<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1995
SECURITIES ACT FILE NO. 33-60812
INVESTMENT COMPANY ACT FILE NO. 811-7630
________________________________________________________________________________
________________________________________________________________________________
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. 4 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 6 [x]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
(FORMERLY, 'KIDDER, PEABODY INVESTMENT TRUST III')
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
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:
JON S. RAND, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4669
It is proposed that this filing will become effective (check appropriate
box)
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on December 1, 1995 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed
post-effective amendment.
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's fiscal year ended
July 31, 1995 was filed on September 29, 1995.
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
FORM N-1A
CROSS REFERENCE SHEET
PAINEWEBBER SMALL CAP GROWTH FUND
(FORMERLY, 'KIDDER, PEABODY SMALL CAP EQUITY FUND')
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
- -------- ------------------------------------------------------
<S> <C> <C>
1. Cover Page............................................ Cover Page
2. Synopsis.............................................. Fee Table; Highlights
3. Condensed Financial Information....................... Financial Highlights
4. General Description of Registrant..................... Cover Page; Investment Objective and Policies; General
Information
5. Management of the Fund................................ Fee Table; Investment Objective and Policies;
Management of the Fund
5A. Management's Discussion of Fund Performance........... Investment Objective and Policies
6. Capital Stock and Other Securities.................... Dividends, Distributions and Taxes; General
Information
7. Purchase of Securities Being Offered.................. Purchase of Shares; Determination of Net Asset Value;
Distributor
8. Redemption or Repurchase.............................. Redemption of Shares
9. Legal Proceedings..................................... Not applicable
</TABLE>
<TABLE>
<CAPTION>
PART B HEADING IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
- -------- ------------------------------------------------------
<S> <C> <C>
10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Contents
12. General Information and History....................... Not applicable
13. Investment Objectives and Policies.................... Investment Objective and Policies
14. Management of the Fund................................ Management of the Fund
15. Control Persons and Principal Holders of Securities... Management of the Fund; see Prospectus -- 'General
Information'
16. Investment Advisory and Other Services................ Management of the Fund
17. Brokerage Allocation and Other Practices.............. Investment Objective and Policies
18. Capital Stock and Other Securities.................... Purchase of Class A Shares; Redemption of Shares;
General Information
19. Purchase, Redemption and Pricing of Securities Being
Offered............................................. Purchase of Class A Shares; Redemption of Shares;
Determination of Net Asset Value; Exchange Privilege
20. Tax Status............................................ Taxes
21. Underwriters.......................................... Management of the Fund
22. Calculation of Performance Data....................... Determination of Performance; see
Prospectus -- 'Performance Information'
23. Financial Statements.................................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
1285 Avenue of the Americas
New York, New York 10019
Professional Management
Portfolio Diversification
Dividend and Capital Gain
Reinvestment
Flexible Pricing'sm'
Low Minimum Investment
Automatic Investment Plan
Systematic Withdrawal Plan
Exchange Privileges
Suitable for Retirement Plans
The Fund is a series of Mitchell Hutchins/Kidder, Peabody Investment Trust III
('Trust'). This Prospectus concisely sets forth information a prospective
investor should know about the Fund before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
December 1, 1995 (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
can be obtained without charge, and further inquiries can be made, by contacting
the Fund, your PaineWebber investment executive or PaineWebber's correspondent
firms or by calling toll-free 1-800-647-1568.
------------------------
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.
------------------------
The date of this Prospectus is December 1, 1995
PAINEWEBBER MUTUAL FUNDS
<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
------------------------
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed
in this summary.
<TABLE>
<S> <C>
The Fund: PaineWebber Small Cap Growth Fund ('Fund') is a diversified series of Mitchell
Hutchins/Kidder, Peabody Investment Trust III ('Trust'), an open-end management
investment company.
Investment Objective and Long-term capital appreciation; invests primarily in equity securities of small
Policies: capitalization companies.
Total Net Assets at October $47.9 million
31, 1995:
Investment Adviser and Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), an asset
Administrator: management subsidiary of PaineWebber Incorporated ('PaineWebber' or 'PW'),
manages over $44.6 billion in assets. See 'Management.'
Sub-Adviser: George D. Bjurman & Associates ('Bjurman' or '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 System: 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
the public offering price).
Class B Shares Offered at net asset value (a maximum contingent deferred sales charge of 5% of
redemption proceeds is imposed on certain redemptions made within six years of
date of purchase). Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) approximately six years after purchase. Such
Class B shares were not offered prior to December 1, 1995.
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Class C Shares Offered at net asset value without an initial or contingent deferred sales charge
(a contingent deferred sales charge of 1% of redemption proceeds is imposed on
certain redemptions made within one year of purchase). Class C shares pay higher
ongoing expenses than Class A shares and do not convert into another Class. Prior
to November 10, 1995, these Class C shares were called 'Class B' shares.
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, if any, also is distributed
annually. See 'Dividends, Distributions and Taxes.'
Reinvestment: All dividends and capital gain distributions are paid in Fund shares of the same
Class at net asset value unless the shareholder has requested cash.
Minimum Purchase: $1,000 for first purchase; $100 for subsequent purchases.
</TABLE>
<TABLE>
<S> <C> <C>
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial sales charge
Systematic withdrawal plan 365-day reinstatement privilege
Rights of accumulation
Class B Shares Automatic investment plan Systematic withdrawal plan
Class C Shares Automatic investment plan Systematic withdrawal plan
</TABLE>
WHO SHOULD INVEST. The Fund invests primarily in equity securities of small
capitalization companies and is designed for investors who are seeking long-term
capital appreciation. The Fund's risk factors are summarized below and are
described in more detail under 'Investment Objective and Policies -- Risk
Factors and Special Considerations.' 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 instance, for retirement,
college tuition or other major goals.
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Small capitalization companies
typically are subject to a greater degree of change in earnings and business
prospects than are larger, more established companies. In addition, securities
of small capitalization companies are traded in lower volume than those issued
by larger companies and are more volatile than those of larger companies. In
light of these characteristics of small capitalization companies and their
securities, the Fund may be subject to greater investment risk than that assumed
by other investment companies. Certain investments made by the Fund, and certain
investment techniques and strategies that the Fund may use, could expose the
Fund to risks and special considerations. The investments presenting the Fund
with risks and special considerations are warrants, securities of foreign
issuers, non-publicly traded securities and illiquid
3
<PAGE>
<PAGE>
securities. Investment practices that may involve risks and special
considerations to the Fund are purchasing and selling stock options and stock
index options, lending portfolio securities, purchasing securities of other
registered investment companies, entering into repurchase agreements and
entering into securities transactions on a when-issued or delayed-delivery
basis. See 'Investment Objective and Policies -- Risk Factors and Special
Considerations' at page 14 of this Prospectus.
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES(1)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS 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
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............................................................... 0.47 0.48 0.48
------- ------- -------
Total operating expenses..................................................... 1.72% 2.48% 2.48%
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Sales charge waivers are available for Class A and Class B shares and
reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge generally declines
by 1% annually thereafter, reaching zero after six years. See 'Purchases.'
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If shares are redeemed within one year of purchase, a contingent
deferred sales charge of 1% will be applied to the redemption. See 'Purchases.'
(3) If Class C shares are redeemed within one year of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
'Purchases.'
4
<PAGE>
<PAGE>
(4) See 'Management' for additional information. The management fee payable
to Mitchell Hutchins is greater than the management fee paid by most funds. All
expenses, except for Class B shares, are those actually incurred for the fiscal
year ended July 31, 1995. Class B shares 'other expenses' are based on estimates
for the Fund's current fiscal year.
(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
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc.
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A Shares(1)................................................................. $ 62 $ 97 $ 134 $ 239
Class B Shares:
Assuming a complete redemption at end of period(2)(3)........................ $ 75 $107 $ 152 $ 246
Assuming no redemption(3).................................................... $ 25 $ 77 $ 132 $ 246
Class C Shares:
Assuming a complete redemption at end of period(2)........................... $ 35 $ 77 $ 132 $ 282
Assuming no redemption....................................................... $ 25 $ 77 $ 132 $ 282
</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.
5
<PAGE>
<PAGE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission ('SEC') applicable to all mutual funds; the
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.
6
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class A
share and one Class C share (prior to November 10, 1995, Class C shares were
called 'Class B' shares) of the Fund for each of the periods shown. No new Class
B shares were outstanding during such periods. 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 Statement of Additional Information. The
financial statements and notes, and the financial information for the fiscal
year ended July 31, 1995 appearing in the table below, have been audited by
Ernst & Young LLP, independent auditors, whose report thereon is included in the
Annual Report to Shareholders. The financial information for the period ended
July 31, 1994 was audited by other auditors whose report thereon was
unqualified. Further information about the Fund's performance is also included
in the Annual Report to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
Class A Class C
-------------------------- --------------------------
For the For the For the For the
Year ended Period ended Year ended Period ended
July 31, July 31, July 31, July 31,
1995** 1994`D' 1995** 1994`D'
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................... $ 9.79 $ 12.00 $ 9.74 $ 12.00
------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment loss............................................ (0.20) (0.10) (0.28) (0.13)
Net realized and unrealized gains (losses) from investment
transactions................................................. 4.17 (2.11) 4.12 (2.13)
------------ ------------ ------------ ------------
Total increase (decrease) from investment operations........... 3.97 (2.21) 3.84 (2.26)
------------ ------------ ------------ ------------
Net asset value, end of period................................. $ 13.76 $ 9.79 $ 13.58 $ 9.74
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total investment return(1)..................................... 40.55 % (18.42)% 39.43 % (18.83)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Ratios/Supplemental Data:
Net assets, end of period (000's).............................. $ 30,927 $ 29,528 $ 15,139 $ 15,159
Ratios of expenses to average net assets....................... 1.72 % 1.68 %* 2.48 % 2.43 %*
Ratios of net investment loss to average net assets............ (1.24)% (1.06)%* (2.00)% (1.80)%*
Portfolio turnover rate........................................ 101 % 56 % 101 % 56 %
</TABLE>
- ------------------------
* Annualized.
** On February 13, 1995, Mitchell Hutchins became investment adviser and
administrator of the Fund. Bjurman remains responsible for the management of
the Fund's portfolio.
`D' For the period November 4, 1993 (commencement of investment operations) to
July 31, 1994.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and capital
gain distributions, if any, at net asset value on the payable date and a
sale at net asset value on the last day of each period reported. The figures
do not include sales charges; results would be lower if sales charges were
included. Total investment returns for periods of less than one year have
not been annualized.
7
<PAGE>
<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 structures and in their
ongoing expenses, including asset-based sales charges in the form of
distribution fees. These differences are summarized in the table below. Each
Class has distinct advantages and disadvantages for different investors, and
investors may choose the Class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------- -------------------------------- --------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of Service fee of 0.25% Initial sales charge waived or
4.5% of the public offering reduced for certain purchases
price
CLASS B Maximum contingent deferred Service fee of 0.25%; Shares convert to Class A shares
sales charge of 5% of redemption distribution fee of 0.75% approximately six years after
proceeds; declines to zero after issuance
six years
CLASS C Contingent deferred sales charge Service fee of 0.25%; --
of 1% of redemption proceeds if distribution fee of 0.75%
redeem within first year after
purchase
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider
the cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances:
SALES CHARGES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.5% of the public offering price. Because of this initial
sales charge, not all of a Class A shareholder's purchase price is invested in
the Fund. Class B shares are sold with no initial sales charge, but a contingent
deferred sales charge of up to 5% of the redemption proceeds applies to
redemptions made within six years of purchase. Class C shareholders pay no
initial sales charges, although a contingent deferred sales charge of 1.00%
applies to certain redemptions of Class C shares made within the first year
after purchase. Thus, the entire 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 schedule may be made at a reduced sales charge. In considering the
combined cost of sales charges and ongoing annual expenses, investors should
take into account any reduced sales charges on Class A shares for which they may
be eligible.
8
<PAGE>
<PAGE>
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class 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 distribution fee of 0.75% of average daily net
assets. Annual 12b-1 distribution fees are a form of asset-based sales charges.
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 Class B or Class C shares and the 4.5% maximum initial
sales charge on the Class A shares would all be approximately equal if the
shares were held for six years. Because Class B shares convert to Class A shares
(which do not bear the expense of ongoing distribution fees) approximately six
years after purchase, an investor expecting to hold shares of the Fund for
longer than six years would generally pay lower cumulative expenses by
purchasing Class A or Class B shares than by purchasing Class C shares. An
investor expecting to hold shares of the Fund 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 payable 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 asset
value of Fund shares, which will affect the actual amount of expenses paid.
Expenses borne by Classes may differ slightly because of the allocation of other
Class-specific expenses. The 'Example of Effect of Fund Expenses' under
'Prospectus Summary' shows the cumulative expenses an investor would pay over
time on a hypothetical investment in each Class of Fund shares, assuming an
annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of
compensation for selling one particular Class of Fund shares rather than
another. Investors should understand that distribution fees and initial and
contingent deferred sales charges all are intended to compensate Mitchell
Hutchins for distribution services.
See 'Purchases,' 'Redemptions' and 'Management' for a more complete
description of the initial and contingent deferred sales charges, service fees
and distribution fees for the three Classes of shares. See also 'Conversion of
Class B Shares,' 'Dividends, Distributions and Taxes,' 'Valuation of Shares' and
'General Information' for other differences among the three Classes.
INVESTMENT OBJECTIVE AND POLICIES
OBJECTIVE
The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in equity securities
of small capitalization companies.
9
<PAGE>
<PAGE>
There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. The Fund's investment objective and certain
investment limitations, as described in the Statement of Additional Information,
are fundamental policies and may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing primarily
in equity securities of small capitalization companies, which are U.S. companies
with stock market capitalizations of up to $1 billion. A company's stock market
capitalization is calculated by multiplying the total number of shares of its
common stock outstanding by the market price per share of its common stock.
The Fund has been designed to provide investors with potentially greater
long-term rewards than provided by an investment in a fund that seeks capital
appreciation from common stocks of larger, better-known companies. Several
statistical studies have been published recently indicating that the historical
long-term returns on investments in common stocks of small capitalization
companies have been higher than returns on those of large capitalization
companies. In addition, small capitalization companies generally are not as well
known to the investing public and have less of an investor following than larger
companies and, therefore, may provide opportunities for investment gains as a
result of relative inefficiencies in the marketplace.
In seeking its objective, the Fund invests in equity securities of
companies Bjurman believes to be undervalued and to have the potential for high
earnings growth. Companies in which the Fund invests generally meet one or more
of the following criteria: high historical earnings-per-share ('EPS') growth;
high projected future EPS growth; an increase in research analyst earnings
estimates; attractive relative price earnings ratios; and high relative
discounted cost flows. In selecting the Fund's investments, Bjurman also focuses
on companies with capable management teams, strong industry positions, sound
capital structures, high returns on equity, high reinvestment rates and
conservative financial accounting policies. The Fund emphasizes those industries
and economic sectors Bjurman believes to have the best growth prospects.
In pursuing its objective, the Fund invests substantially all, and under
normal conditions not less than 65%, of its assets in common stocks, preferred
stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights. To the extent that the Fund
invests in convertible debt securities, those securities will be purchased on
the basis of their equity characteristics and ratings of those securities will
not be an important factor in their selection. The equity securities in which
the Fund invests typically are traded in the over-the-counter market or are non-
publicly traded.
The Fund's investments in non-publicly traded securities (also commonly
referred to as 'restricted securities'), which are securities that are subject
to contractual or legal restrictions on transfer, may not exceed 10% of the
Fund's assets. Restricted securities include securities that are not registered
under the Securities Act of 1933, as amended (the '1933 Act'), but that can be
sold to 'qualified institutional buyers' in accordance with
10
<PAGE>
<PAGE>
Rule 144A under the 1933 Act ('Rule 144A Securities'). The Fund is authorized to
invest up to 15% of its assets in illiquid securities, which are securities that
cannot be disposed of by the Fund within seven days in the ordinary course of
business at approximately the amount at which the Fund has valued the
securities. Illiquid securities that are held by the Fund take the form of
repurchase agreements maturing in more than seven days and other securities
subject to restrictions on resale that Bjurman has determined are not liquid
under guidelines established by the Trust's Board of Trustees.
Up to 10% of the Fund's assets may be invested in foreign securities. The
Fund may also invest in securities of foreign issuers in the form of American
Depositary Receipts ('ADRs'), which are U.S. dollar-denominated receipts
typically issued by domestic banks or trust companies that represent the deposit
with those entities of securities of a foreign issuer, and European Depositary
Receipts ('EDRs'), sometimes referred to as Continental Depositary Receipts
('CDRs'), which generally are issued by foreign banks and evidence ownership of
either foreign or domestic securities. ADRs are publicly traded on exchanges or
over-the-counter in the United States and are issued through 'sponsored' or
'unsponsored' arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depositary's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
obligations and the depositary's transaction fees are paid directly by the ADR
holders. In addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements.
During normal market conditions, less than 10% of the Fund's total assets
may be held in cash and/or invested in money market instruments for cash
management purposes, pending investment in accordance with the Fund's investment
objective and policies, and to meet anticipated redemptions and operating
expenses. During periods in which Bjurman believes that investment opportunities
in the equity markets are diminished (due to either fundamental changes in those
markets or an anticipated general decline in the value of equity securities) and
Bjurman determines that adoption of a temporary defensive investment posture is
therefore warranted, the Fund may hold cash and/or invest in money market
instruments without limitation. To the extent that it holds cash or invests in
money market instruments, the Fund may not achieve its investment objective of
long-term capital appreciation.
The Fund may invest only in the following types of money market
instruments: securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ('Government Securities'); obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of foreign or
domestic banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million); commercial paper;
and repurchase agreements. Government Securities held by the Fund will take the
form of: direct obligations of the U.S. Treasury, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. Certain
of the Government Securities that may be held by the Fund are instruments that
are supported by the full faith and credit of
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the United States, whereas other Government Securities that may be held by the
Fund are supported by the right of the issuer to borrow from the U.S. Treasury
or are supported solely by the credit of the instrumentality.
The Fund may invest in money market instruments issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities, only if those instruments are rated AAA or AA by
Standard & Poor's ('S&P') or Aaa or Aa by Moody's Investors Service, Inc.
('Moody's') or have received an equivalent rating from another nationally
recognized statistical rating organization ('NRSRO'), or if unrated, are deemed
by Bjurman to be of equivalent quality. Commercial paper held by the Fund may be
rated no lower than A-1 by S&P or Prime-1 by Moody's or the equivalent from
another NRSRO, or if unrated, must be issued by an issuer having an outstanding
unsecured debt issue then rated within the three highest categories. At no time
will the investments of the Fund in bank obligations, including time deposits,
exceed 25% of the value of the Fund's assets.
Although the Fund has no current intention of doing so in the foreseeable
future, the Fund may engage in transactions involving futures contracts and
options on futures contracts, which are described in the Statement of Additional
Information.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund may engage in a number of investment techniques and strategies,
including those described below. The Fund is under no obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. In addition, no assurance can be given that the use of any practice
will have its intended result or that the use of any practice is, or will be,
available to the Fund.
STOCK OPTIONS. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) 'covered' call options. A put option provides its purchaser
with the right to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during or at the
end of the option period. In contrast, a call option gives the purchaser the
right to buy the underlying security covered by the option from the writer of
the option at the stated exercise price. A covered call option contemplates
that, for so long as the Fund is obligated as the writer of the option, it will
own (1) the underlying securities subject to the option or (2) securities
convertible into, or exchangeable without the payment of any consideration for,
the securities subject to the option. The value of the underlying securities on
which covered call options will be written at any one time by the Fund will not
exceed 5% of the Fund's total assets.
The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has the right to sell the securities underlying the option and as the
holder of a call option, the Fund has the right to purchase the securities
underlying the option, in each case at the option's exercise price at any time
prior to, or on, the option's expiration date. The Fund may choose to exercise
the options it holds, permit them to expire or terminate them prior to their
expiration by entering into closing
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sale transactions. In entering into a closing sale transaction, the Fund would
sell an option of the same series as the one it has purchased.
STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investments, the Fund may purchase and write put and call options on stock
indexes listed on securities exchanges, which indexes include securities held in
the Fund's portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. Options on
stock indexes are generally similar to options on specific securities. Unlike
those on securities, however, options on stock indexes do not involve the
delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
When the Fund writes an option on a stock index, it will establish a
segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash, money market instruments or a combination of both in
an amount equal to the market value of the option, and will maintain the account
while the option is open. If the Fund has written a stock index option, it may
terminate its obligation by effecting a closing purchase transaction, which is
accomplished by purchasing an option of the same series as the option previously
written.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. As a means of regulating the
Fund's exposure to the equity markets, the Fund may invest in securities issued
by other registered investment companies, including those traded on securities
exchanges, that invest principally in securities in which the Fund is authorized
to invest. Under the 1940 Act, the Fund may invest a maximum of 10% of its total
assets in the securities of other investment companies. In addition, under the
1940 Act, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company, and the Fund may not own more than 3%
of the securities of any investment company.
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of
helping to meet its operating expenses, the Fund may lend securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the Fund's assets taken at market
value. The Fund's loans of securities will be collateralized by cash, letters of
credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities are maintained at all times in a segregated account
with the Fund's custodian, or with a designated sub-custodian, in an amount at
least equal to the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, may not exceed 15% of the Fund's net assets. The Fund may
engage in repurchase agreement transactions, which are in the nature of secured
loans by the Fund to certain member banks of the Federal Reserve System and with
certain dealers listed on the Federal Reserve Bank of New York's list of
reporting
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dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than seven days) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the securities underlying a repurchase
agreement of the Fund is monitored on an ongoing basis by Bjurman to ensure that
the value is at least equal at all times to the total amount of the repurchase
obligation, including interest. Bjurman also monitors, on an ongoing basis to
evaluate potential risks, the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund may enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as
those described below:
GENERAL. An investment in shares of the Fund should not be considered to
be a complete investment program. The value of the Fund's investments, and as a
result the net asset values of the Fund's shares, fluctuates in response to
changes in the market and economic conditions as well as the financial condition
and prospects of issuers in which the Fund invests. Small capitalization
companies typically are subject to a greater degree of change in earnings and
business prospects than are larger, more established companies. In addition,
securities of small capitalization companies are traded in lower volume than
those issued by larger companies and are more volatile than those of larger
companies. In light of these characteristics of small capitalization companies
and their securities, the Fund may be subject to greater investment risk than
that assumed by other investment companies. Because of the risks
associ-
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ated with the Fund's investments, the Fund is intended to be a long term
investment vehicle and is not designed to provide investors with a means of
speculating on short-term stock market movements.
WARRANTS. Because a warrant, which is a security permitting, but not
obligating, its holder to subscribe for another security, does not carry with it
the right to dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because a warrant does not represent
any rights to the assets of the issuer, a warrant may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior to its
expiration date. The investment by the Fund in warrants, valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
('NYSE') or the American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Non-publicly traded
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund.
In addition, companies whose securities are not publicly traded are not subject
to the disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. The Fund's investments in
illiquid securities are subject to the risk that should the Fund desire to sell
any of these securities when a ready buyer is not available at a price that
Bjurman deems representative of their value, the value of the Fund's net assets
could be adversely affected.
RULE 144A SECURITIES. Certain Rule 144A Securities may be considered
illiquid and, therefore, subject to the Fund's limitation on the purchase of
illiquid securities, unless the Board of Trustees determines on an ongoing basis
that an adequate trading market exists for the Rule 144A Securities. The Fund's
purchase of Rule 144A Securities could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A Securities held by the
Fund. The Board of Trustees has established standards and procedures for
determining the liquidity of a Rule 144A Security and monitors Bjurman's
implementation of the standards and procedures. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and Bjurman can not
predict how this market will develop.
STOCK OPTIONS. The Fund receives a premium when it writes call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise price of the option for as long as
the Fund's obligation as writer of the option continues. Thus, in some periods,
the Fund will receive less total return and in other periods greater total
return from its hedged positions than it would have received from its underlying
securities if unhedged.
In purchasing a put option, the Fund seeks to benefit from a decline in
the market
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price of the underlying security, whereas in purchasing a call option, the Fund
seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
STOCK INDEX OPTIONS. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded. If the Fund writes a stock index option, it may terminate its obligation
by effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases or writes stock index options only if a liquid secondary
market for the options purchased or sold appears to exist, no such secondary
market may exist, or the market may cease to exist at some future date, for some
options. No assurance can be given that a closing purchase transaction can be
effected when the Fund desires to engage in such a transaction.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent the Fund invests
in other investment companies, the Fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. Exchange
traded investment company securities typically trade at prices that differ from
the company's net asset value per share and often trade at a discount to net
asset value. The Fund will purchase exchange traded investment company
securities only in the secondary market and not in an initial offering.
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by
foreign companies and governments involves considerations and potential risks
not typically associated with investing in obligations issued by the U.S.
Government and U.S. corporations. Less information may be available about
foreign companies than about U.S. companies, and foreign companies generally are
not subject to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements comparable to those applicable to
domestic companies. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, restrictions or prohibitions on
the repatriation of foreign currencies, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage
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commissions are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and subject to less
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations, and could be subject to extended clearance and settlement periods.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by: the intervention of the U.S.
Government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.
LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the return available in the market when the delivery takes
place may be higher than that applicable at the time of the purchase. This
characteristic of when-issued and delayed-delivery securities could result in
exaggerated movements in the Fund's net asset value.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by the Board of Trustees and Mitchell Hutchins,
and are placed with brokers or dealers selected by the Sub-Adviser. The Trustees
have determined that, to the extent consistent with applicable provisions of the
1940 Act and rules and exemptions adopted thereunder, transactions for the Fund
may be executed through PaineWebber if, in the judgment of the Sub-Adviser, the
use of PaineWebber is likely to result in price and execution at least as
favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, PaineWebber charges the Fund a fair
and reasonable rate consistent with that charged to comparable unaffiliated
customers in similar transactions.
The Fund's portfolio is actively managed. The Fund's portfolio turnover
rate may vary greatly from year to year and will not be
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a limiting factor when the Sub-Adviser deems portfolio changes appropriate. An
annual turnover rate of 100% would occur if all of the securities held by the
Fund are replaced once during a period of one year. Higher portfolio turnover
rates (100% or more) will result in corresponding increases in transaction
costs, which will be borne directly by the Fund, may make it more difficult for
the Fund to qualify as a regulated investment company for federal income tax
purposes and may cause shareholders of the Fund to recognize short-term capital
gains for federal income tax purposes. See 'Dividends, Distributions and
Taxes -- Taxes.'
PURCHASES
GENERAL. Class A shares are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial sales charge but are subject
to higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B shares automatically convert to
Class A shares approximately six years after issuance. Class C shares are sold
without an initial sales charge but are subject to a 1% contingent deferred
sales charge for redemptions made within one year and to higher ongoing expenses
than Class A shares and do not convert into another Class. See 'Flexible Pricing
System' and 'Conversion of Class B Shares.'
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the Transfer
Agent. Investors may contact a local PaineWebber office to open an account. The
minimum initial investment is $1,000, and the minimum for additional purchases
is $100. These minimums may be waived or reduced for investments by employees of
PaineWebber or its affiliates, certain pension plans and retirement accounts and
participants in the Fund's automatic investment plan. Purchase orders will be
priced at the net asset value per share next determined (see 'Valuation of
Shares') after the order is received by PaineWebber's New York City offices or
by the Transfer Agent, plus any applicable sales charge for Class A shares. The
Fund and Mitchell Hutchins reserve the right to reject any purchase order and to
suspend the offering of Fund shares for a period of time.
When placing purchase orders, investors should specify whether the order
is for Class A, Class B or Class C shares. All share purchase orders that fail
to specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
pay for purchases with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the third Business Day after the order is received at PaineWebber's New York
City offices. A 'Business Day' is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ('NYSE') is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber
clients may purchase shares of the Fund through the Transfer Agent. Shares of
the Fund may be purchased, and an account with the Fund established, by
completing and signing the purchase application at the end of
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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 table
below.
Mitchell Hutchins may at times agree to reallow higher discounts to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown in the
table below. To the extent PaineWebber or any dealer receives 90% or more of the
sales charge, it may be deemed an 'underwriter' under the 1933 Act.
INITIAL SALES CHARGE SCHEDULE -- CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
------------------------------- DISCOUNT TO SELECTED
OFFERING NET AMOUNT INVESTED DEALERS AS A PERCENTAGE OF
AMOUNT OF PURCHASE PRICE (NET ASSET VALUE) OFFERING PRICE
- -------------------------------- -------- ------------------- --------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over (1) None None 1.00
</TABLE>
- ------------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own resources.
SALES CHARGE WAIVERS -- CLASS A SHARES. Class A shares of the Fund are
available without a sales charge through exchanges for Class A shares of most
other PaineWebber mutual funds. See 'Exchanges.' In addition, Class A shares may
be purchased without a sales charge by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber mutual fund, their spouses, parents and children and advisory
clients of Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the
purchase is made through a PaineWebber investment executive who formerly was
employed as a broker with another firm registered as a broker-dealer with the
SEC, provided (1) the purchaser was the investment executive's client at the
competing brokerage firm, (2) within 90 days of the purchase of Class A shares
the purchaser redeemed shares of one or more mutual funds for which that
competing firm or its affiliates was principal underwriter, provided the
purchaser either paid a sales charge to invest in those funds, paid a contingent
deferred sales charge upon redemption or held shares of those funds for the
period required not to pay the otherwise applicable contingent deferred sales
charge and (3) the total amount of shares of all PaineWebber 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
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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.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES. Purchases 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 deferred sales charge will be applied to the redemption. The Class A
contingent deferred sales charge will be equal to 1% of 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 redemption. Class A shares of the Fund held one year
or longer, and Class A shares of the Fund acquired through reinvestment of
dividends or capital gains distributions will not be subject to this contingent
deferred sales charge. The contingent deferred sales charge for Class A shares
of the Fund will be waived for redemptions in connection with the systematic
withdrawal plan, subject to the limitations described below under 'Other
Services and Information -- Systematic Withdrawal Plan.' This contingent
deferred sales charge does not apply to redemptions of Class A shares purchased
prior to November 10, 1995.
Class A shares of the Fund that are purchased without a sales charge may
be exchanged for Class A shares of another PaineWebber mutual fund without the
imposition of a contingent deferred sales charge, although contingent deferred
sales charges may apply to the Class A shares acquired 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.
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 applicable to larger purchases by basing the sales charge on the dollar
amount of Class A shares currently being purchased, plus the net asset value of
the investor's or group's total existing Class A shareholdings in other
PaineWebber mutual funds.
An 'eligible group of related Fund investors' includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ('IRA'), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts created by the individual or
eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also
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includes a group of related employers and one or more qualified retirement plans
of such employers. For more information, an investor should consult the
Statement of Additional Information or contact a PaineWebber investment
executive or correspondent firm or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. The public offering
price of the Class B shares of the Fund is the next determined net asset value,
and no initial sales charge is imposed. A contingent deferred sales charge,
however, is imposed upon certain redemptions of Class B shares.
Class B shares that are redeemed will not be subject to a contingent
deferred sales charge to the extent that the value of such shares represents (1)
reinvestment of dividends or capital gain distributions or (2) shares redeemed
more than six years after their purchase. Otherwise, redemptions of Class B
shares will be subject to a contingent deferred sales charge. The amount of any
applicable contingent deferred sales charge will be calculated by multiplying
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 redemption by the
applicable percentage shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
REDEMPTION DURING APPLICABLE
- -------------------------------- --------------------
<S> <C>
1st Year Since Purchase......... 5%
2nd Year Since Purchase......... 4
3rd Year Since Purchase......... 3
4th Year Since Purchase......... 2
5th Year Since Purchase......... 2
6th Year Since Purchase......... 1
7th Year Since Purchase......... None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will be
calculated from the date that the Class B shares were initially acquired in one
of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result in
any contingent deferred sales charge being imposed at the lowest possible rate.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, realized
on the redemption. The amount of any contingent deferred sales charge will be
paid to Mitchell Hutchins.
SALES CHARGE WAIVERS -- CLASS B SHARES. The contingent deferred sales
charge will be waived for exchanges, as described below, and for redemptions in
connection with the Fund's systematic withdrawal plan; In addition, the
contingent deferred sales charge will be waived for a total or partial
redemption made within one year of the death of the shareholder. The contingent
deferred sales charge waiver is available where the decedent is either the sole
shareholder or owns the shares with his or her spouse as a joint tenant with
right of survivorship. This waiver applies only to redemption of shares held at
the time of death. The contingent deferred sales charge will also be waived in
connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called 'Keogh Plan') or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; any total or partial redemption resulting from a
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distribution following retirement in the case of a tax-qualified retirement
plan; and a redemption resulting from a tax-free return of an excess
contribution to an IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
PURCHASES OF CLASS C SHARES. The public offering price of the Class C
shares 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 deferred sales charge will be applied to the redemption. The
contingent deferred sales charge on Class C shares will be equal to 1.00% of 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 redemption. Class C shares of
the Fund held one year or longer and Class C shares of the Fund acquired through
reinvestment of dividends or capital gains distributions will not be subject to
the contingent deferred sales charge. The contingent deferred sales charge for
Class C shares of the Fund will be waived for redemptions in connection with the
systematic withdrawal plan, subject to the limitations described below under
'Other Services and Information -- Systematic Withdrawal Plan.' This contingent
deferred sales charge does not apply to redemptions of Class C shares purchased
prior to November 10, 1995.
Class C shares of the Fund that are purchased without a sales charge may
be exchanged for Class C shares of another PaineWebber mutual 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 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.
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
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares being acquired, and no contingent deferred sales
charge is imposed on the shares being disposed of, through an exchange. However,
contingent deferred sales charges may apply to redemptions of Class B shares of
PaineWebber mutual funds acquired through an exchange. Exchanges may be subject
to minimum investment requirements of the fund into which exchanges are made.
Exchanges are permitted between the Fund and other PaineWebber mutual
funds, including:
Income Funds
PW GLOBAL INCOME FUND
PW HIGH INCOME FUND
PW INVESTMENT GRADE INCOME FUND
PW LOW DURATION U.S. GOVERNMENT
INCOME FUND
PW STRATEGIC INCOME FUND
PW U.S. GOVERNMENT INCOME FUND
Tax-Free Income Funds
PW CALIFORNIA TAX-FREE INCOME FUND
PW MUNICIPAL HIGH INCOME FUND
PW NATIONAL TAX-FREE INCOME FUND
PW NEW YORK TAX-FREE INCOME FUND
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<PAGE>
Growth Funds
PW CAPITAL APPRECIATION FUND
PW EMERGING MARKETS EQUITY FUND
PW GLOBAL EQUITY FUND
PW GROWTH FUND
PW REGIONAL FINANCIAL GROWTH FUND
PW SMALL CAP VALUE FUND
Growth and Income Funds
PW BALANCED FUND
PW GROWTH AND INCOME FUND
PW TACTICAL ALLOCATION FUND
PW UTILITY INCOME FUND
PaineWebber Money Market Fund
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificated form. Shareholders who are not PaineWebber clients or
who hold their shares in certificated form must place exchange orders in writing
with the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, Delaware 19899. All exchanges will be effected based on the
relative net asset values per share next determined after the exchange order is
received at PaineWebber's New York City offices or by the Transfer Agent. See
'Valuation of Shares.' Shares of the Fund purchased through PaineWebber or its
correspondent firms may be exchanged only after the settlement date has passed
and payment for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber mutual fund shares to be acquired may be legally
made. Before making any exchange, shareholders should contact their PaineWebber
investment executives or correspondent firms or the Transfer Agent to obtain
more information and prospectuses of the PaineWebber mutual funds to be acquired
through the exchange.
REDEMPTIONS
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid after receipt of a redemption request as described below.
PaineWebber clients may redeem non-certificated shares through PaineWebber or
its correspondent firms; all other shareholders must redeem through the Transfer
Agent. If a redeeming shareholder owns shares of more than one Class, the shares
will be redeemed in the following order unless the shareholder specifically
requests otherwise: Class C shares, then Class A shares, and finally Class B
shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients
may submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within three Business Days after
receipt of the request, repurchase proceeds (less any applicable contingent
deferred sales charge) will be paid by check or credited to the shareholder's
brokerage account at the election of the shareholder. PaineWebber investment
executives and correspondent firms are responsible for promptly forwarding
redemption requests to PaineWebber's New York City offices.
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PaineWebber reserves the right not to honor any redemption request, in
which case PaineWebber promptly will forward the request to the Transfer Agent
for treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in 'good
order' and redemption proceeds will be paid within seven days of the 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, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partnerships
and corporations and (4) duly endorsed share certificates, if any. Shareholders
are responsible for ensuring that a request for redemption is received in 'good
order.'
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds
non-certificated Fund shares may have redemption proceeds of $1 million or more
wired to the shareholder's PaineWebber brokerage account or a commercial bank
account designated by the shareholder. Questions about this option, or
redemption requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm, or to the Transfer Agent
if the shares are not held in a PaineWebber brokerage account. If a shareholder
requests redemption of shares which were purchased recently, the Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed by purchasing
Class A Fund shares within 365 days of the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their PaineWebber investment
executive or correspondent firm at the time the privilege is exercised.
CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares approximately six years after the date of issuance, together with a pro
rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so converted
will no longer be subject to the higher expenses
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<PAGE>
borne by Class B shares. The conversion will be effected at the relative net
asset values per share of the two Classes on the first Business Day of the month
in which the sixth anniversary of the issuance of the Class B shares occurs. See
'Valuation of Shares.' If a shareholder effects one or more exchanges among
Class B shares of the PaineWebber mutual funds during the six-year period, the
holding periods for the shares so exchanged will be counted toward the six-year
period.
OTHER SERVICES AND INFORMATION
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund
through an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of 'dollar cost
averaging.' When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average purchase price per share
over any given period will be lower than if the shareholder purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, since the automatic investment
plan involves continuous investing regardless of price levels, an investor
should consider his or her financial ability to continue purchases through
periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own Class A or Class C shares
with a value of $5,000 or more or non-certificated Class B shares with a value
of $20,000 or more may have PaineWebber redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal plan. No
contingent deferred sales charge will be imposed on such withdrawals for Class B
shares. The minimum amount for all withdrawals of Class A or Class 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 may not withdraw an amount
exceeding 12% annually of his or her 'Initial Account Balance,' a term that
means the value of the Fund account at the time the shareholder elects to
participate in the systematic withdrawal plan. A shareholder's participation in
the systematic withdrawal plan will terminate automatically if the Initial
Account Balance (plus the net asset value on the date of purchase of Fund shares
acquired after the election to participate in the systematic withdrawal plan),
less aggregate redemptions made other than pursuant to the systematic withdrawal
plan, is less than $20,000 in the case of Class B shares and $5,000 in the case
of Class A or Class C shares. No contingent deferred sales charge will be
imposed on such withdrawals within the first year after purchase for Class A
shares purchased pursuant to the sales charge waiver for purchases of $1 million
or more or Class C shares, provided that the Class A or Class C shareholder does
not withdraw an amount exceeding 12% in the first year after purchase of his or
her Initial Account Balance. Share-
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holders who receive dividends or other distributions in cash may not participate
in the systematic withdrawal plan. Purchases of additional Fund shares
concurrently with withdrawals are ordinarily disadvantageous to shareholders
because of tax liabilities and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased
through IRAs available through the Fund. In addition, a Self-Directed IRA is
available through Paine-Webber under which investments may be made in the Fund
as well as in other investments available through PaineWebber. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares normally will be transferred to an account with the Transfer
Agent. However, if the other firm has entered into a selected dealer agreement
with Mitchell Hutchins relating to the Fund, the shareholder may be able to hold
Fund shares in an account with the other firm.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and distributions of net realized
capital gains of the Fund, if any, are distributed annually. Unless a
shareholder instructs the Fund that dividends and capital gains distributions on
shares of any Class should be paid in cash and credited to the shareholder's
Account, dividends and capital gains distributions are reinvested automatically
at net asset value in additional shares of the same Class. The Fund is subject
to a 4% nondeductible excise tax measured with respect to certain undistributed
amounts of net investment income and capital gains. If necessary to avoid the
imposition of this tax, and if in the best interests of its shareholders, the
Fund will declare and pay dividends of its net investment income and
distributions of its net capital gains more frequently than stated above. The
per share dividends and distributions on Class A shares are higher than those on
Class B and Class C shares, as a result of the distribution fees borne by Class
B and Class C shares. Dividends on each Class also might be affected differently
by the allocation of other Class-specific expenses. See 'Fee Table,' 'Purchase
of Shares,' 'Distributor' and 'General Information.'
TAXES
The Fund has qualified for the fiscal year ended July 31, 1995 as a
regulated investment company within the meaning of the Code and intends to
qualify for this treatment in each year. To qualify as a regulated investment
company for federal income tax purposes, the Fund limits its income and
investments so that (1) at least 90% of its gross income is derived from
dividends, interest payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in stock,
securities or currencies, (2) less than 30% of its gross income is derived from
the sale or disposition of stocks or securities and certain financial
instruments (including certain options, futures and forward contracts) that were
held for less than three months and (3) at the close of each quarter of the
taxable year (a) not more than 25% of the market value of the
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Fund's total assets is invested in the securities (other than Government
Securities or the securities of other regulated investment companies) of a
single issuer or of two or more issuers controlled by the Fund that are engaged
in the same or similar trades or businesses or in related trades or businesses
and (b) at least 50% of the market value of the Fund's total assets is
represented by (i) cash and cash items, (ii) Government Securities and
securities of other regulated investment companies and (iii) other securities
limited in respect of any one issuer to an amount not greater in value than 5%
of the market value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer. The requirements for qualification
may cause the Fund to restrict the degree to which it sells or otherwise
disposes of stocks, other securities and certain financial instruments held for
less than three months. If the Fund qualifies as a regulated investment company
and meets certain distribution requirements, the Fund will not be subject to
federal income tax on its net investment income and net realized capital gains
that it distributes to its shareholders.
Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Generally, a shareholder's gain or loss on a
sale or redemption of Fund shares will be a long-term capital gain or loss if
the shares have been held for more than one year and a short-term gain or loss
if the shares are held for one year or less. Dividends and distributions paid by
the Fund generally do not qualify for the federal dividends received deduction
for corporate shareholders.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes
reduces the amount of dividends and distributions paid to the Fund's
shareholders. It is not expected that the Fund will be able to elect, for
federal income tax purposes, to treat certain foreign income taxes it pays as
having been paid by its shareholders.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
VALUATION OF SHARES
Each Class' net asset value per share is calculated by State Street, the
Fund's custodian, on each day, Monday through Friday, except that net asset
value is not computed on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on the observance of New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
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Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time), and is computed
by dividing the value of the Fund's net assets attributable to that Class by the
total number of shares outstanding of that Class. Generally, the Fund's
investments are valued at market value or, in the absence of a market value, at
fair value as determined by or under the direction of the Trustees.
Securities that are primarily traded on foreign exchanges that close prior
to the close of regular trading on the NYSE (currently 4:00 p.m., Eastern time)
are generally valued for purposes of calculating the Fund's net asset values at
the preceding closing values of the securities on their respective exchanges,
except that, when an occurrence subsequent to the time a value was so
established is likely to have changed that value, the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the board of trustees. Securities that are primarily traded on
foreign exchanges that close after the close of regular trading on the NYSE are
generally valued at sale prices as of a time reasonably proximate to the close
of regular trading on the NYSE or, if no sales occurred previously during that
day, at the then-current bid price.
A security that is primarily traded on a domestic stock exchange is valued
at the last sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price. An option that is written by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last offer price. An option that is purchased by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last bid price. The value of a futures contract is equal to the
unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price for a like contract on the valuation
date of the futures contract. A settlement price may not be used if the market
makes a limit move with respect to a particular futures contract or if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Board of Trustees.
For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Trustees. Corporate actions by issuers of securities held by the Fund,
such as the payment of dividends or distributions, are reflected in each Class'
net asset value on the ex-dividend date therefore, except that they will be so
reflected on the date the Fund is actually advised of the corporate action if
subsequent to the ex-dividend date. In carrying out the Fund's valuation
policies, State Street may consult with an independent pricing service retained
by the Trust. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.
MANAGEMENT
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's
day-to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, supervises all aspects of the Fund's operations. Mitchell
Hutchins receives a monthly fee for its services, computed daily
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and payable monthly, at an annual rate of 1.00% of the Fund's average daily net
assets on assets up to but not including $25 million and .90% thereafter. The
rate of fee paid to Mitchell Hutchins, although higher than the rate paid by
most other investment companies registered under the 1940 Act, is believed by
Mitchell Hutchins to be within the range charged to other investment companies
that invest in securities of small capitalization companies and reflects the
need to devote additional time and incur added expense in developing the
specialized resources contemplated by investing in these securities.
Mitchell Hutchins supervises the activities of Bjurman which, as
sub-adviser for the Fund, makes and implements all investment decisions for the
Fund. Under the sub-advisory contract, Mitchell Hutchins (not the Fund) pays
Bjurman a fee for its services as sub-adviser for the Fund in the amount of .50%
of the Fund's average daily net assets up to but not including $25 million and
.40% thereafter.
The Fund incurs other expenses and, for the fiscal year ended July 31,
1995, the Fund's total expenses for its Class A and Class C shares, stated as a
percentage of average net assets were 1.72% and 2.48%, 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 adviser
or sub-adviser of 38 investment companies with 75 separate portfolios and
aggregate assets of over $29 billion.
Bjurman, located at 10100 Santa Monica Boulevard, Suite 1200, Los Angeles,
California 90067, is a registered investment adviser under the Investment
Advisers Act of 1940 and concentrates its investment advisory activities in the
area of equity securities with an emphasis on securities of small capitalization
companies. Bjurman provides investment advisory services to a variety of clients
having total assets under its management exceeding [$2] billion as of September
30, 1995. Bjurman was incorporated on August 5, 1970 under the laws of the State
of California. Bjurman is controlled by Messrs. George A. Bjurman and Owen T.
Barry III. Bjurman has not previously served as an investment adviser to a
registered investment company.
As the Fund's investment sub-adviser, Bjurman manages the Fund's portfolio
in accordance with the investment objective and stated policies of the Fund and
makes investment decisions for the Fund. Bjurman also provides the Fund with
investment officers who are authorized by the Trustees to determine purchases
and sales of securities on behalf of the Fund and employs a professional staff
of portfolio managers who draw upon a variety of sources for research
information for the Fund.
Owen T. Barry III serves as the Fund's Chief Investment Officer and in
that capacity is the individual primarily responsible for the management of the
Fund's assets. Mr. Barry has been the Senior Executive Vice President of Bjurman
for more than the past five years.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Sub-Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Sub-Adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by the Sub-Adviser to
be
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equitable to each. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund.
Mitchell Hutchins and Bjurman investment personnel may engage in
securities transactions for their own accounts pursuant to each firm's code of
ethics that establishes procedures for personal investing and restricts certain
transactions.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of Fund
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 monthly
service fees at the annual rate of 0.25% of the average daily net assets of each
Class of shares. The Fund pays Mitchell Hutchins monthly distribution fees at
the annual rate of 0.75% of the average daily net assets of the Class B shares
and Class C shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily
to pay PaineWebber for shareholder servicing, currently at the annual rate of
0.25% of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber passes on a portion of these fees to its investment
executives to compensate them for shareholder servicing that they perform and
retains the remainder to offset its own expenses in servicing and maintaining
shareholder accounts. These expenses may include costs of the PaineWebber branch
office in which the investment executive is based, such as rent, communications
equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class C shares. 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. In addition, Mitchell Hutchins uses 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 additional compensation to PaineWebber and other costs
allocated to Mitchell Hutchins' and PaineWebber's distribution activities,
including employee salaries, bonuses and other overhead expenses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives at
the time of sale of Class 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 for its sales commissions 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'.
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During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ('Distribution Contracts') obligate
the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses exceed
its service or distribution fees, the Fund will not be obligated to pay more
than those fees and, if Mitchell Hutchins' expenses are less than such fees, it
will retain its full fees and realize a profit. The Fund will pay the service
and distribution fees to Mitchell Hutchins until either the applicable Plan or
Distribution Contract is terminated or not renewed. In that event, Mitchell
Hutchins' expenses in excess of service and distribution fees received or
accrued through the termination date will be Mitchell Hutchins' sole
responsibility and not obligations of the Fund. In their annual consideration of
the continuation of the Fund's Plans, the board of trustees will review the Plan
and Mitchell Hutchins' corresponding expenses for each Class separately from the
Plans and corresponding expenses for the other two Classes.
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return
and may show this return in advertisements or promotional materials.
Standardized return shows the change in value of an investment in the Fund as a
steady compound annual rate of return. Actual year-by-year returns fluctuate and
may be higher or lower than standardized return. Standardized return for Class A
shares reflects deduction of the Fund's maximum initial sales charge at the time
of purchase, and standardized return for Class B and Class C shares reflect
deduction of the applicable contingent deferred sales charge imposed on a
redemption of shares held for the period. One-, five- and ten-year periods will
be shown, unless the class has been in existence for a shorter period. Total
return calculations assume reinvestment of dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
The Fund will include performance data for Class A, Class B and Class C
shares in any advertisements or promotional materials including Fund performance
data. Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a shareholder's
cost.
GENERAL INFORMATION
ORGANIZATION. The Trust is registered under the 1940 Act as an open-end
management investment company and was formed as a business trust pursuant to a
Declaration of Trust, as amended from time to time (the 'Declaration'), under
the laws of The Commonwealth of Massachusetts on April 8, 1993. The Fund
commenced investment operations on November 4, 1993. The Declaration authorizes
the Trustees to create separate series, and within each series separate Classes,
of an unlimited number of shares of beneficial interest, par value $.001 per
share.
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When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's board of trustees.
Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Trust may elect all of the Trustees. Generally, shares of the
Trust are voted on a Trust-wide basis on all matters except those affecting only
the interests of one series, such as the Fund's investment advisory agreement.
In turn, shares of the Fund are voted on a Fund-wide basis on all matters except
those affecting only the interests of one Class, such as the terms of each plan
of distribution as it relates to a Class.
The Trust does not intend to hold annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's outstanding shares. Shareholders of the
Fund who satisfy certain criteria will be assisted by the Trust in communicating
with other shareholders in seeking the holding of the meeting.
To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded on
a stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is the custodian of the
Fund's assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of
purchases and redemptions of Fund shares. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
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Shares of the Fund can be exchanged for shares of the following PaineWebber
Mutual Funds:
INCOME FUNDS
PW Global Income Fund
PW High Income Fund
PW Investment Grade Income Fund
PW Low Duration U.S. Government Income Fund
PW Strategic Income Fund
PW U.S. Government Income Fund
TAX-FREE INCOME FUNDS
PW California Tax-Free Income Fund
PW Municipal High Income Fund
PW National Tax-Free Income Fund
PW New York Tax-Free Income Fund
GROWTH FUNDS
PW Capital Appreciation Fund
PW Emerging Markets Equity Fund
PW Global Equity Fund
PW Growth Fund
PW Regional Financial Growth Fund
PW Small Cap Value Fund
GROWTH AND INCOME FUNDS
PW Balanced Fund
PW Growth and Income Fund
PW Tactical Allocation Fund
PW Utility Income Fund
PAINEWEBBER MONEY MARKET FUND
------------------------
A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read the prospectus carefully before investing.
'c'1995 PaineWebber Incorporated
[Logo]
Printed on recycled paper
PAINEWEBBER
SMALL CAP GROWTH FUND
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
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Prospectus Summary................................. 2
Financial Highlights............................... 7
Flexible Pricing System............................ 8
Investment Objective and Policies.................. 9
Purchases.......................................... 18
Exchanges.......................................... 22
Redemptions........................................ 23
Conversion of Class B Shares....................... 24
Other Services and Information..................... 25
Dividends, Distributions and Taxes................. 26
Valuation of Shares................................ 27
Management......................................... 28
Performance Information............................ 31
General Information................................ 31
</TABLE>
PROSPECTUS
December 1, 1995
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PAINEWEBBER SMALL CAP GROWTH FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Small Cap Growth Fund ('Fund') is a diversified series of
Mitchell Hutchins/Kidder, Peabody Investment Trust III ('Trust'), a
professionally managed mutual fund. The Fund seeks long-term capital
appreciation by investing primarily in equity securities of small capitalization
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 investment
sub-adviser is George D. Bjurman & Associates ('Bjurman' or '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 December 1, 1995. A copy
of the Prospectus may be obtained by calling any PaineWebber investment
executive or corresponding firm or by calling toll-free 1-800-647-1568. This
Statement of Additional Information is dated December 1, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The Prospectus discusses the investment objective of the Fund and the
policies employed in achieving that objective. Supplemental information is set
out below concerning certain of the securities and other instruments in which
the Fund may invest, the investment techniques and strategies that the Fund may
utilize and certain risks involved with those investments, techniques and
strategies.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ('Government Securities') in which the Fund may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association and Resolution Trust Corporation. Direct obligations of the United
States Treasury include a variety of securities that differ in their interest
rates, maturities and dates of issuance. Because the U.S. Government is not
obligated by law to provide support to an instrumentality that it sponsors,
the Fund invests in obligations issued by an
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instrumentality of the U.S. Government only if the Sub-Adviser, under the
supervision of Mitchell Hutchins, determines that the instrumentality's credit
risk does not make its securities unsuitable for investment by the Fund.
INVESTMENT TECHNIQUES AND STRATEGIES
STOCK OPTIONS. To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options on securities. Should these state laws change or
should the Fund obtain a waiver of their application, the Fund may commit more
than 5% of its assets to premiums when purchasing call and put options on
securities. In addition, should the Trust determine that a commitment is no
longer in the best interests of the Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of the Fund's shares in the state
involved.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Although the Fund has
no current intention of doing so in the foreseeable future, the Fund reserves
authority to trade stock index futures contracts, and options on those
contracts, for a variety of risk reduction purposes such as hedging a portion of
the Fund's portfolio or providing an efficient means of regulating the Fund's
exposure to certain equity markets. A stock index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. An option on a futures contract, in contrast to a direct investment in
the contract, gives the purchaser the right, in return for the premium paid, to
assume a position in the underlying futures contract at a specified exercise
price at any time on or before the expiration date of the option. The Fund may
assume both 'long' and 'short' positions with respect to futures contracts. A
long position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to sell a
commodity.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, the Fund will be required to deposit in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money market
instruments equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded and brokers
may charge a higher amount). This amount is known as 'initial margin' and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming that all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as 'variation margin,' to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as 'marking-to-market.'
At any time prior to the expiration of a futures contract, the Fund may elect to
close a position by
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taking an opposite position, which will operate to terminate the Fund's existing
position in the contract.
The Fund may not (1) trade any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid on
its outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Fund after taking into account unrealized profits and
losses on any futures contracts or options on futures contracts or (2) enter
into any futures contracts or options on futures contracts if the aggregate of
the market value of the Fund's outstanding futures contracts and market value of
the futures contracts subject to outstanding options written by the Fund would
exceed 50% of the market value of the total assets of the Fund. Each short
position in a futures or options contract entered into by the Fund is secured by
the Fund's ownership of underlying securities. The Fund does not use leverage
when it enters into long futures or options contracts; the Fund places in a
segregated account with its custodian, or designated sub-custodian, with respect
to each of its long positions, cash or money market instruments having a value
equal to the underlying commodity value of the contract.
The Fund may trade stock index futures contracts to the extent permitted
under rules and interpretations adopted by the Commodity Futures Trading
Commission (the 'CFTC'). U.S. futures contracts have been designed by exchanges
that have been designated as 'contract markets' by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
In entering into transactions involving futures contracts and options on
those contracts, the Fund is subject to a number of risks and special
considerations. The successful use of futures contracts and options on those
contracts draws upon Bjurman's special skills and experience with respect to
those instruments and usually depends on Bjurman's ability to forecast stock
market movements correctly. Should stock markets move in an unexpected manner,
the Fund may not achieve the anticipated benefits of futures contracts or
options on those contracts or may realize losses and thus be in a less
advantageous position than if those strategies had not been used. Certain
futures contracts and options on futures contracts are subject to no daily price
fluctuation limits so that adverse market movements could continue with respect
to those instruments to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of those instruments and
movements in the price of the securities hedged or used for cover are not
perfect.
The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities are relatively new and still developing. Bjurman cannot now predict
the amount of trading interest that may exist in the future in various types of
futures contracts and options. Futures and options may be closed out only on the
exchange on which the contract was entered (or a linked exchange) so that no
assurance can be given that the Fund will be able to utilize these instruments
effectively for the purposes described above.
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No secondary market for futures contracts currently exists, and although
the Fund intends to trade futures contracts only if an active market for them
exists, no assurance can be given that an active market will exist for the
contracts at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made on that day at a price beyond that limit. Prices for futures contracts may
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting the Fund to substantial losses. In that case, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract.
In addition, although the Trust anticipates that the Fund's options and
futures transactions will not prevent the Fund from qualifying as a regulated
investment company for federal income tax purposes, the Fund's ability to engage
in options and futures transactions may be limited by this tax consideration.
See 'Dividends, Distributions and Taxes -- Taxes,' in the Prospectus. In writing
options, the Fund is subject to the risk of loss resulting from the difference
between the premium received for the option and the price of the futures
contract underlying the option that the Fund must purchase or deliver upon
exercise of the option.
LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the value of the Fund's total
assets. The Fund's loans of securities will be collateralized by cash, letters
of credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities will be maintained at all times in a segregated
account with the Fund's custodian, or with a designated sub-custodian, in an
amount at least equal to the current market value of the loaned securities. From
time to time, the Fund may pay a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party that is unaffiliated with the Fund and is acting as a 'finder.' The Fund
complies with the following conditions whenever it loans securities: (1) the
Fund must receive at least 100% cash collateral or equivalent securities from
the borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
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INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 10 below have been adopted by
the Trust as fundamental policies with respect to the Fund. Under the Investment
Company Act of 1940, as amended (the '1940 Act'), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. Investment restrictions numbered 11
through 17 may be changed by a vote of a majority of the Trust's Board of
Trustees at any time.
Under the investment restrictions adopted by the Trust with respect to the
Fund:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, except that this limitation is not applicable to the
Fund's investments in Government Securities, and up to 25% of the Fund's
assets may be invested without regard to this 10% limitation.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include the government of
any country other than the United States, but not the U.S. Government.
6. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts or options on futures contracts will not be deemed to be
a purchase of securities on margin.
7. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the Fund
owns an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short.
5
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8. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.
9. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.
10. The Fund will not act as an underwriter of securities, except
that the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the Securities Act of 1933, as amended.
11. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
12. The Fund will not purchase any investment company security, other
than a security acquired pursuant to a plan of reorganization or an offer
of exchange, if as a result of the purchase (a) the Fund would own more
than 3% of the total outstanding voting securities of any investment
company, (b) more than 5% of the value of the Fund's total assets would be
invested in securities of any one investment company or (c) more than 10%
or the Fund's total assets would be invested in securities issued by
investment companies.
13. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.
14. The Fund will not make investments for the purpose of exercising
control of management.
15. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets
invested in securities of companies (including predecessors) that have been
in continuous operation for fewer than three years.
16. The Fund will not purchase or retain securities of any company
if, to the knowledge of the Fund, any of the Trust's Trustees or officers
or any officer or director of Mitchell Hutchins or Bjurman individually
owns more than 0.5% of the outstanding securities of the company and
together they own beneficially more than 5% of the securities.
17. The Fund will not invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Fund's net assets of
which not more than 2% of the Fund's net assets may be invested in warrants
not listed on a recognized foreign or domestic stock exchange.
The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchase of the securities.
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TRUSTEES AND OFFICERS
The names of Trustees and officers of the Trust, together with information
as to their principal business occupations during the last five years, are shown
below. An asterisk appears before the name of each Trustee who is an 'interested
person' of the Trust, as defined in the 1940 Act.
David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 11
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.
William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 11 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 10 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
*Frank P. L. Minard, 50, Trustee. Chairman of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 23 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd., Evans Systems, Inc.
and Hidden Lake Gold Mines Ltd., gold mining companies, Electronic Clearing
House, Inc., a financial transactions processing company, Wainoco Oil
Corporation and Nutracentix, Inc., a biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of one other
investment company and president of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
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Owen T. Barry III, , Senior Vice President and Chief Investment Officer.
Senior Executive Vice President and Director of Investments of Bjurman.
Teresa M. Boyle, 36, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 37 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Neil G. Cumming, , Vice President and Investment Officer. Senior Vice
President and Portfolio Manager/Senior Research Analyst of Bjurman. Prior to
August 1992, Investment Department Manager of First Business Bank of Los
Angeles.
Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
C. William Maher, 34, Vice President and Assistant Treasurer. Mr. Maher is
a first vice president and the senior manager of the Fund Administration
Division of Mitchell Hutchins. Mr. Maher is also a vice president and assistant
treasurer of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
37 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Victoria E. Schonfeld, 44, Vice President. Managing director and general
counsel of Mitchell Hutchins. From April 1990 to May 1994, a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is also a vice president and assistant
secretary of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president of Mitchell Hutchins. From August 1992 to August 1994, vice president
at BlackRock Financial Management, Inc. Prior to August 1992, an audit manager
with Ernst & Young LLP. Mr. Schubert is also a vice president and assistant
treasurer of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 37 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 37
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other investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Certain of the Trustees and officers of the Trust are directors and/or
trustees and officers of other mutual funds managed by Mitchell Hutchins. The
addresses of the non-interested Trustees are as follows: Mr. Beaubien, Montague
Industrial Park, 101 Industrial Road, Box 746, Turner Falls, Massachusetts
01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey 08543-2359; Mr. Jordan,
200 Park Avenue, New York, New York 10166; and Mr. Schafer, P.O. Box 1164,
Princeton, New Jersey 08542. The address of Mr. Minard and the officers listed
above, other than Messrs. Barry and Cumming, is 1285 Avenue of the Americas, New
York, New York 10019. The address of Messrs. Barry and Cumming is 10100 Santa
Monica Boulevard, Suite 1200, Los Angeles, California 90067.
By virtue of the responsibilities assumed by Mitchell Hutchins under its
management agreement with the Trust (the 'Management Agreement'), and by the
Sub-Adviser under its Sub-Investment Advisory Agreement with Mitchell Hutchins
and the Trust, the Fund requires no executive employees other than officers of
the Trust, none of whom devotes full time to the affairs of the Fund. Trustees
and officers of the Trust, as a group, owned less than 1% of the outstanding
Class A shares, Class C shares and Class Y shares of beneficial interest as of
November 1, 1995. The Trust pays each Trustee who is not an officer, director or
employee of Mitchell Hutchins, the Sub-Adviser, or any of their affiliates, an
annual retainer of $1,000, and $375 for each Board of Trustees meeting attended,
and reimburses the Trustee for out-of-pocket expenses associated with attendance
at Board meetings. The Chairman of the Board's audit committee receives an
annual fee of $250. No officer, director or employee of Mitchell Hutchins, the
Sub-Adviser, or any of their affiliates, receives any compensation from the
Trust for serving as an officer or Trustee of the Trust. The amount of
compensation paid by the Fund to each Trustee for the fiscal year ended July 31,
1995, and the aggregate amount of compensation paid to each such Trustee for the
year ended December 31, 1994 by all investment companies in the same fund
complex for which such person is a Board member were as follows:
<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM FUND AND
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER FUND FUND'S EXPENSES RETIREMENT FUND COMPLEX*
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ 2,500 None None $ 80,700
William W. Hewitt, Jr. $ 2,500 None None $ 74,425
Thomas R. Jordan $ 2,500 None None $ 83,125
Frank P.L. Minard None None None None
Carl W. Schafer $ 2,750 None None $ 84,575
</TABLE>
- ------------
* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.
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INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
The Fund bears all expenses incurred in its operation that are not
specifically assumed by Mitchell Hutchins or the Sub-Adviser. General expenses
of the Trust not readily identifiable as belonging to the Fund are allocated
among the Fund or the Trust's other series by or under the direction of the
board of trustees in such manner as the board deems to be fair and equitable.
Expenses borne by the Fund include the following (or the Fund's share of the
following): (1) the cost (including brokerage commissions) of securities
purchased or sold by the Fund and any losses incurred in connection therewith,
(2) fees payable to and expenses incurred on behalf of the Fund by Mitchell
Hutchins, (3) organizational expenses, (4) filing fees and expenses relating to
the registration and qualification of the Fund's shares and the Trust under
federal and state securities laws and maintenance of such registrations and
qualifications, (5) fees and salaries payable to trustees who are not interested
persons (as defined in the 1940 Act) of the Trust or Mitchell Hutchins, (6) all
expenses incurred in connection with the trustees' services, including travel
expenses, (7) taxes (including any income or franchise taxes) and governmental
fees, (8) costs of any liability, 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
the Fund for violation of any law, (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees, (11)
charges of custodians, transfer agents and other agents, (12) costs of preparing
share certificates, (13) expenses of setting in type and printing prospectuses
and supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders, and costs of
mailing such materials to existing shareholders, (14) any extraordinary expenses
(including fees and disbursements of counsel) incurred by the Trust or the Fund,
(15) fees, voluntary assessments and other expenses incurred in connection with
membership in investment. company organizations, (16) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof, (17) the cost of investment company literature and other
publications provided to trustees and officers and (18) costs of mailing,
stationery and communications equipment.
For the fiscal year ended July 31, 1995 and for the period November 4, 1993
(commencement of investment operations) through July 31, 1994, the Trust paid
(or accrued) management fees with respect to the Fund of $474,177 and $411,260,
respectively, to the Fund's investment adviser and administrator during those
periods.
For the fiscal year ended July 31, 1995 and for the period November 4, 1993
(commencement of investment operations) through July 31, 1994, the Fund's
investment adviser and administrator paid (or accrued) fees of $237,089 and
$175,005, respectively, to the Sub-Adviser with respect to the Fund.
Mitchell Hutchins has agreed that, if in any fiscal year of the Fund, the
aggregate expenses of the Fund (including management fees, but excluding
interest, taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Trust, Mitchell Hutchins
will reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of Mitchell Hutchins' fees under its
respective agreement with the Trust in respect of the Fund. Any expense
reimbursement will be estimated, reconciled and paid on a monthly basis. As of
the date of this Statement of Additional Information, the most restrictive state
expense limitation
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applicable to the Fund requires reimbursement of expenses in any year that the
Fund's expenses subject to the limitation exceed 2 1/2% of the first $30 million
of the average daily value of the Fund's net assets, 2% of the next $70 million
of the average daily value of the Fund's net assets and 1 1/2% of the remaining
average daily value of the Fund's net assets. For the fiscal year ended July 31,
1995, the Fund's expenses did not exceed such limitations.
Under their respective agreements with the Trust in respect of the Fund,
each of Mitchell Hutchins and the Sub-Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust with respect
to the Fund in connection with the matters to which the agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the agreement.
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.
The Sub-Adviser's personnel also may invest in securities for their own
accounts pursuant to its code of ethics which establishes procedures for
personal investing and restricts certain transactions.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins serves as the distributor of the Fund's shares on a best
efforts basis. Under a Shareholder Servicing and Distribution Plans (the
'Plans') adopted by the Trust with respect to the Fund pursuant to Rule 12b-1
under the 1940 Act, the Trust pays Mitchell Hutchins monthly fees calculated at
the aggregate annual rates of .25%, 1.00% and 1.00% of the value of the Fund's
average daily net assets attributed to Class A shares, Class B shares and Class
C shares, respectively. Under their terms, the Plans continues from year to
year, so long as their continuance is approved annually by vote of the Trustees,
including a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plans (the 'Independent Trustees'). The Plans may not be amended to increase
materially the amount to be spent for the services provided by Mitchell Hutchins
without Fund shareholder approval, and all material amendments of the Plans also
must be approved by the Trustees in the manner described above. The Plans may be
terminated with respect to a Class at any time, without penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) represented by the
Class on not more than 30 days' written notice to Mitchell Hutchins.
Pursuant to the Plans, Mitchell Hutchins provides the Trustees with
periodic reports of amounts expended under the Plans and the purpose for which
the expenditures were made. The
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Trustees believe that the Fund's expenditures under the Plans benefit the Fund
and its shareholders by providing better shareholder services and by
facilitating the distribution of shares. With respect to Class A shares, for the
fiscal year ended July 31, 1995, Mitchell Hutchins received $76,456 from the
Fund. During such fiscal year, it is estimated that Mitchell Hutchins and
PaineWebber spent $6,221 on advertising, $1,495 on printing and mailing of
prospectuses to other than current shareholders, $34,406 on commission credits
to branch offices for payments of shareholder servicing compensation to
investment executives and $36,644 on overhead and other branch office
distribution or shareholder servicing-related expenses. With respect to Class C
shares, for the fiscal year ended July 31, 1995, Mitchell Hutchins received
$149,419 from the Fund. During such fiscal year, it is estimated that Mitchell
Hutchins and PaineWebber spent $2,027 on advertising, $487 was spent on printing
and mailing of prospectuses to other than current shareholders, $46,416 was
spent on commission credits to branch offices for payments of commissions and
shareholder servicing compensation to investment executives and $74,699 was
spent on overhead and other branch office distribution or shareholder
servicing-related expenses. No Class B shares were outstanding during that
period. The term 'overhead and other branch office distribution or shareholder
servicing-related expenses' represents (1) the expenses of operating
PaineWebber's branch offices in connection with the sale of Fund shares or
servicing of shareholder accounts, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (2) the costs of
client sales seminars, (3) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (4) other incidental expenses relating to
branch promotion of Fund sales.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by Mitchell Hutchins and the Trust's Board of
Trustees. Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On exchanges
on which commissions are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions are generally fixed.
Subject to policies established by the board of directors, 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 price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. Generally, bonds are traded on the OTC market
on a 'net' basis without a stated commission through dealers acting for their
own account and not as brokers. Prices paid to dealers in principal transactions
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. For the period November 4, 1993 (commencement of investment operations)
through the fiscal year ended July 31, 1994 and for the fiscal year ended July
31, 1995, the Fund paid $39,326 and $65,409, respectively, in aggregate
brokerage commissions.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best
12
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<PAGE>
net results, brokerage transactions may be conducted through Mitchell Hutchins
or its affiliates, including PaineWebber. The Trust's board of trustees has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to Mitchell Hutchins and its affiliates are
reasonable and fair. Specific provisions in the Advisory Contract authorize
Mitchell Hutchins and any of its affiliates that are members of a national
securities exchange to effect portfolio transactions for the Fund on such
exchange and to retain compensation in connection with such transactions. Any
such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations. For the fiscal year ended July 31,
1995, the Fund paid no brokerage commissions to PaineWebber.
Transactions in futures contracts are executed through futures commission
merchants ('FCMs'), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of Mitchell Hutchins
and its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Consistent with the interest of the Fund and subject to the review of the
board of directors, the Sub-Adviser may cause the Fund to purchase and sell
portfolio securities through brokers who provide the Fund with research,
analysis, advice and similar services. In return for such services, the Fund may
pay to those brokers a higher commission than may be charged by other brokers,
provided that the Sub-Adviser determines in good faith that such commission is
reasonable in terms either of that particular transaction or of the overall
responsibility of the Sub-Adviser to the Fund and its other clients and that the
total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. For purchases or sales with
broker-dealer firms which act as principal, the Sub-Adviser seeks best
execution. Although the Sub-Adviser may receive certain research or execution
services in connection with these transactions, the Sub-Adviser will not
purchase securities at a higher price or sell securities at a lower price than
would otherwise be paid if no weight was attributed to the services provided by
the executing dealer. Moreover, the Sub-Adviser will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not receive
in principal transactions the types of services which could be purchased for
hard dollars. The Sub-Adviser may engage in agency transactions in OTC equity
and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker that did not provided
research or execution services. These procedures include the Sub-Adviser
receiving multiple quotes from dealers before executing the transaction on an
agency basis.
Research services furnished by the brokers or dealers through which or with
which the Fund effects securities transactions may be used by the Sub-Adviser in
advising other funds or accounts and, conversely, research services furnished to
the Sub-Adviser by brokers or dealers in connection with other funds or accounts
that the Sub-Adviser advises may be used by the Sub-Adviser in advising the
Fund. Information and research received from such brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by the
Sub-Adviser under the Sub-Investment Contract.
Investment decisions for the Fund and for other investment accounts managed
by the Sub-Adviser are made independently of each other in light of differing
considerations for the
13
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various accounts. However, the same investment decision may occasionally be made
for the Fund and one or more of such accounts. In such cases, simultaneous
transactions are inevitable. Purchases or sales are then averaged as to price
and allocated between the Fund and such other account(s) as to amount according
to a formula deemed equitable to the Fund and such other 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 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 Corporation's board of
directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that the purchase be at not more than the
public offering price prior to the end of the first business day after the date
of the public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.
PORTFOLIO TURNOVER. 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 the
securities in the portfolio during the year. For the fiscal year ended July 31,
1995 and for the period from November 4, 1993 (commencement of investment
operations) to July 31, 1994, the portfolio turnover rate for the Fund was 101%
and 56%, respectively.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE -- CLASS A SHARES. Investors and eligible
groups of related Fund investors may combine purchases of Class A shares of the
Fund with concurrent purchases of Class A shares of any other PaineWebber mutual
fund and thus take advantage of the reduced sales charges for Class A shares
indicated in the table of sales charges in the Prospectus. The sales charge
payable on the purchase of Class A shares of the Funds and Class A shares of
such other funds will be at the rates applicable to the total amount of the
combined concurrent purchases.
An 'eligible group of related Fund investors' can consist of any
combination of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account
('IRA');
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by the individual(s);
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(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 a 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 of the Fund is waived where a
total or partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death.
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 which make cash payments undesirable, each Fund
reserves the right to honor any request for redemption by making payment in
whole or in part in securities chosen by the Fund and valued in the same way as
they would be valued for purposes of computing the Fund's net asset value. Any
such redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting those securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
one shareholder. This election is irrevocable unless the SEC permits its
withdrawal. The Fund may suspend redemption privileges or postpone the date of
payment during any period (1) when the NYSE is closed or trading on the NYSE is
restricted as determined by the
15
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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 three business days after the redemption date. Withdrawal
payments should not be considered dividends, but redemption proceeds, with the
tax consequences described under 'Dividends, Distributions and Taxes' in the
Prospectus. If periodic withdrawals continually exceed reinvested dividends, a
shareholder's investment may be correspondingly reduced. A shareholder may
change the amount of the systematic withdrawal or terminate participation in the
systematic withdrawal plan at any time without charge or penalty by written
instructions with signatures guaranteed to PaineWebber or PFPC Inc. ('Transfer
Agent'). Instructions to participate in the plan, change the withdrawal amount
or terminate participation in the plan will not be effective until five days
after written instructions with signatures guaranteed are received by the
Transfer Agent. Shareholders may request the forms needed to establish a
systematic withdrawal plan from their PaineWebber investment executives,
correspondent firms or the Transfer Agent at 1-800-647-1568.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed Class A shares of the Fund may reinstate their
account without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the redemption proceeds are
reinvested, if the reinstatement privilege is exercised within 30 days after
redemption, and an adjustment will be made to the shareholder's tax basis for
the shares acquired pursuant to the reinstatement privilege. Gain or loss on a
redemption also will be adjusted for federal income tax purposes by the amount
of any sales charge paid on Class A shares, under the circumstances and to the
extent described in 'Dividends and Taxes' in the Prospectus.
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN'sm';
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT'r' (RMA'r')
Shares of the PaineWebber mutual funds (each a 'PW Fund' and, collectively,
the 'PW Funds') are available for purchase through the RMA Resource Accumulation
Plan ('Plan') by customers of PaineWebber and its correspondent firms who
maintain Resource Management Accounts ('RMA accountholders'). The Plan allows an
RMA accountholder to continually invest in
16
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one or more of the PW Funds at regular intervals, with payment for shares
purchased automatically deducted from the client's RMA account. The client may
elect to invest at monthly or quarterly intervals and may elect either to invest
a fixed dollar amount (minimum $100 per period) or to purchase a fixed number of
shares. A client can elect to have Plan purchases executed on the first or
fifteenth day of the month. Settlement occurs three Business Days (defined under
'Valuation of Shares') after the trade date, and the purchase price of the
shares is withdrawn from the investor's RMA account on the settlement date from
the following sources and in the following order: uninvested cash balances,
balances in RMA money market funds, or margin borrowing power, if applicable to
the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
Periodic Investing and Dollar Cost Averaging.
Periodic investing in the PW Funds or other mutual funds, whether through
the Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of 'dollar cost averaging.' By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of low share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PaineWebber's Resource Management Account.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold MasterCard'r'
transactions during the period, and provide unrealized and realized gain and
loss estimates for most securities held in the account;
17
<PAGE>
<PAGE>
comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
automatic 'sweep' of uninvested cash into the RMA accountholder's choice of
one of the five RMA money market funds -- RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal Money
Fund and RMA New York Municipal Money Fund. Each money market fund attempts
to maintain a stable price per share of $1.00, although there can be no
assurance that it will be able to do so. Investments in the money market
funds are not insured or guaranteed by the U.S. government;
check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can
code their checks to classify expenditures. All canceled checks are returned
each month;
Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to remain
invested for a longer period of time;
24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
expanded account protection to $25 million in the event of the liquidation of
PaineWebber. This protection does not apply to shares of the RMA money market
funds or the PW Funds because those shares are held at the transfer agent and
not through PaineWebber; and
automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values of each of the Classes, as of the close
of business on the first Business Day (as defined below) of the month in which
the sixth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, the date on which the
original Class B shares were issued. For purposes of conversion to Class A,
Class B shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares will be held in a separate
sub-account. Each time any Class B shares in the shareholder's regular account
(other than those in the sub-account) convert to Class A, a pro rata portion of
the Class B shares in the sub-account will also convert to Class A. The portion
will be determined by the ratio that the shareholder's Class B shares converting
to Class A bears to the shareholder's total Class B shares not acquired through
dividends and other distributions.
18
<PAGE>
<PAGE>
The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends and
other distributions paid on Class A and Class B shares will not result in
'preferential dividends' under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of each Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.
VALUATION OF SHARES
The Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., Eastern time)
on the NYSE on each Business Day, which is defined as each Monday through Friday
when the NYSE is open. Currently, the NYSE is closed on the observance of the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are being valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by the Sub-Adviser as the primary market. Securities traded in the
OTC market and listed on Nasdaq are valued at the last available sale price on
Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued at the last
bid price available prior to valuation.
Where market quotations, are readily available, debt securities are valued
based upon those quotations, provided such quotations adequately reflect, in the
Sub-Adviser's 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.
19
<PAGE>
<PAGE>
TOTAL RETURN. Average annual total return quotes ('Standardized Return')
used in the Fund's Performance Advertisements are calculated according to the
following formula:
<TABLE>
<S> <C> <C> <C>
P(1 + T)'pp'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.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
Fund's maximum 4.5% initial sales charge is deducted from the initial $1,000
payment and, for Class B and Class C shares, the applicable contingent deferred
sales charge imposed on a redemption of Class B and Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ('Non-Standardized Return'). The Fund calculates Non-Standardized Return
for specified periods of time by assuming the 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 these 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 and Class
C shares of the Fund for the periods indicated. No Class B shares were
outstanding during those periods. All returns for periods of more than one year
are expressed as an average return.
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C>
Fiscal year ended July 31, 1995:
Standardized Return*......................................................... 34.24% 38.43%
Non-Standardized Return...................................................... 40.55% 39.43%
Five years ended July 31, 1995:
Standardized Return*......................................................... NA NA
Non-Standardized Return...................................................... NA NA
Inception** to July 31, 1995:
Standardized Return*......................................................... 5.38% 7.43%
Non-Standardized Return...................................................... 8.25% 7.43%
</TABLE>
(footnotes on next page)
20
<PAGE>
<PAGE>
(footnotes from previous page)
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Class C shares impose a 1% contingent
deferred sales charge only on redemptions made within a year of purchase;
therefore, for periods longer than one year, Non-Standardized Return is
identical to Standardized Return.
** The inception date for the Class A shares and Class C shares of the Fund is
November 4, 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') for growth funds; CDA Investment
Technologies, Inc. ('CDA'); Wiesenberger Investment Companies Service
('Wiesenberger'); Investment Company Data Inc. ('ICD'); or Morningstar Mutual
Funds ('Morningstar'); or with the performance of recognized stock and other
indexes, including (but not limited to) the Standard & Poor's 500 Composite
Stock Price Index, 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 Brothers 20+ Year Treasury Bond Index, the
Lehman Brothers Government/Corporate Bond Index, the Salomon Brothers Non-U.S.
World Government Bond Index, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. The Fund also may refer in such
materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of the Fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not limited to) THE WALL STREET JOURNAL,
MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE
NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPPINGER
LETTERS. Comparisons in Performance Advertisements may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. 'Compounding' refers to the fact
that, if dividends or other distributions on 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 deposits (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. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The debt securities held by the Fund generally have
21
<PAGE>
<PAGE>
longer maturities than most CDs and may reflect interest rate fluctuations for
longer term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.
TAXES
Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.
TAX STATUS OF THE FUND AND ITS SHAREHOLDERS
The Fund is treated as a separate entity for federal income tax purposes.
The Fund's net investment income, capital gains and distributions are determined
for each Class of shares separately from any other series or Class that the
Trust may designate.
The Fund has qualified for the fiscal period ended July 31, 1995 as a
'regulated investment company' under the Code and intends to continue to qualify
for this treatment for each year. If the Fund (1) is a regulated investment
company and (2) distributes to its shareholders at least 90% of its net
investment income (including for this purpose its net realized short term
capital gains), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
The Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer Fund losses. These rules (1) could affect the character,
amount and timing of distributions to shareholders of the Fund, (2) will require
the Fund to 'mark to market' certain types of the positions in its portfolio
(that is, treat them as if they were closed out), and (3) may cause the Fund to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes described above and in the Prospectus. The Fund will seek to
monitor its transactions, will seek to make the appropriate tax elections and
will seek to make the appropriate entries in its books and records when it
acquires any option, futures contract or hedged investment, to mitigate the
effect of these rules and prevent disqualification of the Fund as a regulated
investment company.
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income as of the later of (1) the date of such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (2) the date the Fund acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
22
<PAGE>
<PAGE>
As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long-term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short-term capital gain or
loss if the shareholder has held the shares for one year or less.
The Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, will be taxable to shareholders as long-term capital gains, regardless of
how long a shareholder has held Fund shares, and are designated as capital gain
dividends in a written notice mailed by the Trust to the shareholders of the
Fund after the close of the Fund's prior taxable year. If a shareholder receives
a capital gain dividend with respect to any Fund share, and if the share is sold
before it has been held by the shareholder for more than six months, then any
loss on the sale or exchange of the share, to the extent of the capital gain
dividend, will be treated as a long-term capital loss. Investors considering
buying Fund shares on or just prior to the record date for a taxable dividend or
capital gain distribution should be aware that the amount of the forthcoming
dividend or distribution payment will be a taxable dividend or distribution
payment.
Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of another PaineWebber fund on
which a sales charge normally is imposed without paying a sales charge in
accordance with the exchange privilege described in the Prospectus. In these
cases, any gain on the disposition of the fund shares will be increased, or loss
decreased, by the amount of the sales charge paid when the shares were acquired,
and that amount will increase the adjusted basis of the Fund shares subsequently
acquired. In addition, if shares of the Fund are purchased within 30 days of
redeeming shares at a loss, the loss is not deductible and instead increases the
basis of the newly purchased shares.
If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to 'backup withholding,' then the
shareholder may be subject to a 31% 'backup withholding' tax with respect to (1)
taxable dividends and distributions from the Fund and (2) the proceeds of any
redemptions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular federal income
tax liability.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign entities classified under
the Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.
23
<PAGE>
<PAGE>
The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund. If the Fund is not able
to make the foregoing election, it may able to avoid the interest charge (but
not the ordinary income treatment) on disposition of the stock by electing,
under proposed regulations, each year to mark-to-market the stock (that is,
treat it as if it were sold for fair market value). Such an election could also
result in acceleration of income to the Fund.
OTHER INFORMATION
The Trust was organized as a business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 8,
1993, as amended from time to time (the 'Declaration'). The Fund commenced
operations on November 4, 1993. Prior to November 1, 1995, the name of the Fund
was 'Mitchell Hutchins/Kidder, Peabody Small Cap Growth Fund.' Prior to February
13, 1995, the name of the Fund was 'Kidder, Peabody Small Cap Growth Equity
Fund.' Prior to November 10, 1995, the Fund's Class C shares were called 'Class
B' shares. New Class B shares were not offered prior to December 1, 1995.
Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust. Thus, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
CLASS-SPECIFIC EXPENSES. The Fund might determine to allocate certain of
its expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of the Funds 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 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
24
<PAGE>
<PAGE>
net assets will be affected by the number of shareholder accounts in each Class
and the relative amounts of net assets in each Class.
INDEPENDENT AUDITORS
Ernst & Young LLP, located at 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Trust. In that capacity, Ernst & Young
LLP audits the Trust's financial statements at least annually. For the period
ended July 31, 1994, the Trust's independent auditors were Deloitte & Touche
LLP, located at 2 World Financial Center, New York, New York 10281.
COUNSEL
Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal 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 auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
25
<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information.............. 1
Investment Policies and Restrictions............. 1
Trustees and Officers............................ 7
Investment Advisory and Distribution
Arrangements................................... 10
Portfolio Transactions........................... 12
Reduced Sales Charges, Additional
Exchange and Redemption
Information and Other Services................. 14
Conversion of Class B Shares..................... 18
Valuation of Shares.............................. 19
Performance Information.......................... 19
Taxes............................................ 22
Other Information................................ 24
Financial Statements............................. 25
</TABLE>
'c'1995 PAINEWEBBER INCORPORATED
[Logo]
Printed on recycled paper
PaineWebber
Small Cap Growth Fund
-------------------------------------------------------
Statement of Additional Information
December 1, 1995
-------------------------------------------------------
PAINEWEBBER
<PAGE>
<PAGE>
PAINEWEBBER SMALL CAP GROWTH FUND
CLASS Y SHARES
1285 Avenue of the Americas
New York, New York 10019
Professional Management
Portfolio Diversification
Dividend and Capital Gain
Reinvestment
Low Minimum Investment
Automatic Investment Plan
Systematic Withdrawal Plan
Exchange Privileges
Suitable for Retirement Plans
The Fund is a series of Mitchell Hutchins/Kidder, Peabody Investment Trust III
('Trust'). This Prospectus concisely sets forth information a prospective
investor should know about the Fund before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
December 1, 1995 (which is incorporated by reference herein) has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
can be obtained without charge, and further inquiries can be made, by contacting
the Fund, your PaineWebber investment executive or PaineWebber's correspondent
firms or by calling toll-free 1-800-647-1568.
The Class Y shares described in this Prospectus are currently offered for sale
primarily to participants in the INSIGHT Investment Advisory Program
('INSIGHT'), when purchased through that program. See 'Purchases.'
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December 1, 1995
PAINEWEBBER MUTUAL FUNDS
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to
assist investors in understanding the expenses associated with investing in the
Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases of shares (as a percentage of public offering
price).......................................................................... None
Sales charge on reinvested dividends.............................................. None
Maximum contingent deferred sales charge (as a percentage of redemption
proceeds)....................................................................... None
Maximum Annual Investment Advisory Fee Payable by Shareholders through INSIGHT (as
a percentage of average daily value of shares held)............................. 1.50%
</TABLE>
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management fees.................................................................... 1.00%
12b-1 fees......................................................................... 0.00
Other expenses..................................................................... 0.48
-------
Total operating expenses........................................................... 1.48%
-------
-------
</TABLE>
- ------------
(1) See 'Management' for additional information. The management fee payable to
Mitchell Hutchins is greater than the management fee paid by most funds.
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>
$ 15 $47 $ 81 $ 177
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission ('SEC') applicable to all mutual funds; the
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of Class Y shares of the Fund.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to Class Y shares of the Fund will depend upon,
among other things, the level of average net assets and the extent to which
the Fund incurs variable expenses, such as transfer agency costs.
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class Y
share (prior to November 10, 1995, called 'Class C' shares) of the Fund for each
of the periods shown. This information is supplemented by the financial
statements and accompanying notes appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended July 31, 1995, which are incorporated by
reference into the Statement of Additional Information. The financial statements
and notes, and the financial information for the fiscal year ended July 31, 1995
appearing in the table below, have been audited by Ernst & Young LLP,
independent auditors, whose report thereon is included in the Annual Report to
Shareholders. The financial information for the period ended July 31, 1994 was
audited by other auditors whose report thereon was unqualified. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
Class Y
--------------------------
For the For the
Year ended Period ended
July 31, July 31,
1995** 1994`D'
------------ ------------
<S> <C> <C>
Net asset value, beginning of period.................................................... $ 9.81 $ 12.00
------------ ------------
Income (loss) from investment operations:
Net investment loss..................................................................... (0.28) (0.06)
Net realized and unrealized gains (losses) from investment transactions................. 4.29 (2.13)
------------ ------------
Total increase (decrease) from investment operations.................................... 4.01 (2.19)
------------ ------------
Net asset value, end of period.......................................................... $ 13.82 $ 9.81
------------ ------------
------------ ------------
Total investment return(1).............................................................. 40.88 % (18.25)%
------------ ------------
------------ ------------
Ratios/Supplemental Data:
Net assets, end of period (000's)....................................................... $ 5,895 $ 5,827
Ratios of expenses to average net assets................................................ 1.48 % 1.43 %*
Ratios of net investment loss to average net assets..................................... (0.99)% (0.81)%*
Portfolio turnover rate................................................................. 101 % 56 %
</TABLE>
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* Annualized.
** On February 13, 1995, Mitchell Hutchins became investment adviser and
administrator of the Fund. Bjurman remains responsible for the management of
the Fund's portfolio.
`D' For the period November 4, 1993 (commencement of investment operations) to
July 31, 1994.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and capital
gain distributions, if any, at net asset value on the payable date, and a
sale at net asset value on the last day of each period reported. Total
investment returns for periods of less than one year have not been
annualized.
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INVESTMENT OBJECTIVE AND POLICIES
OBJECTIVE
The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in equity securities
of small capitalization companies.
There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate based upon changes in the
value of its portfolio securities. The Fund's investment objective and certain
investment limitations, as described in the Statement of Additional Information,
are fundamental policies and may not be changed without shareholder approval.
All other investment policies may be changed by the Trust's board of trustees
without shareholder approval.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing primarily
in equity securities of small capitalization companies, which are U.S. companies
with stock market capitalizations of up to $1 billion. A company's stock market
capitalization is calculated by multiplying the total number of shares of its
common stock outstanding by the market price per share of its common stock.
The Fund has been designed to provide investors with potentially greater
long-term rewards than provided by an investment in a fund that seeks capital
appreciation from common stocks of larger, better-known companies. Several
statistical studies have been published recently indicating that the historical
long-term returns on investments in common stocks of small capitalization
companies have been higher than returns on those of large capitalization
companies. In addition, small capitalization companies generally are not as well
known to the investing public and have less of an investor following than larger
companies and, therefore, may provide opportunities for investment gains as a
result of relative inefficiencies in the marketplace.
In seeking its objective, the Fund invests in equity securities of
companies Bjurman believes to be undervalued and to have the potential for high
earnings growth. Companies in which the Fund invests generally meet one or more
of the following criteria: high historical earnings-per-share ('EPS') growth;
high projected future EPS growth; an increase in research analyst earnings
estimates; attractive relative price earnings ratios; and high relative
discounted cost flows. In selecting the Fund's investments, Bjurman also focuses
on companies with capable management teams, strong industry positions, sound
capital structures, high returns on equity, high reinvestment rates and
conservative financial accounting policies. The Fund emphasizes those industries
and economic sectors Bjurman believes to have the best growth prospects.
In pursuing its objective, the Fund invests substantially all, and under
normal conditions not less than 65%, of its assets in common stocks, preferred
stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights. To the extent that the Fund
invests in convertible debt securities, those securities will be purchased on
the basis of their equity characteristics and ratings of those securities will
not be an important factor in their selection. The equity securities in which
the Fund invests typically are traded in the over-the-counter market or are non-
publicly traded.
The Fund's investments in non-publicly traded securities (also commonly
referred to
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as 'restricted securities'), which are securities that are subject to
contractual or legal restrictions on transfer, may not exceed 10% of the Fund's
assets. Restricted securities include securities that are not registered under
the Securities Act of 1933, as amended (the '1933 Act'), but that can be sold to
'qualified institutional buyers' in accordance with Rule 144A under the 1933 Act
('Rule 144A Securities'). The Fund is authorized to invest up to 15% of its
assets in illiquid securities, which are securities that cannot be disposed of
by the Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities that are held by the Fund take the form of repurchase agreements
maturing in more than seven days and other securities subject to restrictions on
resale that Bjurman has determined are not liquid under guidelines established
by the Trust's Board of Trustees.
Up to 10% of the Fund's assets may be invested in foreign securities. The
Fund may also invest in securities of foreign issuers in the form of American
Depositary Receipts ('ADRs'), which are U.S. dollar-denominated receipts
typically issued by domestic banks or trust companies that represent the deposit
with those entities of securities of a foreign issuer, and European Depositary
Receipts ('EDRs'), sometimes referred to as Continental Depositary Receipts
('CDRs'), which generally are issued by foreign banks and evidence ownership of
either foreign or domestic securities. ADRs are publicly traded on exchanges or
over-the-counter in the United States and are issued through 'sponsored' or
'unsponsored' arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depositary's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
obligations and the depositary's transaction fees are paid directly by the ADR
holders. In addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements.
During normal market conditions, less than 10% of the Fund's total assets
may be held in cash and/or invested in money market instruments for cash
management purposes, pending investment in accordance with the Fund's investment
objective and policies, and to meet anticipated redemptions and operating
expenses. During periods in which Bjurman believes that investment opportunities
in the equity markets are diminished (due to either fundamental changes in those
markets or an anticipated general decline in the value of equity securities) and
Bjurman determines that adoption of a temporary defensive investment posture is
therefore warranted, the Fund may hold cash and/or invest in money market
instruments without limitation. To the extent that it holds cash or invests in
money market instruments, the Fund may not achieve its investment objective of
long-term capital appreciation.
The Fund may invest only in the following types of money market
instruments: securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ('Government Securities'); obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of foreign or
domestic banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million); commercial paper;
and repur-
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chase agreements. Government Securities held by the Fund will take the form of:
direct obligations of the U.S. Treasury, and obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Certain of the
Government Securities that may be held by the Fund are instruments that are
supported by the full faith and credit of the United States, whereas other
Government Securities that may be held by the Fund are supported by the right of
the issuer to borrow from the U.S. Treasury or are supported solely by the
credit of the instrumentality.
The Fund may invest in money market instruments issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities, only if those instruments are rated AAA or AA by
Standard & Poor's ('S&P') or Aaa or Aa by Moody's Investors Service, Inc.
('Moody's') or have received an equivalent rating from another nationally
recognized statistical rating organization ('NRSRO'), or if unrated, are deemed
by Bjurman to be of equivalent quality. Commercial paper held by the Fund may be
rated no lower than A-1 by S&P or Prime-1 by Moody's or the equivalent from
another NRSRO, or if unrated, must be issued by an issuer having an outstanding
unsecured debt issue then rated within the three highest categories. At no time
will the investments of the Fund in bank obligations, including time deposits,
exceed 25% of the value of the Fund's assets.
Although the Fund has no current intention of doing so in the foreseeable
future, the Fund may engage in transactions involving futures contracts and
options on futures contracts, which are described in the Statement of Additional
Information.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund may engage in a number of investment techniques and strategies,
including those described below. The Fund is under no obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. In addition, no assurance can be given that the use of any practice
will have its intended result or that the use of any practice is, or will be,
available to the Fund.
STOCK OPTIONS. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) 'covered' call options. A put option provides its purchaser
with the right to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during or at the
end of the option period. In contrast, a call option gives the purchaser the
right to buy the underlying security covered by the option from the writer of
the option at the stated exercise price. A covered call option contemplates
that, for so long as the Fund is obligated as the writer of the option, it will
own (1) the underlying securities subject to the option or (2) securities
convertible into, or exchangeable without the payment of any consideration for,
the securities subject to the option. The value of the underlying securities on
which covered call options will be written at any one time by the Fund will not
exceed 5% of the Fund's total assets.
The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has
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the right to sell the securities underlying the option and as the holder of a
call option, the Fund has the right to purchase the securities underlying the
option, in each case at the option's exercise price at any time prior to, or on,
the option's expiration date. The Fund may choose to exercise the options it
holds, permit them to expire or terminate them prior to their expiration by
entering into closing sale transactions. In entering into a closing sale
transaction, the Fund would sell an option of the same series as the one it has
purchased.
STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investments, the Fund may purchase and write put and call options on stock
indexes listed on securities exchanges, which indexes include securities held in
the Fund's portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. Options on
stock indexes are generally similar to options on specific securities. Unlike
those on securities, however, options on stock indexes do not involve the
delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
When the Fund writes an option on a stock index, it will establish a
segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash, money market instruments or a combination of both in
an amount equal to the market value of the option, and will maintain the account
while the option is open. If the Fund has written a stock index option, it may
terminate its obligation by effecting a closing purchase transaction, which is
accomplished by purchasing an option of the same series as the option previously
written.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. As a means of regulating the
Fund's exposure to the equity markets, the Fund may invest in securities issued
by other registered investment companies, including those traded on securities
exchanges, that invest principally in securities in which the Fund is authorized
to invest. Under the 1940 Act, the Fund may invest a maximum of 10% of its total
assets in the securities of other investment companies. In addition, under the
1940 Act, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company, and the Fund may not own more than 3%
of the securities of any investment company.
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of
helping to meet its operating expenses, the Fund may lend securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the Fund's assets taken at market
value. The Fund's loans of securities will be collateralized by cash, letters of
credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities are maintained at all times in a segregated account
with the Fund's custodian, or with a designated sub-custodian, in an amount at
least equal to the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repur-
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chase agreements maturing in more than seven days, together with other illiquid
securities, may not exceed 15% of the Fund's net assets. The Fund may engage in
repurchase agreement transactions, which are in the nature of secured loans by
the Fund to certain member banks of the Federal Reserve System and with certain
dealers listed on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than seven days) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the securities underlying a repurchase
agreement of the Fund is monitored on an ongoing basis by Bjurman to ensure that
the value is at least equal at all times to the total amount of the repurchase
obligation, including interest. Bjurman also monitors, on an ongoing basis to
evaluate potential risks, the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund may enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as
those described below:
GENERAL. An investment in shares of the Fund should not be considered to
be a complete investment program. The value of the Fund's investments, and as a
result the net asset values of the Fund's shares, fluctuates in response to
changes in the market and economic conditions as well as the financial condition
and prospects of issuers in which the Fund invests. Small capitalization
companies typically are subject to a greater degree of change in earnings and
business prospects than are larger, more established companies.
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In addition, securities of small capitalization companies are traded in lower
volume than those issued by larger companies and are more volatile than those of
larger companies. In light of these characteristics of small capitalization
companies and their securities, the Fund may be subject to greater investment
risk than that assumed by other investment companies. Because of the risks
associated with the Fund's investments, the Fund is intended to be a long term
investment vehicle and is not designed to provide investors with a means of
speculating on short-term stock market movements.
WARRANTS. Because a warrant, which is a security permitting, but not
obligating, its holder to subscribe for another security, does not carry with it
the right to dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because a warrant does not represent
any rights to the assets of the issuer, a warrant may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior to its
expiration date. The investment by the Fund in warrants, valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
('NYSE') or the American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Non-publicly traded
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund.
In addition, companies whose securities are not publicly traded are not subject
to the disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. The Fund's investments in
illiquid securities are subject to the risk that should the Fund desire to sell
any of these securities when a ready buyer is not available at a price that
Bjurman deems representative of their value, the value of the Fund's net assets
could be adversely affected.
RULE 144A SECURITIES. Certain Rule 144A Securities may be considered
illiquid and, therefore, subject to the Fund's limitation on the purchase of
illiquid securities, unless the Board of Trustees determines on an ongoing basis
that an adequate trading market exists for the Rule 144A Securities. The Fund's
purchase of Rule 144A Securities could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A Securities held by the
Fund. The Board of Trustees has established standards and procedures for
determining the liquidity of a Rule 144A Security and monitors Bjurman's
implementation of the standards and procedures. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and Bjurman can not
predict how this market will develop.
STOCK OPTIONS. The Fund receives a premium when it writes call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise
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price of the option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, the Fund will receive less total return and in
other periods greater total return from its hedged positions than it would have
received from its underlying securities if unhedged.
In purchasing a put option, the Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, the Fund seeks to benefit from an increase in the market price of the
underlying security. If an option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying security remains equal
to or greater than the exercise price, in the case of a put, or remains equal to
or below the exercise price, in the case of a call, during the life of the
option, the Fund will lose its investment in the option. For the purchase of an
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price, in the case of a put, and must
increase sufficiently above the exercise price, in the case of a call, to cover
the premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
STOCK INDEX OPTIONS. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded. If the Fund writes a stock index option, it may terminate its obligation
by effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases or writes stock index options only if a liquid secondary
market for the options purchased or sold appears to exist, no such secondary
market may exist, or the market may cease to exist at some future date, for some
options. No assurance can be given that a closing purchase transaction can be
effected when the Fund desires to engage in such a transaction.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent the Fund invests
in other investment companies, the Fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. Exchange
traded investment company securities typically trade at prices that differ from
the company's net asset value per share and often trade at a discount to net
asset value. The Fund will purchase exchange traded investment company
securities only in the secondary market and not in an initial offering.
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by
foreign companies and governments involves considerations and potential risks
not typically associated with investing in obligations issued by the U.S.
Government and U.S. corporations. Less information may be available about
foreign companies than about U.S. companies, and foreign companies generally are
not subject to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements comparable to those applicable to
domestic companies. The values of foreign investments are affected by changes in
currency rates or
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exchange control regulations, restrictions or prohibitions on the repatriation
of foreign currencies, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary policy (in
the United States or abroad) or changed circumstances in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States, and foreign securities markets may be less
liquid, more volatile and subject to less governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by: the intervention of the U.S.
Government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.
LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the return available in the market when the delivery takes
place may be higher than that applicable at the time of the purchase. This
characteristic of when-issued and delayed-delivery securities could result in
exaggerated movements in the Fund's net asset value.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by the Board of Trustees and Mitchell Hutchins,
and are placed with brokers or dealers selected by the Sub-Adviser. The Trustees
have determined that, to the extent consistent with applicable provisions of the
1940 Act and rules and exemptions adopted thereunder, transactions for the Fund
may be executed through PaineWebber if, in the judgment of the Sub-Adviser, the
use of PaineWebber is likely to result in price and
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execution at least as favorable to the Fund as those obtainable through other
qualified broker-dealers, and if, in the transaction, PaineWebber charges the
Fund a fair and reasonable rate consistent with that charged to comparable
unaffiliated customers in similar transactions.
The Fund's portfolio is actively managed. The Fund's portfolio turnover
rate may vary greatly from year to year and will not be a limiting factor when
the Sub-Adviser deems portfolio changes appropriate. An annual turnover rate of
100% would occur if all of the securities held by the Fund are replaced once
during a period of one year. Higher portfolio turnover rates (100% or more) will
result in corresponding increases in transaction costs, which will be borne
directly by the Fund, may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes and may cause
shareholders of the Fund to recognize short-term capital gains for federal
income tax purposes. See 'Dividends, Distributions and Taxes -- Taxes.'
PURCHASES
Class Y shares (prior to November 10, 1995, called 'Class C' shares) are
sold to eligible investors at the net asset value next determined (see
'Valuation of Shares') after the purchase order is received at PaineWebber's New
York City offices. No initial or contingent deferred sales charge is imposed,
nor are Class Y shares subject to Rule 12b-1 distribution or service fees. The
Fund and Mitchell Hutchins reserve the right to reject any purchase order and to
suspend the offering of the Class Y shares for a period of time.
INSIGHT. An investor who purchases $50,000 or more of shares of the
PaineWebber mutual funds that are in the Flexible Pricing System may participate
in INSIGHT, a total portfolio asset allocation program sponsored by PaineWebber,
and thus become eligible to purchase Class Y shares. INSIGHT offers
comprehensive investment services, including a personalized asset allocation
investment strategy using an appropriate combination of funds, professional
investment advice regarding investment among the funds by portfolio specialists,
monitoring of investment performance and comprehensive quarterly reports that
cover market trends, portfolio summaries and personalized account information.
Participation in INSIGHT is subject to payment of an advisory fee to PaineWebber
at the maximum annual rate of 1.5% of assets held through the program (generally
charged quarterly in advance), which covers all INSIGHT investment advisory
services and program administration fees. Employees of PaineWebber and its
affiliates are entitled to a 50% reduction in the fee otherwise payable for
participation in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees
charged to their PaineWebber accounts (by the automatic redemption of money
market fund shares) or another of their PaineWebber accounts or billed
separately.
ACQUISITION OF CLASS Y SHARES BY OTHERS. Present holders of Class Y shares
who are not current INSIGHT participants may acquire Class A shares of the Fund
without a sales charge. This category includes former employees of Kidder,
Peabody & Co. Incorporated ('Kidder, Peabody'), their associated accounts,
present and former directors and trustees of the former Kidder, Peabody mutual
funds and employees of Bjurman, employee benefit plans, individual retirement
accounts and employee-sponsored individual retirement plans for those employees,
and the spouses and minor children of those employees when orders on their
behalf are placed by
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those employees. The Fund is authorized to offer Class Y shares to employee
benefit and retirement plans of Paine Webber Group, Inc., and its affiliates and
certain other investment advisory programs that are sponsored by PaineWebber and
that may invest in PaineWebber mutual funds. At present, however, INSIGHT
participants are the only purchasers in these two categories.
REDEMPTIONS
As described below, Class Y shares may be redeemed at their net asset
value and redemption proceeds will be paid after receipt of a redemption request
as described below.
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 after
receipt of the request, repurchase proceeds (less any applicable contingent
deferred sales charge) will be paid by check or credited to the shareholder's
brokerage account at the election of the shareholder. PaineWebber investment
executives and correspondent firms are responsible for promptly forwarding
redemption requests to PaineWebber's New York City offices.
PaineWebber reserves the right not to honor any redemption request, in
which case PaineWebber promptly will forward the request to the Transfer Agent
for treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT. Fund shareholders who are not
PaineWebber clients or who wish to redeem certificated shares must redeem their
shares through the Transfer Agent by mail; other shareholders also may redeem
Fund shares through the Transfer Agent. Shareholders should mail redemption
requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, Delaware 19899. A redemption request will be
executed at the net asset value next computed after it is received in 'good
order' and redemption proceeds will be paid within seven days of the 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, (3) other supporting
legal documents for estates, trusts, guardianships, custodianships, partnerships
and corporations and (4) duly endorsed share certificates, if any. Shareholders
are responsible for ensuring that a request for redemption is received in 'good
order.'
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder may have redemption
proceeds of $1 million or more wired to the shareholder's PaineWebber brokerage
account or a commercial bank account designated by the shareholder. Questions
about this option, or redemption requirements generally, should be referred to
the shareholder's PaineWebber investment executive or correspondent firm, or to
the Transfer Agent if the shares are not held in a PaineWebber brokerage
age account. If a shareholder requests
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redemption of shares which were purchased recently, the Fund may delay payment
until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to redeem all Fund shares in any
shareholder account of less than $500 net asset value. If the Fund elects to do
so, it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not redeem accounts that fall below $500 solely as a result of a
reduction in net asset value per share.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and distributions of net realized
capital gains of the Fund, if any, are distributed annually. Unless a
shareholder instructs the Fund that dividends and capital gains distributions on
shares should be paid in cash and credited to the shareholder's Account,
dividends and capital gains distributions are reinvested automatically at net
asset value in additional shares. The Fund is subject to a 4% nondeductible
excise tax measured with respect to certain undistributed amounts of net
investment income and capital gains. If necessary to avoid the imposition of
this tax, and if in the best interests of its shareholders, the Fund will
declare and pay dividends of its net investment income and distributions of its
net capital gains more frequently than stated above.
TAXES
The Fund has qualified for the fiscal year ended July 31, 1995 as a
regulated investment company within the meaning of the Code and intends to
qualify for this treatment in each year. To qualify as a regulated investment
company for federal income tax purposes, the Fund limits its income and
investments so that (1) at least 90% of its gross income is derived from
dividends, interest payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in stock,
securities or currencies, (2) less than 30% of its gross income is derived from
the sale or disposition of stocks or securities and certain financial
instruments (including certain options, futures and forward contracts) that were
held for less than three months and (3) at the close of each quarter of the
taxable year (a) not more than 25% of the market value of the Fund's total
assets is invested in the securities (other than Government Securities or the
securities of other regulated investment companies) of a single issuer or of two
or more issuers controlled by the Fund that are engaged in the same or similar
trades or businesses or in related trades or businesses and (b) at least 50% of
the market value of the Fund's total assets is represented by (i) cash and cash
items, (ii) Government Securities and securities of other regulated investment
companies and (iii) other securities limited in respect of any one issuer to an
amount not greater in value than 5% of the market value of the Fund's total
assets and to not more than 10% of the outstanding voting securities of the
issuer. The requirements for qualification may cause the Fund to restrict the
degree to which it sells or otherwise disposes of
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stocks, other securities and certain financial instruments held for less than
three months. If the Fund qualifies as a regulated investment company and meets
certain distribution requirements, the Fund will not be subject to federal
income tax on its net investment income and net realized capital gains that it
distributes to its shareholders.
Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Generally, a shareholder's gain or loss on a
sale or redemption of Fund shares will be a long-term capital gain or loss if
the shares have been held for more than one year and a short-term gain or loss
if the shares are held for one year or less. Dividends and distributions paid by
the Fund generally do not qualify for the federal dividends received deduction
for corporate shareholders.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes
reduces the amount of dividends and distributions paid to the Fund's
shareholders. It is not expected that the Fund will be able to elect, for
federal income tax purposes, to treat certain foreign income taxes it pays as
having been paid by its shareholders.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
VALUATION OF SHARES
Net asset value per share is calculated by State Street, the Fund's
custodian, on each day, Monday through Friday, except that net asset value is
not computed on days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on the observance of New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value per share is determined as of the close of regular trading
on the NYSE (currently 4:00 p.m., Eastern time), and is computed by dividing the
value of the Fund's net assets attributable to that Class by the total number of
shares outstanding of that Class. Generally, the Fund's investments are valued
at market value or, in the absence of a market value, at fair value as
determined by or under the direction of the Trustees.
Securities that are primarily traded on foreign exchanges that close prior
to the close of regular trading on the NYSE (currently 4:00 p.m., Eastern time)
are generally valued for purposes of calculating the Fund's net asset values at
the preceding closing values of the securities on their respective exchanges,
except that, when an occurrence subsequent to the time a value was so
established is likely
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to have changed that value, the fair market value of those securities will be
determined by consideration of other factors by or under the direction of the
board of trustees. Securities that are primarily traded on foreign exchanges
that close after the close of regular trading on the NYSE are generally valued
at sale prices as of a time reasonably proximate to the close of regular trading
on the NYSE or, if no sales occurred previously during that day, at the
then-current bid price.
A security that is primarily traded on a domestic stock exchange is valued
at the last sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price. An option that is written by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last offer price. An option that is purchased by the Fund is
generally valued at the last sale price or, in the absence of the last sale
price, the last bid price. The value of a futures contract is equal to the
unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price for a like contract on the valuation
date of the futures contract. A settlement price may not be used if the market
makes a limit move with respect to a particular futures contract or if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Board of Trustees.
For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Trustees. Corporate actions by issuers of securities held by the Fund,
such as the payment of dividends or distributions, are reflected in each Class'
net asset value on the ex-dividend date therefore, except that they will be so
reflected on the date the Fund is actually advised of the corporate action if
subsequent to the ex-dividend date. In carrying out the Fund's valuation
policies, State Street may consult with an independent pricing service retained
by the Trust. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.
MANAGEMENT
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's
day-to-day management. Mitchell Hutchins, the Fund's investment adviser and
administrator, supervises all aspects of the Fund's operations. 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 on
assets up to but not including $25 million and .90% thereafter. The rate of fee
paid to Mitchell Hutchins, although higher than the rate paid by most other
investment companies registered under the 1940 Act, is believed by Mitchell
Hutchins to be within the range charged to other investment companies that
invest in securities of small capitalization companies and reflects the need to
devote additional time and incur added expense in developing the specialized
resources contemplated by investing in these securities.
Mitchell Hutchins supervises the activities of Bjurman which, as
sub-adviser for the Fund, makes and implements all investment decisions for the
Fund. Under the sub-advi-
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sory contract, Mitchell Hutchins (not the Fund) pays Bjurman a fee for its
services as sub-adviser for the Fund in the amount of .50% of the Fund's average
daily net assets up to but not including $25 million and .40% thereafter.
The Fund incurs other expenses and, for the fiscal year ended July 31,
1995, the Fund's total expenses for its Class Y shares, stated as a percentage
of average net assets was 1.48%.
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 adviser
or sub-adviser of 38 investment companies with 75 separate portfolios and
aggregate assets of over $29 billion.
Bjurman, located at 10100 Santa Monica Boulevard, Suite 1200, Los Angeles,
California 90067, is a registered investment adviser under the Investment
Advisers Act of 1940 and concentrates its investment advisory activities in the
area of equity securities with an emphasis on securities of small capitalization
companies. Bjurman provides investment advisory services to a variety of clients
having total assets under its management exceeding [$2] billion as of September
30, 1995. Bjurman was incorporated on August 5, 1970 under the laws of the State
of California. Bjurman is controlled by Messrs. George A. Bjurman and Owen T.
Barry III. Bjurman has not previously served as an investment adviser to a
registered investment company.
As the Fund's investment sub-adviser, Bjurman manages the Fund's portfolio
in accordance with the investment objective and stated policies of the Fund and
makes investment decisions for the Fund. Bjurman also provides the Fund with
investment officers who are authorized by the Trustees to determine purchases
and sales of securities on behalf of the Fund and employs a professional staff
of portfolio managers who draw upon a variety of sources for research
information for the Fund.
Owen T. Barry III serves as the Fund's Chief Investment Officer and in
that capacity is the individual primarily responsible for the management of the
Fund's assets. Mr. Barry has been the Senior Executive Vice President of Bjurman
for more than the past five years.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Sub-Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Sub-Adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales are allocated in a manner believed by the Sub-Adviser to
be equitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.
Mitchell Hutchins and Bjurman investment personnel may engage in
securities transactions for their own accounts pursuant to each firm's code of
ethics that establishes procedures for personal investing and restricts certain
transactions.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the
Fund's Class Y shares and has appointed PaineWebber as the exclusive dealer for
the sale of those shares.
PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return
and may
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show this return in advertisements or promotional materials. Standardized return
shows the change in value of an investment in the Fund as a steady compound
annual rate of return. Actual year-by-year returns fluctuate and may be higher
or lower than standardized return. One-, five- and ten-year periods will be
shown, unless the shares have been in existence for a shorter period. Total
return calculations assume reinvestment of dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.
Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values will
fluctuate, and proceeds upon redemption may be more or less than a shareholder's
cost.
GENERAL INFORMATION
ORGANIZATION. The Trust is registered under the 1940 Act as an open-end
management investment company and was formed as a business trust pursuant to a
Declaration of Trust, as amended from time to time (the 'Declaration'), under
the laws of The Commonwealth of Massachusetts on April 8, 1993. The Fund
commenced investment operations on November 4, 1993. The Declaration authorizes
the Trustees to create separate series, and within each series separate Classes,
of an unlimited number of shares of beneficial interest, par value $.001 per
share.
When issued, Fund shares will be fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the effect of the
respective sales charges, if any, for each Class; (3) the distribution and/or
service fees, if any, borne by each Class; (4) the expenses allocable
exclusively to each Class; (5) voting rights on matters exclusively affecting a
single Class; and (6) the exchange privilege of each Class. The board of
trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Trustees, on an ongoing
basis, will consider whether any conflict exists and, if so, take appropriate
action. Certain aspects of the shares may be changed, upon notice to Fund
shareholders, to satisfy certain tax regulatory requirements, if the change is
deemed necessary by the Trust's board of trustees.
Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Trust may elect all of the Trustees. Generally, shares of the
Trust are voted on a Trust-wide basis on all matters except those affecting only
the interests of one series, such as the Fund's investment advisory agreement.
In turn, shares of the Fund are voted on a Fund-wide basis on all matters except
those affecting only the interests of one Class, such as the terms of each plan
of distribution as it relates to a Class.
The Trust does not intend to hold annual meetings of shareholders for the
purpose of electing Trustees unless, and until such time as, less than a
majority of the Trustees holding office have been elected by shareholders.
Shareholders of record of no less
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than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Shareholders of the Fund who satisfy certain
criteria will be assisted by the Trust in communicating with other shareholders
in seeking the holding of the meeting.
To avoid additional operating costs and for investor convenience, the Fund
does not issue share certificates. Ownership of the Fund's shares is recorded on
a stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, is the custodian of the
Fund's assets. PFPC Inc., a subsidiary of PNC Bank, National Association, whose
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809,
is the Fund's transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of
purchases and redemptions of Fund shares. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
'c'1995 PaineWebber Incorporated
[Logo]
Printed on recycled paper
PAINEWEBBER
SMALL CAP GROWTH FUND
CLASS Y SHARES
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
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Prospectus Summary................................. 2
Financial Highlights............................... 3
Investment Objective and Policies.................. 4
Purchases.......................................... 12
Redemptions........................................ 13
Dividends, Distributions and Taxes................. 14
Valuation of Shares................................ 15
Management......................................... 16
Performance Information............................ 17
General Information................................ 18
</TABLE>
PROSPECTUS
December 1, 1995
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PAINEWEBBER SMALL CAP GROWTH FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Small Cap Growth Fund ('Fund') is a diversified series of
Mitchell Hutchins/Kidder, Peabody Investment Trust III ('Trust'), a
professionally managed mutual fund. The Fund seeks long-term capital
appreciation by investing primarily in equity securities of small capitalization
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 investment
sub-adviser is George D. Bjurman & Associates ('Bjurman' or '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 December 1, 1995. A copy
of the Prospectus may be obtained by calling any PaineWebber investment
executive or corresponding firm or by calling toll-free 1-800-647-1568. This
Statement of Additional Information is dated December 1, 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The Prospectus discusses the investment objective of the Fund and the
policies employed in achieving that objective. Supplemental information is set
out below concerning certain of the securities and other instruments in which
the Fund may invest, the investment techniques and strategies that the Fund may
utilize and certain risks involved with those investments, techniques and
strategies.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ('Government Securities') in which the Fund may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association and Resolution Trust Corporation. Direct obligations of the United
States Treasury include a variety of securities that differ in their interest
rates, maturities and dates of issuance. Because the U.S. Government is not
obligated by law to provide
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support to an instrumentality that it sponsors, the Fund invests in obligations
issued by an instrumentality of the U.S. Government only if the Sub-Adviser,
under the supervision of Mitchell Hutchins, determines that the
instrumentality's credit risk does not make its securities unsuitable for
investment by the Fund.
INVESTMENT TECHNIQUES AND STRATEGIES
STOCK OPTIONS. To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options on securities. Should these state laws change or
should the Fund obtain a waiver of their application, the Fund may commit more
than 5% of its assets to premiums when purchasing call and put options on
securities. In addition, should the Trust determine that a commitment is no
longer in the best interests of the Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of the Fund's shares in the state
involved.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Although the Fund has
no current intention of doing so in the foreseeable future, the Fund reserves
authority to trade stock index futures contracts, and options on those
contracts, for a variety of risk reduction purposes such as hedging a portion of
the Fund's portfolio or providing an efficient means of regulating the Fund's
exposure to certain equity markets. A stock index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. An option on a futures contract, in contrast to a direct investment in
the contract, gives the purchaser the right, in return for the premium paid, to
assume a position in the underlying futures contract at a specified exercise
price at any time on or before the expiration date of the option. The Fund may
assume both 'long' and 'short' positions with respect to futures contracts. A
long position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to sell a
commodity.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, the Fund will be required to deposit in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money market
instruments equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded and brokers
may charge a higher amount). This amount is known as 'initial margin' and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming that all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as 'variation margin,' to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as 'marking-to-market.'
At any time prior to the expiration of a futures contract, the Fund may elect to
close a position by
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taking an opposite position, which will operate to terminate the Fund's existing
position in the contract.
The Fund may not (1) trade any futures contracts or options on futures
contracts if, immediately after the transactions, the aggregate of margin
deposits on all of the Fund's outstanding futures contracts and premiums paid on
its outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Fund after taking into account unrealized profits and
losses on any futures contracts or options on futures contracts or (2) enter
into any futures contracts or options on futures contracts if the aggregate of
the market value of the Fund's outstanding futures contracts and market value of
the futures contracts subject to outstanding options written by the Fund would
exceed 50% of the market value of the total assets of the Fund. Each short
position in a futures or options contract entered into by the Fund is secured by
the Fund's ownership of underlying securities. The Fund does not use leverage
when it enters into long futures or options contracts; the Fund places in a
segregated account with its custodian, or designated sub-custodian, with respect
to each of its long positions, cash or money market instruments having a value
equal to the underlying commodity value of the contract.
The Fund may trade stock index futures contracts to the extent permitted
under rules and interpretations adopted by the Commodity Futures Trading
Commission (the 'CFTC'). U.S. futures contracts have been designed by exchanges
that have been designated as 'contract markets' by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
In entering into transactions involving futures contracts and options on
those contracts, the Fund is subject to a number of risks and special
considerations. The successful use of futures contracts and options on those
contracts draws upon Bjurman's special skills and experience with respect to
those instruments and usually depends on Bjurman's ability to forecast stock
market movements correctly. Should stock markets move in an unexpected manner,
the Fund may not achieve the anticipated benefits of futures contracts or
options on those contracts or may realize losses and thus be in a less
advantageous position than if those strategies had not been used. Certain
futures contracts and options on futures contracts are subject to no daily price
fluctuation limits so that adverse market movements could continue with respect
to those instruments to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of those instruments and
movements in the price of the securities hedged or used for cover are not
perfect.
The Fund's ability to dispose of its positions in futures contracts and
options on those contracts depends on the availability of active markets in
those instruments. Markets in options and futures with respect to a number of
securities are relatively new and still developing. Bjurman cannot now predict
the amount of trading interest that may exist in the future in various types of
futures contracts and options. Futures and options may be closed out only on the
exchange on which the contract was entered (or a linked exchange) so that no
assurance can be given that the Fund will be able to utilize these instruments
effectively for the purposes described above.
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No secondary market for futures contracts currently exists, and although
the Fund intends to trade futures contracts only if an active market for them
exists, no assurance can be given that an active market will exist for the
contracts at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made on that day at a price beyond that limit. Prices for futures contracts may
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting the Fund to substantial losses. In that case, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract.
In addition, although the Trust anticipates that the Fund's options and
futures transactions will not prevent the Fund from qualifying as a regulated
investment company for federal income tax purposes, the Fund's ability to engage
in options and futures transactions may be limited by this tax consideration.
See 'Dividends, Distributions and Taxes -- Taxes,' in the Prospectus. In writing
options, the Fund is subject to the risk of loss resulting from the difference
between the premium received for the option and the price of the futures
contract underlying the option that the Fund must purchase or deliver upon
exercise of the option.
LENDING PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
well-known and recognized U.S. and foreign brokers, dealers and banks. These
loans, if and when made, may not exceed 30% of the value of the Fund's total
assets. The Fund's loans of securities will be collateralized by cash, letters
of credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities will be maintained at all times in a segregated
account with the Fund's custodian, or with a designated sub-custodian, in an
amount at least equal to the current market value of the loaned securities. From
time to time, the Fund may pay a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party that is unaffiliated with the Fund and is acting as a 'finder.' The Fund
complies with the following conditions whenever it loans securities: (1) the
Fund must receive at least 100% cash collateral or equivalent securities from
the borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When the Fund engages in
when-issued or delayed-delivery securities transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
4
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INVESTMENT RESTRICTIONS
Investment restrictions numbered 1 through 10 below have been adopted by
the Trust as fundamental policies with respect to the Fund. Under the Investment
Company Act of 1940, as amended (the '1940 Act'), a fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. Investment restrictions numbered 11
through 17 may be changed by a vote of a majority of the Trust's Board of
Trustees at any time.
Under the investment restrictions adopted by the Trust with respect to the
Fund:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, except that this limitation is not applicable to the
Fund's investments in Government Securities, and up to 25% of the Fund's
assets may be invested without regard to this 10% limitation.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include the government of
any country other than the United States, but not the U.S. Government.
6. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts or options on futures contracts will not be deemed to be
a purchase of securities on margin.
7. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the Fund
owns an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short.
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8. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real
estate.
9. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.
10. The Fund will not act as an underwriter of securities, except
that the Fund may acquire securities under circumstances in which, if the
securities were sold, the Fund might be deemed to be an underwriter for
purposes of the Securities Act of 1933, as amended.
11. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
12. The Fund will not purchase any investment company security, other
than a security acquired pursuant to a plan of reorganization or an offer
of exchange, if as a result of the purchase (a) the Fund would own more
than 3% of the total outstanding voting securities of any investment
company, (b) more than 5% of the value of the Fund's total assets would be
invested in securities of any one investment company or (c) more than 10%
or the Fund's total assets would be invested in securities issued by
investment companies.
13. The Fund will not participate on a joint or joint-and-several
basis in any securities trading account.
14. The Fund will not make investments for the purpose of exercising
control of management.
15. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets
invested in securities of companies (including predecessors) that have been
in continuous operation for fewer than three years.
16. The Fund will not purchase or retain securities of any company
if, to the knowledge of the Fund, any of the Trust's Trustees or officers
or any officer or director of Mitchell Hutchins or Bjurman individually
owns more than 0.5% of the outstanding securities of the company and
together they own beneficially more than 5% of the securities.
17. The Fund will not invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Fund's net assets of
which not more than 2% of the Fund's net assets may be invested in warrants
not listed on a recognized foreign or domestic stock exchange.
The Trust may make commitments regarding the Fund more restrictive than the
restrictions listed above so as to permit the sale of the Fund's shares in
certain states. Should the Trust determine that a commitment is no longer in the
best interests of the Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of the Fund's shares in the state involved.
The percentage limitations contained in the restrictions listed above apply at
the time of purchase of the securities.
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TRUSTEES AND OFFICERS
The names of Trustees and officers of the Trust, together with information
as to their principal business occupations during the last five years, are shown
below. An asterisk appears before the name of each Trustee who is an 'interested
person' of the Trust, as defined in the 1940 Act.
David J. Beaubien, 60, Trustee. Chairman of Yankee Environmental Systems,
Inc., manufacturer of meteorological measuring instruments. Director of IEC,
Inc., manufacturer of electronic assemblies, Belfort Instruments, Inc.,
manufacturer of environmental instruments, and Oriel Corp., manufacturer of
optical instruments. Prior to January 1991, Senior Vice President of EG&G, Inc.,
a company that makes and provides a variety of scientific and technically
oriented products and services. Mr. Beaubien is a director or trustee of 11
other investment companies for which Mitchell Hutchins or PaineWebber
Incorporated ('PaineWebber') serves as investment adviser.
William W. Hewitt, Jr., 66, Trustee. Trustee of The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Bond Fund, Inc., The Guardian Cash Fund, Inc., The Guardian Park Ave. Fund, The
Guardian Stock Fund, Inc., The Guardian Cash Management Trust and The Guardian
U.S. Government Trust. Mr. Hewitt is a director or trustee of 11 other
investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Thomas R. Jordan, 66, Trustee. Principal of The Dilenschneider Group, Inc.,
a corporate communications and public policy counseling firm. Prior to January
1992, Senior Vice President of Hill & Knowlton, a public relations and public
affairs firm. Prior to April 1991, President of The Jordan Group, a management
consulting and strategies development firm. Mr. Jordan is a director or trustee
of 10 other investment companies for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
*Frank P. L. Minard, 50, Trustee. Chairman of Mitchell Hutchins, chairman
of the board of Mitchell Hutchins Institutional Investors Inc. and a director of
PaineWebber. Prior to 1993, managing director of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd. in London. Mr. Minard is a director or
trustee of 23 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer, 59, Trustee. President of the Atlantic Foundation, a
charitable foundation supporting mainly oceanographic exploration and research.
Director of International Agritech Resources, Inc., an agribusiness investment
and consulting firm, Ardic Exploration and Development Ltd., Evans Systems, Inc.
and Hidden Lake Gold Mines Ltd., gold mining companies, Electronic Clearing
House, Inc., a financial transactions processing company, Wainoco Oil
Corporation and Nutracentix, Inc., a biotechnology company. Prior to January
1993, chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute and director of Ecova Corporation, a toxic waste treatment firm. Mr.
Schafer is a director or trustee of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Margo N. Alexander, 48, President. President, chief executive officer and a
director of Mitchell Hutchins. Prior to January 1995, an executive vice
president of PaineWebber. Ms. Alexander is also a trustee of one other
investment company and president of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
7
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Owen T. Barry III, , Senior Vice President and Chief Investment Officer.
Senior Executive Vice President and Director of Investments of Bjurman.
Teresa M. Boyle, 36, Vice President. First vice president and
manager -- advisory administration of Mitchell Hutchins. Prior to November 1993,
compliance manager of Hyperion Capital Management, Inc., an investment advisory
firm. Prior to April 1993, a vice president and manager -- legal administration
of Mitchell Hutchins. Ms. Boyle is also a vice president of 37 other investment
companies for which Mitchell Hutchins or PaineWebber serves as investment
adviser.
Neil G. Cumming, , Vice President and Investment Officer. Senior Vice
President and Portfolio Manager/Senior Research Analyst of Bjurman. Prior to
August 1992, Investment Department Manager of First Business Bank of Los
Angeles.
Scott H. Griff, 29, Vice President and Assistant Secretary. Vice president
and attorney of Mitchell Hutchins. Prior to January 1995, an associate at the
law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Griff is also a vice
president and assistant secretary of 10 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
C. William Maher, 34, Vice President and Assistant Treasurer. Mr. Maher is
a first vice president and the senior manager of the Fund Administration
Division of Mitchell Hutchins. Mr. Maher is also a vice president and assistant
treasurer of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran, 38, Vice President and Assistant Treasurer. Vice president of
Mitchell Hutchins. Ms. Moran is also a vice president and assistant treasurer of
37 other investment companies for which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Dianne E. O'Donnell, 43, Vice President and Secretary. Senior vice
president and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is also
a vice president and secretary of 37 other investment companies for which
Mitchell Hutchins or PaineWebber serves as investment adviser.
Victoria E. Schonfeld, 44, Vice President. Managing director and general
counsel of Mitchell Hutchins. From April 1990 to May 1994, a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is also a vice president and assistant
secretary of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Paul H. Schubert, 32, Vice President and Assistant Treasurer. First vice
president of Mitchell Hutchins. From August 1992 to August 1994, vice president
at BlackRock Financial Management, Inc. Prior to August 1992, an audit manager
with Ernst & Young LLP. Mr. Schubert is also a vice president and assistant
treasurer of 37 other investment companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Julian F. Sluyters, 35, Vice President and Treasurer. Senior vice president
and the director of the mutual fund finance division of Mitchell Hutchins. Prior
to 1991, an audit senior manager with Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 37 other investment companies for which Mitchell
Hutchins or PaineWebber serves as investment adviser.
Gregory K. Todd, 38, Vice President and Assistant Secretary. First vice
president and associate general counsel of Mitchell Hutchins. Prior to 1993, a
partner with the law firm of Shereff, Friedman, Hoffman & Goodman. Mr. Todd is
also a vice president and assistant secretary of 37
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other investment companies for which Mitchell Hutchins or PaineWebber serves as
investment adviser.
Certain of the Trustees and officers of the Trust are directors and/or
trustees and officers of other mutual funds managed by Mitchell Hutchins. The
addresses of the non-interested Trustees are as follows: Mr. Beaubien, Montague
Industrial Park, 101 Industrial Road, Box 746, Turner Falls, Massachusetts
01376; Mr. Hewitt, P.O. Box 2359, Princeton, New Jersey 08543-2359; Mr. Jordan,
200 Park Avenue, New York, New York 10166; and Mr. Schafer, P.O. Box 1164,
Princeton, New Jersey 08542. The address of Mr. Minard and the officers listed
above, other than Messrs. Barry and Cumming, is 1285 Avenue of the Americas, New
York, New York 10019. The address of Messrs. Barry and Cumming is 10100 Santa
Monica Boulevard, Suite 1200, Los Angeles, California 90067.
By virtue of the responsibilities assumed by Mitchell Hutchins under its
management agreement with the Trust (the 'Management Agreement'), and by the
Sub-Adviser under its Sub-Investment Advisory Agreement with Mitchell Hutchins
and the Trust, the Fund requires no executive employees other than officers of
the Trust, none of whom devotes full time to the affairs of the Fund. Trustees
and officers of the Trust, as a group, owned less than 1% of the outstanding
Class A shares, Class C shares and Class Y shares of beneficial interest as of
November 1, 1995. The Trust pays each Trustee who is not an officer, director or
employee of Mitchell Hutchins, the Sub-Adviser, or any of their affiliates, an
annual retainer of $1,000, and $375 for each Board of Trustees meeting attended,
and reimburses the Trustee for out-of-pocket expenses associated with attendance
at Board meetings. The Chairman of the Board's audit committee receives an
annual fee of $250. No officer, director or employee of Mitchell Hutchins, the
Sub-Adviser, or any of their affiliates, receives any compensation from the
Trust for serving as an officer or Trustee of the Trust. The amount of
compensation paid by the Fund to each Trustee for the fiscal year ended July 31,
1995, and the aggregate amount of compensation paid to each such Trustee for the
year ended December 31, 1994 by all investment companies in the same fund
complex for which such person is a Board member were as follows:
<TABLE>
<CAPTION>
(5)
(3) TOTAL COMPENSATION
(2) PENSION OR (4) FROM FUND AND
(1) AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL OTHER INVESTMENT
NAME OF BOARD COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPANIES IN THE
MEMBER FUND FUND'S EXPENSES RETIREMENT FUND COMPLEX*
- ------------------------------ ----------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
David J. Beaubien $ 2,500 None None $ 80,700
William W. Hewitt, Jr. $ 2,500 None None $ 74,425
Thomas R. Jordan $ 2,500 None None $ 83,125
Frank P.L. Minard None None None None
Carl W. Schafer $ 2,750 None None $ 84,575
</TABLE>
- ------------
* Represents total compensation paid to each Trustee during the calendar year
ended December 31, 1994.
9
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INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
The Fund bears all expenses incurred in its operation that are not
specifically assumed by Mitchell Hutchins or the Sub-Adviser. General expenses
of the Trust not readily identifiable as belonging to the Fund are allocated
among the Fund or the Trust's other series by or under the direction of the
board of trustees in such manner as the board deems to be fair and equitable.
Expenses borne by the Fund include the following (or the Fund's share of the
following): (1) the cost (including brokerage commissions) of securities
purchased or sold by the Fund and any losses incurred in connection therewith,
(2) fees payable to and expenses incurred on behalf of the Fund by Mitchell
Hutchins, (3) organizational expenses, (4) filing fees and expenses relating to
the registration and qualification of the Fund's shares and the Trust under
federal and state securities laws and maintenance of such registrations and
qualifications, (5) fees and salaries payable to trustees who are not interested
persons (as defined in the 1940 Act) of the Trust or Mitchell Hutchins, (6) all
expenses incurred in connection with the trustees' services, including travel
expenses, (7) taxes (including any income or franchise taxes) and governmental
fees, (8) costs of any liability, 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
the Fund for violation of any law, (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees, (11)
charges of custodians, transfer agents and other agents, (12) costs of preparing
share certificates, (13) expenses of setting in type and printing prospectuses
and supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders, and costs of
mailing such materials to existing shareholders, (14) any extraordinary expenses
(including fees and disbursements of counsel) incurred by the Trust or the Fund,
(15) fees, voluntary assessments and other expenses incurred in connection with
membership in investment. company organizations, (16) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof, (17) the cost of investment company literature and other
publications provided to trustees and officers and (18) costs of mailing,
stationery and communications equipment.
For the fiscal year ended July 31, 1995 and for the period November 4, 1993
(commencement of investment operations) through July 31, 1994, the Trust paid
(or accrued) management fees with respect to the Fund of $474,177 and $411,260,
respectively, to the Fund's investment adviser and administrator during those
periods.
For the fiscal year ended July 31, 1995 and for the period November 4, 1993
(commencement of investment operations) through July 31, 1994, the Fund's
investment adviser and administrator paid (or accrued) fees of $237,089 and
$175,005, respectively, to the Sub-Adviser with respect to the Fund.
Mitchell Hutchins has agreed that, if in any fiscal year of the Fund, the
aggregate expenses of the Fund (including management fees, but excluding
interest, taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Trust, Mitchell Hutchins
will reimburse the Trust for the excess expense. This expense reimbursement
obligation is limited to the amount of Mitchell Hutchins' fees under its
respective agreement with the Trust in respect of the Fund. Any expense
reimbursement will be estimated, reconciled and paid on a monthly basis. As of
the date of this Statement of Additional Information, the most restrictive state
expense limitation
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applicable to the Fund requires reimbursement of expenses in any year that the
Fund's expenses subject to the limitation exceed 2 1/2% of the first $30 million
of the average daily value of the Fund's net assets, 2% of the next $70 million
of the average daily value of the Fund's net assets and 1 1/2% of the remaining
average daily value of the Fund's net assets. For the fiscal year ended July 31,
1995, the Fund's expenses did not exceed such limitations.
Under their respective agreements with the Trust in respect of the Fund,
each of Mitchell Hutchins and the Sub-Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust with respect
to the Fund in connection with the matters to which the agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the agreement.
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.
The Sub-Adviser's personnel also may invest in securities for their own
accounts pursuant to its code of ethics which establishes procedures for
personal investing and restricts certain transactions.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins acts as the distributor of the Class Y shares of the Fund
under a distribution contract with the Trust that requires Mitchell Hutchins to
use its best efforts, consistent with its other businesses, to sell shares of
the Fund. Shares of the Fund are offered continuously. Under an exclusive dealer
agreement between Mitchell Hutchins and PaineWebber relating to Class Y shares
of the Fund, PaineWebber and its correspondent firms sell the Fund's Class Y
shares.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by the
Sub-Adviser, subject to review by Mitchell Hutchins and the Trust's Board of
Trustees. Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On exchanges
on which commissions are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions are generally fixed.
Subject to policies established by the board of directors, 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 price (including the applicable brokerage commission or
dealer
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spread), size of order, difficulty of execution and operational facilities of
the firm involved. Generally, bonds are traded on the OTC market on a 'net'
basis without a stated commission through dealers acting for their own account
and not as brokers. Prices paid to dealers in principal transactions 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. For the
period November 4, 1993 (commencement of investment operations) through the
fiscal year ended July 31, 1994 and for the fiscal year ended July 31, 1995, the
Fund paid $39,326 and $65,409, respectively, in aggregate brokerage commissions.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber.
The Trust's board of trustees has adopted procedures in conformity with Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
Mitchell Hutchins and its affiliates are reasonable and fair. Specific
provisions in the Advisory Contract authorize Mitchell Hutchins and any of its
affiliates that are members of a national securities exchange to effect
portfolio transactions for the Fund on such exchange and to retain compensation
in connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
For the fiscal year ended July 31, 1995, the Fund paid no brokerage commissions
to PaineWebber.
Transactions in futures contracts are executed through futures commission
merchants ('FCMs'), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute the Fund's transactions in
futures contracts, including procedures permitting the use of Mitchell Hutchins
and its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Consistent with the interest of the Fund and subject to the review of the
board of directors, the Sub-Adviser may cause the Fund to purchase and sell
portfolio securities through brokers who provide the Fund with research,
analysis, advice and similar services. In return for such services, the Fund may
pay to those brokers a higher commission than may be charged by other brokers,
provided that the Sub-Adviser determines in good faith that such commission is
reasonable in terms either of that particular transaction or of the overall
responsibility of the Sub-Adviser to the Fund and its other clients and that the
total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term. For purchases or sales with
broker-dealer firms which act as principal, the Sub-Adviser seeks best
execution. Although the Sub-Adviser may receive certain research or execution
services in connection with these transactions, the Sub-Adviser will not
purchase securities at a higher price or sell securities at a lower price than
would otherwise be paid if no weight was attributed to the services provided by
the executing dealer. Moreover, the Sub-Adviser will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not receive
in principal transactions the types of services which could be purchased for
hard dollars. The Sub-Adviser may engage in agency transactions in OTC equity
and debt securities in return for research and execution services. These
transactions are entered into only in compliance with procedures ensuring that
the transaction (including commissions) is at least as favorable as it would
have been if effected directly with a market-maker
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that did not provided research or execution services. These procedures include
the Sub-Adviser receiving multiple quotes from dealers before executing the
transaction on an agency basis.
Research services furnished by the brokers or dealers through which or with
which the Fund effects securities transactions may be used by the Sub-Adviser in
advising other funds or accounts and, conversely, research services furnished to
the Sub-Adviser by brokers or dealers in connection with other funds or accounts
that the Sub-Adviser advises may be used by the Sub-Adviser in advising the
Fund. Information and research received from such brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by the
Sub-Adviser under the Sub-Investment Contract.
Investment decisions for the Fund and for other investment accounts managed
by the Sub-Adviser are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s) as
to amount according to a formula deemed equitable to the Fund and such other
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 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 Corporation's board of
directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the commission or spread paid in connection with such a
purchase be reasonable and fair, that the purchase be at not more than the
public offering price prior to the end of the first business day after the date
of the public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to the Fund.
PORTFOLIO TURNOVER. 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 the
securities in the portfolio during the year. For the fiscal year ended July 31,
1995 and for the period from November 4, 1993 (commencement of investment
operations) to July 31, 1994, the portfolio turnover rate for the Fund was 101%
and 56%, respectively.
VALUATION OF SHARES
The Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., Eastern time)
on the NYSE on each Business Day, which is defined as each Monday through Friday
when the NYSE is open. Currently, the NYSE is closed on the observance of the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are being valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the
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exchange considered by the Sub-Adviser as the primary market. Securities traded
in the OTC market and listed on Nasdaq are valued at the last available sale
price on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued at
the last bid price available prior to valuation.
Where market quotations, are readily available, debt securities are valued
based upon those quotations, provided such quotations adequately reflect, in the
Sub-Adviser's 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. Average annual total return quotes ('Standardized Return')
used in the Fund's Performance Advertisements are calculated according to the
following formula:
<TABLE>
<S> <C> <C> <C>
P(1 + T)'pp'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.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value for Class A shares, the
Fund's maximum 4.5% initial sales charge is deducted from the initial $1,000
payment and, for Class B and Class C shares, the applicable contingent deferred
sales charge imposed on a redemption of Class B and Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ('Non-Standardized Return'). The Fund calculates Non-Standardized Return
for specified periods of time by assuming the 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
14
<PAGE>
<PAGE>
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 these 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 C
and Class Y shares of the Fund for the periods indicated. No Class B shares were
outstanding during those periods. All returns for periods of more than one year
are expressed as an average return.
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS Y
------- --------------- -------
<S> <C> <C> <C>
Fiscal year ended July 31, 1995:
Standardized Return*.............................................. 34.24% 38.43% 40.88%
Non-Standardized Return........................................... 40.55% 39.43% 40.88%
Five years ended July 31, 1995:
Standardized Return*.............................................. NA NA NA
Non-Standardized Return........................................... NA NA NA
Inception** to July 31, 1995:
Standardized Return*.............................................. 5.38% 7.43% 8.53%
Non-Standardized Return........................................... 8.25% 7.43% 8.53%
</TABLE>
- ------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Class C shares impose a 1% contingent
deferred sales charge only on redemptions made within a year of purchase;
therefore, for periods longer than one year, Non-Standardized Return is
identical to Standardized Return.
** The inception date for the Class A shares, Class C shares and Class Y shares
of the Fund is November 4, 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') for growth funds; CDA Investment
Technologies, Inc. ('CDA'); Wiesenberger Investment Companies Service
('Wiesenberger'); Investment Company Data Inc. ('ICD'); or Morningstar Mutual
Funds ('Morningstar'); or with the performance of recognized stock and other
indexes, including (but not limited to) the Standard & Poor's 500 Composite
Stock Price Index, 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 Brothers 20+ Year Treasury Bond Index, the
Lehman Brothers Government/Corporate Bond Index, the Salomon Brothers Non-U.S.
World Government Bond Index, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. The Fund also may refer in such
materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of the Fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not limited to) THE WALL STREET JOURNAL,
MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE
NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHING-
15
<PAGE>
<PAGE>
TON POST and THE KIPPINGER LETTERS. Comparisons in Performance Advertisements
may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. 'Compounding' refers to the fact
that, if dividends or other distributions on 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 deposits (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. Fund shares are not
insured or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The debt securities held by the Fund generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.
TAXES
Set forth below is a summary of certain income tax considerations generally
affecting the Fund and its shareholders. The summary is not intended as a
substitute for individual tax planning, and shareholders are urged to consult
their tax advisors regarding the application of federal, state, local and
foreign tax laws to their specific tax situations.
TAX STATUS OF THE FUND AND ITS SHAREHOLDERS
The Fund is treated as a separate entity for federal income tax purposes.
The Fund's net investment income, capital gains and distributions are determined
for each Class of shares separately from any other series or Class that the
Trust may designate.
The Fund has qualified for the fiscal period ended July 31, 1995 as a
'regulated investment company' under the Code and intends to continue to qualify
for this treatment for each year. If the Fund (1) is a regulated investment
company and (2) distributes to its shareholders at least 90% of its net
investment income (including for this purpose its net realized short term
capital gains), the Fund will not be liable for federal income taxes to the
extent that its net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
The Fund's transactions in options and futures contracts are subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of
16
<PAGE>
<PAGE>
income to the Fund and defer Fund losses. These rules (1) could affect the
character, amount and timing of distributions to shareholders of the Fund, (2)
will require the Fund to 'mark to market' certain types of the positions in its
portfolio (that is, treat them as if they were closed out), and (3) may cause
the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes described above and in the Prospectus. The Fund
will seek to monitor its transactions, will seek to make the appropriate tax
elections and will seek to make the appropriate entries in its books and records
when it acquires any option, futures contract or hedged investment, to mitigate
the effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income as of the later of (1) the date of such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (2) the date the Fund acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
As a general rule, a shareholder's gain or loss on a sale or redemption of
Fund shares is a long-term capital gain or loss if the shareholder has held the
shares for more than one year. The gain or loss is a short-term capital gain or
loss if the shareholder has held the shares for one year or less.
The Fund's net realized long-term capital gains are distributed as
described in the Prospectus. The distributions ('capital gain dividends'), if
any, will be taxable to shareholders as long-term capital gains, regardless of
how long a shareholder has held Fund shares, and are designated as capital gain
dividends in a written notice mailed by the Trust to the shareholders of the
Fund after the close of the Fund's prior taxable year. If a shareholder receives
a capital gain dividend with respect to any Fund share, and if the share is sold
before it has been held by the shareholder for more than six months, then any
loss on the sale or exchange of the share, to the extent of the capital gain
dividend, will be treated as a long-term capital loss. Investors considering
buying Fund shares on or just prior to the record date for a taxable dividend or
capital gain distribution should be aware that the amount of the forthcoming
dividend or distribution payment will be a taxable dividend or distribution
payment.
Special rules contained in the Code apply when a Fund shareholder (1)
disposes of shares of the Fund through a redemption or exchange within 90 days
of purchase and (2) subsequently acquires shares of a fund in the PaineWebber
Family of Funds on which a sales charge normally is imposed without paying a
sales charge in accordance with the exchange privilege described in the
Prospectus. In these cases, any gain on the disposition of the fund shares will
be increased, or loss decreased, by the amount of the sales charge paid when the
shares were acquired, and that amount will increase the adjusted basis of the
Fund shares subsequently acquired. In addition, if shares of the Fund are
purchased within 30 days of redeeming shares at a loss, the loss is not
deductible and instead increases the basis of the newly purchased shares.
If a shareholder fails to furnish the Trust with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct
17
<PAGE>
<PAGE>
taxpayer identification number and that he or she is not subject to 'backup
withholding,' then the shareholder may be subject to a 31% 'backup withholding'
tax with respect to (1) taxable dividends and distributions from the Fund and
(2) the proceeds of any redemptions of Fund shares. An individual's taxpayer
identification number is his or her social security number. The backup
withholding tax is not an additional tax and may be credited against a
taxpayer's regular federal income tax liability.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign entities classified under
the Code as 'passive foreign investment companies,' the Fund may be subject to
federal income tax on a portion of an 'excess distribution' or gain from the
disposition of the shares, even though the income may have to be distributed as
a taxable dividend by the Fund to its shareholders. In addition, gain on the
disposition of shares in a passive foreign investment company generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a passive foreign investment company.
The Fund may be eligible to elect to include in its gross income its share
of earnings of a passive foreign investment company on a current basis.
Generally, the election would eliminate the interest charge and the ordinary
income treatment on the disposition of stock, but such an election may have the
effect of accelerating the recognition of income and gains by the Fund compared
to a fund that did not make the election. In addition, information required to
make such an election may not be available to the Fund. If the Fund is not able
to make the foregoing election, it may able to avoid the interest charge (but
not the ordinary income treatment) on disposition of the stock by electing,
under proposed regulations, each year to mark-to-market the stock (that is,
treat it as if it were sold for fair market value). Such an election could also
result in acceleration of income to the Fund.
OTHER INFORMATION
The Trust was organized as a business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated April 8,
1993, as amended from time to time (the 'Declaration'). The Fund commenced
operations on November 4, 1993. Prior to November 1, 1995, the name of the Fund
was 'Mitchell Hutchins/Kidder, Peabody Small Cap Growth Fund.' Prior to February
13, 1995, the name of the Fund was 'Kidder, Peabody Small Cap Equity Fund.'
Prior to November 10, 1995, the Fund's Class C shares were called 'Class B'
shares and Class Y shares were called 'Class C' shares. New Class B shares were
not offered prior to December 1, 1995.
Massachusetts law provides that shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Declaration disclaims shareholder liability for acts or obligations
of the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration provides for indemnification from the Trust's
property for all losses and expenses of any shareholder of the Trust held
personally liable for the obligations of the Trust.
18
<PAGE>
<PAGE>
Thus, the risk of a Fund shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations, a possibility that the Trust's management
believes is remote. Upon payment of any liability incurred by the Trust, the
shareholder paying the liability will be entitled to reimbursement from the
general assets of the Trust. The Trustees intend to conduct the operations of
the Trust in such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Trust.
CLASS-SPECIFIC EXPENSES. The Fund might determine to allocate certain of
its expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares of the Funds 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 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.
INDEPENDENT AUDITORS
Ernst & Young LLP, located at 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Trust. In that capacity, Ernst & Young
LLP audits the Trust's financial statements at least annually. For the period
ended July 31, 1994, the Trust's independent auditors were Deloitte & Touche
LLP, located at 2 World Financial Center, New York, New York 10281.
COUNSEL
Willkie Farr & Gallagher, located at One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal 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 auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
19
<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information.............. 1
Investment Policies and Restrictions............. 1
Trustees and Officers............................ 7
Investment Advisory and Distribution
Arrangements................................... 10
Portfolio Transactions........................... 11
Valuation of Shares.............................. 13
Performance Information.......................... 14
Taxes............................................ 16
Other Information................................ 18
Financial Statements............................. 19
</TABLE>
'c'1995 PAINEWEBBER INCORPORATED
[Logo]
Printed on recycled paper
PaineWebber
Small Cap Growth Fund
-------------------------------------------------------
Statement of Additional Information
December 1, 1995
-------------------------------------------------------
PAINEWEBBER
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
Financial Highlights for the period from November 4, 1993 through
July 31, 1995.
Included in Part B through incorporation by reference from the Annual
Report to Shareholders (previously filed with the Securities and Exchange
Commission through EDGAR on October 4, 1995, Accession No.
0000889812-95-000553):
Portfolio of Investments as of July 31, 1995.
Statement of Assets and Liabilities as of July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for the period ended July 31,
1994 and the year ended July 31, 1995.
Financial Highlights for the period November 4, 1993 (commencement
of operations) through July 31, 1995.
Report of Ernst & Young LLP, Independent Auditors, dated September
21, 1995.
Included in Part B through incorporation by reference to
Pre-Effective Amendment No. 3 to Registrant's Registration Statement on
Form N-1A as filed on November 25, 1994:
Report of Deloitte & Touche, Independent Auditors, dated September
9, 1994.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1(a) -- Declaration of Trust*`D'
1(b) -- Amendment to Declaration of Trust dated July 19, 1993**`D'
1(c) -- Amendment to Declaration of Trust dated August 30, 1993***`D'
1(d) -- Amendment to Declaration of Trust dated February 16, 1995
2 -- By-Laws*
3 -- Inapplicable
4 -- Form of certificates for shares of beneficial interest***
5(a) -- Form of Investment Advisory and Administration Agreement
5(b) -- Form of Sub-Investment Advisory Agreement
6 -- Form of Distribution Agreements
7 -- Inapplicable
8 -- Form of Custody Contract #
9 -- Form of Transfer Agency Agreement
10 -- Opinions and Consents of Willkie Farr and Gallagher and of Bingham, Dana & Gould
11(a) -- Consent of Ernst & Young LLP
11(b) -- Consent of Deloitte & Touche LLP
12 -- Inapplicable
13 -- Form of Purchase Agreement**
14 -- Inapplicable
15(a) -- Form of Shareholder Servicing and Distribution Plan**`D'
15(a)(a) -- Amendment to Shareholder Servicing and Distribution Plan
15(b) -- Form of Shareholder Servicing Agreement
15(c) -- Form of Distribution Related Services Agreement
16 -- Schedule for computation of each performance quotation provided in response to item 22****
17 -- Financial Data Schedule (filed as exhibit No. 27 pursuant to EDGAR rules)
18 -- Form of 18f-3 Plan
19 -- Powers of Attorney
27(a)(b)(c) -- Financial Data Schedules
</TABLE>
(footnotes on next page)
C-1
<PAGE>
<PAGE>
(footnotes from previous page)
* Incorporated by reference to Registrant's Registration Statement on Form
N-1A as filed on April 9, 1993.
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A as filed on August 4, 1993.
*** Incorporated by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A as filed on September 3, 1993.
**** Incorporated by reference to Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A as filed on March 10, 1994.
`D' Refiled pursuant to rules under EDGAR.
# To be filed by amendment
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS AS OF NOVEMBER 14, 1995
- --------------------------------------------- -------------------------------
<S> <C>
Shares representing beneficial interests, par
value $.001 per share of:
PaineWebber Small Cap Growth Fund
Class A 1,406
Class C 1,126
Class Y 401
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article IV of Registrant's Declaration of Trust filed
as Exhibit 1 to this Registration Statement. Insofar as indemnification for
liability arising under the Securities Act of 1933, as amended (the 'Securities
Act'), may be permitted for Trustees, officers and controlling persons of
Registrant pursuant to provisions of Registrant's Declaration of Trust, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, 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 Securities
Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
Reference is made to 'Management of the Fund' in the Prospectuses forming
Part A, and the Statements of Additional Information forming Part B, of this
Registration Statement.
(a) Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins')
The list required by this Item 28 of officers and directors of Mitchell
Hutchins, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by those officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by Mitchell Hutchins pursuant to the Investment Advisers
Act of 1940, as amended (SEC File No. 801-13219).
C-2
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<PAGE>
George D. Bjurman & Associates ('Bjurman')
The list required by this Item 28 of officers and directors of Bjurman,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Bjurman pursuant to the Investment Advisers Act of 1940, as
amended (SEC File No. 801-06776).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:
ALL AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND, INC.
GLOBAL SMALL CAP FUND, INC.
INSTITUTIONAL SERIES TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
MITCHELL HUTCHINS/KIDDER, PEABODY GOVERNMENT INCOME FUND, 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 HIGH INCOME TRUST, INC.
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
2002 TARGET TERM TRUST INC.
(b) Mitchell Hutchins, a wholly owned subsidiary of PaineWebber
Incorporated ('PaineWebber') 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 December 19, 1994 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 February 13, 1995 with the
Securities and Exchange Commission (registration number 801-7163). The foregoing
information is hereby incorporated herein by reference. The information set
forth below is furnished for those directors and officers of Mitchell Hutchins
or PaineWebber who also serve as trustees or officers of the Registrant:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL OFFICES UNDERWRITER OR EXCLUSIVE
BUSINESS ADDRESS WITH REGISTRANT DEALER
- ------------------------------------------------ ---------------- ----------------------------
<S> <C> <C>
Frank P.L. Minard .............................. Trustee Director and Chairman of
1285 Avenue of the Americas Mitchell Hutchins
New York, NY 10019
</TABLE>
(table continued on next page)
C-3
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL OFFICES UNDERWRITER OR EXCLUSIVE
BUSINESS ADDRESS WITH REGISTRANT DEALER
- ------------------------------------------------ ---------------- ----------------------------
<S> <C> <C>
Margo N. Alexander ............................. President Director and Executive Vice
1285 Avenue of the Americas President
New York, NY 10019
Teresa M. Boyle ................................ Vice President Vice President and
1285 Avenue of the Americas Manager -- Advisory
New York, NY 10019 Administration of Mitchell
Hutchins
Scott H. Griff ................................. Vice President Vice President and Attorney
1285 Avenue of the Americas and Assistant of Mitchell Hutchins
New York, NY 10019 Secretary
C. William Maher ............................... Vice President Vice President of Mitchell
1285 Avenue of the Americas and Assistant Hutchins
New York, NY 10019 Treasurer
Ann E. Moran ................................... Vice President Vice President of Mitchell
1285 Avenue of the Americas and Assistant Hutchins
New York, NY 10019 Treasurer
Dianne E. O'Donnell ............................ Vice President Senior Vice President and
1285 Avenue of the Americas and Assistant Deputy General Counsel of
New York, NY 10019 Secretary Mitchell Hutchins
Victoria E. Schonfeld .......................... Vice President Managing Director and
1285 Avenue of the Americas General Counsel of Mitchell
New York, NY 10019 Hutchins
Paul H. Schubert ............................... Vice President First Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, NY 10019 Treasurer
Julian F. Sluyters ............................. Vice President Senior Vice President and
1285 Avenue of the Americas and Treasurer Director of the Mutual Fund
New York, NY 10019 Finance Division of Mitchell
Hutchins
Gregory K. Todd ................................ Vice President First Vice President and
1285 Avenue of the Americas and Assistant Associate General Counsel of
New York, NY 10019 Secretary Mitchell Hutchins
</TABLE>
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940, as
amended (the '1940 Act'), and the rules thereunder, are maintained at the
offices of: Registrant located at 1285 Avenue of the Americas, New York, New
York 10019; PFPC Inc., Registrant's transfer and dividend agent, located at 400
Bellevue Parkway, Wilmington, Delaware 19809; and State Street Bank and Trust
Company, Registrant's custodian, located at One Heritage Drive, North Quincy,
Massachusetts 02171.
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
(a) 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.
(b) Registrant undertakes to call a meeting of its shareholders for the
purpose of voting upon the question of removal of a trustee or trustees of
Registrant when requested in writing to do so by the holders of at least 10% of
Registrant's outstanding shares and, in connection with the meeting, to comply
with the provisions of Section 16(c) of the 1940 Act relating to communications
with the shareholders of certain common-law trusts.
C-4
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant certifies that it
meets all the requirements for effectiveness of this Post-Effective Amendment to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1993, as amended, and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 22nd day of
November, 1995.
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
By: /s/ DIANNE E. O'DONNELL
..................................
DIANNE E. O'DONNELL,
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registrant's Registration Statement on Form N-1A 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 Executive Officer) November 22, 1995
........................................
MARGO N. ALEXANDER
/S/ JULIAN F. SLUYTERS Vice President and Treasurer (Chief Financial November 22, 1995
........................................ and Accounting Officer)
JULIAN F. SLUYTERS
/S/ DAVID J. BEAUBIEN** Trustee November 22, 1995
........................................
DAVID J. BEAUBIEN
/S/ WILLIAM W. HEWITT, JR.** Trustee November 22, 1995
........................................
WILLIAM W. HEWITT, JR.
/S/ THOMAS R. JORDAN** Trustee November 22, 1995
........................................
THOMAS R. JORDAN
/S/ FRANK P.L. MINARD*** Trustee November 22, 1995
........................................
FRANK P.L. MINARD
/S/ CARL W. SCHAFER** Trustee November 22, 1995
........................................
CARL W. SCHAFER
</TABLE>
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* Signature affixed by Dianne E. O'Donnell pursuant to power of attorney dated
July 21, 1995 and filed herewith.
** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney dated
March 8, 1995 and filed herewith.
*** Signature affixed by Dianne E. O'Donnell pursuant to power of attorney dated
May 18, 1995 and filed herewith.
C-5
STATEMENT OF DIFFERENCES
The service mark symbol shall be expressed as .................. 'sm'
The dagger symbol shall be expressed as ......................... `D'
The copyright symbol shall be expressed as ..................... 'c'
The registered trademark symbol shall be expressed as ........... 'r'
Characters normally expressed as superior shall be preceded by .. 'pp'
The section symbol shall be expressed as ........................ 'ss'
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ----------------------------------------------------------------------------------------------- ----
<S> <C> <C>
1(a) -- Declaration of Trust`D'.....................................................................
1(b) -- Amendment to Declaration of Trust dated July 19, 1993`D'....................................
1(c) -- Amendment to Declaration of Trust dated August 30, 1993`D'..................................
1(d) -- Amendment to Declaration of Trust dated February 16, 1995...................................
5(a) -- Form of Investment Advisory and Administration Agreement....................................
5(b) -- Form of Sub-Investment Advisory Agreement...................................................
6 -- Form of Distribution Agreements.............................................................
9 -- Form of Transfer Agency Agreement...........................................................
10 -- Opinions and Consents of Willkie Farr and Gallagher and of Bingham,
Dana & Gould.................................................................................
11(a) -- Consent of Ernst & Young LLP................................................................
11(b) -- Consent of Deloitte & Touche LLP............................................................
15(a) -- Form of Shareholder Servicing and Distribution Plan`D'......................................
15(a)(a) -- Form of Amended Servicing and Distribution Plan.............................................
15(b) -- Form of Shareholder Servicing Agreement.....................................................
15(c) -- Form of Distribution Related Services Agreement.............................................
17 -- Financial Data Schedule (filed as exhibit no. 27 pursuant to EDGAR rules)...................
18 -- Form of 18f-3 Plan..........................................................................
19 -- Powers of Attorney
27(a)(b)(c) -- Financial Data Schedules....................................................................
</TABLE>
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`D' Refiled pursuant to rules under EDGAR
<PAGE>
<PAGE>
================================================================================
DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST III
60 Broad Street
New York, New York 10004-2350
Dated April 8, 1993
================================================================================
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DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST III
THE DECLARATION OF TRUST of Kidder, Peabody Investment Trust III is made
this 8th day of April, 1993 by the parties signing hereto, as trustees (such
persons and any successors to such persons and additional persons, so long as
they continue in or be admitted to office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the terms of this
Declaration of Trust and are then in office, are hereinafter referred to as the
'Trustees').
W I T N E S S E T H
WHEREAS, the Trustees desire to form a Massachusetts business trust
for the investment and reinvestment of funds contributed thereto; and
WHEREAS, it is proposed that the beneficial interest in the trust
assets shall be divided into transferable shares of beneficial interest which,
in the discretion of the Trustees, may be divided into separate series as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold IN
TRUST, all money and property contributed to the trust fund and manage and
dispose of the same for the benefit of the holders, from time to time, of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is 'Kidder,
Peabody Investment Trust III' (the 'Trust').
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) 'Administrator' means the party, other than the Trust, to the
contract described in Section 3.3 hereof.
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<PAGE>
(b) 'By-laws' means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.
(c) 'Class' means any class of Shares within a Series, which Class is
or has been established within such Series in accordance with the provisions of
Article V.
(d) The terms 'Commission' and 'Interested Person', have the meanings
given them in the 1940 Act. Except as otherwise defined by the Trustees in
conjunction with the establishment of any Series of Shares, the term 'vote of a
majority of the Shares outstanding and entitled to vote' shall have the same
meaning as the term 'vote of a majority of the outstanding voting securities'
given it in the 1940 Act.
(e) 'Custodian' means any Person other than the Trust who has custody
of any Trust Property as required by 'ss'17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
'ss'17(f).
(f) 'Declaration' means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to 'Declaration,' 'hereof,'
'herein,' and 'hereunder' shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(g) 'Distributor' means the party, other than the Trust, to the
contract described in Section 3.1 hereof.
(h) The '1940 Act' means the Investment Company Act of 1940, as
amended from time to time.
(i) 'Fund' or 'Funds' individually or collectively means the separate
Series of Shares of the Trust, together with the assets and liabilities assigned
thereto.
(j) 'His' shall include the feminine and neuter, as well as the
masculine, genders.
(k) 'Investment Adviser' means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(l) 'Person' means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(m) 'Series' individually or collectively means the separate Series of
the Trust as may be established and
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designated from time to time by the Trustees pursuant to Section 5.11 hereof.
The initial Series established and designated in accordance with Section 5.11
hereof is 'Multi-Style Equity Portfolio.' Unless the context otherwise requires,
the term 'Series' shall include Classes into which Shares of the Trust, or of a
Series, may be divided from time to time.
(n) 'Shareholder' means record owner of Outstanding Shares.
(o) 'Shares' means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series or of any Class within any Series (as
the context may require) which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. 'Outstanding' Shares means those
Shares shown from time to time on the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(p) 'Transfer Agent' means any Person other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(q) 'Trust' means Kidder, Peabody Investment Trust II.
(r) 'Trust Property' means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(s) The 'Trustees' means the persons who have signed this Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, and
reference herein to a Trustee or the Trustees shall refer to such persons in
their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the
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Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without The Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories , dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trus.ees may be exercised
without order of or resort to any court.
Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, securities,
including common and preferred stocks; warrants; bonds, debentures, bills, time
notes and all other evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of any state,
municipality or other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business organization however
established, and of any country, state, municipality or other political
subdivision, or any governmental or quasi-governmental agency or
instrumentality.
(c) To acquire (by purchase, subscription or otherwise) , to hold, to
trade in and deal in, to acquire any rights or options to purchase or sell, to
sell or otherwise
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<PAGE>
dispose of, to lend and to pledge any such securities, to enter into repurchase
agreements and forward foreign currency exchange contracts, to purchase and sell
options on securities or indices, futures contracts and options on futures
contracts of all descriptions and to engage in all types of hedging and risk
management transactions.
(d) To exercise all rights, powers and privileges of ownership or
interest in all securities and repurchase agreements included in the Trust
Property, including the right to vote thereon and otherwise act with respect
thereto and to do all acts for the preservation, protection, improvement and
enhancement in value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; and to endorse, guarantee,
or undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements
whereby the Trust may finance directly or indirectly any activity which is
primarily intended to result in sale of Shares.
(i) To adopt on behalf of the Trust, any Series or Class of any Series
thereof.
(j) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
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<PAGE>
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or arising out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers,
and, the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Leqal Title. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series of the
Trust, or in the name of any other Person as nominee, on such terms as the
trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may hereafter
become a Trustee. Upon the termination of the term of office, resignation,
removal or death of a Trustee he shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VI and VII and Section 5.11
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust, whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the
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<PAGE>
doing of such things, and the execution of such instruments either in the name
of this Trust or any Series of the Trust or the names of the Trustee, or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment. Subject to Section 5.11 hereof,
the Trustees shall have power to collect all property due to the Trust; to pay
all claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.7. Expenses. Subject to Section 5.11 hereof, the Trustees
shall have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of this
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided
herein or in the By-laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
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Section 2.9. Miscellaneous Powers. Subject to Section 5.11 hereof, the
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the Trust
or any Series thereof; (b) enter into joint ventures, partnerships and any other
combinations or associations; (c) remove Trustees or fill vacancies in or add to
their number, elect and remove such officers and appoint and terminate such
agents or employees as they consider appropriate, and appoint from their own
number, and terminate, any one or more committees which may exercise some or all
of the power and authority of the Trustees as the Trustees may determine; (d)
purchase, and pay for out of Trust Property or the Property of the appropriate
Series of the Trust, insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, administrators, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust or any Series thereof has dealings,
including the Investment Adviser, Administrator, Distributor, Transfer Agent and
selected dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust or any Series thereof and the method by which its
accounts shall be kept; and (i) adopt a seal for the Trust, but the absence of
such seal shall not impair the validity of any instrument executed on behalf of
the Trust.
Section 2.10. Principal Transactions. Except in transactions not
permitted by the 1940 Act or rules and regulations adopted by the Commission,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust or any Series thereof to, any
Trustee or officer of the Trust or any firm of which any such Trustee or officer
is a member acting as principal, or have any such dealings with the Investment
Adviser, Distributor or transfer agent or with any Interested Person of such
Person; and the Trust or a Series thereof may employ any such Person, or firm or
company in which such Person is an Interested Person, as broker, legal counsel,
registrar, transfer agent, dividend disbursing agent or custodian upon customary
terms.
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Section 2.11. Number of Trustees. The number of Trustees shall
initially be three (3), and thereafter shall be such number as shall be fixed
from time to time by a resolution adopted by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be less that
one (1) nor more than fifteen (15).
Section 2.12. Election and Term. Except for the Trustees named herein
or appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees
shall be elected by the Shareholders owning of record a plurality of the Shares
voting at a meeting of Shareholders on a date fixed by the Trustees. Except in
the event of resignation or removals pursuant to Section 2.13 hereof, each
Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders. In such event the
Trustees then in office will call a Shareholders' meeting for the election of
Trustees. Except for the foregoing circumstances, the Trustees shall continue to
hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal. Any Trustee may resign his
trust (without the need for any prior or subsequent accounting) by an instrument
in writing signed by him and delivered to the other Trustees and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any of the Trustees may be removed (provided the
aggregate number of Trustees after such removal shall not be less than one) with
cause, by the action of a majority of the remaining Trustees or by action of a
majority of the outstanding Shares of beneficial interest of the Trust at a
meeting duly called pursuant to Section 5.10 hereof by the Shareholders for such
purpose. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
Section 2.14. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of his death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an
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existing vacancy, including a vacancy existing by reason of an increase in the
number of Trustees, subject (but only after the Trust's initial registration
statement under the Securities Act of 1933 shall have become effective) to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms, of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall fewer than two (2) Trustees personally exercise the powers granted to
the Trustees under this Declaration except as herein otherwise expressly
provided.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
distribution contract or contracts providing for the sale of the Shares to net
the Trust or the applicable Series of the Trust not less than the amount
provided for in Section 7.1 of Article VII hereof, whereby the Trustees may
either agree to sell the Shares to the other party to the contract or appoint
such other party their sales agent for the Shares, and in either case on such
terms and conditions, if any, as may be prescribed in the By-laws, and such
further terms and conditions as the Trustees may in their discretion
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determine not inconsistent with the provisions of this Article III or of the
By-laws; and such contract may also provide for the repurchase of the Shares by
such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in
their discretion from time to time enter into an investment advisory contract
or, if the Trustees establish multiple Series, separate investment advisory
contracts with respect to each Series, whereby the other party to such contract
or contracts shall undertake to manage the investment operations of one or more
Series of the Trust and the compositions of the portfolios of the Trust or such
Series, including the purchase, retention and disposition of securities and
other assets, in accordance with the investment objectives, policies and
restrictions of the Trust or such Series and all upon such terms and conditions
as the Trustees may in their discretion determine, including the grant of
authority to such other party to determine what securities shall be purchased or
sold by the Trust or the applicable Series of the Trust and what portion of its
assets shall be uninvested, which authority shall include the power to make
changes in the investments of the Trust or any Series.
Section 3.3. Administration and Service Aqreements. The Trustees may
in their discretion from time to time enter into an administration contract or,
if the Trustees establish multiple Series or Classes separate administration
contracts with respect to each Series or Class, whereby the other party to such
contract shall undertake to manage the business affairs of the Trust or of a
Series of the Trust and furnish the Trust or a Series or Class thereof office
facilities, and shall be responsible for the ordinary clerical, bookkeeping and
recordkeeping services at such office facilities, and other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine. The Trustees may in their discretion also from time
to time enter into service agreements with respect to one or more Classes of
Shares whereby the other parties to such service agreements will provide
distribution services and support services upon such terms and conditions as the
Trustees in their discretion may determine.
Section 3.4. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation,
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trust, association or other organization or of or for any parent or
affiliate of any organization, with which a contract of the character
described in Sections 3.1, 3.2 or 3.3 above or for services as
Custodian, Transfer Agent or disbursing agent or for related services
may have been or may hereafter be made, or that any such organization,
or any parent or affiliate thereof, is a Shareholder of or has an
interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in
Sections 3.1, 3.2 or 3.3 above or for services as Custodian, Transfer
Agent or disbursing agent or for related services may have been or may
hereafter be made also has any one or more of such contracts with one
or more other partnerships, corporations, trusts, associations or
other organizations, or has other business or interests, shall not
affect the validity of any such contract or disqualify any
Shareholder, Trustee or office of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust or its Shareholders.
Section 3.5. Compliance with 1940 Act. Any contract entered into
pursuant to Sections 3.1 or 3.2 shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act (including any other applicable Act
of Congress hereafter enacted) with respect to its continuance in effect, its
termination and the method of authorization and approval of such contract or
renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust
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Property, or to the Property of one or more specific Series of the Trust if the
claim arises from the conduct of such Trustee, officer, employee or agent with
respect to only such Series, for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall not, on account
thereof, be held to any personal liability. The Trust shall indemnify and hold
each Shareholder harmless from and against all claims and liabilities, to which
such Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder out of the Trust Property for
all legal and other expenses reasonably incurred by him in connection with any
such claim or liability. The indemnification and reimbursement required by the
preceding sentence shall be made only out of assets of the one or more Series
whose Shares were held by said Shareholder at the time the act or event
occurred which gave rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section 4.1 shall not impair any
other right to which such Shareholder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions
and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust, or by one or more Series
thereof if the claim arises from his or her conduct with respect to
only such Series to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and
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against amounts paid or incurred by him in the settlement thereof;
(ii) the words 'claim,' 'action,' 'suit,' or 'proceeding' shall
apply to all claims, actions, suits or proceedings (civil, criminal,
or other, including appeals), actual or threatened; and the words
'liability' and 'expenses' shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof or the
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust or a
Series thereof;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been
a determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a majority
of the Non-interested Trustees acting on the matter (provided
that a majority of the Non-interested Trustees then in office act
on the matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or hereafter be
entitled, shall
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continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in paragraph (a) of
this Section 4.3 may be advanced by the Trust or a Series thereof prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Non-interested Trustees acting on the
matter (provided that a majority of the Non-interested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a 'Non-interested Trustee' is one who (i)
is not an 'Interested Person' of the Trust (including anyone who has been
exempted from being an 'Interested Person' by any rule, regulation or order of
the Commission), and (ii) is not involved in the claim, action, suit or
proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
Etc. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust or a Series thereof
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order
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of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee, officer or
employee of the Trust or a Series thereof shall, in the performance of his
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or a Series thereof, upon an opinion of
counsel, or upon reports made to the Trust or a Series thereof by any of its
officers or employees or by the Investment Adviser, the Administrator, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest, all
of one class, except as provided in Section 5.11 hereof, par value S.001 per
share.
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The number of shares of beneficial interest authorized hereunder is unlimited.
All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of, liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares of the Trust or, if the Shares be divided into
Series, of any Series of the Trust or of any Class thereof, into a greater or
lesser number without thereby changing the proportionate beneficial interests in
the Trust or in the Trust Property allocated or belonging to such Series or
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Class. Contributions to the Trust or Series thereof may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or
integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the
principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and regulations as to
their use.
Section 5.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
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Section 5.7. Notices. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
resold pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.12; (ii) with
respect to any investment advisory contract entered into pursuant to Section
3.2; (iii) with respect to termination of the Trust or a Series thereof as
provided in Section 8.2; (iv) with respect to any amendment of this Declaration
to the extent and as provided in Section 8.3; (v) with respect to any merger,
consolidation or sale of assets as provided in Section 8.4; (vi) with respect to
incorporation of the Trust to the extent and as provided in Section 8.5; (vii)
to the same extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or a Series or Class thereof or the Shareholders of any of them (provided,
however, that a Shareholder of a specific Series or Class shall not be entitled
to a derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); (viii) with respect to
any plan adopted pursuant to Rule 12b-1 (or any successor rule) under the 1940
Act, and related matters; and (ix) with respect to such additional matters
relating to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. If separate Series of Shares are established,
Shares shall be voted by individual Series on any matter submitted to a vote of
the Shareholders of the Trust except as provided in Section 5.11(f) hereof.
There shall be no cumulative voting in the election of Trustees. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration or the By-laws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders' votes
and meetings and related matters.
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Section 5.10. Meetings of Shareholders. Meetings of the Shareholders
of the Trust may be called at any time by the President, and shall be called by
the President or the Secretary at the request, in writing or by resolution, of a
majority of the Trustees, or at the written request of the holder or holders of
ten percent (10%) or more of the total number of Shares then issued and
outstanding of the Trust entitled to vote at such meeting. Meetings of the
Shareholders of any Series or Class of the Trust shall be called by the
President or the Secretary at the written request of the holder or holders of
ten percent (10%) or more of the total number of Shares then issued and
outstanding of such Series or Class of the Trust entitled to vote at such
meeting. Any such request shall state the purpose of the proposed meeting.
Section 5.11. Series Designation. The Trustees, in their discretion,
may authorize the division of Shares into two or more Series, and may divide the
Shares or the Shares of any Series into two or more Classes, and the different
Series or Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Series (and Classes
thereof) shall be fixed and determined, by the Trustees; provided, that all
Shares shall be identical except that there may be variations so fixed and
determined between different Series (and Classes thereof) as to investment
objective, purchase price, right of redemption or obligations to make payments,
special and relative rights as to dividends and on liquidation, reinvestment,
exchange conversion rights, and conditions under which the several Series shall
have separate voting rights, all of which are subject to the limitations set
forth below. All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series as the context may require.
The Shares of the Trust shall initially be divided into the following
Series, which is hereby established and designated:
Kidder, Peabody Growth Fund
As to the Series so established and designated, and as to any
additional Series the Trustees shall establish and designate, or if the Trustees
shall divide Shares of any Series into two or more Classes, the following
provisions shall be applicable:
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(a) The number of authorized Shares and the number of Shares of each
Series or Class that may be issued shall be unlimited. The Trustees may classify
or reclassify any unissued Shares or any Shares previously issued and reacquired
of any Series or Class thereof into one or more other Series (or Classes within
the same or one or more other Series) that may be established and designated
from time to time. The Trustees may hold as treasury shares (of the same or some
other Series or Class thereof), reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any Series or Class thereof
reacquired by the Trust at their discretion from time to time.
(b) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes. No holder of Shares of any
Series shall have any claim on or right to any assets allocated or belonging to
any other Series.
(c) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series or Class or Classes
thereof and all expenses, costs, charges and reserves attributable to that
Series or Class or Classes thereof, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series or Class or Classes thereof shall be
allocated and charged by the Trustees to and among any one or more of the Series
or Class or Classes thereof established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Shareholders
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of all Series or Classes for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine which
items are capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders. The assets of a particular Series
of the Trust shall, under no circumstances, be charged with liabilities
attributable to any other Series or Class of the Trust. All persons extending
credit to, or contracting with or having any claim against a particular Series
of the Trust shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
Shares of each Class of each Series shall bear the expenses of
payments under any agreements ('Special Class Agreements') entered into by or on
behalf of the Trust with organizations that provide for services to beneficial
owners of Shares of that Class. Expenses described in the preceding sentence are
sometimes referred to herein as 'Special Class Expenses'.
(d) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 7.2 of this Declaration with respect to any one or
more Series or Classes which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more Series or Classes. With
respect to any other Series or Class, dividends and distributions on Shares of a
particular Series or Class may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Series or Class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Series or Class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Series or Class (including, without
limitation the allocation to a Class of Special Class expenses relating to that
Class). All dividends and distributions on Shares of a particular Series or
Class shall be distributed pro rata to the Shareholders of that series or Class
in proportion to the number of Shares of that Series or Class held by such
Shareholders at the time of record established for the payment of such dividends
or distribution.
(e) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series or
Class shall be entitled to receive his pro rata share of distributions of income
and capital gains made with respect to such Series or Class. Upon redemption of
his Shares or indemnification for
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liabilities incurred by reason of his being or having been a Shareholder of a
Series, such Shareholder shall be paid solely out of the funds and property of
such Series of the Trust. Upon liquidation or termination of a Series or Class
of the Trust, Shareholders of such Series shall be entitled to receive a pro
rata share of the net assets of such Series or Class. A Shareholder of a
particular Series of the Trust shall not be entitled to participate in a
derivative or class action on behalf of any other Series or the Shareholders of
any other Series of the Trust.
(f) On each matter submitted to a vote of Shareholders, all Shares of
all Series and Classes shall vote as a single class; provided, however, that (a)
as to any matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act or is required by a separate agreement applicable to
such Series or Class, such requirements as to a separate vote by that Series or
Class shall apply, (b) to the extent that a matter referred to in (a) above,
affects more than one Class or Series and the interests of each such Class or
Series in the matter are identical, then, subject to (c) below, the Shares of
all such affected Classes or Series shall vote as a single class; (c) as to any
matter which does not affect the interests of a particular Series or Class, only
the holders of Shares of the one or more affected Series or Classes shall be
entitled to vote and (d) the provisions of the following paragraph shall apply.
On any matter that pertains to any Special Class Agreement or to any
Special Class Expenses with respect to any Series, which matter is submitted to
a vote of Shareholders, only Shares of the Class of such Series shall be
entitled to vote except that to the extent said matter affects Shares of another
Class or Series, such other Shares shall also be entitled to vote.
Except as otherwise provided in this Article V, the Trustees shall
have the power to determine the designations, preferences, privileges, payment
obligations, limitations and rights, including voting and dividend rights, of
each Class and Series of Shares.
The establishment and designation of any Series of Shares shall be
effective (i) upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights, payment obligations, if any, and preferences of such Series, (ii) upon
the execution of an instrument in writing by an officer of the Trust pursuant to
a vote of a majority of the Trustees, or (iii) as otherwise provided in such
instrument. Each instrument referred to in this section shall have the status of
an amendment to this Declaration.
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ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares of the Trust or any Series or Class
thereof at the price determined as hereinafter set forth, upon the appropriately
verified application of the record holder thereof (or upon such other form of
request as the Trustees may determine) at such office or agency as may be
designated from time to time for that purpose by the Trustees. The Trustees may
from time to time specify additional conditions, not inconsistent with the 1940
Act, regarding the redemption of Shares in the Trust's then effective prospectus
under the Securities Act of 1933.
Section 6.2. Price. Shares shall be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment of the redemption price of Shares of the
Trust or any Series or Class thereof shall be made in cash or in property to the
Shareholder at such time and in the manner, not inconsistent with the 1940 Act
or other applicable laws, as may be specified from time to time in the Trust's
then effective prospectus under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of
the determination of net asset value with respect to Shares of the Trust or of
any Series thereof, the rights of Shareholders (including those who shall have
applied for redemption pursuant to Section 6.1 hereof but who shall not yet have
received payment) to have Shares redeemed and paid for by the Trust or a Series
or Class thereof shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any
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certificates on deposit. The redemption price of Shares for which redemption
applications have not been revoked shall be the net asset value of such Shares
next determined as set forth in Section 7.1 after the termination of such
suspension, and payment shall be made within seven (7) days after the date upon
which the application was made plus the period after such application during
which the determination of net asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trustees, in
their sole discretion, may cause the Trust to redeem all of the Shares of one or
more Series held by any Shareholder if the value of such Shares held by such
Shareholder is less than the minimum amount established from time to time by the
Trustees.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify the Trust or any Series of the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust or any Series of the Trust sufficient to maintain
or bring the direct or indirect ownership of Shares or other securities of the
Trust or any Series of the Trust into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares or other securities
of the Trust or any Series of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust or any Series of the Trust in question
would result in such disqualification. The redemption shall be effected at the
redemption price and in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such
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information with respect to direct and indirect ownership of Shares or other
securities of the Trust as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to
Net Asset Value Formula. The Trust may also reduce the number of outstanding
Shares of the Trust or of any Series of the Trust pursuant to the provisions of
Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare
a suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or a Series
thereof of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Trust or a Series thereof fairly to determine the
value of its net assets, or (iv) during any other period when the Commission may
for the protection of Shareholders of the Trust by order permit suspension of
the right of redemption or postponement of the date of payment or redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in (ii), (iii), or (iv) exist. Such
suspension shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which in the absence of an official ruling by
the Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of the Trust or
of any Series or Class of the Trust may
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be determined on the basis of the amortized cost of such securities, by
appraisal of the securities owned by the Trust or any Series of the Trust, or by
such other method as shall be deemed to reflect the fair value thereof,
determined in good faith by or under the direction of the Trustees. From the
total value of said assets, there shall be deducted all indebtedness, interest,
taxes, payable or accrued, including estimated taxes on unrealized book profits,
expenses and management charges accrued to the appraisal date, net income
determined and declared as a distribution and all other items in the nature of
liabilities which shall be deemed appropriate, as incurred by or allocated to
any Series or Class of the Trust, including any Special Class Expenses allocable
to a Class. The resulting amount which shall represent the total net assets of
the Trust or Series or Class thereof shall be divided by the number of Shares of
the Trust or Series or Class thereof outstanding at the time and the quotient so
obtained shall be deemed to be the net asset value of the Shares of the Trust or
Series or Class thereof. The net asset value of the Shares shall be determined
at least once on each business day, as of the close of trading on the New York
Stock Exchange or as of such other time or times as the Trustees shall
determine. The power and duty to make the daily calculations may be delegated by
the Trustees to the Investment Adviser, the Administrator, the Custodian, the
Transfer Agent or such other Person as the Trustees by resolution may determine.
The Trustees may suspend the daily determination of net asset value to the
extent permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from
time to time distribute ratably among the Shareholders of the Trust or of a
Series thereof such proportion of the net profits, surplus (including paid-in
surplus), capital, or assets of the Trust or such Series held by the Trustees as
they may deem proper. Such distributions may be made in cash or property
(including without limitation any type of obligations of the Trust or Series or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders of the Trust or Series thereof additional Shares of the Trust or
Series thereof issuable hereunder in such manner, at such times, and on such
terms as the Trustees may deem proper. Such distributions may be among the
Shareholders of the Trust or Series thereof at the time of declaring a
distribution or among the Shareholders of the Trust or Series thereof at such
other date or time or dates or times as the Trustees shall determine. The
Trustees may in their discretion determine that, solely for the purposes of such
distributions, Outstanding Shares shall exclude Shares for which orders have
been placed subsequent to a specified time on the date the distribution is
necessary to pay the debts or expenses of the
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Trust or a Series thereof or Class thereof or to meet obligations of the Trust
or a Series or Class thereof, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of the
business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate. The Trustees may in their discretion determine that an
account administration fee or other similar charge may be deducted directly from
the income and other distributions paid on Shares to a Shareholder's account in
each Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or a Series or Class thereof to avoid or reduce liability for
taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net income
of the Series of the Trust shall be determined in such manner as the Trustees
shall provide by resolution. Expenses of the Trust or of a Series thereof,
including the advisory or management fee, shall be accrued each day. Each Class
shall bear only expenses relating to its Shares and an allocable share of Series
expenses in accordance with such policies as may be established by the Trustees
from time to time and as are not inconsistent with the provisions of this
Declaration of Trust or of any applicable document filed by the Trust with the
Commission or of the Internal Revenue Code of 1986, as amended. Such net income
may be determined by or under the direction of the Trustees as of the close of
trading on the New York Stock Exchange on each day on which such market is open
or as of such other time or times as the Trustees shall determine, and, except
as provided herein, all the net income of any Series or Class of the Trust, as
so determined, may be declared as a dividend on the Outstanding Shares of such
Series. If, for any reason, the net income of any Series of the Trust determined
at any time is a negative amount, the Trustees shall have the power with respect
to such Series (i) to offset each Shareholder's pro rata share of such negative
amount from the accrued dividend account of such Shareholder, or (ii) to reduce
the number of Outstanding Shares of such Series by reducing the number of Shares
in the account of such Shareholder by that number of full and fractional Shares
which represents the amount of such excess negative net income, or (iii) to
cause to be recorded on the
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books of the Trust an asset account in the amount of such negative net income,
which account may be reduced by the amount, provided that the same shall
thereupon become the property of the Trust with respect to such Series and shall
not be paid to any Shareholder, of dividends declared thereafter upon the
Outstanding Shares of such Series on the day such negative net income is
experienced, until such asset account is reduced to zero; or (iv) to combine the
methods described in clauses (i) and (ii) and (iii) of this sentence, in order
to cause the net asset value per Share of such Series to remain at a constant
amount per Outstanding Share immediately after each such determination and
declaration. The Trustees shall also have the power to fail to declare a
dividend out of net income for the purpose of causing the net asset value per
Share to be increased to a constant amount. The Trustees shall have full
discretion to determine whether any cash or property received shall be treated
as income or as principal and whether any item of expense shall be charged to
the income or the principal account, and their determination made in good faith
shall be conclusive upon the Shareholders. In the case of stock dividends
received, the Trustees shall have full discretion to determine, in the light of
the particular circumstances, how much if any of the value thereof shall be
treated as income, the balance, if any, to be treated as principal. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the net asset value per Share of a Series at a
constant amount.
Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VII, but subject to Section 5.11
hereof, the Trustees may prescribe, in their absolute discretion, such other
bases and times for determining the per Share net asset value of the Shares of
the Trust or a Series thereof or net income of the Trust or a Series thereof, or
the declaration and payment of dividends and distributions as they may deem
necessary or desirable. Without limiting the generality of the foregoing, the
Trustees may establish several Series of Shares in accordance with Section 5.11,
and declare dividends thereon in accordance with Section 5.11(d).
ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A SERIES
OR A CLASS; AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article VIII.
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Section 8.2. Termination of the Trust, a Series or a Class. The Trust
or any Series or Class thereof may be terminated by (i) the affirmative vote of
the holders of not less than a majority of the Shares outstanding and entitled
to vote at any meeting of Shareholders of the Trust or the appropriate Series or
Class thereof or (ii) an instrument in writing signed by a majority of the
Trustees, stating that a majority of the Trustees has determined that the
continuation of the Trust or a Series or Class thereof is not in the best
interest of such Series or Class, the Trust or their respective shareholders as
a result of such factors or events adversely affecting the ability of such
Series or the Trust to conduct its business and operations in an economically
viable manner. Such factors and events may include the inability of a Series or
Class or the Trust to maintain its assets at an appropriate size, changes in
laws or regulations governing the Series or Class or the Trust or affecting
assets of the type in which such Series or Class or the Trust invests or
economic developments or trends having a significant adverse impact on the
business or operations of such Series or the Trust. Upon the termination of the
Trust or the Series,
(i) The Trust or the Series shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or the Series and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall have
been wound up, including the power to fulfill or discharge the
contracts of the Trust or the Series, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any
part of the remaining Trust Property or Trust Property allocated or
belonging to such Series to one or more persons at public or private
sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assessment, exchange,
transfer or other disposition of all or substantially all the Trust
Property or Trust Property allocated or belonging to such Series shall
require Shareholder approval in accordance with Section 8.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they
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deem necessary for their protection, the Trustees may distribute the
remaining Trust Property or the remaining property of the terminated
Series, in cash or in kind or partly each, among the Shareholders of
the Trust or the Series according to their respective rights.
(b) After termination of the Trust or the Series and distribution to
the Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust and file with the Office of the
Secretary of The Commonwealth of Massachusetts an instrument in writing setting
forth the fact of such termination, and the Trustees shall thereupon be
discharged from all further liabilities and duties with respect to the Trust or
the terminated Series, and the rights and interests of all Shareholders of the
Trust or the terminated Series shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended
by a vote of the holders of a majority of the Shares outstanding and entitled to
vote or by any instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of a majority of the Shares
outstanding and entitled to vote. The Trustees may amend this Declaration
without the vote or consent of Shareholders if they deem it necessary to conform
this Declaration to the requirements of applicable federal or state laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code, but the Trustees shall not be liable for failing
so to do. The Trustees may also amend this Declaration without the vote or
consent of Shareholders if they deem it necessary or desirable to change the
name of the Trust or to make any other changes in the Declaration which do not
materially affect the rights of Shareholders hereunder.
(b) No amendment may be made under this Section 8.3 which would change
any rights with respect to any Shares of the Trust or Series thereof by reducing
the amount payable thereon upon liquidation of the Trust or Series thereof or by
diminishing or eliminating any voting rights pertaining thereto, except with the
vote or consent of the holders of a majority of the Shares of the Trust or such
Series outstanding and entitled to vote. Nothing contained in this Declaration
shall permit the amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, officers, employees and agents
of the Trust or to permit assessments upon Shareholders.
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(c) A certificate signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of Trust.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or
any Series thereof may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property or Trust Property allocated or belonging
to such Series, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of a majority of the
Shares of the Trust or such Series outstanding and entitled to vote, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of a majority of the Shares of the Trust or such Series, provided,
however, that any such merger, consolidation, sale, lease or exchange shall be
deemed for all purposes to have been accomplished under and pursuant to
Massachusetts law.
Section 8.5. Incorporation. With the approval of the holders of a
majority of the Shares of the Trust or a Series thereof outstanding and entitled
to vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the Trust Property allocated or belonging to such Series or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property or the Trust
Property allocated or belonging to such Series to any such corporation, trust,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust or such Series holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more
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corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Execution and Filing. This Declaration and any amendment
hereto shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its execution. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and filed with the Secretary of the Commonwealth of
Massachusetts. A restated Declaration shall, upon execution, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto.
Section 10.2. Governing Law. This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said State.
Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
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Section 10.4. Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying (a) the number or identity of Trustees or Shareholders,
(b) the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Shareholders, (d) the fact
that the number of Trustees or Shareholders present at any meeting or executing
any written instrument satisfies the requirements of this Declaration, (e) the
form of any By-laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
Section 10.6. The Trustees shall maintain a resident agent in The
Commonwealth of Massachusetts which agent shall initially be CT Corporation
System, 2 Oliver Street, Boston Massachusetts 02109. The Trustees may designate
from time to time a successor resident in The Commonwealth of Massachusetts.
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IN WITNESS WHEREOF, the undersigned have hereunto signed this
instrument for themselves and their assigns as of the day and year first above
written.
/s/ Lawrence H. Kaplan
-----------------------------
Lawrence H. Kaplan
/s/ Robert R. Jones
-----------------------------
Robert R. Jones
/s/ Jeremiah J. Bresnahan
-----------------------------
Jeremiah J. Bresnahan
<PAGE>
<PAGE>
Exhibit 1(b)
CERTIFICATE OF AMENDMENT
TO
DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST III
The undersigned, constituting a majority of the Trustees of Kidder, Peabody
Investment Trust II (the 'Trust'), a Massachusetts business trust, hereby
certify pursuant to Section 8.3 of Article VIII of the Declaration of Trust of
KIDDER, PEABODY INVESTMENT TRUST III, that the Trustees of the Trust have duly
adopted the following amendment to the Declaration of Trust of the Trust dated
the 8th day of April, 1993.
VOTED: That the Declaration of Trust dated April 8, 1993, be and it hereby is
amended to change the name of the Series of the Trust previously
designated in Section 5.11 of the Declaration of Trust from KIDDER,
PEABODY GROWTH FUND to KIDDER, PEABODY SMALL CAP GROWTH FUND.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this Certificate of Amendment in duplicate
and have caused a duplicate original to be lodged among the records of the Trust
as required by Article VIII of the Declaration of Trust, as of the 19th day of
July, 1993.
Dated: July 19, 1993
ROBERT B. JONES LAWRENCE H. KAPLAN
...................................... ......................................
Robert B. Jones Lawrence H. Kaplan
......................................
Jeremiah J. Bresnahan
<PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT
TO
DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST III
The undersigned, constituting a majority of the Trustees of Kidder, Peabody
Investment Trust III (the 'Trust'), a Massachusetts business trust, hereby
certify pursuant to Section 8.3 of Article VIII of the Declaration of Trust of
KIDDER, PEABODY INVESTMENT TRUST III, that the Trustees of the Trust have duly
adopted the following amendment to the Declaration of Trust of the Trust dated
the 8th day of April, 1993 (the 'Declaration').
VOTED: that the Declaration be amended to change the name of the Series of
the Trust previously designated in Section 5.11 of the Declaration
from KIDDER, PEABODY SMALL CAP GROWTH FUND to KIDDER, PEABODY SMALL
CAP EQUITY FUND.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this Certificate of Amendment in duplicate
and have caused a duplicate original to be lodged among the records of the Trust
as required by Article VIII of the Declaration of Trust, as of the 30th day of
August, 1993.
DAVID J. BEAUBIEN
........................................ .....................................
David J. Beaubien Carl W. Schafer
........................................ .....................................
Thomas R. Jordan George V. Grune, Jr.
........................................ .....................................
William W. Hewitt, Jr. Russell J. Johnson
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<PAGE>
EXHIBIT 1(d)
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
KIDDER, PEABODY INVESTMENT TRUST III
The undersigned, being a Trustee of Kidder, Peabody Investment Trust III
(the 'Trust'), a Massachusetts business trust, hereby certifies pursuant to
Section 8.3 of Article VIII and Section 10.1 of Article X of the Declaration of
Trust of KIDDER, PEABODY INVESTMENT TRUST III, that the Trustees of the Trust
have duly adopted at the Board of Trustees meeting held on December 14, 1994
(adjourned to December 16, 1994) and ratified at the Board of Trustees meeting
held on January 25, 1995 the following amendment to the Declaration of Trust of
the Trust dated the 8th day of April, 1993, in the manner provided in such
Declaration of Trust.
VOTED: that the Declaration of Trust dated April 8, 1993 be, and it hereby is,
amended to change the name of the Trust, from 'Kidder, Peabody Investment
Trust III' to 'Mitchell Hutchins/Kidder, Peabody Investment Trust III' in
the following manner:
Section 1.1. Name. The name of the trust created hereby is the
'Mitchell Hutchins/Kidder, Peabody Investment Trust III'.
Section 1.2(q) of Article I of the Declaration of Trust is hereby
amended to read as follows:
(q) 'Trust' means 'Mitchell Hutchins/Kidder, Peabody Investment Trust
III'.
and that the name of the series thereof, previously designated by the Board
of Trustees of the Trust be changed as follows:
from: 'Kidder, Peabody Small Cap Equity Fund'
to: 'Mitchell Hutchins/Kidder, Peabody Small Cap Growth Fund'.
IN WITNESS WHEREOF, the undersigned, being a Trustee of the Trust, has
signed this Certificate of Amendment in duplicate, as of the 16th day of
February, 1995.
THOMAS R. JORDAN
.....................................
Trustee
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Exhibit 5(a)
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of April 13, 1995 between MITCHELL HUTCHINS/ KIDDER,
PEABODY INVESTMENT TRUST III, a Massachusetts business trust ("Fund") and
MITCHELL HUTCHINS ASSET MANAGEMENT INC. ("Manager"), a Delaware corporation
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended ("1934 Act"), and as an investment adviser under the Investment Advisers
Act of 1940, as amended.
WHEREAS the Fund is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
intends to offer for public sale distinct shares of beneficial interest
("Shares"), which may be offered in separate and distinct classes of shares,
each corresponding to a distinct portfolio ("Series"); and
WHEREAS the Fund desires to retain Manager as investment adviser and
administrator to furnish certain administrative, investment advisory and
portfolio management services to the Fund and each Series as now exists and as
hereafter may be established, and Manager is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Manager as investment adviser
and administrator of the Fund and each Series for the period and on the terms
set forth in this Contract. Manager accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
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2. Duties as Investment Adviser.
(a) Subject to the supervision of the Fund's Board of Trustees
("Board"), Manager will provide a continuous investment program for each Series,
including investment research and management with respect to all securities and
investments and cash equivalents in each Series. Manager will determine from
time to time what securities and other investments will be purchased, retained
or sold by each Series.
(b) Manager agrees that in placing orders with brokers, it will attempt
to obtain the best net result in terms of price and execution; provided that, on
behalf of any Series, Manager may, in its discretion, use brokers who provide
the Series with research, analysis, advice and similar services to execute
portfolio transactions on behalf of the Series, and Manager may pay to those
brokers in return for brokerage and research services a higher commission than
may be charged by other brokers, subject to Manager's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of Manager to such Series and its other clients
and that the total commissions paid by such Series will be reasonable in
relation to the benefits to the Series over the long term. In no instance will
portfolio securities be purchased from or sold to Manager, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder, or any applicable exemptive orders. Whenever
Manager simultaneously places orders to purchase or sell the same security on
behalf of a Series and one or more other accounts advised by Manager, such
orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable to each account. The Fund recognizes that in
some cases this procedure may adversely affect the results obtained for the
Series.
(c) Manager will oversee the maintenance of all books and records with
respect to the securities transactions of each Series, and will furnish the
Board with such periodic and special reports as the Board reasonably may
request. In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Manager hereby agrees that all records which it maintains for the Fund are the
property of the Fund, agrees to preserve for the periods
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prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Fund and which are required to be maintained by Rule 31a-1 under the 1940
Act and further agrees to surrender promptly to the Fund any records which it
maintains for the Fund upon request by the Fund.
(d) Manager will oversee the computation of the net asset value and the
net income of each Series as described in the currently effective registration
statement of the Fund under the Securities Act of 1933, as amended, and the 1940
Act and any supplements thereto ("Registration Statement") or as more frequently
requested by the Board.
(e) The Fund hereby authorizes Manager and any entity or person
associated with Manager which is a member of a national securities exchange to
effect any transaction on such exchange for the account of any Series, which
transaction is permitted by Section 11(a) of the 1934 Act, and the Fund hereby
consents to the retention of compensation by Manager or any person or entity
associated with Manager for such transaction.
3. Duties as Administrator. Manager will administer the affairs of the
Fund and each Series subject to the supervision of the Board and the following
understandings:
(a) Manager will supervise all aspects of the operations of the Fund
and each Series, including oversight of transfer agency, custodial and
accounting services, except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Fund and
each Series.
(b) Manager will provide the Fund and each Series with such corporate,
administrative and clerical personnel (including officers of the Fund) and
services as are reasonably deemed necessary or advisable by the Board, including
the maintenance of certain books and records of the Fund and each Series.
(c) Manager will arrange, but not pay, for the periodic preparation,
updating, filing and dissemination (as applicable) of the Fund's Registration
Statement, proxy material, tax returns and
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required reports to each Series' shareholders and the Securities and Exchange
Commission and other appropriate federal or state regulatory authorities.
(d) Manager will provide the Fund and each Series with, or obtain for
it, adequate office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationery supplies and similar
items.
(e) Manager will provide the Board on a regular basis with economic and
investment analyses and reports and make available to the Board upon request any
economic, statistical and investment services normally available to
institutional or other customers of Manager.
4. Further Duties. In all matters relating to the performance of this
Contract, Manager will act in conformity with the Declaration of Trust, By-Laws
and currently effective Registration Statement of the Fund, as delivered to
Manager and upon which it shall be entitled to rely, and with the instructions
and directions of the Board, and will comply with the requirements of the 1940
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
5. Delegation of Manager's Duties as Investment Adviser and
Administrator. With respect to any or all Series, Manager may enter into one or
more contracts ("Sub-Advisory or Sub- Administration Contract") with a
sub-adviser or sub-administrator in which Manager delegates to such sub-adviser
or sub-administrator any or all of its duties specified in Paragraphs 2 and 3 of
this Contract, provided that each Sub-Advisory or Sub-Administration Contract
imposes on the sub-adviser or sub-administrator bound thereby all the duties and
conditions to which Manager is subject by Paragraphs 2, 3 and 4 of this
Contract, and further provided that each Sub-Advisory or Sub-Administration
Contract meets all requirements of the 1940 Act and rules thereunder.
6. Services Not Exclusive. The services furnished by Manager hereunder
are not to be deemed exclusive and Manager shall be free to furnish similar
services to others so long as its services under this Contract are not impaired
thereby. Nothing in
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this Contract shall limit or restrict the right of any director, officer or
employee of Manager, who may also be a Trustee, officer or employee of the Fund,
to engage in any other business or to devote his or her time and attention in
part to the management or other aspects of any other business, whether of a
similar nature or a dissimilar nature.
7. Expenses.
(a) During the term of this Contract, each Series will bear all
expenses, not specifically assumed by Manager, incurred in its operations and
the offering of its shares.
(b) Expenses borne by each Series will include but not be limited to
the following (or each Series' proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Series and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Manager under this Contract; (iii)
expenses of organizing the Fund and the Series; (iv) filing fees and expenses
relating to the registrations and qualification of the Series' shares and the
Fund under federal and/or state securities laws and maintaining such
registration and qualifications; (v) fees and salaries payable to the Fund's
Trustees and officers who are not interested persons of the Fund or Manager;
(vi) all expenses incurred in connection with the Trustees' services, including
travel expenses in the case of Trustees who are not interested persons of the
Fund or Manager; (vii) taxes (including any income or franchise taxes) and
governmental fees; (viii) costs of any liability, uncollectible items of deposit
and other insurance and fidelity bonds; (ix) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Fund or Series for violation of any law and any indemnification
relating thereto; (x) legal, accounting and auditing expenses, including legal
fees of special counsel for those Trustees of the Fund who are not interested
persons of the Fund; (xi) charges of custodians, transfer agents and other
agents; (xii) costs of preparing share certificates; (xiii) expenses of setting
in type and printing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders; (xiv) costs of mailing prospectuses and
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supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials to existing shareholders; (xv) any
extraordinary expenses (including fees and disbursements of counsel, costs of
actions, suits or proceedings to which the Fund is a party and the expenses the
Fund may incur as a result of its legal obligation to provide indemnification to
its officers, Trustees, agents and shareholders or to Manager) incurred by the
Fund or Series; (xvi) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (xvii) cost of
mailing and tabulating proxies and costs of meetings of shareholders, the Board
and any committees thereof; (xviii) the cost of investment company literature
and other publications provided by the Fund to its Trustees and officers; (xix)
costs of mailing, stationery and communications equipment; (xx) expenses
incident to any dividend, withdrawal or redemption options; (xxi) charges and
expenses of any outside pricing service used to value portfolio securities and
(xxii) interest on borrowings of the Fund.
(c) Manager will assume the cost of any compensation for services
provided to the Fund received by the officers of the Fund and by those Trustees
who are interested persons of the Fund.
(d) The payment or assumption by Manager of any expenses of the Fund or
a Series that Manager is not required by this Contract to pay or assume shall
not obligate Manager to pay or assume the same or any similar expense of the
Fund or a Series on any subsequent occasion.
8. Compensation.
(a) For the services provided and the expenses assumed pursuant to this
Contract with respect to the Mitchell Hutchins/Kidder, Peabody Small Cap Growth
Fund, the Fund will pay to Manager a fee, computed daily and paid monthly, at an
annual rate of 1.00% of such Series' average daily net assets up to $25 million;
and .90% of such Series' average daily net assets over $25 million.
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any Series hereafter established, the Trust will pay to
Manager from the assets of such
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Series a fee in an amount to be agreed upon in a written fee agreement ("Fee
Agreement") executed by the Fund on behalf of such Series and by Manager. All
such Fee Agreements shall provide that they are subject to all terms and
conditions of this Contract.
(c) The fee shall be computed daily and paid monthly to Manager on or
before the first business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective day to the end of the month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. Limitation of Liability of Manager. Manager and its delegates,
including any Sub-Adviser or Sub-Administrator to the Fund, shall not be liable
for any error of judgment or mistake of law or for any loss suffered by any
Series, the Fund or any of its shareholders, in connection with the matters to
which this Contract relates, except to the extent that such a loss results from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Contract. Any person, even though also an officer,
director, employee, or agent of Manager, who may be or become an officer,
Trustee, employee or agent of the Fund shall be deemed, when rendering services
to any Series or the Fund or acting with respect to any business of such Series
or the Fund, to be rendering such service to or acting solely for the Series or
the Fund and not as an officer, director, employee, or agent or one under the
control or direction of Manager even though paid by it.
10. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove
written provided that, with respect to any Series, this Contract shall not take
effect unless it has first been approved (i) by a vote of a majority of those
Trustees of the Fund who are not parties to this Contract or interested persons
of any such party cast in person at a meeting called for the purpose of voting
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on such approval, and (ii) by vote of a majority of that Series' outstanding
voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those Trustees of the Fund who are
not parties to this Contract or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of a
Series with respect to that Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Manager or by Manager
at any time, without the payment of any penalty, on sixty days' written notice
to the Fund. Termination of this Contract with respect to any given Series shall
in no way affect the continued validity of this Contract or the performance
thereunder with respect to any other Series. This Contract will automatically
terminate in the event of its assignment.
11. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no material amendment of this Contract
as to any given Series shall be effective until approved by vote of a majority
of such Series' outstanding voting securities.
12. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act, provided, however,
that Section 13 below 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
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conflict with the applicable provisions of the 1940 Act, the latter shall
control.
13. Limitation of Liability of the Trustees and Shareholders of the
Trust. No Trustee, shareholder, officer, employee or agent of any Series shall
be liable for any obligations of any Series or the Fund under this Contract, and
Manager agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Fund in settlement of such
right or claim, and not to such Trustee, shareholder, officer, employee or
agent. The Fund represents that a copy of its Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and the Boston City
Clerk.
14. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities", "affiliated person",
"interested person", "assignment", "broker", "investment adviser", "national
securities exchange", "net assets", "prospectus", "sale", "sell" and "security"
shall have the same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the Securities and Exchange Commission by any
rule, regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Contract is affected by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
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Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Jennifer Farrell By Margo Alexander, President
- ---------------------------- ------------------------------------
Attest: MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST III
Jennifer Farrell By Dianne E. O'Donnell
- --------------------------- ------------------------------------
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SUB-INVESTMENT ADVISORY AGREEMENT
April 13, 1995
George D. Bjurman & Associates
10100 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90067
Dear Sirs:
Mitchell Hutchins/Kidder, Peabody Investment Trust III,
a business trust formed under the laws of the Commonwealth of
Massachusetts (the "Trust") and Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), the Trust's manager,
confirm their agreement with George D. Bjurman & Associates (the
"Adviser"), with respect to the Adviser's serving as the
investment adviser of Mitchell Hutchins/Kidder, Peabody Small Cap
Growth Fund (the "Fund"), a series of the Trust, as follows:
Section 1. Services as Investment Adviser.
(a) The Trust anticipates that the Fund will employ
its capital by investing and reinvesting in investments of the
type specified in the Trust's Declaration of Trust dated April 8,
1993 as amended from time to time (the "Declaration of Trust"),
and in the current Prospectus and Statement of Additional
Information describing the Fund as from time to time in effect,
and in the manner and to the extent approved by the Board of
Trustees of the Trust. Copies of the current Prospectus and
Statement of Additional Information describing the Fund have been
submitted to the Adviser and Mitchell Hutchins.
(b) Under an agreement dated as of April 13, 1995
between the Trust and Mitchell Hutchins relating to the Fund (the
"Management Agreement"), Mitchell Hutchins serves as the Fund's
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manager and has the responsibility of selecting and compensating
an investment adviser to the Fund. Acting pursuant to the
authority provided in the Management Agreement, Mitchell Hutchins
selects the Adviser to serve as the Fund's investment adviser for
the compensation set out in Section 4 of this Agreement.
(c) Subject to the supervision and direction of the
Trust's Board of Trustees, and subject to review by Mitchell
Hutchins, the Adviser, as the Fund's investment adviser, will
manage the Fund's portfolio in accordance with the investment
objective and stated policies of the Fund, will make investment
decisions for the Fund and will transmit substantially all
purchase and sale orders for the Fund's portfolio transactions to
Mitchell Hutchins, which will place such transactions for
execution with brokers or dealers selected by Mitchell Hutchins.
It is understood that a limited portion of the Fund's portfolio
transactions may be placed with brokers or dealers selected by
the Adviser, subject to the supervision of the Board of Trustees
and review by Mitchell Hutchins.
(d) The Adviser will, at its own expense, maintain
sufficient staff, and employ or retain sufficient personnel and
consult with any other persons that it determines may be
necessary or useful to the performance of its obligations under
this Agreement.
Section 2. Portfolio Transactions.
Unless otherwise set forth in the current Prospectus
describing the Fund or directed by Mitchell Hutchins or the
Trust, the adviser will, in selecting brokers or dealers to
effect transactions on behalf of the Fund, give primary
consideration to securing the most favorable price and efficient
execution. In so doing, the Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any transaction to which the Fund is a party or other
transactions to which other clients of the Adviser may be a
party. The Trust recognizes the desirability of the Adviser's
having access to supplemental investment and market research and
security and economic analyses provided by brokers and that those
brokers may execute brokerage transactions at a higher cost to
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the Fund than would be the case if the transactions were executed
on the basis of the most favorable price and efficient execution.
The Trust, thus, authorizes the Adviser, to the extent permitted
by applicable law and regulations, to pay higher brokerage
commissions for the purchase and sale of securities for the Fund
to brokers who provide supplemental investment and market
research and security and economic analyses, subject to review by
the Trustees of the Trust and of Mitchell Hutchins from time to
time with respect to the extent and continuation of this
practice. The Trust understands that the services provided by
those brokers may be useful to the Adviser in connection with its
services to other clients.
Section 3. Costs and Expenses.
The Adviser will bear the cost of rendering the
services it is obligated to provide under this Agreement and
will, at its own expense, pay the salaries of all officers and
employees who are employed by both it and the Trust. The Adviser
will provide the Fund with investment officers who are authorized
by the Trust's Board of Trustees to determine purchases and sales
of securities on behalf of the Fund and will employ a
professional staff of portfolio managers who draw upon a variety
of sources for research information for the Fund. Other expenses
to be incurred in the operation of the Fund and not specifically
borne by Mitchell Hutchins or the Adviser will be borne by the
Fund, including: Mitchell Hutchins' fees for services rendered
under the Management Agreement; shareholder servicing and
distribution fees paid to Mitchell Hutchins under the terms of
the Trust's plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act");
charges and expenses of any registrar, custodian, transfer and
dividend disbursing agent providing services to the Trust in
connection with the Fund; brokerage fees and commissions; taxes;
engraving and printing of the Fund's share certificates, if any;
registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing,
including typesetting, and distributing of prospectuses
describing the Fund and supplements to those prospectuses to
regulatory authorities and the Fund's shareholders; all expenses
incurred in conducting meetings of the Fund's shareholders and
meetings of the Trust's Board of Trustees relating to the Fund;
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all expenses incurred in preparing, printing and mailing proxy
statements and reports to shareholders of the Fund; fees and
travel expenses of members of the Trust's Board of Trustees or
members of any advisory board or committee who are not employees
of Mitchell Hutchins, the Adviser, or any of their affiliates;
all expenses incident to any dividend, withdrawal or redemption
options provided to Fund shareholders; charges and expenses of
any outside service used for pricing the Fund's portfolio
securities and calculating the net asset value of the Fund's
shares; fees and expenses of legal counsel, including counsel to
the members of the Trust's Board of Trustees who are not
interested persons of the Fund, Mitchell Hutchins or the Adviser,
and independent auditors; membership dues of industry
associations; interest on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and
Trustees) of the Trust that inure to their benefit; extraordinary
expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Fund's operations.
Section 4. Compensation.
In consideration of services rendered pursuant to this
Agreement, Mitchell Hutchins will pay the Adviser on the Trust's
first business day of each month a fee that is accrued daily at
the annual rate, for the previous month, of .50% of the value of
the Fund's average daily net assets on assets up to but not
including $25 million and .40% thereafter. The fee for the
period from the date the Trust's registration statement
describing the Fund (the "Registration Statement") is declared
effective by the Securities and Exchange Commission (the
"Commission") to the end of the month during which the
Registration Statement is declared effective by the Commission
will be prorated according to the proportion that the period
bears to the full monthly period. Upon any termination of this
Agreement before the end of a month, the fee for the portion of
the month in which this Agreement is in effect will be prorated
according to the proportion that the portion bears to the full
monthly period and will be payable upon the date of termination
of this Agreement. For the purpose of determining fees payable
to the Adviser under this Agreement, the value of the Fund's net
assets will be computed in the manner described in the Trust's
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current Prospectus and/or Statement of Additional Information
describing the Fund.
Section 5. Services to Other Companies or Accounts.
(a) The Trust and Mitchell Hutchins understand and
acknowledge that the Adviser now acts and will continue to act as
investment manager or adviser to various fiduciary or other
managed accounts and the Trust and Mitchell Hutchins have no
objection to the Adviser's so acting, so long as that when the
Fund and any account served by the Adviser are prepared to invest
in, or desire to dispose of the same security, available
investments or opportunities for sales will be allocated in a
manner believed by the Adviser to be equitable to the Fund and
the account. The Trust and Mitchell Hutchins recognize that, in
some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or
disposed of by the Fund.
(b) The Trust and Mitchell Hutchins understand and
acknowledge that the persons employed by the Adviser to assist in
the performance of its duties under this Agreement will not
devote their full time to that service; nothing contained in this
Agreement will be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote
time and attention to other businesses or to render services of
whatever kind or nature.
Section 6. Continuance and Termination of the
Agreement.
(a) This Agreement will become effective as of
April 13, 1995, and will continue for an initial two-year term
and will continue thereafter so long as the continuance is
specifically approved at least annually (a) by the Trustees of
the Trust or (b) by a vote of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act,
provided that in either event the continuance is also approved by
a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting on
the approval.
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(b) This Agreement is terminable without penalty, by
the Trust on not more than 60 nor less than 30 days' notice to
Mitchell Hutchins and the Adviser, by vote of holders of a
majority of the Fund's outstanding voting securities, as defined
in the 1940 Act, or by Mitchell Hutchins or the Adviser on not
more than 60 nor less than 30 days' notice to the Trust.
(c) This Agreement will terminate automatically in the
event of its assignment (as defined in the 1940 Act or in rules
adopted under the 1940 Act).
Section 7. Filing of Declaration of Trust.
The Trust represents that a copy of the Declaration of
Trust is on file with the Secretary of the Commonwealth of
Massachusetts and with the Boston City Clerk.
Section 8. Limitation of Liability.
(a) The Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust
in connection with the matters to which this Agreement relates,
except for a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance
of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an
officer, director, employee or agent of the Adviser, who may be
or become an officer, Trustee, employee or agent of the Trust,
will be deemed, when rendering services to the Trust or acting on
any business of the Trust, to be rendering services to, or acting
solely for, the Trust and not as an officer, director, employee
or agent, or one under the control or direction of, the Adviser
even though paid by the Adviser.
(b) The Trust, Mitchell Hutchins and the Adviser agree
that the obligations of the Trust under this Agreement will not
be binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future,
of the Trust, individually, but are binding only upon the assets
and property of the Trust, as provided in the Declaration of
Trust. The execution and delivery of this Agreement have been
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authorized by the Trustees of the Trust, and signed by an
authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by
the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them
personally, but will bind only the trust property of the Trust as
provided in the Declaration of Trust. No series of the Trust,
including the Fund, will be liable for any claims against any
other series.
Section 9. Dates.
This Agreement has been executed by the Trust and
Mitchell Hutchins as of April 13, 1995 and will become effective
as of that date.
* * * * *
If the terms and conditions described above are in
accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST III
By /s/ Dianne E. O'Donnell
--------------------------------------
DIANNE E. O'DONNELL
SECRETARY AND VICE PRESIDENT
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By /s/ Margo Alexander
--------------------------------------
PRESIDENT
Accepted:
GEORGE D. BJURMAN & ASSOCIATES
By:
-------------------------------
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Exhibit 6
KIDDER, PEABODY INVESTMENT TRUST III
DISTRIBUTION CONTRACT
CLASS A SHARES
CONTRACT made as of January 30, 1995, between KIDDER, PEABODY
INVESTMENT TRUST III, a Massachusetts business trust ("Fund"), and MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently offers for public sale a single distinct series of shares of
beneficial interest ("Series"), which corresponds to a distinct portfolio and
has been designated as the Kidder, Peabody Small Cap Equity Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act ("Plan") and desires to retain Mitchell Hutchins as
principal distributor in connection with the offering and sale of the Class A
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class A Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class A Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class A Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class A Shares directly through the 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
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<PAGE>
statement of the Fund, and any supplements thereto, under the Securities Act
of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
(a) Mitchell Hutchins agrees to solicit orders for the sale of
shares of the Fund and to undertake advertising and promotion that it believes
reasonable in connection with such solicitation as agent for the Fund and upon
the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class A Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class A Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into
agreements to sell Class A Shares to such registered and qualified retail
dealers, including but not limited to PaineWebber Incorporated ("PaineWebber"),
as it may select. In making agreements with such dealers, Mitchell Hutchins
shall act only as principal and not as agent for the Fund.
(d) The offering price of the Class A Shares of each Series
shall be the net asset value per Share as next determined by the Fund following
receipt of an order at Mitchell Hutchins' principal office plus the applicable
initial sales charge, if any, computed as set forth in the Registration
Statement. The Fund shall promptly furnish Mitchell Hutchins with a statement of
each computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any
certain number of Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class A Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder
services, which include responding to shareholder inquiries, providing
shareholders with information on their investments in the Class A Shares and any
other services now or hereafter deemed to be appropriate subjects for the
payments of
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"service fees" under Section 26(d) of the National Association of Securities
Dealers, Inc. ("NASD") Rules of Fair Practice (collectively, "service
activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
Delegate Duties as Distributor. With respect to the Class A Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class A Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
(a) As compensation for its service activities under this
contract with respect to the Class A Shares, Mitchell Hutchins shall receive
from the Fund a service fee at the rate and under the terms and conditions of
the Plan adopted by the Fund, as such Plan is amended from time to time, and
subject to any further limitations on such fee as the Board may impose.
(b) As compensation for its activities under this contract
with respect to the distribution of the Class A Shares, Mitchell Hutchins shall
retain the initial sales charge, if any,
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on purchases of Class A Shares as set forth in the Registration Statement.
Mitchell Hutchins is authorized to collect the gross proceeds derived from
the sale of the Class A Shares, remit the net asset value thereof to the
Fund upon receipt of the proceeds and retain the initial sales charge, if any.
(c) Mitchell Hutchins may reallow any or all of the initial
sales charges or service fees which it is paid under this Contract to such
dealers as Mitchell Hutchins may from time to time determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Class A Shares of any or all Series by written notice to Mitchell
Hutchins at its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class A Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class A Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class A Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of
its affairs and shall make available to Mitchell Hutchins copies of all
information, financial statements, and other papers which Mitchell Hutchins may
reasonably request for use in connection with the distribution of Class A
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as Mitchell
Hutchins may request, and the Fund shall cooperate fully in the efforts of
Mitchell Hutchins to sell and arrange for the sale of the Class A Shares of the
Series and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary
action, including payment of the related filing fee, as may be necessary to
register the Class A Shares under the 1933 Act to the end that there will be
available for sale such number of Class A Shares as Mitchell Hutchins may be
expected to sell. The Fund agrees to file, from time to time, such amendments,
reports, and other documents as may be necessary in order that
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there will be no untrue statement of a material fact in the Registration
Statement, nor any omission of a material fact which omission would make the
statements therein misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class A Shares of each
Series for sale under the securities laws of such states or other jurisdictions
as Mitchell Hutchins and the Fund may approve, and, if necessary or appropriate
in connection therewith, to qualify and maintain the qualification of the Fund
as a broker or dealer in such jurisdictions; provided that the Fund shall not be
required to execute a general consent to the service of process in any state.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Class A Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to share-
holders; and (iv) the qualifications of Class A Shares for sale and of the Fund
as a broker or dealer under the securities laws of such jurisdictions as shall
be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e) hereof,
and the costs and expenses payable to each such jurisdiction for continuing
qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class A Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class A Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of
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Class A Shares as may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement, of a material fact
contained in the Registration Statement or any related prospectus ("Prospectus")
or arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in the Registration Statement or Prospectus
or necessary to make the statements therein not misleading, except insofar as
such claims, demands, liabilities or expenses arise out of or are based upon any
such untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement shall not inure to
the benefit of any person who is also an officer or trustee of the Fund or who
controls the Fund within the meaning of Section 15 of the 1933 Act, unless a
court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect Mitchell
Hutchins against any liability to the Fund or to the shareholders of any Series
to which Mitchell Hutchins would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Contract. The
Fund shall not be liable to Mitchell Hutchins under this indemnity agreement
with respect to any claim made against Mitchell Hutchins or any person
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
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indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to the indemnified defendants in
the suit. In the event that the Fund elects to assume the defense of any suit
and retain counsel, the indemnified defendants shall bear the fees and expenses
of any additional counsel retained by them. If the Fund does not elect to assume
the defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify Mitchell Hutchins promptly of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any of its Class A
Shares.
(b) The Fund's indemnification agreement contained in this
Section 9 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of Mitchell Hutchins, its officers and
directors, or any controlling person, and will survive the delivery of any
shares of the Fund.
(c) Mitchell Hutchins agrees to indemnify, defend, and hold
the Fund, its officers and trustees and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, or arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading. Mitchell Hutchins shall have
the right to control the defense of any action contemplated by this Section
9(c), with counsel of its own choosing, satisfactory to the Fund, unless the
action is not based solely upon an alleged misstatement or omission on Mitchell
Hutchins' part. In such event, the Fund, its officers or trustees or controlling
persons will each have the right to participate in the defense or preparation of
the defense of the action. In the event that Mitchell Hutchins elects to assume
the defense of any suit and retain counsel, the defendants in the suit shall
bear the fees and expenses of any additional counsel retained by them. If
Mitchell Hutchins does not elect to assume the defense of any suit, it will
reimburse the indemnified defendants in the suit
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for the reasonable fees and expenses of any counsel retained by
them.
(d) Mitchell Hutchins shall not be liable to the Fund under
this indemnity agreement with respect to any claim made against the Fund or any
person indemnified unless the Fund or other such person shall have notified
Mitchell Hutchins in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Fund or such other person (or after
the Fund shall have received notice of service on any designated agent).
Mitchell Hutchins will not be obligated to indemnify any entity or person
against any liability to which the Fund, its officers and trustees, or any
controlling person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in performance of, or reckless disregard of, the
obligations and duties set forth in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the
Fund. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders. The Fund represents that a copy of the Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk.
11. Services Provided to the Fund by Employees of Mitchell Hutchins.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
(a) This Contract shall become effective upon the date
hereabove written, provided that, with respect to any Series, this Contract
shall not take effect unless such action has first been approved by vote of a
majority of the Board and by vote of a majority of those trustees of the Fund
who are not interested persons of the Fund, and have no direct or indirect
financial interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees") cast in
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person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Contract
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a majority of the outstanding
voting securities of the Class A Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series,
this Contract may be terminated at any time, without the payment of any penalty,
by vote of the Board, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities of the Class A Shares of
such Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given
Series shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given
by either party to the other shall be deemed sufficient upon
receipt in writing at the other party's principal offices.
16. Miscellaneous. The captions in this Contract are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Contract shall
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be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby. This Contract shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors. As used in this Contract, the terms "majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: KIDDER, PEABODY INVESTMENT TRUST III
Dawn Ciulla By: Robert B. Jones
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ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Ilene Shore By: Dianne E. O'Donnell
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Exhibit 6
KIDDER, PEABODY INVESTMENT TRUST III
DISTRIBUTION CONTRACT
Class B SHARES
CONTRACT made as of January 30, 1995, between KIDDER, PEABODY
INVESTMENT TRUST III, a Massachusetts business trust ("Fund"), and MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently offers for public sale a single distinct series of shares of
beneficial interest ("Series"), which corresponds to a distinct portfolio and
has been designated as the Kidder, Peabody Small Cap Equity Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class B shares ("Class B Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act ("Plan") and desires to retain Mitchell Hutchins as
principal distributor in connection with the offering and sale of the Class B
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class B Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class B Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the 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
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statement of the Fund, and any supplements thereto, under the Securities Act
of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
(a) Mitchell Hutchins agrees to solicit orders for the sale of
shares of the Fund and to undertake advertising and promotion that it believes
reasonable in connection with such solicitation as agent for the Fund and upon
the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class B Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class B Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into
agreements to sell Class B Shares to such registered and qualified retail
dealers, including but not limited to PaineWebber Incorporated ("PaineWebber"),
as it may select. In making agreements with such dealers, Mitchell Hutchins
shall act only as principal and not as agent for the Fund.
(d) The offering price of the Class B Shares of each Series
shall be the net asset value per Share as next determined by the Fund following
receipt of an order at Mitchell Hutchins' principal office. The Fund shall
promptly furnish Mitchell Hutchins with a statement of each computation of net
asset value.
(e) Mitchell Hutchins shall not be obligated to sell any
certain number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class B Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder
services, which include responding to shareholder inquiries, providing
shareholders with information on their investments in the Class B Shares and any
other services now or
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hereafter deemed to be appropriate subjects for the payments of "service fees"
under Section 26(d) of the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
Delegate Duties as Distributor. With respect to the Class B Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class B Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
(a) As compensation for its service activities under this
contract with respect to the Class B Shares, Mitchell Hutchins shall receive
from the Fund a service fee at the rate and under the terms and conditions of
the Plan adopted by the Fund, as such Plan is amended from time to time, and
subject to any further limitations on such fee as the Board may impose.
(b) As compensation for its activities under this contract
with respect to the distribution of the Class B Shares,
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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 Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract
with respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemption of Class B
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance and in the manner set forth in the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the
distribution or service fees, or contingent deferred sales charges, which it is
paid under this Contract to such dealers as Mitchell Hutchins may from time to
time determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Class B Shares of any or all Series by written notice to Mitchell
Hutchins at its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class B Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class B Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of
its affairs and shall make available to Mitchell Hutchins copies of all
information, financial statements, and other papers which Mitchell Hutchins may
reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as Mitchell
Hutchins may request, and the Fund shall cooperate fully in the efforts of
Mitchell Hutchins to sell and arrange for the sale of the Class B Shares of the
Series and in the performance of Mitchell Hutchins under this Contract.
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(d) The Fund shall take, from time to time, all
necessary action, including payment of the related filing fee, as may be
necessary to register the Class B Shares under the 1933 Act to the end that
there will be available for sale such number of Class B Shares as Mitchell
Hutchins may be expected to sell. The Fund agrees to file, from time to time,
such amendments, reports, and other documents as may be necessary in order that
there will be no untrue statement of a material fact in the Registration
Statement, nor any omission of a material fact which omission would make the
statements therein misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class B Shares of each
Series for sale under the securities laws of such states or other jurisdictions
as Mitchell Hutchins and the Fund may approve, and, if necessary or appropriate
in connection therewith, to qualify and maintain the qualification of the Fund
as a broker or dealer in such jurisdictions; provided that the Fund shall not be
required to execute a general consent to the service of process in any state.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Class B Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to share-
holders; and (iv) the qualifications of Class B Shares for sale and of the Fund
as a broker or dealer under the securities laws of such jurisdictions as shall
be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e) hereof,
and the costs and expenses payable to each such jurisdiction for continuing
qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class B Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
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Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class B Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class B Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement, of a material fact
contained in the Registration Statement or any related prospectus ("Prospectus")
or arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in the Registration Statement or Prospectus
or necessary to make the statements therein not misleading, except insofar as
such claims, demands, liabilities or expenses arise out of or are based upon any
such untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement shall not inure to
the benefit of any person who is also an officer or trustee of the Fund or who
controls the Fund within the meaning of Section 15 of the 1933 Act, unless a
court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect Mitchell
Hutchins against any liability to the Fund or to the shareholders of any Series
to which Mitchell Hutchins would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Contract. The
Fund shall not be liable to Mitchell Hutchins under this indemnity agreement
with 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
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giving information of the nature of the claim shall have been served upon
Mitchell Hutchins or such other person (or after Mitchell Hutchins or the person
shall have received notice of service on any designated agent). However, failure
to notify the Fund of any claim shall not relieve the Fund from any liability
which it may have to Mitchell Hutchins or any person against whom such action is
brought otherwise than on account of this indemnity agreement. The Fund shall be
entitled to participate at its own expense in the defense or, if it so elects,
to assume the defense of any suit brought to enforce any claims subject to this
indemnity agreement. If the Fund elects to assume the defense of any such claim,
the defense shall be conducted by counsel chosen by the Fund and satisfactory to
the indemnified defendants in the suit. In the event that the Fund elects to
assume the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by them. If
the Fund does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Fund agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class B Shares.
(b) The Fund's indemnification agreement contained in this
Section 9 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of Mitchell Hutchins, its officers and
directors, or any controlling person, and will survive the delivery of any
shares of the Fund.
(c) Mitchell Hutchins agrees to indemnify, defend, and hold
the Fund, its officers and trustees and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, or arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading. Mitchell Hutchins shall have
the right to control the defense of any action contemplated by this Section
9(c), with counsel of its own choosing, satisfactory to the Fund, unless the
action is not based solely upon an alleged misstatement or omission on Mitchell
Hutchins' part. In such event, the Fund, its officers or trustees or
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controlling persons will each have the right to participate in
the defense or preparation of the defense of the action. In the event that
Mitchell Hutchins elects to assume the defense of any suit and retain counsel,
the defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them. If Mitchell Hutchins does not elect to assume the
defense of any suit, it will reimburse the indemnified defendants in the suit
for the reasonable fees and expenses of any counsel retained by them.
(d) Mitchell Hutchins shall not be liable to the Fund under
this indemnity agreement with respect to any claim made against the Fund or any
person indemnified unless the Fund or other such person shall have notified
Mitchell Hutchins in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Fund or such other person (or after
the Fund shall have received notice of service on any designated agent).
Mitchell Hutchins will not be obligated to indemnify any entity or person
against any liability to which the Fund, its officers and trustees, or any
controlling person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in performance of, or reckless disregard of, the
obligations and duties set forth in this Agreement.
10. Limitation of Liability of the Trustees and Shareholders of the
Fund. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders. The Fund represents that a copy of the Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk.
11. Services Provided to the Fund by Employees of Mitchell Hutchins.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
(a) This Contract shall become effective upon the date
hereabove written, provided that, with respect to any Series,
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this Contract shall not take effect unless such action has first been approved
by vote of a majority of the Board and by vote of a majority of those trustees
of the Fund who are not interested persons of the Fund, and have no direct or
indirect financial interest in the operation of the Plan relating to the Series
or in any agreements related thereto (all such trustees collectively being
referred to herein as the "Independent Trustees") cast in person at a meeting
called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a majority of the outstanding
voting securities of the Class B Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series,
this Contract may be terminated at any time, without the payment of any penalty,
by vote of the Board, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities of the Class B Shares of
such Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given
Series shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act, provided, however, that Section
10 above will be construed in accordance with the laws of the Commonwealth of
Massachusetts. To the extent that the applicable laws of the State of Delaware
or the Commonwealth of Massachusetts conflict with the applicable provisions of
the l940 Act, the latter shall control.
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<PAGE>
15. Notice. Any notice required or permitted to be given by either party to
the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: KIDDER, PEABODY INVESTMENT TRUST III
Dawn Ciulla By: Robert B. Jones
- ---------------------------- ----------------------------------
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Ilene Shore By: Dianne E. O'Donnell
- ---------------------------- ----------------------------------
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Exhibit 6
KIDDER, PEABODY INVESTMENT TRUST III
DISTRIBUTION CONTRACT
CLASS C SHARES
CONTRACT made as of January 30, 1995, between KIDDER, PEABODY
INVESTMENT TRUST III, 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 ("l940 Act"), as an open-end management investment company and
currently offers for public sale a single distinct series of shares of
beneficial interest ("Series"), which corresponds to a distinct portfolio and
has been designated as the Kidder, Peabody Small Cap Equity Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class C shares ("Class C Shares"); and
WHEREAS the Fund desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class C Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class C Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class C Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class C Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
state-
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<PAGE>
ment of the Fund, and any supplements thereto, under the Securities Act of 1933,
as amended ("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
(a) Mitchell Hutchins agrees to solicit orders for the sale of
Class C shares of the Fund and to undertake advertising and promotion it
believes reasonable in connection with such solicitation as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class C Shares by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class C Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into
agreements to sell Class C Shares to such registered and qualified retail
dealers, including but not limited to PaineWebber Incorporated ("PaineWebber"),
as it may select. In making agreements with such dealers, Mitchell Hutchins
shall act only as principal and not as agent for the Fund.
(d) The offering price of the Class C Shares of each Series
shall be the net asset value per Share as next determined by the Fund following
receipt of an order at Mitchell Hutchins' principal office. The Fund shall
promptly furnish Mitchell Hutchins with a statement of each computation of net
asset value.
(e) Mitchell Hutchins shall not be obligated to sell any
certain number of Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class C Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.
(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Contracts and to
Delegate Duties as Distributor. With respect to the Class
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C Shares of any or all Series, Mitchell Hutchins may enter into an exclusive
dealer agreement with PaineWebber or any other registered and qualified dealer
with respect to sales of the Class C Shares. In a separate contract or as part
of any such exclusive dealer agreement, Mitchell Hutchins also may delegate to
PaineWebber or another registered and qualified dealer ("subdistributor") any or
all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation and Reimbursement of Distribution Expenses. The Fund
shall have no obligation to compensate or reimburse Mitchell Hutchins for any
services performed by it hereunder.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Class C Shares of any or all Series by written notice to Mitchell
Hutchins at its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class C Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class C Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class C Shares to be issued in such names 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
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accountant and such reasonable number of copies of the most current prospectus,
statement of additional information, and annual and interim reports of any
Series as Mitchell Hutchins may request, and the Fund shall cooperate fully in
the efforts of Mitchell Hutchins to sell and arrange for the sale of the Class C
Shares of the Series and in the performance of Mitchell Hutchins under this
Contract.
(d) The Fund shall take, from time to time, all necessary
action, including payment of the related filing fee, as may be necessary to
register the Class C Shares under the 1933 Act to the end that there will be
available for sale such number of Class C Shares as Mitchell Hutchins may be
expected to sell. The Fund agrees to file, from time to time, such amendments,
reports, and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, nor any
omission of a material fact which omission would make the statements therein
misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class C Shares of each
Series for sale under the securities laws of such states or other jurisdictions
as Mitchell Hutchins and the Fund may approve, and, if necessary or appropriate
in connection therewith, to qualify and maintain the qualification of the Fund
as a broker or dealer in such jurisdictions; provided that the Fund shall not be
required to consent to service of process in any state. Mitchell Hutchins shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Class C Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to share-
holders; 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
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<PAGE>
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class C Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class C Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement, of a material fact
contained in the Registration Statement or any related prospectus ("Prospectus")
or arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in the Registration Statement or Prospectus
or necessary to make the statements therein not misleading, except insofar as
such claims, demands, liabilities or expenses arise out of or are based upon any
such untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement shall not inure to
the benefit of any person who is also an officer or trustee of the Fund or who
controls the Fund within the meaning of Section 15 of the 1933 Act, unless a
court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect Mitchell
Hutchins against any liability to the Fund or to the shareholders of any Series
to which Mitchell Hutchins would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Contract. The
Fund shall not be liable to Mitchell Hutchins under this indemnity agreement
with respect to any claim made against Mitchell Hutchins or any person
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<PAGE>
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit. In the event that the Fund elects to assume the defense of any suit and
retain counsel, the indemnified defendants shall bear the fees and expenses of
any additional counsel retained by them. If the Fund does not elect to assume
the defense of a suit, it will reimburse the indemnified defendants for the
reasonable fees and expenses of any counsel retained by the indemnified
defendants. The Fund agrees to notify Mitchell Hutchins promptly of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance or sale of any of its Class C
Shares.
(b) The Fund's indemnification agreement contained in this
Section 9 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of Mitchell Hutchins, its officers and
directors, or any controlling person and will survive the delivery of any shares
of the Fund.
(c) Mitchell Hutchins agrees to indemnify, defend, and hold
the Fund, its officers and trustees, and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer. Mitchell Hutchins
shall have the right to control the defense of any action contemplated by this
Section 9(c), with counsel of its own choosing, satisfactory to the Fund, unless
the action is not
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based solely upon an alleged misstatement or omission on Mitchell Hutchins'
part. In such event, the Fund, its officers or trustees or controlling persons
will each have the right to participate in the defense or preparation of the
defense of the action. In the event that Mitchell Hutchins elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If Mitchell
Hutchins does not elect to assume the defense of any suit, it will reimburse the
indemnified defendants in the suit for the reasonable fees and expenses of any
counsel retained by them.
10. Limitation of Liability of the Trustees and Shareholders of the
Fund. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders. The Fund represents that a copy of the Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk.
11. Services Provided to the Fund by Employees of Mitchell Hutchins.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
(a) This Contract shall become effective upon the date
hereabove written, provided that, with respect to any Series, this Contract
shall not take effect unless such action has first been approved by vote of a
majority of the Board and by vote of a majority of those trustees of the Fund
who are not interested persons of the Fund, and have no direct or indirect
financial interest in this Contract or in any agreements related thereto (all
such Trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Contract
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of
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voting on such approval, and (ii) by the Board or by vote of a majority of the
outstanding voting securities of the Class C Shares of each affected Series.
(c) Notwithstanding the foregoing, with respect to any Series,
this Contract may be terminated at any time, without the payment of any penalty,
by vote of the Board, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities of the Class C Shares of
such Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given
Series shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against 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.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: KIDDER, PEABODY INVESTMENT TRUST III
Dawn Ciulla By: Robert B. Jones
- ------------------------ ---------------------------------------
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Ilene Shore By: Dianne E. O'Donnell
- ------------------------ ---------------------------------------
<PAGE>
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
DISTRIBUTION CONTRACT
CLASS B SHARES
CONTRACT made as of ____________, 1995, between MITCHELL
HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III, 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 several distinct series of shares of beneficial interest, each of
which corresponds to a distinct portfolio, including the Mitchell
Hutchins/Kidder, Peabody Small Cap Growth Fund (each a 'Series'); and
WHEREAS the Fund's board of trustees ('Board') has established an
unlimited number of shares of beneficial interest of Mitchell Hutchins/Kidder,
Peabody Small Cap Growth Fund as Class B shares ('Class B Shares'); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class B Shares ('Plan') and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class B Shares of Mitchell Hutchins/Kidder, Peabody Small Cap Growth
Fund and of such other Series as have been and may hereafter be
designated by the Board and have Class B Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class B Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the Fund's transfer agent in the
manner set forth in the Registration
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<PAGE>
Statement. As used in this Contract, the term 'Registration Statement' shall
mean the currently effective registration statement of the Fund, and any
supplements thereto, under the Securities Act of 1933, as amended ('1933 Act'),
and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
(a) Mitchell Hutchins agrees to sell Class B Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Fund and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class B Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class B Shares of the Series and will accept such orders on behalf
of the Fund as of the time of receipt of such orders and promptly transmit such
orders as are accepted to the Fund's transfer agent. Purchase orders shall be
deemed effective at the time and in the manner set forth in the Registration
Statement.
(c) Mitchell Hutchins in its discretion may enter into
agreements to sell Class B Shares to such registered and qualified retail
dealers, including but not limited to PaineWebber Incorporated ('PaineWebber'),
as it may select. In making agreements with such dealers, Mitchell Hutchins
shall act only as principal and not as agent for the Fund.
(d) The offering price of the Class B Shares of a Series shall
be the net asset value per Share as next determined by the Fund following
receipt of an order at Mitchell Hutchins' principal office. The Fund shall
promptly furnish Mitchell Hutchins with a statement of each computation of net
asset value.
(e) Mitchell Hutchins shall not be obligated to sell any
certain number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class B Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder
services, which include responding to shareholder inquiries, providing
shareholders with information on their
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investments in the Class B Shares and any other services now or hereafter deemed
to be appropriate subjects for the payments of 'service fees' under Section
26(d) of the National Association of Securities Dealers, Inc. ('NASD') Rules of
Fair Practice (collectively, 'service activities'). 'Service activities' do not
include the transfer agency-related and other services that PaineWebber may
provide.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
Delegate Duties as Distributor. With respect to the Class B Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class B Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
('sub-distributor') any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a director, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation and Reimbursement of Distribution Expenses. As
compensation for providing services under this contract:
(a) Mitchell Hutchins shall receive from the Trust:
(1) a distribution fee and a service fee at the rate and
under the terms and conditions set forth in a Series'
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Plan, as amended from time to time and subject to any further
limitations on such fees as the Board may impose; and
(2) all contingent deferred sales charges applied on
redemptions of Class B Shares of each Series. Whether and at what rate
a contingent deferred sales charge will be imposed with respect to a
redemption shall be determined in accordance with, and in the manner
set forth in, the Registration Statement.
(b) Mitchell Hutchins may reallow any or all of the distribution or
service fees and the contingent deferred sales charges which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Class B Shares of a Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class B Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class B Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of
its affairs and shall make available to Mitchell Hutchins copies of all
information, financial statements, and other papers which Mitchell Hutchins may
reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of a Series as Mitchell
Hutchins may request, and the Fund shall cooperate fully in the efforts of
Mitchell Hutchins to sell and arrange for the sale of the Class B Shares of the
Series and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary
action, including payment of the related filing fee, as may be necessary to
register the Class B Shares under the 1933 Act to the end that there will be
available for sale such number of Class B Shares as Mitchell Hutchins may be
expected to sell.
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The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class B Shares of a
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 Articles of Incorporation or By-Laws to comply with the
laws of any jurisdiction, to maintain an office in any jurisdiction, to change
the terms of the offering of the Class B Shares in any jurisdiction from the
terms set forth in its Registration Statement, to qualify as a foreign
corporation in any jurisdiction, or to consent to service of process in any
jurisdiction other than with respect to claims arising out of the offering of
the Class B Shares. Mitchell Hutchins shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Class B Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to share-
holders; and (iv) the qualifications of Class B Shares for sale and of the Fund
as a broker or dealer under the securities laws of such jurisdictions as shall
be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e) hereof,
and the costs and expenses payable to each such jurisdiction for continuing
qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class B Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities
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authorities; (ii) any expenses of advertising incurred by Mitchell Hutchins in
connection with such offering; (iii) the expenses of registration or
qualification of Mitchell Hutchins as a broker or dealer under federal or state
laws and the expenses of continuing such registration or qualification; and (iv)
all compensation paid to Mitchell Hutchins' employees and others for selling
Class B Shares, and all expenses of Mitchell Hutchins, its employees and others
who engage in or support the sale of Class B Shares as may be incurred in
connection with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements therein not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement; provided,
however, that this indemnity agreement shall not inure to the benefit of any
person who is also an officer or director 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 a 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
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served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to indemnified defendants in the suit whose approval shall not be
unreasonably withheld. In the event that the Fund elects to assume the defense
of any suit and retain counsel, the indemnified defendants shall bear the fees
and expenses of any additional counsel retained by them. If the Fund does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of its
Class B Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold
the Fund, its officers and directors, 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
directors 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
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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, director, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
(a) This Contract shall become effective upon the date
hereabove written, provided that, with respect to any Series, this Contract
shall not take effect unless such action has first been approved by vote of a
majority of the Board and by vote of a majority of those directors 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 directors 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 a Series by vote of a
majority of the outstanding voting securities of the Class B Shares of the
Series.
(c) Notwithstanding the foregoing, with respect to any given
Series, this Contract may be terminated at any time,
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without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class B Shares of such Series on sixty days' written notice to
Mitchell Hutchins or by Mitchell Hutchins at any time, without the payment of
any penalty, on sixty days' written notice to the Fund or the 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 a 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. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
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.
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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: MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST III
_______________________________ By:____________________________________
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
_______________________________ By:____________________________________
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TRANSFER AGENCY SERVICES AND SHAREH0LDER SERVICES AGREEMENT
TERM AND CONDITIONS
This Agreement is made as of January 30, 1995, to be effective as of such
date as is agreed to in writing by the parties, by and between KIDDER, PEABODY
INVESTMENT TRUST III (the 'Fund'), a Massachusetts business trust and PFPC INC.
('PFPC'), a Delaware corporation, which is an indirect wholly-owned subsidiary
of PNC Bank Corp.
The Fund is registered as an open-end management series investment company
under the Investment Company Act of 1940, as amended ('1940 Act'). The Fund
wishes to retain PFPC to serve as the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for such series listed in
Appendix C to this agreement, as amended from time to time (the 'Series'), and
PFPC wishes to furnish such services. In consideration of the promises and
mutual covenants herein contained, the parties agree as follows:
1. Definitions.
(a) 'Authorized Person'. The term 'Authorized Person' shall mean any
officer of the Fund and any other person who is duly authorized by the Fund's
Governing Board to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix or any amendment thereto as may be received by PFPC from time
to time.
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If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
(b) 'Governing Board'. The term 'Governing Board' shall mean the Fund's
Board of Directors if the Fund is a corporation or the Fund's Board of Trustees
if the Fund is a trust, or, where duly authorized, a competent committee
thereof.
(c) 'Oral Instructions'. The term 'Oral Instructions' shall mean oral
instructions received by PFPC from an Authorized Person by telephone or in
person.
(d) 'SEC'. The term 'SEC' shall mean the Securities and Exchange
Commission.
(e) 'Securities Laws'. The term 'Securities Laws' shall mean the 1933
Act, the 1934 Act and the 1940 Act. The terms the '1933 Act' shall mean the
Securities Act of 1933, as amended, and the '1934 Act' shall mean the Securities
Exchange Act of 1934, as amended.
(f) 'Shares'. The term 'Shares' shall mean the shares of beneficial
interest of any Series or class of the Fund.
(g) 'Written Instructions'. The term 'Written Instructions' shall mean
written instructions signed by one Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to each of
its Series, in accordance
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with the terms set forth in this Agreement, and PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PFPC to provide services to each
Series and approving this agreement;
(b) A copy of the Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-lA under the 1933 Act and 1940 Act as filed
with the SEC;
(c) A copy of the Fund's investment advisory and administration
agreement or agreements;
(d) A copy of the Fund's distribution agreement or agreements;
(e) Copies of any shareholder servicing agreements made in respect of
the Fund; and
(f) Copies of any and all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Requlations. PFPC undertakes to
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of qovernmental authorities having jurisdiction with
respect to all duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the
Fund.
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5. Instructions. Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral and Written Instructions. PFPC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person pursuant
to this Agreement. PFPC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of organizational
documents or of any vote, resolution or proceeding of the Fund's Governing Board
or of the Fund's shareholders, unless and until it receives Written Instructions
to the contrary.
The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next business day after such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should
or should not take, PFPC will request directions or advice, including Oral or
Written Instructions, from the Fund.
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(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PFPC receives from the Fund and the
advice it receives from counsel, PFPC may rely upon and follow the advice of
counsel. In the event PFPC so relies on the advice of counsel, PFPC remains
liable for any action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities provided for in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel in accordance with this
Agreement and which PFPC believes, in good faith, to be consistent with those
directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed to impose an obligation
upon PFPC (i) to seek such directions, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
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Nothing in this subsection shall excuse PFPC when an action or omission on
the part of PFPC constitutes willful misfeasance, bad faith, negligence or
reckless disregard of PFPC of any duties, obligations or responsibilities
provided for in this Agreement.
7. Records and Visits. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B Shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund which are in the
possession, or under the control, of PFPC shall be the property of the Fund. The
Fund or the Fund's Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person of the Fund. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable
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visits by the Fund, any agent or person designated by the Fund or any regulatory
agency having authority over the Fund.
8. Confidentiality. PFPC agrees on its own behalf and that of its employees
to keep confidential all records of the Fund and information relating to the
Fund and its shareholders (past, present and future), its investment adviser and
its principal underwriter, unless the release of such records or information is
otherwise consented to, in writing, by the Fund prior to its release. The Fund
agrees that such consent shall not be unreasonably withheld, and may not be
withheld where PFPC may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly constituted
authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
periodic backup of computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of equipment
failures, PFPC shall, at no additional expense to the Fund, take all reasonable
steps to minimize service interruptions. PFPC shall
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have no liability with respect to the loss of data or service interruptions
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of PFPC and provided further that PFPC has complied with the
provisions of this Paragraph 10.
11. Compensation. As compensation for services rendered by PFPC during the
term of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed
to, from time to time, in writing by the Fund and PFPC.
12. Indemnification.
(a) The Fund agrees to indemnify and hold harmless PFPC and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws,
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including, without limitation, reasonable attorneys' fees and
disbursements arising directly or indirectly from any action or omission to act
which PFPC (i) at the request of or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral or Written Instructions. Neither PFPC, nor
any of its nominees, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its nominees' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
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(b) PFPC agrees to indemnify and hold harmless the Fund from all taxes,
charges, expenses, assessments, claims and liabilities arising from PFPC's
obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, arising
directly or indirectly out of PFPC's or its nominee's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provislons contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
13. Insurance. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement,
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the contracts of insurance shall take precedence, and no provision of this
Agreement shall be construed to relieve an insurer of any obligation to pay
claims to the Fund, PFPC or other insured party which would otherwise be a
covered claim in the absence of any provision of this Agreement.
14. Security. PFPC represents and warrants that, to the best of its
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have access to review these systems and
procedures.
15. Responsibility of PFPC. PFPC shall be under no duty to take any action
on behalf of the Fund except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
due care and diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts in performing services provided for under
this Agreement. PFPC shall be liable only for any damages arising out of or in
connection with PFPC's performance of or omission or failure to perform its
duties under this
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Agreement to the extent such damages arise out of PFPC's negligence, reckless
disregard of its duties, bad faith or willful misfeasance.
Without limiting the generality of the foregoing or of any other provision
of this Agreement, PFPC, in connection with its duties under this Agreement,
shall not be under any duty or obligation to inquire into and shall not be
liable for (a) the validity or invalidity or authority or lack thereof of any
Oral or Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC reasonably believes to
be genuine; or (b) subject to the provisions of Paragraph 10, delays or errors
or loss of data occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power supply.
16. Description of Services. PFPC shall perform the duties of the transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent of
the Fund and its specified Series.
(a) Purchase of Shares. PFPC shall issue and credit an account of an
investor in the manner described in each Series prospectus once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account;
and
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(iii) Confirmation of receipt or crediting of funds for such
order from the Series' custodian.
(b) Redemption of Shares. PFPC shall redeem a Series' Shares only if
that function is properly authorized by the Fund's organizational documents or
resolution of the Fund's Governing Board. Shares shall be redeemed and payment
therefor shall be made in accordance with each Series' prospectus when the
shareholder tenders his or her Shares in proper form and directs the method of
redemption.
(c) Dividends and Distributions. Upon receipt of a resolution of the
Fund's Governing Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the
Fund in Shares, or, upon shareholder election, pay such dividends and
distributions in cash if provided for in each Series' prospectus. Such issuance
or payment, as well as payments upon redemption as described above, shall be
made after deduction and payment of the required amount of funds to be withheld
in accordance with any applicable tax law or other laws, rules or regulations.
PFPC shall mail to each Series' shareholders such tax forms and other
information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation.
PFPC shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Fund to its shareholders as required by tax or
other law, rule or regulation.
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(d) PFPC will provide the services listed on Appendix A and Appendix B
on an ongoing basis. Performance of certain of these services, with accompanying
responsibilities and liabilities, may be delegated and assigned to PaineWebber
Incorporated or Mitchell Hutchins Asset Management Inc. or to an affiliated
person of either.
17.Duration and Termination.
(a) This Agreement shall continue until January 30, 1997 and shall
automatically be renewed thereafter on a year-to-year basis and with respect to
the year-to-year renewal, provided that the Fund's Governing Board approves such
renewal; and provided further that this Agreement may be terminated by either
party for cause.
(b) With respect to the Fund, cause includes, but is not limited to:
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute 'cause' under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii)
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<PAGE>
issuance of an administrative or court order against PFPC with regard to the
material violation or alleged material violation of the Securities Laws or other
applicable laws related to its business of performing transfer agency services.
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective
thirty (30) days from the date of such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including a certified list of the
shareholders of each Series of the Fund with name, address, and if provided
taxpayer identification or Social Security number, and a complete record of the
account of each shareholder. To the extent that PFPC incurs expenses related to
a transfer of responsibilities to a successor, other than expenses involved in
PFPC's providing the Fund's books and records to the successor, PFPC shall be
entitled to be reimbursed for such expenses, including any
14
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<PAGE>
out-of-pocket expenses reasonably incurred by PFPC in connection with the
transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund and any Series thereof upon the liquidation, merger or other
dissolution of the Fund or Series or upon the Fund's ceasing to be registered
investment company.
19. Registration as a Transfer Agent. PFPC represents that it is currently
registered with the appropriate federal agency for the registration of transfer
agents, or is otherwise permitted to lawfully conduct its activities without
such registration and that it will remain so registered for the duration of this
Agreement. PFPC agrees that it will promptly notify the Fund in the event of any
material change in its status as a registered transfer agent. Should PFPC fail
to be registered with the SEC as a transfer agent at any time during this
Agreement, and such failure to register does not permit PFPC to lawfully conduct
its activities, the Fund may terminate this Agreement upon five days written
notice to PFPC.
20. Notices. All notices and other communications, other than Oral or
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PFPC at
PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the
Fund, at 20 Exchange Place, New York, N.Y. 10005; or (c) if to neither of
15
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<PAGE>
the foregoing, at such other address as shall have been notified to the sender
of any such notice or other communication. If the notice is sent by confirming
telegram, cable telex or facsimile sending device during regular businesc hours,
it shall be deemed to have been given immediately. If sent during a time other
than regular business hours, such notice shall be deemed to have been given at
the opening of the next business day. If notice is sent by first-class mail, it
shall be deemed to have been given three business days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered. All postage, cable, telegram, telex and facsimile sending
device charges arising from the sending of a notice hereunder shall be paid by
the sender.
21. Amendments. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
22. Additional Series. In the event that the Fund establishes one or more
investment Series in addition to and with respect to which it desires to have
PFPC render services as transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment Series shall become a Series hereunder, subject to
such additional terms, fees and conditions as are agreed to by the parties.
23. Assiqnment and Delegation.
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<PAGE>
(a) PFPC may, at its own expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate agrees with PFPC to
comply with all relevant provisions of the Securities Laws; and (iii) PFPC and
such delegate promptly provide such information as the Fund may request and
respond to such questions as the Fund may ask relating to the delegation,
including, without limitation, the capabilities of the delegate. The assignment
and delegation of any of PFPC's duties under this subparagraph (a) shall not
relieve PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may assign its rights and delegate its duties hereunder to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or
affiliated person of either provided that (i) PFPC gives the Fund thirty (30)
days' prior written notice; (ii) the delegate agrees to comply with all relevant
provisions of the Securities Laws; and (iii) PFPC and such delegate promptly
provide such information as the Fund may request and respond to such questions
as the Fund may ask relative to the delegation, including, without limitation,
the capabilities of the delegate. In assigning its rights and delegating its
duties under this paragraph, PFPC may impose such conditions or limitations as
it determines appropriate including the condition that PFPC be retained as a
sub-transfer agent.
17
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<PAGE>
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
26. Limitation of Liability. The Trust and PFPC agree that the obligations
of the Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No Series of the
Trust will be liable for any claims against any other Series.
27. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all
18
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<PAGE>
prior agreements and understandings relating to the subject matter hereof,
provided that the parties may embody in one or more separate documents their
agreement, if any, with respect to services to be performed and compensation to
be paid under this Agreement.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware Law, except that, to the extent provision of the Securities
Laws govern the subject matter of this Agreement, such Securities Laws will
controlling. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and inure to the
benefit of the parties hereto and their respective successors and assigns.
19
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By: /s/ GEO W. GARNER
------------------------------
KIDDER, PEABODY INVESTMENT TRUST III
By: /s/ ROBERT B. JONES
------------------------------
20
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<PAGE>
APPENDIX A
Description of Services
(a) Services Provided on an Ongoing Basis by PFPC to the Fund,
if Applicable.
(i) Calculate 12b-1 payments and broker trail commissions;
(ii) Develop, monitor and maintain all systems necessary to
implement and operate the three-tier distribution
system, including Class B conversion feature, as
described in the registration statement and related
documents of the Fund, as they may be amended from
time to time;
(iii) Calculate contingent deferred sales charge amounts
upon redemption of Fund Shares and deduct such amounts
from redemption proceeds;
(iv) Calculate front-end sales load amounts at time of
purchase of Shares;
(v) Determine dates of Class B conversion and effect same;
(vi) Establish and maintain proper shareholder
registrations, unless requested by the Fund;
(vii) Review new applications with correspondence to
shareholders to complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction
with proxy solicitations;
(x) Countersign share certificates;
(xi) Prepare and mail to shareholders confirmation of
activity;
(xii) Provide toll-free lines for direct shareholder use,
plus customer liaison staff for on-line inquiry
response;
(xiii) Send duplicate confirmations to broker-dealers of
their clients' activity, whether executed through the
broker-dealer or directly with PFPC;
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(xiv) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Fund;
(xv) Provide detailed data for underwriter/broker
confirmations;
(xvi) Periodic mailing of year-end tax and statement
information;
(xvii) Notify on a daily basis the investment advisor,
accounting agent, and custodian of fund activity; and
(xviii) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral or Written Instructions of
the Fund.
(i) Accept and post daily Series and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates.
(c) Shareholder Account Services.
(i) PFPC may arrange, in accordance with the Series'
prospectus, for issuance of Shares obtained through:
The transfer of funds from shareholders' account
at financial institutions; and
Any pre-authorized check plan.
(ii) PFPC, if requested, shall arrange for a shareholder's:
Exchange of Shares for shares of a fund for which
the Fund has exchange privileges;
A-2
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<PAGE>
Systematic withdrawal from an account where that
shareholder participates in a systematic
withdrawal plan; and/or
Redemption of Shares from an account with a
checkwriting privilege.
(d) Communications to Shareholders. Upon timely written
instructions, PFPC shall mail all communications by the Fund to
its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund Shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy
cards for the meetings of the Fund's shareholders and supply personnel
to serve as inspectors of election.
(e) Records. PFPC shall maintain records of the accounts for each
shareholder showing the following information:
(i) Name, address and United States Tax Identification or
Social Security number;
(ii) Number and class of Shares held and number and class
of Shares for which certificates, if any, have been
issued, including certificate numbers and
denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions
paid and the date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings; and
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<PAGE>
(vii) Any information required in order for the transfer
agent to perform any calculations contemplated or
required by this Agreement.
(f) Lost or Stolen Certificates. PFPC shall place a stop notice
against any certificate reported to be lost or stolen and comply
with all applicable federal regulatory requirements for
reporting such loss or alleged misappropriation.
A new certificate shall be registered and issued upon:
(i) Shareholder's pledge of a lost instrument bond or
such other and appropriate indemnity bond issued by a
surety company approved by PFPC; and
(ii) Completion of a release and indemnification agreement
signed by the shareholder to protect PFPC.
(g) Shareholder Inspection of Stock Records. Upon requests from Fund
shareholders to inspect stock records, PFPC will notify the Fund
and require instructions granting or denying such request prior
to taking any action. Unless PFPC has acted contrary to the
Fund's instructions, the Fund agrees to release PFPC from any
liability for refusal of permission for a particular shareholder
to inspect the Fund's shareholder records.
A-4
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<PAGE>
APPENDIX B
PFPC will perform or arrange for others to perform the following activities,
some or all of which may be delegated and assigned by PFPC to PaineWebber
Incorporated ('PaineWebber') or Mitchell Hutchins Asset Management Inc.
('Mitchell Hutchins') or to an affiliated person of either:
(i) providing, to the extent reasonable, uninterrupted
processing of new accounts, shareholder account
changes, sales and redemption activity, dividend
calculations and payments, check settlements, blue sky
reporting, tax reporting, recordkeeping, communication
with all shareholders, resolution of discrepancies and
shareholder inquiries and adjustments, maintenance of
dual system, development and maintenance of repricing
system, and development and maintenance of correction
system;
(ii) develop and maintain all systems for custodian
interface and reporting, and underwriter interface and
reporting;
(iii) develop and maintain all systems necessary to
implement and operate the three-tier distribution
system, including Class B conversion features as
described in the registration statement and related
documents of the Fund, as they may be amended from
time to time; and
(iv) provide administrative, technical and legal support
for the foregoing services.
In undertaking its activities and responsibilities under this Appendix, PFPC
will not be responsible, except to the extent caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this agreement, for any charges or fees billed, expenses
incurred or penalties, imposed by any party, including the Fund or any current
or prior services providers of the Fund, without the prior written approval by
PFPC.
B-1
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<PAGE>
APPENDIX C
Kidder, Peabody Small Cap Equity Fund
<PAGE>
<PAGE>
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
November 22, 1995
The Board of Trustees
Mitchell Hutchins/
Kidder, Peabody Investment Trust III
1285 Avenue of the Americas
New York, New York 10019
Gentlemen:
We have acted as counsel to Mitchell Hutchins/Kidder, Peabody Investment Trust
III, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), in connection with the preparation
of Post-Effective Amendment No. 4 to its Registration Statement on Form N-1A
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended (the "Registration Statement"), relating to the offer and sale
of an indefinite number of Class B shares of beneficial interest, par value
$.001 per share (the "Shares") of PaineWebber Small Cap Growth Fund (the
"Fund"), a series of the Trust.
We have examined copies of the Trust's Declaration of Trust, as amended (the
"Trust Agreement"), the Trust's By-Laws as amended, the Registration Statement,
all votes adopted by the Trust's Board of Trustees at a duly constituted meeting
of the Board of Trustees on August 30, 1995, and other records and documents
that we have deemed necessary for the purpose of rendering the opinion expressed
below. We have also examined such other documents, papers, statutes and
authorities as we have deemed necessary to form a basis for that opinion.
In our examination of the materials described above, we have assumed the
genuineness of all signatures and the conformity to original documents of all
copies submitted to us. As to various questions of fact material to our opinion,
we have relied on statements and certificates of officers and representatives of
the Trust and others. As to matters governed by the laws of The Commonwealth of
Massachusetts, we have relied on the opinion of Messrs.
<PAGE>
<PAGE>
The Board of Trustees
Mitchell Hutchins/
Kidder, Peabody Investment Trust III
November 22, 1995
Page -2-
Bingham, Dana & Gould dated the same date as this opinion and a copy of which is
attached to this opinion.
Based upon and subject to the foregoing, please be advised that it is our
opinion that:
1. The Trust is duly organized and existing under the Trust Agreement and the
laws of the Commonwealth of Massachusetts as a voluntary association with
transferable shares of beneficial interest commonly referred to as a
"Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Registration
Statement, the Trust Agreement and the Trust's By-Laws, will be legally issued,
fully paid and non-assessable, except that, as set forth in the Registration
Statement, shareholders of the Fund may under certain circumstances be held
personally liable for the Trust's obligations.
We consent to the filing of this letter as an exhibit to the Registration
Statement, to the reference to us in the Statement of Additional Information
forming part of the Registration Statement and to the filing of this letter as
an exhibit to any application made by or on behalf of the Trust or any
distributor or dealer in connection with the registration or qualification of
the Trust or the Shares under the securities laws of any state or other
jurisdiction.
Very truly yours,
/s/Willkie Farr & Gallagher
<PAGE>
<PAGE>
BINGHAM, DANA & GOULD
150 Federal Street
Boston, Massachusetts 02110
November 22, 1995
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4667
Re: Mitchell Hutchins/Kidder, Peabody
Investment Trust III
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Mitchell Hutchins/Kidder,
Peabody Investment Trust III, a Massachusetts business trust (the "Trust"), in
connection with post-effective amendment number 4 (the "Amendment") to the
Trust's Registration Statement on Form N-1A to be filed with the Securities and
Exchange Commission (the "Commission") on or about November 22, 1995 (as
proposed to be amended, the "Registration Statement"), with respect to an
indefinite number of Class A, Class B, Class C and Class Y shares of beneficial
interest, par value $.001 per share (the "Shares"), of PaineWebber Small Cap
Growth Fund (the "Fund"), a separate series of the Trust. You have requested
that we deliver this opinion to you, as special counsel to the Trust, for use by
you in connection with your opinion to the Trust with respect to the Shares.
In connection with the furnishing of this opinion, we have examined the
following documents:
(a) a certificate dated November 20, 1995 of the Secretary of State of
the Commonwealth of Massachusetts as to the existence of the Trust;
(b) a copy of the Trust's Declaration of Trust as amended;
(c) a copy of the Trust's Establishment and Designation of Classes
(the "Designation");
(d) a Certificate executed by an appropriate officer of the Trust,
certifying as to the Trust's
<PAGE>
<PAGE>
Willkie Farr & Gallagher
November 22, 1995
Page -2-
Declaration of Trust, Designation and By-Laws, and certain resolutions
adopted by the Trustees of the Trust; and
(e) a printer's proof draft dated November 15, 1995 of the Amendment.
In such examination, we have assumed the genuineness of all signatures, the
conformity to the originals of all of the documents reviewed by us as copies,
including conformed copies, the authenticity and completeness of all original
documents reviewed by us in original or copy form and the legal competence of
each individual executing any document. We have assumed that the Amendment as
filed with the Commission will be in substantially the form referred to in
paragraph (e) above.
This opinion is based entirely on our review of the documents listed above
and such investigation of law as we have deemed necessary or appropriate. We
have made no other review or investigation of any kind whatsoever, and we have
assumed, without independent inquiry, the accuracy of the information set forth
in such documents.
This opinion is limited solely to the internal substantive laws of the
Commonwealth of Massachusetts as applied by courts located in such Commonwealth,
except that we express no opinion as to any Massachusetts securities law.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is our
opinion that:
1. The Trust is duly organized and existing under the Trust's Declaration
of Trust and the laws of the Commonwealth of Massachusetts as a voluntary
association with transferable shares of beneficial interest commonly referred to
as a "Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Registration
Statement and the Trust's Declaration of Trust and By-Laws, will be legally
issued, fully paid and non-assessable, except that, as set forth in the
Registration Statement, shareholders of the Fund may under certain circumstances
be held personally liable for the Trust's obligations.
<PAGE>
<PAGE>
Willkie Farr & Gallagher
November 22, 1995
Page -3-
We hereby consent to your reliance on this opinion in connection with your
opinion to the Trust with respect to the Shares, to the reference to our name in
the Registration Statement under the heading "Legal Opinions" and to the filing
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ BINGHAM, DANA & GOULD
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Financial
Highlights' in the prospectuses and 'Independent Auditors' in the statements
of additional information and to the incorporation by reference of our report
dated September 21, 1995 in this Registration Statement (Form N-1A No.
33-60812) of PaineWebber Small Cap Growth Fund.
ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
November 21, 1995
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
PaineWebber Small Cap Growth Fund
(Formerly the Kidder, Peabody Small Cap Equity Fund;
One of the portfolios constituting the Mitchell Hutchins/Kidder, Peabody
Investment Trust III):
We consent to the incorporation by reference in the Statement of Additional
Information in this Post-Effective Amendment No. 4 to Registration Statement No.
33-60812 of our report dated September 9, 1994, appearing in the annual report
to shareholders for the year ended July 31, 1994.
Deloitte & Touche LLP
New York, New York
November 22, 1995
<PAGE>
Exhibit 15a
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
This Shareholder Servicing and Distribution Plan (the 'Plan') is adopted by
Kidder, Peabody Investment Trust III, a business trust organized under the laws
of the Commonwealth of Massachusetts (the 'Trust'), with respect to Kidder,
Peabody Small Cap Equity Fund (the 'Fund'), a series of the Trust, pursuant to
Rule 12b-1 (the 'Rule') under the Investment Company Act of 1940, as amended
(the '1940 Act'), subject to the following terms and conditions:
Section 1. Compensation.
(a) Class A Servicing Fee. The Trust will pay Kidder, Peabody & Co.
Incorporated, a corporation organized under the laws of the State of
Delaware ('Kidder, Peabody'), a fee in connection with the servicing of
Fund shareholder accounts in Class A shares calculated daily and paid
monthly by the Trust at the annual rate of .25% of the value of the average
daily net assets of the Fund attributable to the Class A shares (the 'Class
A Service Fee').
(b) Class B Servicing Fee. The Trust will pay Kidder, Peabody a fee in
connection with the servicing of Fund shareholder accounts in Class B
shares calculated daily and paid monthly by the Trust at the annual rate of
.25% of the value of the average daily net assets of the Fund attributable
to the Class B shares (the 'Class B Service Fee' and together with the
Class A Service Fee, the 'Service Fees').
(c) Class B Distribution Fee. In addition to the Class B Service Fee,
the Trust will pay to Kidder, Peabody a fee in connection with distribution
related services provided in respect of the Class B shares of the Fund (the
'Distribution Fee') calculated daily and paid monthly at the annual rate of
.75% of the value of the average daily net assets of the Fund attributable
to the Class B shares.
(d) The Service Fees and the Distribution Fee will be calculated daily
and paid monthly by the Fund with respect to the foregoing classes of the
Fund's shares (each a 'Class' and together the 'Classes') at the annual
rates indicated above.
Section 2. Expenses Covered by the Plan.
(a) With respect to expenses incurred by each Class, its respective
Service Fees will be used by Kidder, Peabody to provide compensation for
ongoing servicing and/or maintenance of shareholder accounts with the Fund
and to cover an allocable
<PAGE>
<PAGE>
portion of overhead and other Kidder, Peabody branch office expenses related to
the servicing and/or maintenance of shareholder accounts. Compensation will be
paid by Kidder, Peabody to persons, including Kidder, Peabody employees, who
respond to inquiries of shareholders of the Fund regarding their ownership of
shares or their accounts with the Fund or who provide other similar services not
otherwise required to be provided by the Fund's manager, investment adviser,
transfer agent or other agent of the Fund.
(b) The Distribution Fee will be used by Kidder, Peabody to provide
initial and ongoing sales compensation to its registered representatives in
respect of sales of Class B shares; costs of printing and distributing the
Fund's Prospectus, Statement of Additional Information and sales literature
to prospective investors that are attributable to sales of the Class B
shares of the Fund; costs associated with any advertising relating to the
Class B shares of the Fund; an allocation of overhead and other Kidder,
Peabody branch office expenses related to the distribution of the Class B
shares of Fund shares; and payments to, and expenses of, persons who
provide support services in connection with the distribution of Class B
shares of the Fund.
(c) Payments under the Plan are not tied exclusively to the expenses
for shareholder servicing and distribution related activities actually
incurred by Kidder, Peabody, so that those payments may exceed expenses
actually incurred by Kidder, Peabody. The Trust's Board of Trustees will
evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so will consider all relevant factors,
including expenses borne by Kidder, Peabody and amounts it receives under
the Plan.
Section 3. Approval by Shareholders.
The Plan will not take effect, and no fee will be payable in accordance
with Section 1 of the Plan, with respect to either Class, until the Plan has
been approved by a vote of at least a majority of the outstanding voting
securities represented by that Class.
Section 4. Approval by Trustees.
Neither the Plan nor any related agreements will take effect until approved
by a majority of both (a) the full Board of Trustees of the Trust and (b) those
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in
2
<PAGE>
<PAGE>
any agreements related to it (the 'Independent Trustees'), cast in person at a
meeting called for the purpose of voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class from year to
year so long as its continuance is specifically approved annually by vote of the
Trust's Board of Trustees in the manner described in Section 4 above.
Section 6. Termination
The Plan may be terminated with respect to any Class at any time, without
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of Class the Fund on not more than
30 days' written notice to Kidder, Peabody. The Plan may remain in effect with
respect to a particular Class even if the Plan has been terminated in accordance
with this Section 6 with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class to increase
materially the amount of the fees described in Section 1 above, unless the
amendment is approved by a vote of at least a majority of the outstanding voting
securities of that Class, and all material amendments to the Plan must also be
approved by the Trust's Board of Trustees in the manner described in Section 4
above.
Section 8. Selection of Certain Trustees.
While the Plan is in effect, the selection and nomination of the Trust's
Trustees who are not interested persons of the Trust will be committed to the
discretion of the Trustees then in office who are not interested persons of the
Trust.
Section 9. Written Reports.
In each year during which the Plan remains in effect, Kidder, Peabody and
any person authorized to direct the disposition of monies paid or payable by the
Trust with respect to the Fund pursuant to the Plan or any related agreement
will prepare and furnish to the Trust's Board of Trustees, and the Board will
review, at least quarterly, written reports, complying with the requirements of
the Rule, which set out the amounts
3
<PAGE>
<PAGE>
expended under the Plan and the purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The Trust will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 9 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms 'interested person' and 'majority of the
outstanding voting securities' will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the
1940 Act, subject to any exemption that may be granted to the Trust under the
1940 Act by the Securities and Exchange Commission.
Section 12. Filing of Declaration of Trust.
The Trust represents that a copy of its Declaration of Trust dated as of
April 8, 1993, as amended from time to time (the 'Declaration Trust'), is on
file with the Secretary of the Commonwealth of Massachusetts and with the Boston
City Clerk.
Section 13. Limitation of Liability.
The obligations of the Trust under this Plan will not be binding upon any
of the Trustees, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust, individually, but are binding only upon
the assets and property of the Trust, as provided in the Declaration of Trust.
The execution and delivery of this Plan have been authorized by the Trustees of
the Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No series of the
Trust, including the Fund, will be liable for any claims against any other
series.
4
<PAGE>
<PAGE>
Section 14. Dates.
The Plan has been executed by the Trust with respect to the Fund as of
August 25, 1993 and will become effective, as to a particular Class, as of the
date on which interests in that Class are first offered to or held by the
public.
KIDDER, PEABODY INVESTMENT TRUST III
By: Lawrence H. Kaplan
-----------------------------
5
<PAGE>
<PAGE>
Exhibit 15(a)(a)
AMENDMENT TO
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
-------------------------------------------
(Dated as of August 25, 1993)
WHEREAS, pursuant to resolutions adopted by the Board of Directors of
Kidder, Peabody Investment Trust III ('Trust') on December 16, 1994, Mitchell
Hutchins Asset Management Inc. ('Mitchell Hutchins') was appointed distributor
of the Trust's shares, including the shares of its series, Kidder, Peabody Small
Cap Equity Fund ('Fund');
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Fund, the
following amendment to the above-referenced plan ('Plan'):
All references to 'Kidder, Peabody & Co. Incorporated' in the Plan are
hereby replaced with 'Mitchell Hutchins Asset Management Inc.' and all
references to 'Kidder, Peabody' in the Plan are hereby replaced with
'Mitchell Hutchins.'
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has executed this
'Amendment to the Shareholder Servicing and Distribution Plan' on the day and
year set forth below.
Date: January 30, 1995
KIDDER, PEABODY INVESTMENT TRUST III
By: Lawrence H. Kaplan
----------------------------------
Attest: Dawn Ciulla
-----------
<PAGE>
<PAGE>
Exhibit 15b
SHAREHOLDER SERVICING AGREEMENT
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Kidder, Peabody Investment Trust III (the "Trust") confirms
its agreement with Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), implementing the terms of the Shareholder Servicing and Distribution
Plan dated as of August 25, 1993 (the "Plan") adopted by the Trust with respect
to each of the Class A shares and Class B shares of the Kidder, Peabody Small
Cap Equity Fund (the "Fund"), a series of the Trust, pursuant to Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"),
as follows:
Section 1. Compensation and Services to be Rendered.
(a) The Trust will pay Mitchell Hutchins an annual fee in
connection with the servicing of Fund shareholder accounts. The annual fee paid
to Mitchell Hutchins under this Agreement will be calculated daily and paid
monthly by the Trust at the annual rate of .25% of the average daily net assets
with respect to each of the Classes.
(b) The annual fee with respect to each Class will be used by
Mitchell Hutchins to provide compensation for ongoing servicing and/or
maintenance of shareholder accounts in the Class and to cover an allocable
portion of overhead and other Mitchell Hutchins branch office expenses related
to the servicing and/or maintenance of shareholder accounts. Compensation will
be paid by Mitchell Hutchins to persons, including Mitchell Hutchins employees,
who respond to inquiries of shareholders of the Fund regarding their ownership
of shares or their accounts with the Fund or who provide other similar services
not otherwise required to be provided by the Fund's manager, investment adviser,
transfer agent or other agent of the Fund.
Section 2. Approval by Trustees.
This Agreement will not take effect until approved by a
majority vote of both (a) the full Board of Trustees of the Trust and (b) those
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in this Agreement
(the "Independent
<PAGE>
<PAGE>
Trustees"), cast in person at a meeting called for the purpose of voting on this
Agreement.
Section 3. Continuance of the Plan.
This Agreement will continue in effect from year to year so
long as its continuance is specifically approved annually by vote of the Trust's
Board of Trustees in the manner described in Section 2 above.
Section 4. Termination.
(a) This Agreement may be terminated at any time, with respect
to a particular Class of shares of the Fund without the payment of any penalty,
by vote of a majority of the Independent Trustees or by vote of a majority of
the outstanding voting securities represented by the particular Class of shares
of the Fund on not more than 60 days' written notice to Mitchell Hutchins. The
Plan may remain in effect with respect to a particular Class even if the Plan
has been terminated in accordance with this Section 4 with respect to any other
Class.
(b) This Agreement will terminate automatically in the
event of its assignment.
Section 5. Selection of Certain Trustees.
While this Agreement is in effect, the selection and
nomination of the Trust's Trustees who are not interested persons of the Trust
will be committed to the discretion of the Trustees then in office who are not
interested persons of the Trust.
Section 6. Written Reports.
Mitchell Hutchins agrees that, in each year during which this
Agreement remains in effect, Mitchell Hutchins will prepare and furnish to the
Trust's Board of Trustees, and the Board will review, at least quarterly,
written reports, complying with the requirements of the Rule, that set out the
amounts expended under this Agreement and the purposes for which those
expenditures were made.
Section 7. Meaning of Certain Terms.
As used in this Agreement, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Trust
under the 1940 Act by the Securities and Exchange Commission.
-2-
<PAGE>
<PAGE>
Section 8. Filing of Declaration of Trust.
The Trust represents that a copy of its Declaration of Trust
dated as of April 8, 1993, as amended from time to time (the "Declaration of
Trust"), is on file with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk.
Section 9. Limitation of Liability.
The obligations of the Trust under this Agreement will not be
binding upon any of the Trustees, shareholders, nominees, officers, employees or
agents, whether past, present or future, of the Trust, individually, but are
binding only upon the assets and property of the Trust, as provided in the
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust, and signed by an authorized officer of
the Trust, acting as such, and neither the authorization by the Trustees nor the
execution and delivery by the officer will be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but will
bind only the trust property of the Trust as provided in the Declaration of
Trust. No series of the Trust, including the Fund, will be liable for any claims
against any other series.
Section 10. Dates.
This Agreement has been executed by the Trust with respect to
the Fund as of January 30, 1995 and will become effective, as to any particular
Class, as of that date.
If the terms and conditions described above are in accordance
with your understanding, kindly indicate your acceptance of this Agreement by
signing and returning to us the enclosed copy of this Agreement.
Very truly yours,
KIDDER, PEABODY INVESTMENT TRUST III
By: Robert B. JOnes
------------------------------------
Accepted:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By: Dianne E. O'Donnell
----------------------------------
-3-
<PAGE>
<PAGE>
Exhibit 15(c)
DISTRIBUTION RELATED SERVICES AGREEMENT
January 30, 1995
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Kidder, Peabody Investment Trust III (the "Trust") confirms
its agreement with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
implementing the terms of the shareholder servicing and distribution plan dated
as of August 25, 1993 (the "Plan") adopted by the Trust with respect to the
Class B shares (the "Class B shares") of Kidder, Peabody Small Cap Equity Fund
(the "Fund"), a series of the Trust, pursuant to Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940, as amended (the "1940 Act"), as follows:
Section 1. Compensation and Services to be Rendered.
(a) The Trust will pay Mitchell Hutchins an annual fee in
connection with distribution related services provided with respect to Class B
shares of the Fund. The annual fee paid to Mitchell Hutchins under this
Agreement will be calculated daily and paid monthly by the Trust at the annual
rate of .75% of the value of the average daily net assets of the Fund.
(b) The annual fee will be used by Mitchell Hutchins to
provide initial and ongoing sales compensation to its registered representatives
in respect of sales of Class B shares of the Fund; costs of printing and
distributing the Fund's Prospectus, Statement of Additional Information and
sales literature to prospective investors that are attributable to sales of the
Class B shares of the Fund; costs associated with any advertising relating to
Class B shares of the Fund; an allocation of overhead and other Mitchell
Hutchins branch office expenses related to the distribution of Class B shares of
the Fund; and payments to, and expenses of, persons who provide support services
in connection with the distribution of the Class B shares of the Fund.
Section 2. Approval by Trustees.
This Agreement will not take effect until approved by a
majority vote of both (a) the full Board of Trustees of the Trust and (b) those
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in
<PAGE>
<PAGE>
the operation of the Plan or in this Agreement (the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on this Agreement.
Section 3. Continuance of the Plan.
This Agreement will continue in effect from year to year so
long as its continuance is specifically approved annually by vote of the Trust's
Board of Trustees in the manner described in Section 2 above.
Section 4. Termination.
(a) This Agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities represented by the Class
B shares of the Fund on not more than 30 days' written notice to Mitchell
Hutchins.
(b) This Agreement will terminate automatically in the
event of its assignment.
Section 5. Selection of Certain Trustees.
While this Agreement is in effect, the selection and
nomination of the Trust's Trustees who are not interested persons of the Trust
will be committed to the discretion of the Trustees then in office who are not
interested persons of the Trust.
Section 6. Written Reports.
Mitchell Hutchins agrees that, in each year during which this
Agreement remains in effect, Mitchell Hutchins will prepare and furnish to the
Trust's Board of Trustees, and the Board will review, at least quarterly,
written reports, complying with the requirements of the Rule, that set out the
amounts expended under this Agreement and the purposes for which those
expenditures were made.
Section 7. Meaning of Certain Terms.
As used in this Agreement, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Trust
under the 1940 Act by the Securities and Exchange Commission.
-2-
<PAGE>
<PAGE>
Section 8. Filing of Declaration of Trust.
The Trust represents that a copy of its Declaration of Trust
dated as of April 8, 1993, as amended from time to time (the "Declaration of
Trust"), is on file with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk.
Section 9. Limitation of Liability.
The obligations of the Trust under this Agreement will not be
binding upon any of the Trustees, shareholders, nominees, officers, employees or
agents, whether past, present or future, of the Trust, individually, but are
binding only upon the assets and property of the Trust, as provided in the
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust, and signed by an authorized officer of
the Trust, acting as such, and neither the authorization by the Trustees nor the
execution and delivery by the officer will be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but will
bind only the trust property of the Trust as provided in the Declaration of
Trust. No series of the Trust, including the Fund, will be liable for any claims
against any other series.
Section 10. Dates.
This Agreement has been executed by the Trust with respect to
the Fund as of January 30, 1995 and will become effective as of that date.
* * * * *
If the terms and conditions described above are in accordance
with your understanding, kindly indicate your acceptance of this Agreement by
signing and returning to us the enclosed copy of this Agreement.
Very truly yours,
KIDDER, PEABODY INVESTMENT TRUST III
By: Robert B. Jones
---------------------------------
Accepted:
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By: Dianne E. O'Donnell
-----------------------------------
-3-
<PAGE>
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
Mitchell Hutchins/Kidder, Peabody Investment Trust III (the 'Trust'), and
its operating series, Mitchell Hutchins/Kidder, Peabody Small Cap Growth Fund
(the 'Fund'), hereby adopt this Multiple Class Plan (the 'Plan') pursuant to
Rule 18f-3 under the Investment Company Act of 1940, as amended (the '1940
Act').
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
1. CLASS A SHARES. Class A shares of the Fund are sold to the general
public subject to an initial sales charge. The initial sales charge for the Fund
is waived for certain eligible purchasers and reduced or waived for certain
large volume purchases.
The maximum sales charge is 4.5% of the public offering price for Class A
shares.
Class A shares of the Fund are subject to an annual service fee of .25% of
the average daily assets of the Class A shares of the Fund paid pursuant to a
plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class A shares of the Fund issued on or after November 10, 1995 will be
subject to a contingent deferred sales charge ('CDSC') on redemptions of shares
(i) purchased without an initial sales charge due to 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 the Fund held one year or longer and Class A
shares of the Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC. The CDSC for Class A shares of the
Fund will be waived under certain circumstances.
2. CLASS B SHARES. Class B shares of the 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 the Fund is equal to 5% of the lower
of: (i) the net asset value of the shares at the time of purchase or (ii) the
net asset value of the shares at the time of redemption.
Class B shares of the Fund held six years or longer and Class B shares of
the Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC.
Class B shares of the 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
<PAGE>
<PAGE>
shares of the Fund, each paid pursuant to a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of the Fund convert to Class A shares approximately six
years after issuance at relative net asset value.
3. CLASS C SHARES (PRIOR TO NOVEMBER 10, 1995, SUCH SHARES DESIGNATED
'CLASS B' SHARES). Class C shares of the Fund are sold to the general public
without imposition of a sales charge.
Class C shares of the 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 Class C shares of the Fund, each pursuant to a plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act.
Class C shares of the Fund issued on or after November 10, 1995 will be
subject to a CDSC on redemptions of Class C 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.
Class C shares of the Fund held one year or longer and Class C shares of the
Fund acquired through reinvestment of dividends or capital gains distributions
are not subject to the CDSC. The CDSC for Class C shares of the Fund will be
waived under certain circumstances.
4. CLASS Y SHARES (PRIOR TO NOVEMBER 10, 1995, SUCH SHARES DESIGNATED
'CLASS C' SHARES). Class Y shares are sold without imposition of an initial
sales charge or CDSC and are not subject to any service or distribution fees.
Class Y shares of the 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; and
(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.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
Certain expenses may be attributable to a particular Class of shares of the
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 the Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
<PAGE>
<PAGE>
(1) printing and postage expenses related to a 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
(7) transfer agent fees identified as being attributable to a specific
Class.
C. EXCHANGE PRIVILEGES:
Class A, Class B and Class C shares of the Fund may be exchanged for shares
of the corresponding Class of other Mitchell Hutchins/Kidder, Peabody ('MH/KP')
mutual funds and PaineWebber mutual funds, or may be acquired through an
exchange of shares of the corresponding Class of those funds. Class Y shares of
the Fund are not exchangeable.
These exchange privileges may be modified or terminated by the 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 the Trust, the 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
<PAGE>
<PAGE>
Plan. The prospectus for the Fund contains additional information about the
Classes and the multiple class structure.
F. DATE OF EFFECTIVENESS:
This multiple Class Plan is effective as of the date hereof, provided that
the new class designations shall be effective November 10, 1995 and the CDSC
imposed on the Class A shares and Class C shares of the Fund shall apply only to
Class A shares and Class C shares issued on or after November 10, 1995.
August 30, 1995
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Margo N. Alexander, President of PaineWebber/Kidder, Peabody California
Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, and each of them singly, my true and
lawful attorneys, with full power to them to sign for me, and in my capacity as
President for each of the Funds, any and all amendments to each of the
particular registration statements of the Funds, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ Margo N. Alexander President July 21, 1995
........................................
MARGO N. ALEXANDER
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, David J. Beaubien, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, 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 each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ DAVID J. BEAUBIEN Trustee March 8, 1995
........................................
DAVID J. BEAUBIEN
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, William W. Hewitt, Jr., Trustee of PaineWebber/Kidder, Peabody
California Tax Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account
Fund, PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, 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 each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ WILLIAM W. HEWITT, JR. Trustee March 8, 1995
........................................
WILLIAM W. HEWITT, JR.
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Thomas R. Jordan, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, 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 each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ THOMAS R. JORDAN Trustee March 8, 1995
........................................
THOMAS R. JORDAN
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Frank P.L. Minard, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, 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 each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ FRANK P.L. MINARD Trustee May 18, 1995
........................................
FRANK P.L. MINARD
</TABLE>
<PAGE>
<PAGE>
POWER OF ATTORNEY
I, Carl W. Schafer, Trustee of PaineWebber/Kidder, Peabody California Tax
Exempt Money Fund, PaineWebber/Kidder, Peabody Premium Account Fund,
PaineWebber/Kidder, Peabody Municipal Money Market Series, Mitchell
Hutchins/Kidder, Peabody Investment Trust, Mitchell Hutchins/Kidder, Peabody
Investment Trust II, Mitchell Hutchins/Kidder, Peabody Investment Trust III,
Institutional Series Trust, and Liquid Institutional Reserves (collectively, the
'Funds'), hereby constitute and appoint Victoria E. Schonfeld, Dianne E.
O'Donnell, Gregory K. Todd and Scott Griff, 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 each of the Funds, any and all amendments to each of the particular
registration statements of the Funds, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- ---------------
<S> <C> <C>
/s/ CARL W. SCHAFER Trustee March 8, 1995
........................................
CARL W. SCHAFER
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MH/KP SMALL CAP GROWTH FUND-CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 22,778
<INVESTMENTS-AT-VALUE> 31,495
<RECEIVABLES> 497
<ASSETS-OTHER> 251
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,243
<PAYABLE-FOR-SECURITIES> 1,064
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 252
<TOTAL-LIABILITIES> 1,316
<SENIOR-EQUITY> 26,824
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,248
<SHARES-COMMON-PRIOR> 3,016
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,613)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,716
<NET-ASSETS> 30,927
<DIVIDEND-INCOME> 87
<INTEREST-INCOME> 60
<OTHER-INCOME> 0
<EXPENSES-NET> 587
<NET-INVESTMENT-INCOME> (440)
<REALIZED-GAINS-CURRENT> 1,077
<APPREC-INCREASE-CURRENT> 9,601
<NET-CHANGE-FROM-OPS> 10,678
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 451
<NUMBER-OF-SHARES-REDEEMED> 1,219
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 861
<ACCUMULATED-NII-PRIOR> (313)
<ACCUMULATED-GAINS-PRIOR> (5,588)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 282
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 587
<AVERAGE-NET-ASSETS> 30,468
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> 4.17
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 13.76
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MH/KP SMALL CAP GROWTH FUND-CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 11,150
<INVESTMENTS-AT-VALUE> 15,417
<RECEIVABLES> 243
<ASSETS-OTHER> 123
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,783
<PAYABLE-FOR-SECURITIES> 521
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123
<TOTAL-LIABILITIES> 644
<SENIOR-EQUITY> 13,131
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,115
<SHARES-COMMON-PRIOR> 1,557
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,258)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,267
<NET-ASSETS> 15,139
<DIVIDEND-INCOME> 43
<INTEREST-INCOME> 29
<OTHER-INCOME> 0
<EXPENSES-NET> 287
<NET-INVESTMENT-INCOME> (215)
<REALIZED-GAINS-CURRENT> 527
<APPREC-INCREASE-CURRENT> 4,700
<NET-CHANGE-FROM-OPS> 5,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 189
<NUMBER-OF-SHARES-REDEEMED> 631
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 422
<ACCUMULATED-NII-PRIOR> (161)
<ACCUMULATED-GAINS-PRIOR> (2,869)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 138
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 287
<AVERAGE-NET-ASSETS> 15,095
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> (.28)
<PER-SHARE-GAIN-APPREC> 4.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.58
<EXPENSE-RATIO> 2.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MH/KP SMALL CAP GROWTH FUND-CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 4,341
<INVESTMENTS-AT-VALUE> 6,003
<RECEIVABLES> 95
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,145
<PAYABLE-FOR-SECURITIES> 203
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48
<TOTAL-LIABILITIES> 251
<SENIOR-EQUITY> 5,113
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 427
<SHARES-COMMON-PRIOR> 594
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (879)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,661
<NET-ASSETS> 5,894
<DIVIDEND-INCOME> 17
<INTEREST-INCOME> 11
<OTHER-INCOME> 0
<EXPENSES-NET> 112
<NET-INVESTMENT-INCOME> (84)
<REALIZED-GAINS-CURRENT> 205
<APPREC-INCREASE-CURRENT> 1,830
<NET-CHANGE-FROM-OPS> 1,951
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 182
<NUMBER-OF-SHARES-REDEEMED> 349
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,951
<ACCUMULATED-NII-PRIOR> (62)
<ACCUMULATED-GAINS-PRIOR> (1,103)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 54
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112
<AVERAGE-NET-ASSETS> 6,055
<PER-SHARE-NAV-BEGIN> 9.81
<PER-SHARE-NII> (.28)
<PER-SHARE-GAIN-APPREC> 4.29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.82
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
