29, 1993 to
Declaration of Trust 6/
(2) (a) By-Laws 1/
C-1
<PAGE>
(b) Amendment dated September 28, 1994 to By-Laws 8/
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of
Registrant's shares of beneficial interest 9/
(5) (a) Investment Advisory and Administration
Contract 4/
(b) Sub-Advisory Contract with respect to PaineWebber
Small Cap Value Fund 4/
(c) Fee Agreement with respect to PaineWebber
Strategic Income Fund 6/
(6) (a) Distribution Contract with respect to Class A
Shares 5/
(b) Distribution Contract with respect to Class B
Shares 5/
(c) Distribution Contract with respect to Class C
Shares (filed herewith)
(d) Exclusive Dealer Agreement with respect to Class
A Shares 5/
(e) Exclusive Dealer Agreement with respect to Class
B Shares 5/
(f) Exclusive Dealer Agreement with respect to Class
C Shares (filed herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 5/
(9) Transfer Agency Agreement 7/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to
PaineWebber Small Cap Value Fund 3/
(b) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to
PaineWebber Strategic Income Fund 5/
(11) Other opinions, appraisals, rulings and consents:
Accountants' consent with respect to PaineWebber
Small Cap Value Fund (filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan - none
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class A Shares 4/
(b) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class B Shares 4/
(c) Plan of Distribution pursuant to Rule 12b-1 with
C-2
<PAGE>
respect to Class C Shares 4/
(d) Addendum to Plan of Distribution pursuant to Rule
12b-1 with respect to Class C Shares of
PaineWebber Strategic Income Fund 6/
(16) (a) Schedule for Computation of Performance
Quotations for PaineWebber Small Cap Value
Fund 6/
(b) Schedule of Computation of Performance Quotations
for PaineWebber Strategic Income Fund 8/
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan Pursuant to Rule 18f-3 (filed herewith)
(19) Power of Attorney for Richard Q. Armstrong (filed
herewith)
_____________
1/ Incorporated by reference from Registrant's initial Registration
Statement, SEC File No. 33-55374, filed December 3, 1992.
2/ Incorporated by reference from Pre-Effective Amendment No. 1 to
the Registration Statement, SEC File No. 33-55374, filed January
7, 1993.
3/ Incorporated by reference from Pre-Effective Amendment No. 2 to
the Registration Statement, SEC File No. 33-55374, filed January
28, 1993.
4/ Incorporated by reference from Post-Effective Amendment No. 1 to
the Registration Statement, SEC File No. 33-55374, filed August
13, 1993.
5/ Incorporated by reference from Post-Effective Amendment No. 2 to
the Registration Statement, SEC File No. 33-55374, filed November
29, 1993.
6/ Incorporated by reference from Post-Effective Amendment No. 3 to
the Registration Statement, SEC File No. 33-55374, filed June 1,
1994.
7/ Incorporated by reference from Post-Effective Amendment No. 6 to
the Registration Statement, SEC File No. 33-55374, filed
December 1, 1994.
8/ Incorporated by reference from Post-Effective Amendment No. 7 to
the Registration Statement, SEC File No. 33-55374, filed June 1,
1995.
9/ Incorporated by reference from Articles III, VIII, IX, X and XI
of Registrant's Declaration of Trust, as amended effective
December 2, 1992 and November 29, 1993, and from Articles II, VII
and X of Registrant's By-Laws, as amended September 28, 1994.
C-3
<PAGE>
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 October 23, 1995
--------------- ------------------------
Shares of beneficial interest,
par value $0.001 per share, in
PaineWebber Small Cap Value Fund
Class A Shares 2,439
Class B Shares 1,787
Class D Shares 5,785
(to be renamed Class C Shares)
PaineWebber Strategic Income Fund
Class A Shares 838
Class B Shares 2,873
Class D Shares 1,191
(to be renamed Class C Shares)
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
C-4
<PAGE>
or investment adviser of the Registrant.
Section 2 of Article XI of the Declaration of Trust additionally
provides that, subject to the provisions of Section 1 of Article XI and to
Article X, trustees shall not be liable for errors of judgement or
mistakes of fact or law, for any act or omission in accordance with advice
of counsel or other experts, or for failing to follow such advice, with
respect to the meaning and operation of the Declaration of Trust.
Article IX of the By-Laws provides that the Registrant may
purchase and maintain insurance on behalf of any person who is or was a
trustee, officer or employee of the Registrant, or is or was serving at
the request of the Registrant as a trustee, officer or employee of a
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the
Registrant would have the power to indemnify him against such liability to
the Registrant or its shareholders, provided that the Registrant may not
purchase or maintain insurance that protects any such person against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Section 9 of the Investment Advisory and Administration Contract
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
provides that Mitchell Hutchins shall not be liable for any error of
judgment or mistake of law or for any loss suffered by any series of the
Registrant in connection with the matters to which the Contract relates,
except for a loss resulting from the willful misfeasance, bad faith, or
gross negligence of Mitchell Hutchins in the performance of its duties or
from its reckless disregard of its obligations and duties under the
Contract. Section 10 of the Contract provides that the Trustees shall not
be liable for any obligations of the Trust or any series under the
Contract and that Mitchell Hutchins shall look only to the assets and
property of the Registrant in settlement of such right or claim and not to
the assets and property of the Trustees.
Section 7 of the Sub-Advisory Contract between Mitchell Hutchins
and Quest Advisory Corp. ("Quest") with respect to PaineWebber Small Cap
Value Fund ("Small Cap") provides that Quest shall not be liable for any
error of judgement or mistake of law or for any loss suffered by Small
Cap, the Registrant or its shareholders or Mitchell Hutchins in connection
with the matters to which the Sub-Advisory Contract relates, except to the
extent that such a loss results from willful misfeasance, bad faith on or
gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the Sub-
Advisory Contract.
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
C-5
<PAGE>
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.
C-6
<PAGE>
Mitchell Hutchins is primarily engaged in the investment advisory
business. Information as to the officers and directors of Mitchell
Hutchins is included in its Form ADV filed with the Securities and
Exchange Commission (registration number 801-13219) and is incorporated
herein by reference.
Quest Advisory Corp. ("Quest"), a New York corporation, is a
registered investment adviser and is primarily engaged in the investment
advisory business. Charles M. Royce is the President, Secretary and
Treasurer and the sole director and sole voting shareholder of Quest.
Quest also serves as investment adviser of other registered management
investment companies. Information as to the officers and directors of
Quest is included in its Form ADV with the Securities and Exchange
Commission (registration number 801-8268) and is incorporated herein by
reference.
Item 29. Principal Underwriters
----------------------
a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following investment companies:
ALL AMERICAN TERM TRUST INC.
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
PAINEWEBBER AMERICA FUND
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
PAINEWEBBER PREMIER HIGH INCOME TRUST, INC.
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
C-7
<PAGE>
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND, INC.
GLOBAL SMALL CAP FUND, INC.
b) Mitchell Hutchins is the Registrant's principal underwriter.
PaineWebber acts as exclusive dealer of the Registrant's shares. The
directors and officers of Mitchell Hutchins, their principal business
addresses, and their positions and offices with Mitchell Hutchins are
identified in its Form ADV filed with the Securities and Exchange
Commission (registration number 801-13219). The directors and officers of
PaineWebber, their principal business addresses, and their positions and
offices with PaineWebber are identified in its Form ADV filed 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 trustees or officers
of the Registrant:
<TABLE>
<CAPTION>
Positions and Offices With
Name and Principal Positions and Offices Underwriter or Exclusive
Business Address With Registrant Dealer
------------------ --------------------- -------------------------
<S> <C> <C>
Margo N. Alexander President and Chief President, Chief Executive Officer
1285 Avenue of the Americas Executive Officer and a director of Mitchell Hutchins
New York, NY 10019
Teresa M. Boyle Vice President Vice President and Manager - Advisory
1285 Avenue of the Americas Administration of Mitchell Hutchins
New York, NY 10019
Joan L. Cohen Vice President and Vice President and Attorney of
1285 Avenue of the Americas Assistant Secretary Mitchell Hutchins
New York, NY 10019
Thomas J. Libassi Vice President Senior Vice President of Mitchell
1285 Avenue of the Americas Hutchins
New York, NY 10019
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices With
Name and Principal Positions and Offices Underwriter or Exclusive
Business Address With Registrant Dealer
------------------ --------------------- -------------------------
<S> <C> <C>
C. William Maher Vice President and First Vice President of Mitchell
1285 Avenue of the Americas Assistant Treasurer Hutchins
New York, NY 10019
Dennis McCauley Vice President Managing Director and Chief
1285 Avenue of the Americas Investment Officer - Fixed Income of
New York, NY 10019 Mitchell Hutchins
Ann E. Moran Vice President and Vice President of Mitchell Hutchins
1285 Avenue of the Americas Assistant Treasurer
New York, NY 10019
Dianne E. O'Donnell Vice President and Senior Vice President and Deputy
1285 Avenue of the Americas Secretary General Counsel of Mitchell Hutchins
New York, NY 10019
Victoria E. Schonfeld Vice President Managing Director and General Counsel
1285 Avenue of the Americas of Mitchell Hutchins
New York, NY 10019
Nirmal Singh Vice President Vice President of Mitchell Hutchins
1285 Avenue of the Americas
New York, NY 10019
Paul H. Schubert Vice President and First Vice President of Mitchell
1285 Avenue of the Americas Assistant Treasurer Hutchins
New York, NY 10019
Julian F. Sluyters Vice President and Senior Vice President and Director of
1285 Avenue of the Americas Treasurer the Mutual Fund Finance Division of
New York, NY 10019 Mitchell Hutchins
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices With
Name and Principal Positions and Offices Underwriter or Exclusive
Business Address With Registrant Dealer
------------------ --------------------- -------------------------
<S> <C> <C>
Mark A. Tincher Vice President Managing Director and Chief
1285 Avenue of the Americas Investment Officer - U.S. Equity
New York NY 10019 Investments of Mitchell Hutchins
Gregory K. Todd Vice President First Vice President and Associate
1285 Avenue of the Americas and Assistant General Counsel of Mitchell Hutchins
New York, NY 10019 Secretary
Craig M. Varrelman Vice President First Vice President of Mitchell
1285 Avenue of the Americas Hutchins
New York, NY 10019
Stuart Waugh Vice President First Vice President and a Portfolio
1285 Avenue of the Americas Manager of Mitchell Hutchins
New York, NY 10019
Keith A. Weller Vice President and First Vice President and Associate
1285 Avenue of the Americas Assistant Secretary General Counsel of Mitchell Hutchins
New York, NY 10019
</TABLE>
c) None
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs
(b)(4), (c) and (d) of Rule 31a-1 under the Investment Company Act of 1940
are maintained in the physical possession of Registrant's Investment
Adviser, Mitchell Hutchins, 1285 Avenue of the Americas, New York, New
York 10019 or its Sub-Adviser, Denver Investment Advisors, Inc., 633 17th
Street, Suite 1800, Denver, Colorado 80217. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession
of Registrant's transfer agent and custodian.
C-10
<PAGE>
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, PaineWebber Securities
Trust, certifies that it meets all of the requirements for effectiveness of
this Post-Effective Amendment No. 8 to its Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in this City of New York and State of New York,
on the 8th day of November, 1995.
PAINEWEBBER SECURITIES 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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ Margo N. Alexander* President (Chief November 8, 1995
---------------------------- Executive Officer)
Margo N. Alexander
/s/ E. Garrett Bewkes, Jr.** Trustee, Chairman of November 8, 1995
---------------------------- the Board of Trustees
E. Garrett Bewkes, Jr.
/s/ Richard Q. Armstrong**** Trustee November 8, 1995
----------------------------
Richard Q. Armstrong
Trustee
----------------------------
Richard R. Burt
/s/ John R. Torell III*** Trustee November 8, 1995
----------------------------
John R. Torell III
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ William D. White*** Trustee November 8, 1995
----------------------------
William D. White
/s/ Julian F. Sluyters Vice President and November 8, 1995
---------------------------- Treasurer (Principal
Julian F. Sluyters Financial Officer)
</TABLE>
* Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated May 8, 1995 and incorporated by reference from Post-Effective
Amendment No. 34 to the registration statement of PaineWebber America
Fund, SEC File No. 2-78626, filed May 10, 1995.
** Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated January 3, 1994 and incorporated by reference from Post-Effective
Amendment No. 25 to the registration statement of PaineWebber Investment
Series, SEC file No. 33-11025, filed March 1, 1994.
*** Signatures affixed by Elinor W. Gammon pursuant to powers of attorney
dated December 16, 1992 and incorporated by reference from Pre-Effective
Amendment No. 2 to the registration statement of PaineWebber Securities
Trust, SEC File No. 33-55374, filed January 28, 1993.
**** Signature affixed by Elinor W. Gammon pursuant to a power of attorney
filed herewith.
<PAGE>
PAINEWEBBER SECURITIES TRUST
EXHIBIT INDEX
Exhibit
Number
-------
(1) (a) Declaration of Trust 1/
(b) Amendment effective December 10, 1992 to
Declaration of Trust 2/
(c) Amendment effective November 29, 1993 to
Declaration of Trust 6/
(2) (a) By-Laws 1/
(b) Amendment dated September 28, 1994 to By-Laws 8/
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares
of beneficial interest 9/
(5) (a) Investment Advisory and Administration Contract 4/
(b) Sub-Advisory Contract with respect to PaineWebber Small
Cap Value Fund 4/
(c) Fee Agreement with respect to PaineWebber
Strategic Income Fund 6/
(6) (a) Distribution Contract with respect to Class A Shares 5/
(b) Distribution Contract with respect to Class B Shares 5/
(c) Distribution Contract with respect to Class C Shares
(filed herewith)
(d) Exclusive Dealer Agreement with respect to Class A
Shares 5/
(e) Exclusive Dealer Agreement with respect to Class B
Shares 5/
(f) Exclusive Dealer Agreement with respect to Class C Shares
(filed herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 5/
(9) Form of Transfer Agency Agreement 7/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to
PaineWebber Small Cap Value Fund 3/
(b) Opinion and consent of Kirkpatrick & Lockhart,
counsel to the Registrant, with respect to
PaineWebber Strategic Income Fund 5/
(11) Other opinions, appraisals, rulings and consents:
Accountants' consent with respect to PaineWebber Small Cap Value
Fund (filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan - none
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class A Shares 4/
(b) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class B Shares 4/
(c) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class C Shares 4/
(d) Addendum to Plan of Distribution pursuant to Rule
<PAGE>
12b-1 with respect to Class C Shares of
PaineWebber Strategic Income Fund 6/
(16) (a) Schedule for Computation of Performance Quotations for
PaineWebber Small Cap Value Fund 6/
(b) Schedule of Computation of Performance Quotations for
PaineWebber Strategic Income Fund 8/
(17) and
(27) Financial Data Schedule (filed herewith)
(18) Plan Pursuant to Rule 18f-3 (filed herewith)
(19) Power of Attorney for Richard Q. Armstrong (filed herewith)
_____________
1/ Incorporated by reference from Registrant's initial Registration
Statement, SEC File No. 33-55374, filed December 3, 1992.
2/ Incorporated by reference from Pre-Effective Amendment No. 1 to
the Registration Statement, SEC File No. 33-55374, filed January
7, 1993.
3/ Incorporated by reference from Pre-Effective Amendment No. 2 to
the Registration Statement, SEC File No. 33-55374, filed January
28, 1993.
4/ Incorporated by reference from Post-Effective Amendment No. 1 to
the Registration Statement, SEC File No. 33-55374, filed August
13, 1993.
5/ Incorporated by reference from Post-Effective Amendment No. 2 to
the Registration Statement, SEC File No. 33-55374, filed November
29, 1993.
6/ Incorporated by reference from Post-Effective Amendment No. 3 to
the Registration Statement, SEC File No. 33-55374, filed June 1,
1994.
7/ Incorporated by reference from Post-Effective Amendment No. 6 to
the Registration Statement, SEC File No. 33-55374, filed December
1, 1994.
8/ Incorporated by reference from Post-Effective Amendment No. 7 to
the Registration Statement, SEC File No. 33-55374, filed June 1,
1995.
9/ Incorporated by reference from Articles III, VIII, IX, X and XI
of Registrant's Declaration of Trust, as amended effective
December 2, 1992 and November 29, 1993, and from Articles II, VII
and X of Registrant's By-Laws, as amended September 28, 1994.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PAINEWEBBER SMALL CAP VALUE - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 18,935
<INVESTMENTS-AT-VALUE> 20,305
<RECEIVABLES> 308
<ASSETS-OTHER> 42
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,655
<PAYABLE-FOR-SECURITIES> 43
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 118
<TOTAL-LIABILITIES> 161
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,183
<SHARES-COMMON-STOCK> 1,814
<SHARES-COMMON-PRIOR> 2,224
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 941
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,370
<NET-ASSETS> 20,494
<DIVIDEND-INCOME> 104
<INTEREST-INCOME> 406
<OTHER-INCOME> 0
<EXPENSES-NET> 422
<NET-INVESTMENT-INCOME> 88
<REALIZED-GAINS-CURRENT> 1,123
<APPREC-INCREASE-CURRENT> 1,815
<NET-CHANGE-FROM-OPS> 3,026
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,100
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 189
<NUMBER-OF-SHARES-REDEEMED> 701
<SHARES-REINVESTED> 102
<NET-CHANGE-IN-ASSETS> 2,888
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 955
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 213
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 422
<AVERAGE-NET-ASSETS> 20,931
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.30
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> PAINEWEBBER SMALL CAP VALUE - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 42,632
<INVESTMENTS-AT-VALUE> 45,716
<RECEIVABLES> 694
<ASSETS-OTHER> 95
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,505
<PAYABLE-FOR-SECURITIES> 98
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266
<TOTAL-LIABILITIES> 364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,938
<SHARES-COMMON-STOCK> 4,138
<SHARES-COMMON-PRIOR> 5,149
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,119
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,084
<NET-ASSETS> 46,142
<DIVIDEND-INCOME> 233
<INTEREST-INCOME> 913
<OTHER-INCOME> 0
<EXPENSES-NET> 1,309
<NET-INVESTMENT-INCOME> 163
<REALIZED-GAINS-CURRENT> 2,529
<APPREC-INCREASE-CURRENT> 4,088
<NET-CHANGE-FROM-OPS> 6,454
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,545
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 400
<NUMBER-OF-SHARES-REDEEMED> 1,650
<SHARES-REINVESTED> 239
<NET-CHANGE-IN-ASSETS> 6,932
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,199
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 479
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,309
<AVERAGE-NET-ASSETS> 47,759
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 1.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.15
<EXPENSE-RATIO> 2.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> PAINE WEBBER SMALL CAP VALUE - CLASS D
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 12,254
<INVESTMENTS-AT-VALUE> 13,141
<RECEIVABLES> 199
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 13,368
<PAYABLE-FOR-SECURITIES> 28
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76
<TOTAL-LIABILITIES> 104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,767
<SHARES-COMMON-STOCK> 1,190
<SHARES-COMMON-PRIOR> 1,594
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 610
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 887
<NET-ASSETS> 13,263
<DIVIDEND-INCOME> 67
<INTEREST-INCOME> 262
<OTHER-INCOME> 0
<EXPENSES-NET> 382
<NET-INVESTMENT-INCOME> 53
<REALIZED-GAINS-CURRENT> 727
<APPREC-INCREASE-CURRENT> 1,175
<NET-CHANGE-FROM-OPS> 1,850
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 771
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 220
<NUMBER-OF-SHARES-REDEEMED> 694
<SHARES-REINVESTED> 71
<NET-CHANGE-IN-ASSETS> 2037
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 680
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 138
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 382
<AVERAGE-NET-ASSETS> 14,301
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.14
<EXPENSE-RATIO> 2.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 6(c)
PAINEWEBBER SECURITIES TRUST
DISTRIBUTION CONTRACT
CLASS C SHARES
CONTRACT made as of November 10, 1995 between PAINEWEBBER SECURITIES TRUST,
a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET MANAGEMENT
INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and currently
has two distinct series of shares of beneficial interest ("Series"), which
correspond to distinct portfolios and have been designated as the PaineWebber
Small Cap Value Fund and PaineWebber Strategic Income Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an unlimited
number of shares of beneficial interest of the above-referenced Series as Class
C shares ("Class C Shares")(formerly known as Class D shares); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act for its Class C Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class C Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class C Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
(a) Mitchell Hutchins agrees to sell Class C Shares on a best efforts basis
from time to time during the term of this Contract as agent for the Fund and
upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial offering of
the Class C Shares to the public by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class C Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to sell
Class C Shares to such registered and qualified retail dealers, including but
not limited to PaineWebber Incorporated ("PaineWebber"), as it may select. In
making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class C Shares of each Series shall be the
net asset value per Share as next determined by the
<PAGE>
Fund following receipt of an order at Mitchell Hutchins' principal office. The
Fund shall promptly furnish Mitchell Hutchins with a statement of each
computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain number of
Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders directly or
through dealers, Mitchell Hutchins is authorized but not required on behalf of
the Fund to repurchase Class C Shares presented to it by shareholders and
dealers at the price determined in accordance with, and in the manner set forth
in, the Registration Statement. Such price shall reflect the subtraction of the
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of shareholders
of the Fund or any other list of investors which it obtains in connection with
its provision of services under this Contract; provided, however, that Mitchell
Hutchins shall not sell or knowingly provide such list or lists to any
unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to Delegate
Duties as Distributor. With respect to the Class C Shares of any or all Series,
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
C Shares or the provision of service activities. In a separate contract or as
part of any such exclusive dealer agreement, Mitchell Hutchins also may delegate
to PaineWebber or another registered and qualified dealer ("sub-distributor")
any or all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
(a) As compensation for its service activities under this contract with
respect to the Class C Shares, Mitchell Hutchins shall receive from the Fund a
service fee at the rate and under the terms and conditions of the Plan adopted
by the Fund with respect to the Class C Shares of the Series, as such Plan is
amended from time to time, and subject to any further limitations on such fee as
the Board may impose.
(b) As compensation for its activities under this contract with respect to
the distribution of the Class C Shares, Mitchell Hutchins shall receive from the
Fund a distribution fee at the rate and under the terms and conditions of the
Plan adopted by the Fund with respect to the Class C Shares of the Series, as
such Plan is amended from time to time, and subject to any further limitations
on such fee as the
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Board may impose.
(c) As compensation for its activities under this contract with respect to
the distribution of the Class C Shares, Mitchell Hutchins shall receive all
contingent deferred sales charges imposed on redemptions of Class C Shares of
each Series. Whether and at what rate a contingent deferred sales charge will
be imposed with respect to a redemption shall be determined in accordance with,
and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution fees,
contingent deferred sales charges, or service fees which it is paid under this
Contract to such dealers as Mitchell Hutchins may from time to time determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw offering Class C
Shares of any or all Series by written notice to Mitchell Hutchins at its
principal office.
(b) The Fund shall determine in its sole discretion whether certificates
shall be issued with respect to the Class C Shares. If the Fund has determined
that certificates shall be issued, the Fund will not cause certificates
representing Class C Shares to be issued unless so requested by shareholders.
If such request is transmitted by Mitchell Hutchins, the Fund will cause
certificates evidencing Class C Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its affairs and
shall make available to Mitchell Hutchins copies of all information, financial
statements, and other papers which Mitchell Hutchins may reasonably request for
use in connection with the distribution of Class C Shares, including, without
limitation, certified copies of any financial statements prepared for the Fund
by its independent public accountant and such reasonable number of copies of the
most current prospectus, statement of additional information, and annual and
interim reports of any Series as Mitchell Hutchins may request, and the Fund
shall cooperate fully in the efforts of Mitchell Hutchins to sell and arrange
for the sale of the Class C Shares of the Series and in the performance of
Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action, including
payment of the related filing fee, as may be necessary to register the Class C
Shares under the 1933 Act to the end that there will be available for sale such
number of Class C Shares as Mitchell Hutchins may be expected to sell. The Fund
agrees to file, from time to time, such amendments, reports, and other documents
as may be necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, nor any omission of a material fact
which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the Class C Shares in any jurisdiction from the terms set
forth in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class C Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Class C Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall
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assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class C Shares for sale and of
the Fund as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class C Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class C Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class C Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins, its
officers and directors, and any person who controls Mitchell Hutchins within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities
or expenses arise out of or are based upon any such untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by Mitchell Hutchins to the
Fund for use in the Registration Statement; provided, however, that this
indemnity agreement shall not inure to the benefit of any person who is also an
officer or trustee of the Fund or who controls the Fund within the meaning of
Section 15 of the 1933 Act, unless a court of competent jurisdiction shall
determine, or it shall have been determined by controlling precedent, that such
result would not be against public policy as expressed in the 1933 Act; and
further provided, that in no event shall anything contained herein be so
construed as to protect Mitchell Hutchins against any liability to the Fund or
to the shareholders of any Series to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Contract. The Fund shall not be liable to Mitchell
Hutchins under this indemnity agreement with respect to any claim made against
Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other
such person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon Mitchell
Hutchins or such other person (or after Mitchell Hutchins or the person shall
have received notice of service on any designated agent). However, failure to
notify the Fund of any claim shall not relieve the Fund from any liability which
it may have to Mitchell Hutchins or any person against whom such action is
brought
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otherwise than on account of this indemnity agreement. The Fund shall be
entitled to participate at its own expense in the defense or, if it so elects,
to assume the defense of any suit brought to enforce any claims subject to this
indemnity agreement. If the Fund elects to assume the defense of any such claim,
the defense shall be conducted by counsel chosen by the Fund and satisfactory to
indemnified defendants in the suit whose approval shall not be unreasonably
withheld. In the event that the Fund elects to assume the defense of any suit
and retain counsel, the indemnified defendants shall bear the fees and expenses
of any additional counsel retained by them. If the Fund does not elect to assume
the defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify Mitchell Hutchins promptly of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any of its Class C
Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund, its
officers and trustees and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Fund, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by Mitchell Hutchins
to the Fund for use in the Registration Statement, arising out of or based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement necessary to
make such information not misleading, or arising out of any agreement between
Mitchell Hutchins and any retail dealer, or arising out of any supplemental
sales literature or advertising used by Mitchell Hutchins in connection with its
duties under this Contract. Mitchell Hutchins shall be entitled to participate,
at its own expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume
the defense, the defense shall be conducted by counsel chosen by Mitchell
Hutchins and satisfactory to the indemnified defendants whose approval shall not
be unreasonably withheld. In the event that Mitchell Hutchins elects to assume
the defense of any suit and retain counsel, the defendants in the suit shall
bear the fees and expenses of any additional counsel retained by them. If
Mitchell Hutchins does not elect to assume the defense of any suit, it will
reimburse the indemnified defendants in the suit for the reasonable fees and
expenses of any counsel retained by them.
10. Limitation of Liability of the Trustees and Shareholders of the Fund.
The trustees of the Fund and the shareholders of any Series shall not be liable
for any obligations of the Fund or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
(a) This Contract shall become effective upon the date hereinabove written,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund, and have no direct or indirect financial interest in the
operation of the Plan relating to the Series or in any agreements related
thereto (all such
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trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class C Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series shall in
no way affect the continued validity of this Contract or the performance
thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act[, provided, however, that
Section 10 above will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent that the applicable laws of the
State of Delaware or the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER SECURITIES TRUST
___________________________ By:________________________________
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
___________________________ By:_________________________________
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EXHIBIT 6(f)
EXCLUSIVE DEALER AGREEMENT
CLASS C SHARES OF PAINEWEBBER SECURITIES TRUST
AGREEMENT made as of November 10, 1995, between Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and
PaineWebber Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Securities Trust ("Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has two distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolio and have
been designated as the PaineWebber Small Cap Value Fund and PaineWebber
Strategic Income Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class C shares ("Class C Shares") (previously known as Class D shares) and
has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act
("Plan") with respect to the Class C Shares of the above-referenced Series and
of such other Series as may hereafter be designated by the Board and have Class
C Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract
with the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins
serves as principal distributor in connection with the offering and sale of the
Class C Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its
exclusive agent in connection with the offering and sale of the Class C Shares
of each Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Fund under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class C Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class C Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class C Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
(a) PaineWebber agrees to sell the Class C Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class C Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class C Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be
<PAGE>
deemed effective at the time and in the manner set forth in the Registration
Statement.
(c) PaineWebber in its discretion may sell Class C Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class C Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) Painewebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class C Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class C Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class C Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class C Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class C Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or
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employee of Mitchell Hutchins or the Fund, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar or a dissimilar nature.
4. Compensation.
(a) As compensation for its service activities under this Agreement
with respect to the Class C Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class C Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class C shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. Duties of Mitchell Hutchins.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class C Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class C
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class C Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class C Shares.
6. Advertising. Mitchell Hutchins agrees to make available such
sales and advertising materials relating to the Class C Shares as Mitchell
Hutchins in its discretion determines appropriate. PaineWebber agrees to submit
all sales and advertising materials developed by it relating to the Class C
Shares to Mitchell Hutchins for approval. PaineWebber agrees not to publish or
distribute such materials to the public without first receiving such approval in
writing. Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory
approvals of such materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class C Shares. Mitchell Hutchins and its
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<PAGE>
representatives shall have access to such records during normal business hours
for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class C Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class C Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class C Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell
Hutchins shall advise the Board of any such agreement as to additional costs and
expenses borne by PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.
9. Indemnification.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or
arising out of any sales or advertising materials with respect to the Class C
Shares provided by Mitchell Hutchins to PaineWebber. However, this indemnity
agreement shall not apply to any claims, demands, liabilities, or expenses that
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement or in any sales or advertising material;
and further provided, that in no event shall anything contained herein be so
construed as to protect PaineWebber against any liability to Mitchell Hutchins
or the Fund or to the shareholders of any Series to which PaineWebber would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any
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<PAGE>
sales or advertising material used by PaineWebber in connection with its duties
under this Agreement.
10. Duration and Termination.
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto (all such trustees
collectively being referred to herein as the "Independent Trustees") cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Trustees, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class C Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the Class C Shares of such Series on 30 days' written
notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may
be amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class C Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Delaware and the 1940 Act. To
the extent that the applicable laws of the State of Delaware conflict
- 5 -
<PAGE>
with the applicable provisions of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: _______________________ By: ________________________
PAINEWEBBER INCORPORATED
Attest: _______________________ By: ________________________
- 6 -
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated September 20, 1995 relating to the financial
statements and financial highlights appearing in the July 31, 1995 Annual Report
to Shareholders of PaineWebber Small Cap Value Fund which is also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" in the Prospectus and
"Independent Accountants" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
November 9, 1995
<PAGE>
EXHIBIT 18
PAINEWEBBER SECURITIES TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
PaineWebber Securities Trust hereby adopts this Multiple Class
Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act") on behalf of its current operating series,
PaineWebber Small Cap Value Fund and PaineWebber Strategic Income Fund,
and any series that may be established in the future (referred to
hereinafter collectively as the "Funds" and individually as a "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
----------------------------------------------
1. Class A Shares. Class A shares of each Fund are sold
to the general public subject to an initial sales charge. The initial
sales charge for each Fund is waived for certain eligible purchasers and
reduced or waived for certain large volume purchases.
The maximum sales charge is 4% of the public offering price for
Class A shares of a Fund that invests primarily in debt securities.
The maximum sales charge is 4.5% of the public offering price for
Class A shares of a Fund that invests primarily in equity securities or a
combination of equity and debt securities.
Class A shares of each Fund are subject to an annual service fee
of .25% of the average daily net assets of the Class A shares of each Fund
paid pursuant to a plan of distribution adopted pursuant to Rule 12b-1
under the 1940 Act.
Class A shares of each Fund issued on or after November 1, 1995
will be subject to a contingent deferred sales charge ("CDSC") on
redemptions of shares (i) purchased without an initial sales charge due to
a sales charge waiver for purchases of $1 million or more and (ii) held
less than one year. The Class A CDSC is equal to 1% of the lower of:
(i) the net asset value of the shares at the time of purchase or (ii) the
net asset value of the shares at the time of redemption. Class A shares
of each Fund held one year or longer and Class A shares of each Fund
acquired through reinvestment of dividends or capital gains distributions
on shares otherwise subject to a Class A CDSC are not subject to the CDSC.
The CDSC for Class A shares of each Fund will be waived under certain
circumstances.
2. Class B Shares. Class B shares of each Fund are sold
to the general public subject to a CDSC, but without imposition of an
initial sales charge.
The maximum CDSC for Class B shares of each Fund is equal to 5%
of the lower of: (i) the net asset value of the shares at the time of
purchase or (ii) the net asset value of the shares at the time of
redemption.
<PAGE>
PaineWebber Securities Trust
Multiple Class Plan
Page 2
Class B shares of each Fund held six years or longer and Class B
shares of each Fund acquired through reinvestment of dividends or capital
gains distributions are not subject to the CDSC.
Class B shares of each Fund are subject to an annual service fee
of .25% of average daily net assets and a distribution fee of .75% of
average daily net assets of the Class B shares of each Fund, each paid
pursuant to a plan of distribution adopted pursuant to Rule 12b-1 under
the 1940 Act.
Class B shares of each Fund convert to Class A shares
approximately six years after issuance at relative net asset value.
3. Class C Shares. Class C shares are sold without
imposition of an initial sales charge or CDSC and are not subject to any
service or distribution fees.
Class C shares of each Fund are available for purchase only by:
(i) employee benefit and retirement plans, other than individual
retirement accounts and self-employed retirement plans, of Paine Webber
Group Inc. and its affiliates; (ii) certain unit investment trusts
sponsored by PaineWebber Incorporated; (iii) participants in certain wrap
fee investment advisory programs that are currently or in the future
sponsored by PaineWebber Incorporated and that may invest in PaineWebber
proprietary funds, provided that shares are purchased through or in
connection with those programs; and (iv) the holders of Class C shares of
any Mitchell Hutchins/Kidder Peabody ("MH/KP") mutual fund provided that
such shares are issued in connection with the reorganization of a MH/KP
mutual fund into that Fund.
4. Class D Shares. Class D shares of each Fund are sold
to the general public without imposition of a sales charge.
Class D shares of a Fund that invests primarily in equity
securities or a combination of equity and debt securities are subject to
an annual service fee of .25% of average daily net assets and a
distribution fee of .75% of average daily net assets of Class D shares of
such Fund, each pursuant to a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act.
Class D shares of a Fund that invests primarily in debt
securities are subject to an annual service fee of .25% of average daily
net assets and a distribution fee of .50% of average daily net assets of
Class D shares of such Fund, each pursuant to a plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act.
Class D shares of a Fund that invests primarily in debt
securities will be subject to a CDSC on redemptions of Class D shares held
less than one year equal to .75% of the lower of: (i) the net asset value
<PAGE>
PaineWebber Securities Trust
Multiple Class Plan
Page 3
of the shares at the time of purchase or (ii) the net asset value of the
shares at the time of redemption; provided that such CDSC shall apply only
to Class D shares issued on or after November 1, 1995.
Class D shares of a Fund that invests primarily in equity
securities or in a combination of equity and debt securities will be
subject to a CDSC on redemptions of Class D shares held less than one year
equal to 1% of the lower of: (i) the net asset value of the shares at the
time of purchase or (ii) the net asset value of the shares at the time of
redemption; provided that such CDSC shall apply only to Class D shares
issued on or after November 1, 1995.
Class D shares of each Fund held one year or longer and Class D
shares of each Fund acquired through reinvestment of dividends or capital
gains distributions are not subject to the CDSC. The CDSC for Class D
shares of each Fund will be waived under certain circumstances.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of
shares of each Fund ("Class Expenses"). Class Expenses are charged
directly to the net assets of the particular Class and, thus, are borne on
a pro rata basis by the outstanding shares of that Class.
In addition to the distribution and service fees described above,
each Class may also pay a different amount of the following other
expenses:
(1) printing and postage expenses related to
preparing and distributing materials
such as shareholder reports,
prospectuses, and proxies to current
shareholders of a specific Class;
(2) Blue Sky registration fees incurred by a specific
Class of shares;
(3) SEC registration fees incurred by a specific
Class of shares;
(4) expenses of administrative personnel and services
required to support the shareholders of a
specific Class of shares;
(5) Trustees' fees incurred as a result of issues
relating to a specific Class of shares;
(6) litigation expenses or other legal expenses
relating to a specific Class of shares; and
<PAGE>
PaineWebber Securities Trust
Multiple Class Plan
Page 4
(7) transfer agent fees identified as being
attributable to a specific Class.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Class B and Class D shares of each Fund may be exchanged
for shares of the corresponding Class of other PaineWebber mutual funds
and MH/KP mutual funds, or may be acquired through an exchange of shares
of the corresponding Class of those funds. Class C shares of the Funds
are not exchangeable.
These exchange privileges may be modified or terminated by a
Fund, and exchanges may only be made into funds that are legally
registered for sale in the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Trustees of PaineWebber
Securities Trust, a Fund may alter the nomenclature for the designations
of one or more of its classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms
of the then current prospectus for the applicable Classes; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Fund contains additional information about the Classes
and each Fund's multiple class structure.
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective as of the date hereof,
provided that the CDSC imposed on the Class A shares and Class D shares of
each Fund shall apply only to Class A shares and Class D shares issued on
or after November 1, 1995, and further provided that this Plan shall not
become effective with respect to any Fund unless such action has first
been approved by the vote of a majority of the Board and by vote of a
majority of those trustees of the Fund who are not interested persons of
PaineWebber Securities Trust.
July 20, 1995
<PAGE>
EXHIBIT 99.19
POWER OF ATTORNEY
I, Richard Q. Armstrong, Trustee of PaineWebber Securities Trust
("Fund"), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd, Joan L. Cohen, Elinor W. Gammon and Robert A.
Wittie, and each of them singly, my true and lawful attorneys, with full power
to them to sign for me, and in my capacity as Trustee for the Fund, any and all
amendments to each of the particular registration statements of the Fund, and
all instruments necessary or desirable in connection therewith, filed with the
Securities and Exchange Commission, hereby ratifying and confirming my signature
as it may be signed by said attorneys to any and all amendments to said
registration statements.
Pursuant to the requirements of the Securities Act of 1933, this
instrument has been signed below by the following in the capacity and on the
date indicated.
Signature Title Date
/s/ Richard Q. Armstrong Trustee June 1, 1995
- ------------------------
Richard Q. Armstrong
