-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMTqxf5F8CuaGCHFNAGFlF4aojRqVEGhVTd+el6Wq6H+0QspUWkNlWHUnvYrrVNq fdg7Jv47hqy3+9slcsGC4w== 0000889812-98-002768.txt : 19981124 0000889812-98-002768.hdr.sgml : 19981124 ACCESSION NUMBER: 0000889812-98-002768 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19981123 EFFECTIVENESS DATE: 19981123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINEWEBBER AMERICA FUND /NY/ CENTRAL INDEX KEY: 0000703887 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133175781 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-78626 FILM NUMBER: 98756515 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03502 FILM NUMBER: 98756516 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132421 MAIL ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS STREET 2: 1285 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER GOVERNMENT FUND INC DATE OF NAME CHANGE: 19890402 485BPOS 1 POST EFFECTIVE AMENDMENT NO. 43 As filed with the Securities and Exchange Commission on November 20, 1998 1933 Act Registration No. 2-78626 1940 Act Registration No. 811-3502 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-lA REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] Pre-Effective Amendment No.______ [ ] Post-Effective Amendment No. 43 [ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] Amendment No. 41 [ X ] (Check appropriate box or boxes.) PAINEWEBBER AMERICA FUND (Exact name of registrant as specified in charter) 1285 Avenue of the Americas New York, New York 10019 (Address of principal executive offices) Registrant's telephone number, including area code: (212) 713-2000 DIANNE E. O'DONNELL, ESQ. Mitchell Hutchins Asset Management Inc. 1285 Avenue of the Americas New York, New York 10019 (Name and address of agent for service) Copies to: ELINOR W. GAMMON, ESQ. BENJAMIN J. HASKIN, ESQ. Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W.; Second Floor Washington, D.C. 20036-1800 Telephone (202) 778-9000 Approximate Date of Proposed Public Offering: Effective Date of this Post-Effective Amendment. It is proposed that this filing will become effective: [ ] Immediately upon filing pursuant to Rule 485(b) [ X ] On November 30, 1998 pursuant to Rule 485(b) [ ] 60 days after filing pursuant to Rule 485(a)(1) [ ] On ___________ pursuant to Rule 485(a)(1) [ ] 75 days after filing pursuant to Rule 485(a)(2) [ ] On ___________ pursuant to Rule 485(a)(2) Title of Securities Being Registered: Shares of Beneficial Interest. PaineWebber America Fund Contents of Registration Statement This registration statement consists of the following papers and documents: Cover Sheet Contents of Registration Statement Cross Reference Sheet Part A - Prospectus Part B - Statement of Additional Information Part C - Other Information Signature Page Exhibits PaineWebber America Fund: PaineWebber Growth and Income Fund Form N-lA Cross Reference Sheet
Part A Item No. and Caption Prospectus Caption --------------------------- ------------------ 1. Cover Page Cover Page 2. Synopsis The Funds at a Glance; Expense Table 3. Condensed Financial Information Financial Highlights; Performance 4. General Description of Registrant The Funds at a Glance; Investment Objectives & Policies; Investment Philosophy & Process; The Funds' Investments; General Information 5. Management of the Fund Management; General Information 5A. Management's Discussion of Fund Performance Financial Highlights 6. Capital Stock and Other Securities Cover Page; Flexible Pricing(Service Mark); Dividends & Taxes; General Information 7. Purchase of Securities Being Offered Flexible Pricing(Service Mark); How to Buy Shares; Other Services; Determining the Shares' Net Asset Value 8. Redemption or Repurchase How to Sell Shares; Other Services 9. Pending Legal Proceedings Not Applicable Part B Item No. and Caption Statement of Additional Information Caption --------------------------- ------------------------------------------- 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Other Information 13. Investment Objectives and Policies Investment Policies and Restrictions; Strategies Using Derivative Instruments; Portfolio Transactions 14. Management of the Fund Trustees and Officers; Principal Holders of Securities 15. Control Persons and Principal Holders of Securities Trustees and Officers; Principal Holders of Securities 16. Investment Advisory and Other Services Investment Advisory and Distribution Arrangements; Other Information 17. Brokerage Allocation Portfolio Transactions 18. Capital Stock and Other Securities Conversion of Class B Shares; Other Information
Part B Item No. and Caption Statement of Additional Information Caption --------------------------- ------------------------------------------- 19. Purchase, Redemption and Pricing of Securities Reduced Sales Charges, Additional Exchange and Being Offered Redemption Information and Other Services; Valuation of Shares 20. Tax Status Taxes 21. Underwriters Investment Advisory and Distribution Arrangements 22. Calculation of Performance Data Performance Information 23. Financial Statements Financial Statements
Part C - ------ Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement. PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund PaineWebber Small Cap Fund PaineWebber Growth Fund 1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019 PROSPECTUS -- NOVEMBER 30, 1998 PaineWebber Stock Funds are designed for investors generally seeking capital appreciation by investing mainly in equity securities. PaineWebber Growth and Income Fund seeks to provide both current income and capital growth by investing primarily in dividend-paying equity securities believed to have potential for rapid earnings growth. PaineWebber Mid Cap Fund seeks long-term capital appreciation by investing primarily in common stocks of medium-sized companies. PaineWebber Small Cap Fund seeks long-term capital appreciation by investing primarily in equity securities of small capitalization companies. PaineWebber Growth Fund seeks long-term capital appreciation by investing primarily in equity securities of companies believed to have substantial potential for capital growth. This Prospectus concisely sets forth information that an investor should know about the Funds before investing. Please read this Prospectus carefully and retain a copy for future reference. A Statement of Additional Information dated November 30, 1998 has been filed with the Securities and Exchange Commission ("SEC" or "Commission") and is legally part of this Prospectus. The Statement of Additional Information can be obtained without charge, and further inquiries can be made, by contacting an individual Fund, your PaineWebber investment executive, PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568. In addition, the Commission maintains a website (http://www.sec.gov) that contains the Statement of Additional Information, material incorporated by reference, and other information regarding registrants that file electronically with the Commission. THE PAINEWEBBER FAMILY OF MUTUAL FUNDS The PaineWebber Family of Mutual Funds consists of seven broad categories, which are presented here. Generally, investors seeking to maximize return must assume greater risk. The Funds offered by this Prospectus are all in the STOCK FUNDS category. o MONEY MARKET FUND for income and stability by investing in high-quality, short-term investments. o BOND FUNDS for income by investing mainly in bonds. o TAX-FREE BOND FUNDS for income exempt from federal income tax and, in some cases, state and local income taxes, by investing in municipal bonds. o ASSET ALLOCATION FUNDS for high total return by investing in stocks and bonds. o STOCK FUNDS for long-term growth by investing mainly in equity securities. o GLOBAL FUNDS for long-term growth by investing mainly in foreign stocks or high current income by investing mainly in global debt instruments. o FUNDS OF FUNDS for either long-term growth of capital; total return; or income and, secondarily, growth of capital by investing in other PaineWebber mutual funds. A complete listing of the PaineWebber Family of Mutual Funds is found on the back cover of this Prospectus. INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS PROSPECTUS. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OFFER TO SELL SHARES OF THE FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR THEIR DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- Prospectus Page 1 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ---- The Funds at a Glance................... 3 Expense Table........................... 6 Investment Objectives & Policies........ 9 Investment Philosophy & Process......... 10 Performance............................. 12 The Funds' Investments.................. 16 Flexible Pricing(Service Mark).......... 19 How to Buy Shares....................... 22 How to Sell Shares...................... 24 Other Services.......................... 24 Management.............................. 25 Determining the Shares' Net Asset Value................................. 28 Dividends & Taxes....................... 28 General Information..................... 29 Financial Highlights.................... 32 -------------------- Prospectus Page 2 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund THE FUNDS AT A GLANCE - -------------------------------------------------------------------------------- The Funds offered by this Prospectus are not intended to provide a complete investment program, but one or more of them may be appropriate as a component of an investor's overall portfolio. Some common reasons to invest in these Funds are to finance college educations, plan for retirement or diversify a portfolio. When selling shares, investors should be aware that they may get more or less for their shares than they originally paid for them. As with any mutual fund, there is no assurance that the Funds will achieve their goals. GROWTH AND INCOME FUND GOAL: To increase the value of your investment by investing primarily in dividend-paying equity securities believed to have potential for rapid earnings growth. INVESTMENT OBJECTIVE: Current income and capital growth. WHO SHOULD INVEST: Growth and Income Fund is designed for investors seeking current income and capital growth through investment primarily in dividend-paying equity securities of U.S. companies and foreign companies that are traded in the United States. Growth and Income Fund invests primarily in larger, more established companies believed to be undervalued and to have potential for rapid earnings growth. In addition, Growth and Income Fund can invest in high yield, high risk convertible bonds. These investments offer the potential for greater returns, but also entail a substantial degree of volatility and risk. Accordingly, Growth and Income Fund is designed for investors who are able to bear the risks that come with investments in the stocks and bonds of such companies. SIZE: On October 31, 1998, the Fund had over $1.3 billion in net assets. MID CAP FUND GOAL: To increase the value of your investment by investing primarily in common stocks of medium-sized domestic companies and some foreign companies selected primarily on the basis of earnings growth. INVESTMENT OBJECTIVE: Long-term capital appreciation. WHO SHOULD INVEST: Mid Cap Fund is designed for investors who want long-term capital appreciation. The Fund seeks to achieve this objective by investing primarily in common stocks of medium-sized domestic companies and foreign companies that are traded in the United States. Equity securities of small- and medium-sized companies offer investors the potential for greater returns than larger companies but are typically more volatile. Accordingly, the Fund is designed for investors seeking long-term growth who are able to bear the risks that come with investments in the equity securities of such companies. SIZE: On October 31, 1998, the Fund had over $180 million in assets. SMALL CAP FUND GOAL: To increase the value of your investment by investing primarily in equity securities of small capitalization ("small cap") companies. INVESTMENT OBJECTIVE: Long-term capital appreciation. WHO SHOULD INVEST: Small Cap Fund is designed for investors who are seeking long-term capital appreciation through investments primarily in equity securities of small cap U.S. companies and foreign companies that are traded in the United States. Small Cap Fund seeks to invest in small cap companies believed to be undervalued and to have strong earnings momentum. Several statistical studies have been published indicating that the historical long-term returns of small cap equity securities have been higher than those of large cap equity securities. Equity securities of small cap companies generally exhibit greater market volatility than is the case with equity securities of larger companies, or equity securities in general. In addition, Small Cap Fund can invest in high yield, high risk convertible bonds. These investments offer the potential for greater returns, but also entail a substantial degree of volatility and risk. Accordingly, Small Cap Fund is designed for investors who are able to bear the risks and fluctuations associated with investment in smaller companies. SIZE: On October 31, 1998, the Fund had over $113 million in net assets. -------------------- Prospectus Page 3 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund THE FUNDS AT A GLANCE (Continued) - -------------------------------------------------------------------------------- GROWTH FUND GOAL: To increase the value of your investment by investing primarily in equity securities of companies believed to have substantial potential for capital growth. INVESTMENT OBJECTIVE: Long-term capital appreciation. SIZE: On October 31, 1998, the Fund had over $362 million in net assets. WHO SHOULD INVEST: Growth Fund is designed for investors who want long-term capital appreciation through investment primarily in growth-oriented equity securities of U.S. companies and foreign companies that are traded in the United States. Growth Fund invests primarily in large, medium and small companies believed to have greater capital growth potential. In addition, Growth Fund can invest in high yield, high risk bonds and convertible securities. These investments offer the potential for greater returns, but also entail a substantial degree of volatility and risk. Accordingly, Growth Fund is designed for investors who are able to bear the risks that come with investments in the stocks and bonds of such companies. MANAGEMENT Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the investment adviser and administrator of each Fund. MINIMUM INVESTMENT To open an account, investors need $1,000; to add to an account, investors need only $100. RISKS EQUITY SECURITIES historically have shown greater growth potential than other types of securities, but they have also shown greater volatility. Because each Fund will invest primarily in equity securities, its price will rise and fall. Each Fund may invest in U.S. dollar-denominated securities of foreign companies, which may involve more risk than the securities of U.S. companies. Each Fund may use derivatives, such as options and futures, which may involve special risks. Investors may lose money by investing in a Fund; the investment is not guaranteed. GROWTH AND INCOME FUND, SMALL CAP FUND AND GROWTH FUND each may invest up to 10% of its total assets in high yield, high risk convertible bonds, which are considered predominantly speculative and may involve major risk exposure to adverse conditions. MID CAP FUND invests primarily in medium-sized companies, which may have higher earnings growth rates than larger companies, offering the potential for greater returns. However, the greater potential of these companies may entail greater market volatility and risks of adverse financial developments. SMALL CAP FUND invests primarily in small cap companies, which typically are subject to a greater degree of change in earnings and business prospects than are larger, more established companies. In addition, equity securities of small cap companies may be less liquid and more volatile than those of larger companies. HOW TO PURCHASE SHARES OF THE FUNDS Investors may select among these classes of shares: CLASS A SHARES The price is the net asset value plus the initial sales charge; the maximum sales charge is 4.5% of the public offering price. Although investors pay an initial sales charge when they buy Class A shares, the ongoing expenses for this class are lower than the ongoing expenses of Class B and Class C shares. CLASS B SHARES The price is the net asset value. Investors do not pay an initial sales charge when they buy Class B shares. As a result, 100% of their purchase is immediately invested. However, Class B shares have higher ongoing expenses than Class A shares. Depending upon how long they own the shares, investors may have to pay a sales charge when they sell Class B shares. This is called a "contingent deferred sales charge" and applies when investors sell their Class B shares within six years after purchase. After six years, Class B shares convert to Class A shares, which have lower ongoing expenses and no contingent deferred sales charge. -------------------- Prospectus Page 4 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund THE FUNDS AT A GLANCE (Continued) - -------------------------------------------------------------------------------- CLASS C SHARES The price is the net asset value. Investors do not pay an initial sales charge when they buy Class C shares. As a result, 100% of their purchase is immediately invested. However, Class C shares have higher ongoing expenses than Class A shares. A contingent deferred sales charge of 1% is charged on shares sold within one year of purchase. Class C shares never convert to any other class of shares. CLASS Y SHARES Class Y shares are offered only to limited groups of investors. The price is the net asset value. Investors do not pay an initial sales charge when they buy Class Y shares. As a result, 100% of their purchase is immediately invested. Investors also do not pay a contingent deferred sales charge when they sell Class Y shares. Class Y shares have lower ongoing expenses than any other class of shares. -------------------- Prospectus Page 5 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund EXPENSE TABLE - -------------------------------------------------------------------------------- The following tables are intended to assist investors in understanding the expenses associated with investing in each class of shares of the Funds. Expenses shown below are based on those incurred for the most recent fiscal year, except that the 12b-1 Fees for Class A shares of Growth and Income Fund and Growth Fund are shown at the current rates of 0.25% and 0.24%, respectively.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Maximum Sales Charge on Purchases of Shares (as a % of offering price)...................... 4.50% None None None Sales Charge on Reinvested Dividends (as a % of offering price)...................... None None None None Maximum Contingent Deferred Sales Charge (as a % of offering price or net asset value at the time of sale, whichever is less)..................... None 5% 1% None Exchange Fee...................................... None None None None ANNUAL FUND OPERATING EXPENSES (as a % of average net assets) GROWTH AND INCOME FUND Management Fees................................... 0.70% 0.70% 0.70% 0.70% 12b-1 Fees........................................ 0.25 1.00 1.00 None Other Expenses.................................... 0.14 0.17 0.15 0.10 ---- ---- ---- ---- Total Operating Expenses.......................... 1.09% 1.87% 1.85% 0.80% ---- ---- ---- ---- ---- ---- ---- ---- MID CAP FUND Management Fees................................... 1.00% 1.00% 1.00% 1.00% 12b-1 Fees........................................ 0.25 1.00 1.00 None Other Expenses.................................... 0.23 0.32 0.28 0.23 ---- ---- ---- ---- Total Operating Expenses.......................... 1.48% 2.32% 2.28% 1.23% ---- ---- ---- ---- ---- ---- ---- ---- SMALL CAP FUND Management Fees................................... 1.00% 1.00% 1.00% 1.00% 12b-1 Fees........................................ 0.25 1.00 1.00 None Other Expenses.................................... 0.31 0.33 0.32 0.39 ---- ---- ---- ---- Total Operating Expenses.......................... 1.56% 2.33% 2.32% 1.39% ---- ---- ---- ---- ---- ---- ---- ---- GROWTH FUND Management Fees................................... 0.75% 0.75% 0.75% 0.75% 12b-1 Fees........................................ 0.24 1.00 1.00 None Other Expenses.................................... 0.21 0.24 0.24 0.16 ---- ---- ---- ---- Total Operating Expenses.......................... 1.20% 1.99% 1.99% 0.91% ---- ---- ---- ---- ---- ---- ---- ----
- ------------------ CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase plan are available. Purchases of $1 million or more are not subject to an initial sales charge. However, if a shareholder sells these shares within one year after purchase, a contingent deferred sales charge of 1% of the offering price or the net asset value of the shares at the time of sale by the shareholder, whichever is less, is imposed. CLASS B SHARES: Sales charge waivers are available. The maximum 5% contingent deferred sales charge applies to sales of shares during the first year after purchase. The charge generally declines by 1% annually, reaching zero after six years. CLASS C SHARES: If a shareholder sells these shares within one year after purchase, a contingent deferred sales charge of 1% of the offering price or the net asset value of the shares at the time of sale by the shareholder, whichever is less, is imposed. CLASS Y SHARES: No initial or contingent deferred sales charge is imposed, nor are Class Y shares subject to 12b-1 distribution or service fees. Class Y shares may be purchased by participants in certain investment programs that are sponsored by PaineWebber and that may invest in PaineWebber mutual funds ("PW Programs"), when Class Y shares are purchased through that PW Program. Participation in a PW Program is subject to an advisory fee at the effective maximum annual rate of no more than 1.5% of assets held through that PW Program. This account charge is not included in the table because investors who are not PW Program participants also are permitted to purchase Class Y shares. -------------------- Prospectus Page 6 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund EXPENSE TABLE (Continued) - -------------------------------------------------------------------------------- 12b-1 distribution fees are asset-based sales charges. Long-term Class B and Class C shareholders may pay more in direct and indirect sales charges (including 12b-1 distribution fees) than the economic equivalent of the maximum front-end sales charge permitted by the National Association of Securities Dealers, Inc. 12b-1 fees have two components, as follows:
GROWTH AND INCOME FUND MID CAP FUND SMALL CAP FUND CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- 12b-1 service fees...................... 0.25% 0.25% 0.25% None 12b-1 distribution fees................. None 0.75 0.75 None GROWTH FUND 12b-1 service fees...................... 0.24% 0.25% 0.25% None 12b-1 distribution fees................. None 0.75 0.75 None
The 12b-1 fees for Class A shares of Growth Fund reflect a blended annual rate of the Fund's average daily net assets of 0.25% and 0.15%, representing shares sold on or after December 2, 1988 and shares sold prior to that date, respectively. For more information, see "Management" and "Flexible Pricing(Service Mark)." EXAMPLES OF EFFECT OF FUND EXPENSES The following examples should assist investors in understanding various costs and expenses incurred as shareholders of a Fund. The assumed 5% annual return shown in the examples is required by regulations of the SEC applicable to all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF A FUND MAY BE MORE OR LESS THAN THOSE SHOWN. An investor would, directly or indirectly, pay the following expenses on a $1,000 investment in a Fund, assuming a 5% annual return: GROWTH AND INCOME FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------- ------ ------- ------- -------- Class A................................. $ 56 $78 $ 102 $172 Class B (Assuming sale of all shares at end of period)........................ $ 69 $89 $ 121 $177 Class B (Assuming no sale of shares).... $ 19 $59 $ 101 $177 Class C (Assuming sale of all shares at end of period)........................ $ 29 $58 $ 100 $217 Class C (Assuming no sale of shares).... $ 19 $58 $ 100 $217 Class Y................................. $ 8 $26 $ 44 $ 99 MID CAP FUND EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------- ------ ------- ------- -------- Class A................................. $ 59 $ 90 $ 122 $214 Class B (Assuming sale of all shares at end of period)........................ $ 73 $ 102 $ 144 $225 Class B (Assuming no sale of shares).... $ 23 $ 72 $ 124 $225 Class C (Assuming sale of all shares at end of period)........................ $ 33 $ 71 $ 122 $261 Class C (Assuming no sale of shares).... $ 23 $ 71 $ 122 $261 Class Y................................. $ 13 $ 39 $ 68 $149
-------------------- Prospectus Page 7 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund EXPENSE TABLE (Continued) - -------------------------------------------------------------------------------- SMALL CAP FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------- ------ ------- ------- -------- Class A................................. $ 60 $ 92 $ 126 $222 Class B (Assuming sale of all shares at end of period)........................ $ 74 $ 103 $ 145 $230 Class B (Assuming no sale of shares).... $ 24 $ 73 $ 125 $230 Class C (Assuming sale of all shares at end of period)........................ $ 34 $ 72 $ 124 $266 Class C (Assuming no sale of shares).... $ 24 $ 72 $ 124 $266 Class Y................................. $ 14 $ 44 $ 76 $167 GROWTH FUND EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------- ------ ------- ------- -------- Class A................................. $ 57 $81 $ 108 $184 Class B (Assuming sale of all shares at end of period)........................ $ 70 $92 $ 127 $192 Class B (Assuming no sale of shares).... $ 20 $62 $ 107 $192 Class C (Assuming sale of all shares at end of period)........................ $ 30 $62 $ 107 $232 Class C (Assuming no sale of shares).... $ 20 $62 $ 107 $232 Class Y................................. $ 9 $29 $ 50 $112
ASSUMPTIONS MADE IN THE EXAMPLES O ALL CLASSES: Reinvestment of all dividends and other distributions; percentage amounts listed under "Annual Fund Operating Expenses" remain the same for years shown. o CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at the time of purchase. o CLASS B SHARES: Deduction of the maximum applicable contingent deferred sales charge at the time of sale, which declines over a period of six years. Ten-year figures assume that Class B shares convert to Class A shares at the end of the sixth year. o CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for sales of shares within one year of purchase. -------------------- Prospectus Page 8 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund INVESTMENT OBJECTIVES & POLICIES - -------------------------------------------------------------------------------- The Funds' investment objectives may not be changed without shareholder approval. The Fund's other investment policies, except where noted, are not fundamental and may be changed by their respective boards. GROWTH AND INCOME FUND The investment objective of Growth and Income Fund is current income and capital growth. The Fund seeks to achieve this objective by investing primarily in dividend-paying equity securities believed by Mitchell Hutchins to have the potential for rapid earnings growth. Normally, the Fund invests at least 65% of its total assets in such equity securities. The Fund may invest up to 35% of its total assets in equity securities not meeting these selection criteria, as well as in U.S. government bonds, corporate bonds and money market instruments, including up to 10% in convertible bonds rated below investment grade. Up to 25% of the Fund's total assets may be invested in U.S. dollar-denominated equity securities and bonds of foreign issuers that are traded on recognized U.S. exchanges or in the U.S. over-the-counter ("OTC") market. MID CAP FUND The investment objective of Mid Cap Fund is long-term capital appreciation. The Fund seeks to achieve this objective by investing at least 65% of its total assets in common stocks of medium-sized (or mid cap) companies. Mitchell Hutchins defines mid cap companies as those companies with market capitalizations of at least $750 million and no more than $6 billion at the time of purchase. The Fund may invest up to 35% of its total assets in U.S. dollar-denominated equity securities of foreign companies that trade on recognized U.S. stock exchanges or on the U.S. OTC market. When Mitchell Hutchins believes it is consistent with the Fund's investment objective of long-term capital appreciation, the Fund may invest up to 35% of its total assets in common stocks of companies that are larger or smaller than those of mid cap companies as defined above, as well as in bonds and money market instruments. SMALL CAP FUND The investment objective of Small Cap Fund is long-term capital appreciation. The Fund seeks to achieve this objective by investing, under normal conditions, at least 65% of its total assets in equity securities of small cap companies. Mitchell Hutchins defines small cap companies as those companies with market capitalizations of up to $1 billion at the time of purchase. The Fund may invest up to 35% of its total assets in equity securities of companies that are larger than small cap companies, as well as in U.S. government bonds, corporate bonds and money market instruments, including up to 10% of total assets in convertible bonds rated below investment grade. Up to 25% of the Fund's total assets may be invested in U.S. dollar-denominated equity securities of foreign issuers traded on recognized U.S. exchanges or in the U.S. OTC market. GROWTH FUND The investment objective of Growth Fund is long-term capital appreciation. The Fund seeks to achieve this objective by investing primarily in equity securities issued by companies believed by Mitchell Hutchins to have substantial potential for capital growth. Under normal circumstances, at least 65% of the Fund's total assets are invested in equity securities. The Fund may invest up to 35% of its total assets in U.S. government bonds and in corporate bonds (including up to 10% in bonds and convertible securities rated below investment grade). Up to 25% of the Fund's total assets may be invested in U.S. dollar-denominated equity securities and bonds of foreign issuers that are traded on recognized U.S. exchanges or in the U.S. OTC market. * * * * As with any mutual fund, there can be no assurance that any of these Funds will achieve its investment objective. Each Fund's net asset value fluctuates based upon changes in the value of its portfolio securities. -------------------- Prospectus Page 9 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund INVESTMENT PHILOSOPHY & PROCESS - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND In seeking to balance capital growth with current income, Mitchell Hutchins follows a disciplined investment process that relies on the Mitchell Hutchins Equity Research Team and the Mitchell Hutchins Factor Valuation Model. In order to fulfill the income component, the Fund normally invests at least 65% of its total assets in dividend-paying stocks. The Model screens a universe of small to large cap companies from ten different business sectors to identify undervalued companies with strong earnings momentum that rank well in three measures: o VALUE: projected dividends, cash flow, earnings and book value; o MOMENTUM: earnings and price to identify companies that could surprise on the upside; and o ECONOMIC SENSITIVITY: to forecast how different equity securities and industries may perform under various economic scenarios. The equity securities in the Model's universe are screened twice a month. Then the Team takes a closer look at those equity securities that rank in the top 20% of the Model's universe based on value and momentum. The Team applies traditional fundamental analysis and may speak to the management of these companies, as well as to the management of their competitors. Based on the Team's findings in the context of Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to purchase or sell equity securities for the Fund. In seeking capital appreciation, the Fund would also invest in bonds when, for instance, Mitchell Hutchins anticipates that market interest rates may decline or credit factors or ratings affecting particular issuers may improve. MID CAP FUND In selecting mid cap equity securities with long-term capital appreciation potential, Mitchell Hutchins follows a disciplined investment process that relies on the Mitchell Hutchins Equity Research Team and the Mitchell Hutchins Factor Valuation Model. The Model screens a universe of companies from ten business sectors to identify undervalued companies with strong earnings momentum that rank well in three measures: o VALUE: projected dividends, cash flow, earnings and book value; o MOMENTUM: earnings and prices to identify companies that could surprise on the upside; and o ECONOMIC SENSITIVITY: to forecast how different equity securities and industries may perform under various economic scenarios. The equity securities in the Model's universe are screened twice a month. Then the Team takes a closer look at those equity securities that meet the capitalization requirements of the Fund and that rank in the top 20% of the Model's universe based on value and momentum. The Team applies traditional fundamental analysis and may speak to the management of these companies, as well as to the management their competitors. Based on the Team's findings in the context of Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to purchase or sell equity securities for the Fund. SMALL CAP FUND In selecting small cap equity securities with the potential for capital appreciation, Mitchell Hutchins follows a disciplined investment process that relies on the Mitchell Hutchins Factor Valuation Model and the Mitchell Hutchins Equity Research Team. The Model screens a universe of small to large cap companies from ten different business sectors to identify undervalued companies with strong earnings momentum that rank well in three measures: o VALUE: projected dividends, cash flow, earnings and book value; o MOMENTUM: earnings and price to identify companies that could surprise on the upside; and o ECONOMIC SENSITIVITY: to forecast how different equity securities and industries may perform under various economic scenarios. Through this screening process, the Model identifies the equity securities of small cap companies ranking in the top 20% of the universe based on value and momentum. Then the Team applies traditional fundamental analysis on the equity securities of these small cap companies. The Team may speak to the management of these companies, as well as to the management of their competitors. Based on the Team's findings in the context of Mitchell Hutchins' economic -------------------- Prospectus Page 10 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund forecast, Mitchell Hutchins decides whether to purchase or sell equity securities for the Fund. In seeking capital appreciation, the Fund would also invest in bonds when, for instance, Mitchell Hutchins anticipates that market interest rates may decline or credit factors or ratings affecting particular issuers may improve. GROWTH FUND In selecting equity securities with the potential for above-average growth in earnings, cash flow and/or book value that are selling at a reasonable value relative to that growth, Mitchell Hutchins follows a disciplined investment process that relies on the Mitchell Hutchins Equity Research Team and combines a "bottom-up," stock-by-stock approach with a modified, growth-oriented Mitchell Hutchins Factor Valuation Model. The Fund can invest in companies with large market capitalizations, medium-sized companies and smaller companies that are aggressively expanding their businesses. This flexibility allows the Fund to invest more of its assets in companies that have greater earnings growth potential regardless of their market capitalizations. When investing in small cap companies, the Team places more emphasis on the trading volume of the company's stock. The modified, growth-oriented Model, which the Team generally utilizes as part of the stock selection process, screens a universe of small to large capitalization companies from ten different business sectors to identify companies that rank especially well on growth variables, including earnings momentum, stock price movement, economic sensitivity and other growth factors. The equity securities in the Model's universe are screened twice a month. Then the Team takes a closer look at those equity securities that rank in the top 20% of the Model's universe based on earnings growth. The Team applies traditional fundamental analysis and may speak to the management of these companies, as well as to the management of their competitors. Based on the Team's findings in the context of Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to purchase or sell equity securities for the Fund. In seeking capital appreciation, the Fund would also invest in bonds when, for instance, Mitchell Hutchins anticipates that market interest rates may decline or credit factors or ratings affecting particular issuers may improve. -------------------- Prospectus Page 11 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund PERFORMANCE - -------------------------------------------------------------------------------- These charts show the total returns for the Funds by calendar year. Sales charges have not been deducted from total returns for Class A, B and C shares. Returns would be lower if sales charges were deducted. Average annual total returns both before and after deducting the maximum sales charges are shown below in the tables that follow the performance charts. Past results are not a guarantee of future results. Mid Cap Fund had no Class Y shares outstanding during the calendar years shown. GROWTH AND INCOME FUND Year Class A Class B Class C Class Y - ---- ------- ------- ------- ------- 1988 17.83% 0.00% 0.00% 0.00% 1989 24.59% 0.00% 0.00% 0.00% 1990 (1.01)% 0.00% 0.00% 0.00% 1991 35.34% 17.85% 0.00% 0.00% 1992 3.90% 3.09% 9.58% 5.15% 1993 (2.59)% (3.31)% (3.30)% (2.31)% 1994 (5.87)% (6.62)% (6.61)% (5.57)% 1995 33.21% 32.18% 32.21% 33.63% 1996 23.46% 22.55% 22.55% 23.81% 1997 31.86% 30.79% 30.77% 32.56% The 1991 return for Class B shares represents the period from inception on July 1, 1991 through December 31, 1991. The 1992 return for Class C shares represents the period from inception on July 2, 1992 through December 31, 1992. The 1992 return for Class Y shares represents the period from inception on February 12, 1992 through December 31, 1992.
AVERAGE ANNUAL RETURNS As of August 31, 1998 CLASS A CLASS B CLASS C CLASS Y ---------- ---------- ---------- ---------- Inception Date..................... 12/20/83 7/1/91 7/2/92 2/12/92 ONE YEAR Before deducting maximum sales charges....................... (3.51)% (4.28)% (4.23)% (3.24)% After deducting maximum sales charges....................... (7.85)% (8.67)% (5.11)% (3.24)% FIVE YEARS Before deducting maximum sales charges....................... 13.67% 12.79% 12.81% 13.98% After deducting maximum sales charges....................... 12.63% 12.54% 12.81% 13.98% TEN YEARS (OR LIFE OF CLASS) Before deducting maximum sales charges....................... 12.74% 11.25% 11.18% 10.80% After deducting maximum sales charges....................... 12.22% 11.25% 11.18% 10.80%
-------------------- Prospectus Page 12 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund MID CAP FUND Year Class A Class B Class C - ---- ------- ------- ------- 1992 9.95% 9.30% 17.66% 1993 16.10% 15.19% 15.20% 1994 (1.36)% (2.03)% (2.13)% 1995 28.79% 27.73% 27.82% 1996 17.87% 17.01% 16.98% 1997 15.14% 14.28% 14.39% The 1992 returns for each class represent the period from its inception to December 31, 1992. The inception date for Class A and B shares was April 7, 1992. The inception date for Class C shares was July 2, 1992. The Fund did not have any Class Y shares outstanding during the calendar year 1997. Mitchell Hutchins assumed all investment management responsibilities for the Fund on May 1, 1998. Prior to that date, the Fund's assets were managed by a sub- adviser. Thus, while past performance is never a guarantee of future results, information for period prior to that date may be less relevant than otherwise would be the case.
AVERAGE ANNUAL TOTAL RETURNS As of August 31, 1998 CLASS A CLASS B CLASS C CLASS Y ---------- ---------- ---------- ---------- Inception Date..................... 4/7/92 4/7/92 7/2/92 3/17/98 ONE YEAR Before deducting maximum sales charges....................... (20.28)% (20.91)% (20.89)% N/A After deducting maximum sales charges....................... (23.88)% (23.20)% (21.33)% N/A FIVE YEARS Before deducting maximum sales charges....................... 8.21% 7.39% 7.38% N/A After deducting maximum sales charges....................... 7.21% 7.18% 7.38% N/A LIFE OF CLASS Before deducting maximum sales charges....................... 9.33% 8.50% 10.14% (26.82)% After deducting maximum sales charges....................... 8.55% 8.50% 10.14% (26.82)%
-------------------- Prospectus Page 13 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund SMALL CAP FUND Year Class A Class B Class C Class Y - ---- ------- ------- ------- ------- 2/1/93 - 12/31/93 7.68% 6.91% 6.97% 0.00% 1994 (1.20)% (1.96)% (1.96)% 0.00% 1995 16.81% 15.90% 15.84% 0.00% 1996 17.45% 16.50% 16.52% 15.51% 1997 27.38% 26.45% 26.47% 27.81% The 1993 returns for Class A, Class B and Class C shares represent the period from inception on February 1, 1993 through December 31, 1993. The 1996 return for Class Y shares represents the period from inception on July 26, 1996 through December 31, 1996.
AVERAGE ANNUAL RETURNS As of July 31, 1998 CLASS A CLASS B CLASS C CLASS Y ---------- ---------- ---------- ---------- Inception Date..................... 2/1/93 2/1/93 2/1/93 7/26/96 ONE YEAR Before deducting maximum sales charges....................... 8.45% 7.60% 7.61% 8.74% After deducting maximum sales charges....................... 3.58% 2.69% 6.63% 8.74% FIVE YEARS Before deducting maximum sales charges....................... 12.74% 11.90% 11.88% N/A After deducting maximum sales charges....................... 11.71% 11.64% 11.88% N/A LIFE Before deducting maximum sales charges....................... 11.98% 11.14% 11.12% 21.58% After deducting maximum sales charges....................... 11.05% 11.03% 11.12% 21.58%
-------------------- Prospectus Page 14 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund GROWTH FUND Year Class A Class B Class C Class Y - ---- ------- ------- ------- ------- 1988 22.05% 0.00% 0.00% 0.00% 1989 34.27% 0.00% 0.00% 0.00% 1990 (7.72)% 0.00% 0.00% 0.00% 1991 47.61% 22.18% 0.00% 12.21% 1992 4.15% 3.30% 12.73% 4.42% 1993 19.17% 18.26% 18.19% 19.47% 1994 (10.90)% (11.61)% (11.58)% (10.64)% 1995 33.02% 31.95% 32.00% 33.40% 1996 14.11% 13.24% 13.18% 14.48% 1997 17.01% 16.17% 16.13% 17.32% The 1991 return for Class B shares represents the period from inception on July 1, 1991 through December 31, 1991. The 1992 return for Class C shares represents the period from inception on July 2, 1992 through December 31, 1992. The 1991 return for Class Y shares represents the period from inception on August 26, 1991 through December 31, 1991.
AVERAGE ANNUAL RETURNS As of August 31, 1998 CLASS A CLASS B CLASS C CLASS Y ---------- ---------- ---------- ---------- Inception Date..................... 3/18/85 7/1/91 7/2/92 8/26/91 ONE YEAR Before deducting maximum sales charges....................... 3.37% 2.55% 2.59% 3.61% After deducting maximum sales charges....................... (1.27)% (1.21)% 1.83% 3.61% FIVE YEARS Before deducting maximum sales charges....................... 10.06% 9.20% 9.21% 10.37% After deducting maximum sales charges....................... 9.05% 8.94% 9.21% 10.37% TEN YEARS (OR LIFE OF CLASS) Before deducting maximum sales charges....................... 13.75% 11.41% 11.17% 11.31% After deducting maximum sales charges....................... 13.23% 11.41% 11.17% 11.31%
-------------------- Prospectus Page 15 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund PERFORMANCE INFORMATION The Funds perform 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 a 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 returns for Class A shares of the Funds reflect deduction of the Funds' maximum initial sales charge of 4.5% at the time of purchase, and standardized returns for the Class B and Class C shares of the Funds reflect deduction of the applicable contingent deferred sales charge imposed on the sale of shares held for the period. One-, five- and ten-year periods will be shown, unless the Fund or class has been in existence for a shorter period. If so, returns will be shown for the period since inception, known as "Life." Total return calculations assume reinvestment of dividends and other distributions. The Funds may use other total return presentations in conjunction with standardized return. These may cover the same or different periods as those used for standardized return and may include cumulative returns, average annual rates, actual year-by-year rates or any combination thereof. Non-standardized return does not reflect initial or contingent deferred sales charges and would be lower if such charges were deducted. Total return information reflects past performance and does not indicate future results. The investment return and principal value of shares of the Funds will fluctuate. The amount investors receive when selling shares may be more or less than what they paid. Further information about each Fund's performance is contained in its Annual Report to Shareholders, which may be obtained without charge by contacting the Fund, your PaineWebber investment executive or PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568. - -------------------------------------------------------------------------------- THE FUNDS' INVESTMENTS - -------------------------------------------------------------------------------- EQUITY SECURITIES include common stocks, preferred stocks and securities that are convertible into them, including convertible debentures and notes and common stock purchase warrants and rights. Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. Preferred stock has certain fixed-income features, like a bond, but is actually equity in a company, like common stock. Convertible securities may include debentures, notes and preferred equity securities, which are convertible into common stock. BONDS (including notes and debentures) are used by corporations and governments to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and must repay the amount borrowed at maturity. Bonds have varying degrees of investment risk and varying levels of sensitivity to changes in interest rates. RISKS Under normal circumstances, each Fund invests primarily in equity securities. Following is a discussion of the risks of these investments and other risks that are common to each Fund: EQUITY SECURITIES. While past performance does not guarantee future results, equity securities historically have provided the greatest long-term growth potential in a company. However, their prices generally fluctuate more than other securities and reflect changes in a company's financial condition and overall market and economic conditions. Common stocks generally represent the riskiest investment in a company. It is possible that a Fund may experience a substantial or complete loss on an individual equity investment. FOREIGN SECURITIES. Each Fund may invest a portion of its assets in U.S. dollar-denominated securities of foreign companies that are traded on recognized U.S. exchanges or in the U.S. OTC market. Investing in the securities of foreign companies may involve more risks than investing in securities of U.S. companies. Their value is subject to economic and political developments in the countries where the companies operate and to changes in foreign currency values. Values may also be affected by foreign tax laws, changes in foreign economic or monetary policies, exchange control regulations and regulations involving prohibitions on the repatriation of foreign currencies. In general, less information may be available about foreign companies than about U.S. companies, and foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. -------------------- Prospectus Page 16 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund INTEREST RATE AND CREDIT RISKS. Bonds are subject to interst rate risk and credit risk. Interest rate risk is the risk that interest rates will rise and bond prices will fall, lowering the value of a Fund's bond investments. Long-term bonds are generally more sensitive to interest rate changes than short-term bonds. Credit risk is the risk that the issuer or a guarantor may be unable to pay interest or repay principal on the bond. Credit risk can be affected by many factors, including adverse changes in the issuer's own financial condition or in economic conditions. BOND RATINGS; NON-INVESTMENT GRADE (LOWER-RATED) BONDS. Investment grade bonds are those rated within the four highest categories by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc. ("Moody's"). Moody's fourth highest category (Baa) includes securities which, in its opinion, have speculative features. For example, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case for higher-rated debt instruments. The Funds may also invest in securities that are comparably rated by another ratings agency and in unrated securities if they are deemed to be of comparable quality. Credit ratings attempt to evaluate the safety of principal and interest payments and do not evaluate the volatility of a bond's value or its liquidity. There is a risk that bonds will be downgraded by rating agencies. The ratings agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer's current financial condition may be better or worse than the rating indicates. Bonds rated below investment grade are deemed by the ratings agencies to be predominantly speculative regarding the issuer's ability to pay principal and interest and may involve major risk exposure to adverse economic conditions. They are also known as "junk bonds." During an economic downturn or period of rising interest rates, issuers of these securities may experience financial stress that adversely affects their ability to pay interest and principal and may increase the possibility of default. Lower-rated bonds are frequently unsecured by collateral and will not receive payment until more senior claims are paid in full. The market for lower-rated bonds is thinner and less active, which may limit the Funds' ability to sell such bonds at a fair value in response to changes in the economy or financial markets. Growth and Income Fund may invest up to 10% of its total assets in non-investment grade convertible securities rated as low as B by S&P or Moody's or comparably rated by another ratings agency. Mid Cap Fund may only purchase investment grade bonds. Small Cap Fund may invest up to 10% of its total assets in non-investment grade convertible securities rated as low as B by S&P or Moody's or comparably rated by another ratings agency. Growth Fund may invest up to 10% of its total assets in non-investment grade bonds and convertible securities rated as low as B+ by S&P, B1 by Moody's or comparably rated by another ratings agency. DERIVATIVES. Some of the instruments in which the Funds may invest may be referred to as "derivatives," because their value depends on (or "derives" from) the value of an underlying asset, reference rate or index. These instruments include options, futures contracts and similar instruments that may be used in hedging strategies. There is only limited consensus as to what constitutes a "derivative" security. The market value of derivative instruments and securities sometimes is more volatile than that of other investments, and each type of derivative instrument may pose its own special risks. Mitchell Hutchins takes these risks into account in its management of the Funds. COUNTERPARTIES. The Funds may be exposed to the risk of financial failure or insolvency of another party. To help lessen those risks, Mitchell Hutchins, subject to the supervision of the respective boards of trustees, monitors and evaluates the creditworthiness of the parties with which each Fund does business. YEAR 2000 RISKS. Like other mutual funds and other financial and business organizations around the world, the Funds could be adversely affected if the computer systems used by Mitchell Hutchins, other service providers and entities with computer systems that are linked to Fund records do not properly process and calculate date-related information and data from and after January 1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is taking steps that it believes are reasonably designed to address the Year 2000 Issue with respect to the computer systems that it uses and to obtain satisfactory assurances that comparable steps are being taken by each Fund's other major service providers. However, there can be no assurance that these steps will be sufficient to avoid any adverse impact on a Fund. Similarly, the companies in which the Funds invest and trading systems used by the Funds could be adversely affected by the Year 2000 Issue. The ability of a company or trading system to respond successfully to the Year 2000 Issue requires both technological sophistication and diligence, and there can be no assurance that any steps taken will be sufficient to avoid an adverse impact. * * * * -------------------- Prospectus Page 17 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund In addition to these general risks, Mid Cap Fund and Small Cap Fund are also subject to the following risk consideration: MID CAP AND SMALL CAP COMPANIES. These companies may be more vulnerable than larger companies to adverse business or economic developments. These companies may also have limited product lines, markets or financial resources and may be dependent on a relatively small management group. Securities of such companies may be less liquid and more volatile than securities of larger companies or the market averages in general and, therefore, may involve greater risk than investing in larger companies. In addition, these companies may not be well-known to the investing public, may not have institutional ownership and may have only cyclical, static or moderate growth prospects. INVESTMENT TECHNIQUES AND STRATEGIES STRATEGIES USING DERIVATIVE INSTRUMENTS. Each Fund may use certain instruments and strategies, which may include options (both exchange traded and OTC) and futures contracts intended to reduce the overall risk of its investments ("hedge"). New financial products and risk management techniques continue to be developed and may be used if consistent with the Funds' investment objectives and policies. The Statement of Additional Information for the Funds contains further information on these strategies. The Funds might not use any of these derivatives, and there can be no assurance that any strategy used will succeed. If Mitchell Hutchins is incorrect in its judgment on market values, interest rates or other economic factors in using a hedging strategy, a Fund may have lower net income and a net loss on the investment. Each of these strategies involves certain risks, which include: o the fact that the skills needed to use hedging instruments are different from those needed to select securities for the Funds, o the possibility of imperfect correlation, or even no correlation, between price movements of hedging instruments and price movements of the securities being hedged, o possible constraints placed on a Fund's ability to purchase or sell portfolio investments at advantageous times due to the need for the Fund to maintain "cover" or to segregate securities, and o the possibility that the Fund is unable to close out or liquidate its hedged position. LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of that Fund's total assets taken at market value. Lending securities enables a Fund to earn additional income, but could result in a loss or delay in recovering these securities. PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from year to year and will not be a limiting factor when Mitchell Hutchins deems portfolio changes appropriate. A higher turn-over rate (100% or more) for a Fund will involve correspondingly greater transaction costs, which will be borne directly by the Fund, and may increase the potential for short-term capital gains. DEFENSIVE AND TEMPORARY POSITIONS. When Mitchell Hutchins believes that unusual market or economic circumstances warrant a defensive posture, a Fund may temporarily commit all or any portion of its assets to cash or investment grade money market instruments, including repurchase agreements. Each Fund may invest up to 35% of its total assets in investment grade money market instruments and/or cash for liquidity purposes, to reinvest cash collateral from securities lending or pending investment in other securities. Repurchase agreements are transactions in which a Fund purchases obligations from a bank or securities dealer or its affiliates and simultaneously commits to resell the obligations to that counterparty, usually no more than seven days after purchase. Repurchase agreements carry certain risks not associated with direct investments in securities, including possible decline in the market value of the underlying obligations. Repurchase agreements involving obligations other than U.S. government securities (such as commercial paper and corporate bonds) may be subject to special risks and may not have the benefit of certain protections in the event of the counterparty's insolvency. If the seller or guarantor becomes insolvent, a Fund may suffer delays, costs and possible losses. ILLIQUID SECURITIES. Growth and Income Fund, Mid Cap Fund and Growth Fund each may invest up to 10% of its net assets, and Small Cap Fund up to 15% of its net assets, in illiquid securities. These include certain cover for OTC options and securities whose disposition is restricted under the federal securities laws. The Funds do not consider securities that are eligible for resale pursuant to SEC Rule 144A to be illiquid securities if Mitchell Hutchins has determined such securities to be liquid, based upon the trading markets for the securities under procedures approved by the boards. The lack of a secondary market for illi- quid securities may make it more difficult for a Fund to assign a value to those securities for purposes of valuing its portfolio and calculating its net asset value. OTHER INFORMATION. Each Fund may purchase securities on a when-issued basis or may purchase or sell -------------------- Prospectus Page 18 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund securities for delayed delivery. A Fund generally would not pay for such securities or start earning interest on them until they are delivered, but it would immediately assume the risks of ownership, including the risk of price fluctuation. Each Fund may borrow money for temporary or emergency purposes but not in excess of 10% of its total assets, including reverse repurchase agreements up to an aggregate value of 5% (10% for Small Cap Fund) of its net assets. - -------------------------------------------------------------------------------- FLEXIBLE PRICING(Service Mark) - -------------------------------------------------------------------------------- Each Fund offers through this Prospectus four classes of shares that differ in terms of sales charges and expenses. An eligible investor can select the class that is best suited to his or her investment needs, based upon the holding period and the amount of investment. CLASS A SHARES HOW PRICE IS CALCULATED: The price is the net asset value plus the initial sales charge (the maximum is 4.5% of the public offering price) next calculated after PaineWebber's New York City headquarters or PFPC Inc., the Funds' transfer agent ("Transfer Agent"), receives the purchase order. Although investors pay an initial sales charge when they buy Class A shares, the ongoing expenses for this class are lower than those of Class B and Class C shares. Class A shares sales charges are calculated as follows:
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED ---------------------------------------- DEALERS AS PERCENTAGE AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE - ----------------------------------- -------------- ------------------- --------------------- Less than $50,000.................. 4.50% 4.71% 4.25% $50,000 to $99,999................. 4.00 4.17 3.75 $100,000 to $249,999............... 3.50 3.63 3.25 $250,000 to $499,999............... 2.50 2.56 2.25 $500,000 to $999,999............... 1.75 1.78 1.50 $1,000,000 and over(1)............. None None 1.00(2)
- ------------------ (1) A contingent deferred sales charge of 1% of the shares' offering price or the net asset value at the time of sale by the shareholder, whichever is less, is charged on sales of shares made within one year of the purchase date. However, Class A shares representing reinvestment of any dividends or other distributions are not subject to the 1% charge. Withdrawals under the Systematic Withdrawal Plan are not subject to this charge. However, investors may not withdraw more than 12% of the value of the Fund account under the Plan in the first year after purchase. (2) Mitchell Hutchins pays 1% to PaineWebber. SALES CHARGE REDUCTIONS AND WAIVERS Investors purchasing Class A shares in more than one PaineWebber mutual fund may combine those purchases to get a reduced sales charge. Investors who already own Class A shares in one or more PaineWebber mutual funds may combine the amount they are currently purchasing with the value of such previously owned shares to qualify for a reduced sales charge. To determine the sales charge reduction, please refer to the chart above. Investors may also qualify for a reduced sales charge when they combine their purchases with those of: o their spouses, parents or children under age 21; o their Individual Retirement Accounts (IRAs); o certain employee benefit plans, including 401(k) plans; o any company controlled by the investor; o trusts created by the investor; o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created by the investor or group of investors for the benefit of the investors' children; or o accounts with the same adviser. Employers who own Class A shares for one or more of their qualified retirement plans may also qualify for the reduced sales charge. -------------------- Prospectus Page 19 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund The sales charge will not apply when the investor: o is an employee, director, trustee or officer of PaineWebber, its affiliates or any PaineWebber mutual fund; o is the spouse, parent or child of any of the above; o buys these shares through a PaineWebber investment executive who was formerly employed as a broker with a competing brokerage firm that was registered as a broker-dealer with the SEC; and o the investor was the investment executive's client at the competing brokerage firm; o within 90 days of buying Class A shares in a Fund, the investor sells shares of one or more mutual funds that (a) were principally underwritten by the competing brokerage firm or its affiliates and (b) the investor either paid a sales charge to buy those shares, paid a contingent deferred sales charge when selling them or held those shares until the contingent deferred sales charge was waived; and o the amount that the investor purchases does not exceed the total amount of money the investor received from the sale of the other mutual fund; o is a certificate holder of unit investment trusts sponsored by PaineWebber and has elected to have dividends and other distributions from that investment automatically invested in Class A shares; o is an employer establishing an employee benefit plan qualified under section 401, including a salary reduction plan qualified under section 401(k), or section 403(b) of the Internal Revenue Code ("Code") (each a "qualified plan"). (This waiver is subject to minimum requirements, with respect to the number of employees and investment amount, established by Mitchell Hutchins. Currently, the plan must have 50 or more eligible employees and at least $1 million in plan assets.) For investments made pursuant to this waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own resources in an amount not to exceed 1% of the amount invested; o is a participant in the PaineWebber Members Only Program(Trademark). For investments made pursuant to this waiver, Mitchell Hutchins may make payments out of its own resources to PaineWebber and to participating membership organizations in a total amount not to exceed 1% of the amount invested; o is a variable annuity offered only to qualified plans. For investments made pursuant to this waiver. Mitchell Hutchins may make payments out of its own resources to PaineWebber and to the variable annuity's sponsor, adviser or distributor in a total amount not to exceed 1% of the amount invested; o acquires Class A shares through an investment program that is not sponsored by PaineWebber or its affiliates and that charges participants a fee for program services, provided that the program sponsor has entered into a written agreement with PaineWebber permitting the sale of Class A shares at net asset value to that program. For investments made pursuant to this waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own resources in an amount not to exceed 1% of the amount invested. For subsequent investments or exchanges made to supplement a rebalancing feature of such an investment program, the minimum subsequent investment requirement is also waived; o acquires Class A shares in connection with a reorganization pursuant to which a Fund acquires substantially all of the assets and liabilities of another investment company in exchange solely for shares of the Fund; or o acquires Class A shares in connection with the disposition of proceeds from the sale of shares of Managed High Yield Plus Fund Inc. that were acquired during that fund's initial public offering of shares and that met certain other conditions described in its prospectus. For more information on how to get any reduced sales charge, investors should contact a PaineWebber investment executive or a correspondent firm or call 1-800-647-1568. Investors must provide satisfactory information to PaineWebber or the Fund if they seek any of these sales charge reductions or waivers. CLASS B SHARES HOW PRICE IS CALCULATED: The price is the net asset value next calculated after PaineWebber's New York City headquarters or the Transfer Agent receives the purchase order. The ongoing expenses investors pay for Class B shares are higher than those of Class A shares. Because investors do not pay an initial sales charge when they buy Class B shares, 100% of their purchase is immediately invested. Depending on how long they own their Fund investment, investors may have to pay a sales charge when they sell their Fund shares. This sales charge is called a "contingent deferred sales charge." The amount of the charge depends on how long the investor owned the shares. The sales charge is calculated by multiplying the offering price (net asset value of the shares at the time of purchase) or the net asset value at the time of sale by the shareholder, whichever is less, by the percentage shown on the following table. Investors who own shares for more than six years do not have to pay a sales charge when selling those shares. -------------------- Prospectus Page 20 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES' SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED: - ------------------------ ------------------------------- 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
CONVERSION OF CLASS B SHARES Class B shares automatically convert to the appropriate number of Class A shares of equal dollar value after the investor has owned them for six years. Dividends and other distributions paid to the investor by the Fund in the form of additional Class B shares will also convert to Class A shares on a pro-rata basis. This benefits shareholders because Class A shares have lower ongoing expenses than Class B shares. If the investor has exchanged Class B shares between PaineWebber funds, the Fund uses the purchase date at which the initial investment was made to determine the conversion date. MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE When investors sell Class B shares they have owned for less than six years, the Fund automatically will minimize the sales charge by assuming the investors are selling: o First, Class B shares owned through reinvested dividends and capital gain distributions; and o Second, Class B shares held in the portfolio the longest. WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE The contingent deferred sales charge will not apply to: o sales of shares under a Fund's Systematic Withdrawal Plan (investors may not withdraw annually more than 12% of the value of the Fund account under the Plan); o a distribution from an IRA, a self-employed individual retirement plan ("Keogh Plan") or a custodial account under section 403(b) of the Code (after the investor reaches age 59 1/2); o a tax-free return of an excess IRA contribution; o a tax-qualified retirement plan distribution following retirement; or o Class B shares sold within one year of an investor's death if the investor owned the shares at the time of death either as the sole shareholder or with his or her spouse as a joint tenant with the right of survivorship. Investors must provide satisfactory information to PaineWebber or the Funds if they seek any of these waivers. CLASS C SHARES HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value next calculated after PaineWebber's New York City headquarters or the Transfer Agent receives the purchase order. The ongoing expenses of Class C shares are higher than those of Class A shares. Because investors do not pay an initial sales charge when they buy Class C shares, 100% of their purchase is immediately invested. Class C shares never convert to any other class of shares. A contingent deferred sales charge of 1% of the net asset value of the shares at the time of purchase or sale, whichever is less, is charged on sales of shares made within one year of the purchase date. Other PaineWebber mutual funds may impose a different contingent deferred sales charge on Class C shares sold within one year of the purchase date. A sale of Class C shares acquired through an exchange and held less than one year will be subject to the same contingent deferred sales charge that would have been imposed on the Class C shares of the PaineWebber mutual fund originally purchased. Class C shares representing reinvestment of any dividends or capital gains will not be subject to the 1% charge. Withdrawals under the Systematic Withdrawal Plan also will not be subject to this charge. However, investors may not withdraw more than 12% of the value of the Fund account under the Plan in the first year after purchase. CLASS Y SHARES HOW PRICE IS CALCULATED: Eligible investors may purchase Class Y shares at the net asset value next calculated after PaineWebber's New York City headquarters or the Transfer Agent receives the purchase order. Because investors do not pay an initial sales charge when they buy Class Y shares, 100% of their purchase is immediately invested. No contingent deferred sales charge is imposed on Class Y shares, and the ongoing expenses for Class Y shares are lower than for the other classes because Class Y shares are not subject to 12b-1 distribution or service fees. LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy Class Y shares: o a participant in the PW Program listed below, when Class Y shares are purchased through that PW Program; o an investor who buys $10 million or more at any one time in any combination of PaineWebber mutual funds in the Flexible Pricing(Service Mark) System; -------------------- Prospectus Page 21 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund o a qualified plan that has either o 5,000 or more eligible employees or o $50 million or more in assets; o an investment company advised by PaineWebber or an affiliate of PaineWebber; and o for Growth and Income Fund and Growth Fund, the trustee of the PaineWebber 401(k) Plus Plan ("PW 401(k) Plan"), formerly known as PaineWebber Savings Investment Plan ("PW SIP") PACE MULTI-ADVISOR PROGRAM: An investor who participates in the PACE Multi-Advisor Program is eligible to purchase Class Y shares. The PACE Multi-Advisor Program is an advisory program sponsored by PaineWebber that provides comprehensive investment services, including investor profiling, a personalized asset allocation strategy using an appropriate combination of funds, and a quarterly investment performance review. Participation in the PACE Multi-Advisor Program is subject to payment of an advisory fee at the effective maximum annual rate of 1.5% of assets. Employees of PaineWebber and its affiliates are entitled to a waiver of this fee. Please contact your PaineWebber investment executive or PaineWebber's correspondent firms for more information concerning mutual funds that are available through the PACE Multi-Advisor Program. PURCHASES BY THE TRUSTEE OF THE PW 401(K) PLAN Class Y shares of Growth Fund and Growth and Income Fund also are offered for sale to the trustee of the PW 401(k) Plan, a defined contribution plan sponsored by Paine Webber Group Inc. ("PW Group"). The trustee of the PW 401(k) Plan purchases Class Y shares to implement the investment choices of individual plan participants with respect to their PW 401(k) Plan contributions. Individual plan participants should consult the Plan Information Statement and Summary Plan Description of the PW 401(k) Plan (collectively, "Plan Documents") for a description of the procedures and limitations applicable to making and changing investment choices. Copies of the Plan Documents are available from the Benefits Connection, 100 Halfday Road, Lincolnshire, IL 60069 or by calling 1-888-PWebber (1-888-793-2237). As described in the Plan Documents, the average net asset value per share at which Class Y shares of Growth Fund and Growth and Income Fund are purchased by the trustee of the PW 401(k) Plan for the accounts of individual participants might be more or less than the net asset value per share prevailing at the time that such participants made their investment choices or made their contributions to the PW 401(k) Plan. - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- Prices are calculated for each class of a Fund's shares once each Business Day, at the close of regular trading on the New York Stock Exchange ("NYSE") (usually 4:00 p.m., Eastern time). Prices will be calculated earlier when the NYSE closes early because trading has been halted for the day. A "Business Day" is any day, Monday through Friday, on which the NYSE is open for business. The Funds and Mitchell Hutchins reserve the right to reject any purchase order and to suspend the offering of Fund shares for a period of time. When placing an order to buy shares, investors should specify which class of shares they want to buy. If investors fail to specify the class, they will automatically receive Class A shares, which include an initial sales charge. Investors in Class Y shares must provide satisfactory information to PaineWebber or an individual Fund that they are eligible to purchase Class Y shares. PAINEWEBBER CLIENTS Investors who are PaineWebber clients may buy shares through PaineWebber investment executives or its correspondent firms. Investors may buy shares in person, by mail, by telephone or by wire (the minimum wire purchase is $1 million). PaineWebber investment executives and correspondent firms are responsible for promptly sending investors' purchase orders to PaineWebber's New York City headquarters. Investors may pay for their purchases with checks drawn on U.S. banks or with funds they have in their brokerage accounts at PaineWebber or its correspondent firms. -------------------- Prospectus Page 22 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund OTHER INVESTORS Investors who are not PaineWebber clients may purchase Fund shares and set up an account through the Transfer Agent (PFPC Inc.) by completing and signing an account application which you may obtain by calling 1-800-647-1568. The application and check must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, DE 19899. New investors to PaineWebber may complete and sign an account application and mail it along with a check. Investors may also open an account in person. Investors who already have money invested in a PaineWebber mutual fund, and want to invest in another PaineWebber mutual fund, can: o mail an application with a check; or o open an account by exchanging from another PaineWebber mutual fund. Investors do not have to send an application when making additional investments in the Fund. MINIMUM INVESTMENTS To open an account................. $1,000 To add to an account............... $ 100 A Fund may waive or reduce these minimums for: o employees of PaineWebber or its affiliates; o participants in certain pension plans, retirement accounts, unaffiliated investment programs or the Fund's automatic investment plan; or o transactions in Class A and Class Y shares made in certain investment programs. HOW TO EXCHANGE SHARES As shareholders, investors have the privilege of exchanging Class A, B and C shares for shares of the same class of most other PaineWebber mutual funds. For classes of shares where no initial sales charge is imposed, a contingent deferred sales charge may apply if the investor sells the shares acquired through the exchange. Class Y shares are not exchangeable. Exchanges may be subject to minimum investment requirements of the fund into which exchanges are made. o Investors who purchased their shares through an investment executive at PaineWebber or one of its correspondent firms may exchange their shares by contacting their investment executive in person or by telephone, mail or wire. o Investors who do not have an account with an investment executive at PaineWebber or one of its correspondent firms may exchange their shares by writing a "letter of instruction" to the Transfer Agent. The letter of instruction must include: o the investor's name and address; o the Fund's name; o the Fund account number; o the dollar amount or number of shares to be sold; and o a guarantee of each registered owner's signature. A signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency or savings association which is a participant in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the NYSE Medallion Signature Program (MSP). Signature guarantees which are not part of these programs will not be accepted. The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, DE 19899. No contingent deferred sales charge is imposed when Class A, B or C shares are exchanged for the corresponding class of shares of other PaineWebber mutual funds. A Fund will use the purchase date of the initial investment to determine any contingent deferred sales charge due when the acquired shares are sold. Fund shares may be exchanged only after the settlement date has passed and payment for the shares has been made. The exchange privilege is available only in those jurisdictions where the sale of the fund shares to be acquired is authorized. This exchange privilege may be modified or terminated at any time and, when required by SEC rules, upon a 60-day notice. See the back cover of this Prospectus for a listing of other PaineWebber mutual funds. -------------------- Prospectus Page 23 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund HOW TO SELL SHARES - -------------------------------------------------------------------------------- Investors can sell (redeem) shares at any time. Shares will be sold at the share price for that class (less any applicable contingent deferred sales charge) as next calculated after the order is received by PaineWebber's New York City headquarters or the Transfer Agent. Share prices are normally calculated at the close of regular trading on the NYSE (usually 4:00 p.m., Eastern time). Prices will be calculated earlier when the NYSE closes early because trading has been halted for the day. Investors who own more than one class of shares should specify which class they are selling. If they do not, the Fund will assume they are first selling their Class A shares, then Class C, then Class B and last, Class Y. If a shareholder wants to sell shares that were purchased recently, the Fund may delay payment until it verifies that good payment was received. In the case of purchases by check, this can take up to 15 days. Investors who have an account with PaineWebber or one of PaineWebber's correspondent firms can sell their shares by contacting their investment executive. Investors who do not have an account and have bought their shares through the Funds' Transfer Agent (PFPC Inc.) may sell shares by writing a "letter of instruction," as detailed in "How to Exchange Shares." Because the Funds incur certain fixed costs in maintaining shareholder accounts, each Fund reserves the right to purchase back all of its shares in any shareholder account with a net asset value of less than $500. If a Fund elects to do so, it will notify the shareholder of the opportunity to increase the amount invested to $500 or more within 60 days of the notice. The Fund will not purchase back accounts that fall below $500 solely due to a reduction in net asset value per share. SALES BY PARTICIPANTS IN PW 401(K) PLAN The trustee of the PW 401(k) Plan sells Class Y shares of Tactical Allocation Fund to implement the investment choices of individual plan participants with respect to their PW 401(k) Plan contributions, as described in the Plan Documents referenced under "Flexible Pricing" above. The price at which Class Y shares are sold by the trustee of the PW 401(k) Plan might be more or less than the price per share at the time the participants made their investment choices. REINSTATEMENT PRIVILEGE Shareholders who sell their Class A shares may reinstate their Fund account without a sales charge up to the dollar amount sold by purchasing the Fund's Class A shares within 365 days after the sale. To take advantage of this reinstatement privilege, shareholders must notify their investment executive at PaineWebber or one of its correspondent firms at the time of purchase. - -------------------------------------------------------------------------------- OTHER SERVICES - -------------------------------------------------------------------------------- Investors should consult their investment executives at PaineWebber or one of its correspondent firms to learn more about the following services available with respect to the Funds' Class A, Class B and C shares: AUTOMATIC INVESTMENT PLAN Investing on a regular basis helps investors meet their financial goals. PaineWebber offers an Automatic Investment Plan with a minimum initial investment of $1,000 through which a Fund will deduct $50 or more on a monthly, quarterly, semiannual or annual basis from the investor's bank account to invest directly in the Fund. In addition to providing a convenient and disciplined manner of investing, participation in the Automatic Investment Plan enables the investor to use the technique of "dollar cost averaging." SYSTEMATIC WITHDRAWAL PLAN The Systematic Withdrawal Plan allows investors to set up monthly, quarterly (March, June, September and December), semiannual (June and December) or annual (December) withdrawals from their Fund accounts. Minimum balances and withdrawals vary according to the class of shares: -------------------- Prospectus Page 24 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund o CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000; minimum withdrawals of $100. o CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly, quarterly, semiannual and annual withdrawals of $200, $400, $600 and $800, respectively. Withdrawals under the Systematic Withdrawal Plan are not subject to a contingent deferred sales charge. Investors may not withdraw more than 12% of the value of the Fund account when the investor signed up for the Plan annually for Class B shares; during the first year for Class A and C shares. Shareholders who elect to receive dividends or other distributions in cash may not participate in the Plan. INDIVIDUAL RETIREMENT ACCOUNTS Self-Directed IRAs are available through PaineWebber in which purchases of PaineWebber funds and other investments may be made. Investors considering establishing an IRA should review applicable tax laws and should consult their tax advisers. TRANSFER OF ACCOUNTS If investors holding shares of a Fund in a PaineWebber brokerage account transfer their brokerage accounts to another firm, the Fund shares will be moved to an account with the Transfer Agent. However, if the other firm has entered into a selected dealer agreement with Mitchell Hutchins relating to the Fund, the shareholder may be able to hold Fund shares in an account with the other firm. - -------------------------------------------------------------------------------- MANAGEMENT - -------------------------------------------------------------------------------- Each Fund is governed by its board of trustees, which oversees the Fund's operations. Each board has appointed Mitchell Hutchins as investment adviser and administrator responsible for the Fund's operations (subject to the authority of the board). The boards, as part of their overall management responsibility, oversee various organizations responsible for the day-to-day management of each Fund. In accordance with procedures adopted by the boards, brokerage transactions for the Funds may be conducted through PaineWebber or its affiliates and the Funds may pay fees to PaineWebber for its services as lending agent in their portfolio securities lending programs. Personnel of Mitchell Hutchins may engage in securities transactions for their own accounts pursuant to a code of ethics that establishes procedures for personal investing and restricts certain transactions. ABOUT THE INVESTMENT ADVISER Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York, 10019, is a wholly owned asset management subsidiary of PaineWebber, which is wholly owned by Paine Webber Group Inc., a publicly owned financial services holding company. On October 31, 1998, Mitchell Hutchins was adviser or sub-adviser of 32 investment companies with 73 separate portfolios and aggregate assets of approximately $41.2 billion. As investment adviser and administrator for each Fund, Mitchell Hutchins makes and implements all investment decisions and supervises all aspects of each Fund's operations. Mark A. Tincher is a managing director and chief investment officer of equities of Mitchell Hutchins, responsible for overseeing the management of equity investments. Upon his arrival at Mitchell Hutchins, Mr. Tincher formed the Mitchell Hutchins Equity Research Team. Each analyst on the Team focuses on different industries. As a result, the Team provides PaineWebber Stock Funds with more specialized knowledge of the various industries in which the Funds generally invest. The Team is also assisted by members of Mitchell Hutchins' fixed income groups, who provide input on market outlook, interest rate forecasts and other considerations pertaining to domestic equity and fixed income investments. GROWTH AND INCOME FUND Mr. Tincher has been responsible for the day-to-day management of Growth and Income Fund since April 1995. From March 1988 to March 1995, Mr. Tincher worked for Chase Manhattan Private Bank where he was a vice president. Mr. Tincher directed the U.S. funds management and equity research area at Chase and oversaw the management of all Chase U.S. equity funds (the Vista Funds and Trust Investment Funds). Mr. Tincher was the sole portfolio manager of Vista Growth and Income Fund ("Vista Fund"), with full discretionary authority over the selection of investments, from July 31, 1991 through March 16, 1995. -------------------- Prospectus Page 25 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund Vista Fund's investment objectives of long-term capital appreciation and dividend income are substantially similar to Growth and Income Fund's investment objective of current income and capital growth. Mr. Tincher used and relied upon the same valuation model and analytical methods when managing the Vista Fund as he now uses for Growth and Income Fund. The cumulative total return for Vista Fund for the period it was managed by Mr. Tincher was 46.18%; 39.24% after deducting that Fund's maximum sales charge of 4.75%. As of March 31, 1995, the Vista Fund had $1.6 billion in net assets. The chart below shows calendar year total returns for Vista Fund; the 1991 return represents the period from July 31, 1991 when Mr. Tincher took over day-to-day management of the Vista Fund through December 31, 1991. Sales charges have not been deducted from total returns. Returns would be lower if sales charges were deducted. Mr. Tincher's Term as Manager of Vista Growth and Income Fund 7/31/91 - 12/31/91............. 9.69% 1992........................... 15.11% 1993........................... 12.99% 1994........................... (3.41)% Average annual returns both before and after deducting the maximum sales charges are shown in the table below. Average annual returns are for the one- and three-year periods ended December 31, 1994 and the entire period during which Mr. Tincher managed the Vista Fund (July 31, 1991 through March 16, 1995) and are compared with the performance of the Standard & Poor's 500 Composite Stock Price Index for each such period.
VISTA S&P 500 FUND(1) INDEX(2) ------- -------- Mr. Tincher's Term as Manager 7/31/91 through 3/16/95 Before deducting maximum sales charges........................... 11.04% 10.17% After deducting maximum sales charges........................... 9.56% 10.17% VISTA S&P 500 FUND(1) INDEX(2) ------- -------- Three Years Ended 12/31/94 Before deducting maximum sales charges........................... 7.90% 6.26% After deducting maximum sales charges........................... 6.16% 6.26% One Year Ended 12/31/94 Before deducting maximum sales charges........................... -3.41% 1.31% After deducting maximum sales charges........................... -8.00% 1.31%
- ------------------ 1. Average annual returns are for Class A shares and reflect, where applicable the deduction of the maximum sales charge of 4.75%, changes in share prices, reinvestment of dividends and distributions and are net of fund expenses. For the fiscal years ended October 31, 1991 and October 31, 1992, expenses in the amount of 0.51% and 0.03%, respectively, were waived or reimbursed. 2. The Standard & Poor's 500 Composite Stock Price Index ("Index") is an unmanaged index of common stocks that is considered to be generally representative of the United States stock market. The Index is adjusted to reflect reinvestment of dividends. No sales charges are applicable. - ------------------ Historical performance is not indicative of future performance. Vista Fund is a separate fund and its historical performance is not indicative of the past or future performance of Growth and Income Fund. S&P 500 Index and Vista Fund performance information calculated by Lipper Analytical Services Inc; used with permission. MID CAP FUND Mr. Tincher, Christopher G. Altschul and Antony J. Scott have been primarily responsible for the day-to-day portfolio management of the Fund since May 1, 1998. Mr. Altschul is a first vice president of Mitchell Hutchins and is currently responsible for the quantitative equity valuation model and has various analytical responsibilities. Prior to joining Mitchell Hutchins in April 1995, Mr. Altschul worked as an equity analyst at Chase Manhattan Bank beginning in 1989. Mr. Scott is a first vice president of Mitchell Hutchins and is currently an equity analyst responsible for technology, media, entertainment and medical products industries. Prior to joining Mitchell Hutchins in May 1996, Mr. Scott worked at Morgan Stanley as a research analyst in the technology group beginning in 1992. -------------------- Prospectus Page 26 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund SMALL CAP FUND Donald R. Jones has been primarily responsible for day-to-day portfolio management of Small Cap Fund since April 1996. Mr. Jones is a senior vice president of Mitchell Hutchins. Prior to joining Mitchell Hutchins in February 1996, Mr. Jones was a vice president in the Asset Management Group of First Fidelity Bancorporation, which he joined in 1983. GROWTH FUND Ellen R. Harris has been responsible for the day-to-day portfolio management of Growth Fund since its inception and was joined by Karen L. Finkel in November 1998. Ms. Harris is a managing director of Mitchell Hutchins. Prior to joining Mitchell Hutchins in 1983 as a portfolio manager, Ms. Harris served as a vice president and portfolio manager at American General Capital Management (now American Capital Management). Ms. Finkel is a senior vice president of Mitchell Hutchins and has been employed by Mitchell Hutchins as a portfolio manager for over ten years. MANAGEMENT FEES & OTHER EXPENSES The Funds pay Mitchell Hutchins a monthly fee for its services. For the most recently ended fiscal year, the Funds paid advisory fees at the following annual rates (stated as a percentage of average daily net assets). Growth and Income Fund........................... 0.70% Mid Cap Fund..................................... 1.00 Small Cap Fund................................... 1.00 Growth Fund...................................... 0.75
DISTRIBUTION ARRANGEMENTS Mitchell Hutchins is the distributor of each Fund's shares and has appointed PaineWebber as the exclusive dealer for the sale of those shares. There is no distribution plan with respect to the Funds' Class Y shares. Under distribution plans for Class A, Class B and Class C shares ("Class A Plan," "Class B Plan" and "Class C Plan," collectively, "Plans"), the Funds pay Mitchell Hutchins: o Monthly service fees at the annual rate of up to 0.25% of the average daily net assets of each class of shares. o Monthly distribution fees at the annual rate of 0.75% of the average daily net assets of Class B and Class C shares. Under the Plans, Mitchell Hutchins primarily uses the service fees to pay PaineWebber for shareholder servicing, currently at the annual rate of up to 0.25% of the aggregate investment amounts maintained in each Fund's Class A, Class B and Class C shares by PaineWebber clients. PaineWebber then compensates its investment executives for shareholder servicing that they perform and offsets its own expenses in servicing and maintaining shareholder accounts. Mitchell Hutchins uses the distribution fees under the Class B and Class C Plans to: o Offset the commissions it pays to PaineWebber for selling each Fund's Class B and Class C shares, respectively. o Offset each Fund's marketing costs attributable to such classes, such as preparation, printing and distribution of sales literature, advertising and prospectuses to prospective investors and related overhead expenses, such as employee salaries and bonuses. PaineWebber compensates investment executives when Class B and Class C shares are bought by investors, as well as on an ongoing basis. Mitchell Hutchins receives no special compensation from any of the Funds or investors at the time Class B or C shares are bought. Mitchell Hutchins receives the proceeds of the initial sales charge paid when Class A shares are bought and of the contingent deferred sales charge paid upon sales of shares. These proceeds may be used to cover distribution expenses. The Plans and the related distribution contracts for each class of shares ("Distribution Contracts") specify that each Fund must pay service and distribution fees to Mitchell Hutchins for its activities, not as reimbursement for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses exceed the service or distribution fees it receives, the Funds will not be obligated to pay more than those fees. On the other hand, if Mitchell Hutchins' expenses are less than such fees, it will retain its full fees and realize a profit. Expenses in excess of service and distribution fees received or accrued through the termination date of any Plan will be Mitchell Hutchins' sole responsibility and not that of the Funds. Annually, the board of each Fund reviews each Plan and Mitchell Hutchins' corresponding expenses for each class separately from the Plans and expenses of the other classes. -------------------- Prospectus Page 27 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund DETERMINING THE SHARES' NET ASSET VALUE - -------------------------------------------------------------------------------- The net asset value of a Fund's shares fluctuates and is determined separately for each class, normally as of the close of regular trading on the NYSE (usually 4:00 p.m., Eastern time) each Business Day. Each Fund's net asset value per share is determined by dividing the value of the securities it holds, plus any cash or other assets, minus all liabilities, by the total number of Fund shares outstanding. If trading on the NYSE is halted for the day before 4:00 p.m., Eastern time, and trading on the NYSE will not resume again that day, each Fund's net asset value per share will be calculated at the time trading was halted. Each Fund values its assets based on their current market value when market quotations are readily available. If market quotations are not readily available, assets are valued at fair value as determined in good faith by or under the direction of its board. The amortized cost method of valuation generally is used to value debt obligations with 60 days or less remaining to maturity, unless a Fund's board determines that this does not represent fair value. It should be recognized that judgment plays a greater role in valuing lower-rated corporate bonds because there is less reliable, objective data available. - -------------------------------------------------------------------------------- DIVIDENDS & TAXES - -------------------------------------------------------------------------------- DIVIDENDS Mid Cap Fund, Small Cap Fund and Growth Fund each pays an annual dividend, and Growth and Income Fund pays a semiannual dividend, from its net investment income and net short-term capital gain, if any. Each Fund also annually distributes substantially all of its net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any. Each Fund may make additional distributions, if necessary, to avoid a 4% excise tax on certain undistributed income and capital gain. If determined by its board to be in the best interests of its shareholders, Growth and Income Fund may also make additional distributions of net investment income and net short-term capital gain, if any. Dividends and other distributions paid on each class of shares of a Fund are calculated at the same time and in the same manner. Dividends on Class A, B and C shares of a Fund are expected to be lower than those on its Class Y shares because the other shares have higher expenses resulting from their service fees and, in the case of Class B and Class C shares, their distribution fees. Dividends on Class B and Class C shares of a Fund are expected to be lower than those on its Class A shares because Class B and Class C shares have higher expenses resulting from their distribution fees. Dividends on each class might be affected differently by the allocation of other class-specific expenses. See "General Information." Each Fund's dividends and other distributions are paid in additional Fund shares of the same class at net asset value, unless the shareholder has requested cash payments. Shareholders who wish to receive dividends and other distributions in cash, either mailed to them by check or credited to their PaineWebber accounts, should contact their investment executives at PaineWebber or one of its correspondent firms or complete the appropriate section of the account application. TAXES Each Fund intends to continue to qualify for treatment as a regulated investment company under the Code so that it will not have to pay federal income tax on the part of its investment company taxable income (generally consisting of net investment income and net short-term capital gain) and net capital gain that it distributes to its shareholders. -------------------- Prospectus Page 28 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund Dividends from each Fund's investment company taxable income (whether paid in cash or additional shares) are generally taxable to its shareholders as ordinary income. Distributions of each Fund's net capital gain (whether paid in cash or additional shares) are taxable to its shareholders as long-term capital gain, regardless of how long they have held their Fund shares. Under the Taxpayer Relief Act of 1997, as modified by recent legislation, the maximum tax rate applicable to a non-corporate taxpayer's net capital gain recognized on capital assets held for more than one year is 20% (10% for taxpayers in the 15% marginal tax bracket). In the case of a regulated investment company such as a Fund, the relevant holding period is detemined by how long the Fund has held the portfolio securities on which the gain was realized, not how long the shareholders have held their Fund shares. Shareholders who are not subject to tax on their income generally will not be required to pay tax on distributions from the Funds. YEAR-END TAX REPORTING Following the end of each calendar year, each Fund notifies its shareholders of the amounts of dividends and capital gain distributions paid (or deemed paid) by the Fund that year and any portion of those dividends that qualifies for special tax treatment. BACKUP WITHHOLDING Each Fund must withhold 31% of all dividends, capital gain distributions and redemption proceeds payable to individuals and certain other non-corporate shareholders who do not provide the Fund with a correct taxpayer identification number. Withholding at that rate also is required from dividends and capital gain distributions payable to such shareholders who otherwise are subject to backup withholding. TAXES ON THE SALE OR EXCHANGE OF FUND SHARES A shareholder's sale (redemption) of Fund shares may result in a taxable gain or loss. This depends upon whether the shareholder receives more or less than the adjusted basis for the shares (which normally includes any initial sales charge paid on Class A shares). An exchange of any Fund's shares for shares of another PaineWebber mutual fund generally will have similar tax consequences. In addition, if a Fund's shares are bought within 30 days before or after selling other shares of that Fund (regardless of class) at a loss, all or a portion of that loss will not be deductible and will increase the basis of the newly purchased shares. SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS Special tax rules apply when a shareholder sells (redeems) or exchanges Class A shares within 90 days of purchase and subsequently acquires Class A shares of the same or another PaineWebber mutual fund without paying a sales charge due to the 365-day reinstatement privilege or the exchange privilege. In these cases, any gain on the sale or exchange of the original Class A shares would be increased, or any loss would be decreased, by the amount of the sales charge paid when those shares were bought, and that amount would increase the basis of the PaineWebber mutual fund shares subsequently acquired. A shareholder will recognize no gain or loss as a result of conversion of Class B shares to Class A shares. * * * * Because the foregoing only summarizes some of the important considerations affecting the Funds and their shareholders, a further discussion is contained in the Statement of Additional Information. Prospective shareholders are urged to consult their tax advisers. - -------------------------------------------------------------------------------- GENERAL INFORMATION - -------------------------------------------------------------------------------- ORGANIZATION GROWTH AND INCOME FUND Growth and Income Fund is a diversified series of PaineWebber America Fund, an open-end management investment company that was formed on October 31, 1986 as a business trust under the laws of the Commonwealth of Massachusetts. The board has authority to issue an unlimited number of shares of beneficial interest of separate series, par value $0.001 per share. MID CAP FUND Mid Cap Fund is a diversified series of PaineWebber Managed Assets Trust, an open-end management investment company that was formed on August 9, -------------------- Prospectus Page 29 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund 1991, as a business trust under the laws of the Commonwealth of Massachusetts. The trustees have authority to issue an unlimited number of shares of beneficial interest of separate series, par value $0.001 per share. SMALL CAP FUND Small Cap Fund is a diversified series of PaineWebber Securities Trust ("Securities Trust"), an open-end management investment company that was formed on December 3, 1992 as a business trust under the laws of the Commonwealth of Massachusetts. The board has authority to issue an unlimited number of shares of beneficial interest of separate series, par value $0.001 per share. In addition to Small Cap Fund, shares of one other series have been authorized. GROWTH FUND Growth Fund is a diversified series of PaineWebber Olympus Fund, an open-end management investment company that was formed on October 31, 1986 as a business trust under the laws of the Commonwealth of Massachusetts. The board has authority to issue an unlimited number of shares of beneficial interest of separate series, par value $0.001 per share. SHARES The shares of each Fund are divided into four classes, designated Class A, Class B, Class C and Class Y shares. Each class of shares of a Fund represents an identical interest in that Fund's investment portfolio and has the same rights, privileges and preferences. However, each class may differ with respect to sales charges, if any, distribution and/or service fees, if any, other expenses allocable exclusively to each class, voting rights on matters exclusively affecting that class, and its exchange privilege, if any. The different sales charges and other expenses applicable to the different classes of shares of the Funds will affect the performance of those classes. Each share of a Fund is entitled to participate equally in dividends, other distributions and the proceeds of any liquidation of that Fund. However, due to the differing expenses of the classes, dividends on a Fund's Class A, B, C and Y shares will differ. Although each Fund is offering only its own shares, it is possible that a Fund could become liable for a misstatement in the Prospectus about another Fund. The board of each Fund considered this factor in approving the use of a combined Prospectus. VOTING RIGHTS Shareholders of each Fund are entitled to one vote for each full share held and fractional votes for fractional shares held. Voting rights are not cumulative and, as a result, the holders of more than 50% of all the shares of any Fund (or Securities Trust, which has more than one series) may elect all of the trustees of that Fund or of Securities Trust. The shares of a Fund will be voted together, except that only the shareholders of a particular class of a Fund may vote on matters affecting only that class, such as the terms of a Plan as it relates to the class. The shares of each series of Securities Trust will be voted separately except where an aggregate vote of all its series is required by law. SHAREHOLDER MEETINGS The Funds do not hold annual meetings. Shareholders of record of no less than two-thirds of the outstanding shares of a Fund or Securities 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 to vote on the removal of a trustee at the written request of holders of 10% of a Fund's or Securities Trust's outstanding shares. REPORTS TO SHAREHOLDERS Each Fund sends its shareholders audited annual and unaudited semiannual reports, each of which includes a list of the investment securities held by that Fund as of the end of the period covered by the report. The Statement of Additional Information, which is incorporated herein by reference, is available to shareholders upon request. CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND DISBURSING AGENT State Street Bank and Trust Company, located at One Heritage Drive, North Quincy, Massachusetts 02171, serves as each Fund's custodian and recordkeeping agent. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as each Fund's transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway, Wilmington, DE 19809. -------------------- Prospectus Page 30 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund [This page intentionally left blank] -------------------- Prospectus Page 31 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND The following tables provide investors with data and ratios for one Class A, Class B, Class C and Class Y share for each of the periods shown. This information is supplemented by the financial statements, accompanying notes and the report of Ernst & Young LLP, independent auditors, which appear in the Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1998, and are incorporated by reference into the Statement of Additional Information. The financial statements and notes, as well as the information for each of the five years in the period ended August 31, 1998 appearing in the following tables, have been audited by Ernst & Young LLP, independent auditors. Further information about the Fund's performance is also included in the Annual Report to Shareholders, which may be obtained without charge by calling 1-800-647-1568. Information shown below for periods prior to the year ended August 31, 1994 has also been audited by Ernst & Young LLP, independent auditors, whose reports thereon were unqualified.
GROWTH AND INCOME FUND -------------------------------------------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED AUGUST 31, -------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Net asset value, beginning of period........... $ 30.60 $ 24.35 $ 22.52 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32 -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Net investment income........... 0.19 0.23 0.22 0.24 0.28 0.28 0.24 0.19 0.51 0.49 Net realized and unrealized gains (losses) from investments and options.......... (0.99) 9.29 3.46 3.18 (0.41) 0.37 1.25 3.50 (0.61) 3.17 -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Total increase (decrease) from investment operations....... 0.80 9.52 3.68 3.42 (0.13) 0.65 1.49 3.69 (0.10) 3.66 -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Dividends from investment income........... (0.21) (0.25) (0.34) (0.12) (0.27) (0.27) (0.27) (0.30) (0.53) (0.48) Distributions from net realized gains from investment transactions..... (2.67) (3.02) (1.51) (1.21) (0.03) -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Total dividends and distributions to shareholders.. (2.88) (3.27) (1.85) (1.33) (0.30) (0.27) (0.27) (0.30) (0.53) (0.48) -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Net asset value, end of period.... $ 26.92 $ 30.60 $ 24.35 $ 22.52 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Total investment return (1)....... (3.51)% 42.42% 17.40% 18.30% (0.58)% 3.15% 7.78% 23.62% (0.72)% 28.03% -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- Ratios/Supplemental data: Net assets, end of period (000's)... $670,606 $441,699 $276,016 $187,057 $222,432 $359,073 $358,643 $232,555 $58,649 $61,617 Expenses to average net assets**......... 1.07% 1.15% 1.20%(2) 1.19% 1.20% 1.13% 1.22% 1.42% 1.41% 1.41% Net investment income to average net assets**..... 0.71% 0.88% 0.98%(2) 1.07% 1.29% 1.33% 1.26% 1.79% 3.11% 3.26% Portfolio turnover rate............. 62% 70% 112% 111% 94% 37% 16% 52% 32% 79%
- ------------------ * Annualized. ** During certain periods presented, PaineWebber/Mitchell Hutchins waived fees or reimbursed the Fund for portions of its operating expenses. If such waivers or reimbursements had not been made for the Class A shares, the annualized ratio of expenses to average net assets and the annualized ratio of net investment income to average net assets would have been 1.65% and 3.02%, respectively, for the year ended August 31, 1989. + Commencement of offering of shares. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the last day of each period reported. The figures do not include sales charges; results for Class A, Class B and Class C shares would be lower if sales charges were included. Total investment return information for periods of less than one year has not been annualized. (2) These ratios include non-recurring acquisition expenses of 0.04%. -------------------- Prospectus Page 32 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
GROWTH AND INCOME FUND ------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------ FOR THE PERIOD JULY 1, FOR THE YEARS ENDED AUGUST 31, 1991+ TO ----------------------------------------------------------------------------- AUGUST 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- -------- -------- ---------- Net asset value, beginning of period........... $ 30.46 $ 24.26 $ 22.37 $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 18.04 -------- -------- -------- -------- -------- -------- -------- -------- Net investment income........... (0.02) 0.04 0.04 0.06 0.10 0.12 0.13 0.02 Net realized and unrealized gains (losses) from investments and options.......... (1.02) 9.23 3.45 3.18 (0.37) 0.36 1.20 1.17 -------- -------- -------- -------- -------- -------- -------- -------- Total increase (decrease) from investment operations....... (1.04) 9.27 3.49 3.24 (0.27) 0.48 1.33 1.19 -------- -------- -------- -------- -------- -------- -------- -------- Dividends from investment income........... -- (0.05) (0.09) (0.03) (0.11) (0.11) (0.15) -- Distributions from net realized gains from investment transactions..... (2.65) (3.02) (1.51) (1.21) (0.03) -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Total dividends and distributions to shareholders.. (2.65) (3.07) (1.60) (1.24) (0.14) (0.11) (0.15) -- -------- -------- -------- -------- -------- -------- -------- -------- Net asset value, end of period.... $ 26.77 $ 30.46 $ 24.26 $ 22.37 $ 20.37 $ 20.78 $ 20.41 $ 19.23 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment return (1)....... (4.28)% 41.33% 16.49% 17.38% (1.31)% 2.34% 6.99% 6.60% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Ratios/Supplemental data: Net assets, end of period (000's)... $353,150 $376,840 $277,753 $247,543 $289,290 $461,389 $386,275 $ 57,539 Expenses to average net assets**......... 1.87% 1.93% 1.99%(2) 1.97% 1.97% 1.90% 1.97% 2.10%* Net investment income to average net assets**..... (0.08)% 0.11% 0.17%(2) 0.29% 0.51% 0.57% 4.90% 1.18%* Portfolio turnover rate............. 62% 70% 112% 111% 94% 37% 16% 52% GROWTH AND INCOME FUND ------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------- FOR THE PERIOD JULY 2, FOR THE YEARS ENDED AUGUST 31, 1992+ TO --------------------------------------------------------------------------- AUGUST 31, 1998 1997 1996 1995 1994 1993 1992 ---------- -------- ------- ------- ------- ---------- ---------- Net asset value, beginning of period........... $ 30.53 $ 24.33 $ 22.43 $ 20.42 $ 20.83 $ 20.47 $ 20.95 ---------- -------- ------- ------- ------- ------- -------- Net investment income........... 0.01 0.05 0.05 0.06 0.11 0.11 0.02 Net realized and unrealized gains (losses) from investments and options.......... (1.03) 9.24 3.46 3.19 (0.38) 0.37 (0.44) ---------- -------- ------- ------- ------- ------- -------- Total increase (decrease) from investment operations....... (1.02) 9.29 3.51 3.25 (0.27) 0.48 (0.42) ---------- -------- ------- ------- ------- ------- -------- Dividends from investment income........... (0.02) (0.07) (0.10) (0.03) (0.11) (0.12) (0.06) Distributions from net realized gains from investment transactions..... (2.67) (3.02) (1.51) (1.21) (0.03) -- -- ---------- -------- ------- ------- ------- ------- -------- Total dividends and distributions to shareholders.. (2.69) (3.09) (1.61) (1.24) (0.14) (0.12) (0.06) ---------- -------- ------- ------- ------- ------- -------- Net asset value, end of period.... $ 26.82 $ 30.53 $ 24.33 $ 22.43 $ 20.42 $ 20.83 $ 20.47 ---------- -------- ------- ------- ------- ------- -------- ---------- -------- ------- ------- ------- ------- -------- Total investment return (1)....... (4.23)% 41.30% 16.52% 17.37% (1.29)% 2.35% 2.85% ---------- -------- ------- ------- ------- ------- -------- ---------- -------- ------- ------- ------- ------- -------- Ratios/Supplemental data: Net assets, end of period (000's)... $ 149,458 $ 84,922 $43,148 $30,468 $37,287 $61,869 $ 13,019 Expenses to average net assets**......... 1.85% 1.92% 1.99%(2) 1.98% 1.94% 1.87% 1.73%* Net investment income to average net assets**..... (0.07)% 0.10% 0.18%(2) 0.28% 0.54% 0.61% 0.94%* Portfolio turnover rate............. 62% 70% 112% 111% 94% 37% 16%
-------------------- Prospectus Page 33 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
GROWTH AND INCOME FUND ------------------------------------------------------------------------------------ CLASS Y ------------------------------------------------------------------------------------ FOR THE PERIOD FEBRUARY 12, FOR THE YEARS ENDED AUGUST 31, 1992+ TO -------------------------------------------------------------------- AUGUST 31, 1998 1997 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- ------- ------------ Net asset value, beginning of period..... $ 30.59 $ 23.35 $ 22.54 $ 20.42 $ 20.86 $ 20.48 $ 20.95 ------- ------- ------- ------- ------- ------- -------- Net investment income.... 0.30 0.32 0.30 0.30 0.33 0.33 0.16 Net realized and unrealized gains (losses) from investments and options............. (1.02) 9.26 3.45 3.18 (0.40) 0.37 (0.49) ------- ------- ------- ------- ------- ------- -------- Total increase (decrease) from investment operations.............. (0.72) 9.58 3.75 3.48 (0.07) 0.70 (0.33) ------- ------- ------- ------- ------- ------- -------- Dividends from investment income.................. (0.28) (0.32) (0.43) (0.15) (0.34) (0.32) (0.14) Distributions from net realized gains from investment transactions............ (2.67) (3.02) (1.51) (1.21) (0.03) -- -- ------- ------- ------- ------- ------- ------- -------- Total dividends and distributions to shareholders............ (2.95) (3.34) (1.94) (1.36) (0.37) (0.32) (0.14) ------- ------- ------- ------- ------- ------- -------- Net asset value, end of period.................. $ 26.92 $ 30.59 $ 24.35 $ 22.54 $ 20.42 $ 20.86 $ 20.48 ------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- ------- -------- Total investment return(1)............... (3.24)% 42.74% 17.77% 18.66% (0.31)% 3.44% (1.15)% ------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- ------- -------- Ratios/supplemental data: Net assets, end of period (000's)................. $65,518 $46,745 $22,942 $14,680 $14,690 $17,005 $ 10,560 Expenses to average net assets.................. 0.80% 0.88% 0.92%(2) 0.89% 0.90% 0.86% 0.93%* Net investment income to average net assets...... 0.99% 1.14% 1.26%(2) 1.39% 1.60% 1.62% 1.56%* Portfolio turnover....... 62% 70% 112% 111% 94% 37% 16%
- ------------------ * Annualized + Commencement of offering of shares. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the last day of each period reported. Total investment return information for periods of less than one year has not been annualized. (2) These ratios include non-recurring acquisition expenses of 0.04%. -------------------- Prospectus Page 34 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund [This page intentionally left blank] -------------------- Prospectus Page 35 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - -------------------------------------------------------------------------------- MID CAP FUND The following table provides investors with data and ratios for one Class A, Class B, Class C and Class Y share for each of the periods shown. This information is supplemented by the financial statements, accompanying notes and the report of Ernst & Young LLP, independent auditors, which appear in the Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1998, and are incorporated by reference into the Statement of Additional Information. The financial statements and notes, as well as the financial information in the table below relating to the five month period ended August 31 and each of the five years in the period ended March 31, 1998, have been audited by Ernst & Young LLP. Information shown below for period prior to the year ended March 31, 1994, has also been audited by Ernst & Young LLP, 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 by calling 1-800-647-1568.
MID CAP FUND --------------------------------------------------------------------------------------------- CLASS A --------------------------------------------------------------------------------------------- FOR THE FOR THE PERIOD FIVE MONTHS APRIL 7, ENDED FOR THE YEARS ENDED MARCH 31, 1992+ TO AUGUST 31, ------------------------------------------------------------ MARCH 31, 1998** 1998 1997 1996 1995 1994 1993 ------------ -------- ------- ------- ------- ------- --------- Net asset value, beginning of period..... $ 15.00 $ 13.44 $ 15.61 $ 12.81 $ 11.65 $ 10.53 $ 9.55 -------- -------- ------- ------- ------- ------- ------- Net investment loss...... (0.03) (0.13) (0.17) (0.16) (0.09) (0.09) (0.06) Net realized and unrealized gains (losses) from investment transactions............ (3.15) 5.15 0.32 3.71 1.29 1.21 1.04 -------- -------- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations.............. (3.18) 5.02 0.15 3.55 1.20 1.12 0.98 -------- -------- ------- ------- ------- ------- ------- Distributions from net realized gains from investments............. (3.85) (3.46) (2.32) (0.75) (0.04) -- -- -------- -------- ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 7.97 $ 15.00 $ 13.44 $ 15.61 $ 12.81 $ 11.65 $ 10.53 -------- -------- ------- ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- ------- Total investment return (1)..................... (27.31)% 41.50% (0.21)% 28.16% 10.36% 10.64% 10.26% -------- -------- ------- ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)................. $ 90,650 $101,698 $76,909 $76,558 $62,673 $58,523 $48,582 Expenses to average net assets.................. 1.48%* 1.51% 1.60% 1.58% 1.58% 1.54% 1.72%* Net investment loss to average net assets...... (0.61)%* (1.16)% (1.20)% (1.11)% (0.79)% (0.84)% (0.78)%* Portfolio turnover....... 80% 64% 56% 57% 42% 60% 51%
- ------------------ * Annualized ** Effective May 1, 1998, Mitchell Hutchins took over day-to-day management of the Fund's assets. + Commencement of operations. # Commencement of offering of shares. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all distributions at net asset value on the payable dates and a sale at net asset value on the last day of each period reported. The figures do not include sales charges; results for Class A, B and C shares would be lower if sales charges were included. Total investment returns for periods of less than one year have not been annualized. -------------------- Prospectus Page 36 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
MID CAP FUND ------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------------------------------------------- FOR THE FOR THE PERIOD FIVE MONTHS APRIL 7, ENDED FOR THE YEARS ENDED MARCH 31, 1992+ TO AUGUST 31, ------------------------------------------------------------ MARCH 31, 1998** 1998 1997 1996 1995 1994 1993 ------------ -------- -------- -------- -------- -------- --------- Net asset value, beginning of period..... 15.07 $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94 $ 10.00 ------ -------- -------- -------- -------- -------- --------- Net investment loss...... (0.07) (0.31) (0.31) (0.29) (0.20) (0.17) (0.11) Net realized and unrealized gains (losses) from investment transactions............ (3.16) 5.25 0.34 3.81 1.33 1.25 1.05 ------ -------- -------- -------- -------- -------- --------- Net increase (decrease) from investment operations.............. (3.23) 4.94 0.03 3.52 1.13 1.08 0.94 ------ -------- -------- -------- -------- -------- --------- Distributions from net realized gains from investments............. (3.85) (3.46) (2.32) (0.75) (0.04) -- -- ------ -------- -------- -------- -------- -------- --------- Net asset value, end of period.................. 7.99 $ 15.07 $ 13.59 $ 15.88 $ 13.11 $ 12.02 $ 10.94 ------ -------- -------- -------- -------- -------- --------- ------ -------- -------- -------- -------- -------- --------- Total investment return (1)..................... (27.54)% 40.39% (0.99)% 27.28% 9.46% 9.87% 9.40% ------ -------- -------- -------- -------- -------- --------- ------ -------- -------- -------- -------- -------- --------- Ratios/Supplemental Data: Net assets, end of period (000's)................. 54,978 $143,058 $134,495 $157,021 $139,302 $133,828 $105,490 Expenses to average net assets.................. 2.32%* 2.28% 2.36% 2.34% 2.34% 2.30% 2.49%* Net investment loss to average net assets...... (1.48)%* (1.92)% (1.95)% (1.87)% (1.56)% (1.60)% (1.55)%* Portfolio turnover....... 80% 64% 56% 57% 42% 60% 51% MID CAP FUND --------------------------------------------------------------------------------------- CLASS C --------------------------------------------------------------------------------------- FOR THE FOR THE PERIOD FIVE MONTHS JULY 2, ENDED FOR THE YEARS ENDED MARCH 31, 1992+ TO AUGUST 31, -------------------------------------------------------- MARCH 31, 1998** 1998 1997 1996 1995 1994 1993 ------------ ------- ------- -------- ------- ------- --------- Net asset value, beginning of period..... $ 14.07 $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47 $ 8.89 -------- ------- ------- -------- ------- ------- ------- Net investment loss...... (0.06) (0.26) (0.29) (0.27) (0.19) (0.10) (0.05) Net realized and unrealized gains (losses) from investment transactions............ (2.90) 4.92 0.34 3.62 1.27 1.13 1.63 -------- ------- ------- -------- ------- ------- ------- Net increase (decrease) from investment operations.............. (2.96) 4.66 0.05 3.35 1.08 1.03 1.58 -------- ------- ------- -------- ------- ------- ------- Distributions from net realized gains from investments............. (3.85) (3.46) (2.32) (0.75) (0.04) -- -- -------- ------- ------- -------- ------- ------- ------- Net asset value, end of period.................. $ 7.26 $ 14.07 $ 12.87 $ 15.14 $ 12.54 $ 11.50 $ 10.47 -------- ------- ------- -------- ------- ------- ------- -------- ------- ------- -------- ------- ------- ------- Total investment return (1)..................... (27.58)% 40.46% (0.91)% 27.16% 9.45% 9.84% 17.77% -------- ------- ------- -------- ------- ------- ------- -------- ------- ------- -------- ------- ------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)................. $ 16,875 $27,814 $24,810 $ 27,601 $24,993 $29,884 $13,806 Expenses to average net assets.................. 2.28%* 2.29% 2.37% 2.36% 2.35% 2.28% 2.31%* Net investment loss to average net assets...... (1.42)%* (1.94)% (1.97)% (1.89)% (1.57)% (1.58)% (1.53)%* Portfolio turnover....... 80% 64% 56% 57% 42% 60% 51%
-------------------- Prospectus Page 37 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
MID CAP FUND --------------------------- CLASS Y --------------------------- FOR THE FOR THE PERIOD FIVE MONTHS MARCH 17, ENDED 1998+ TO AUGUST 31, MARCH 31, 1998** 1998 ------------ --------- Net asset value, beginning of period..... $ 15.00 $ 14.90 -------- --------- Net investment loss...... (0.01) 0.00 Net realized and unrealized gains (losses) from investment transactions............ (3.17) 0.10 -------- --------- Net increase (decrease) from investment operations.............. (3.18) 0.10 -------- --------- Distributions from net realized gains from investments............. (3.85) -- -------- --------- Net asset value, end of period.................. $ 7.97 $ 15.00 -------- --------- -------- --------- Total investment return (1)..................... (27.31)% 0.67% -------- --------- -------- --------- Ratios/Supplemental Data: Net assets, end of period (000's)................. $ 65 $ 35 Expenses to average net assets.................. 1.23%* 1.22%* Net investment loss to average net assets...... (0.29)%* 0.00%* Portfolio turnover....... 80% 64%
- ------------------ * Annualized ** Effective May 1, 1998, Mitchell Hutchins took over day-to-day management of the Fund's assets. + Commencement of offering of shares. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the last day of each period reported. Total investment return information for periods of less than one year have not been annualized. -------------------- Prospectus Page 38 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund [This page intentionally left blank] -------------------- Prospectus Page 39 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - -------------------------------------------------------------------------------- SMALL CAP FUND The following table provides investors with data and ratios for one Class A, Class B, Class C and Class Y share for each of the periods shown. This information is supplemented by the financial statements, accompanying notes and the report of PricewaterhouseCoopers LLP, independent accountants, which appear in the Fund's Annual Report to Shareholders for the fiscal year ended July 31, 1998, and are incorporated by reference into the Statement of Additional Information. The financial statements and notes, as well as the information appearing below, have been audited by PricewaterhouseCoopers LLP. Further information about the Fund's performance is also included in the Annual Report to Shareholders, which may be obtained without charge by calling 1-800-647-1568.
SMALL CAP FUND ------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------ FOR THE FOR THE FOR THE YEARS PERIOD YEAR ENDED JULY 31, ENDED ENDED ----------------------------------------------- JULY 31, JANUARY 31, 1998 1997 1996# 1995 1994+ 1994 ------- ------- ------- -------- -------- ----------- Net asset value, beginning of period...................... 13.42 $ 10.22 $ 11.30 $ 10.27 $ 10.61 $ 10.00 ------- ------- ------- -------- -------- ------- Net investment income (loss)...................... (0.13) (0.14) 0.00@ 0.05 0.02 0.13 Net realized and unrealized gains (losses) from investments................. 1.22 3.75 0.50@ 1.50 (0.36) 0.62 ------- ------- ------- -------- -------- ------- Net increase (decrease) from investment operations....... 1.09 3.61 0.50 1.55 (0.34) 0.75 ------- ------- ------- -------- -------- ------- Dividends from net investment income...................... -- -- -- -- -- (0.12) Distributions from net realized gains from investments................. (1.17) (0.41) (1.58) (0.52) -- (0.02) ------- ------- ------- -------- -------- ------- Total dividends and distributions............... (1.17) (0.41) (1.58) (0.52) 0.00 (0.14) ------- ------- ------- -------- -------- ------- Net asset value, end of period...................... $ 13.34 $ 13.42 $ 10.22 $ 11.30 $ 10.27 $ 10.61 ------- ------- ------- -------- -------- ------- ------- ------- ------- -------- -------- ------- Total investment return (1)... 8.45 % 36.11% 4.69% 15.80% (3.20)% 7.58% ------- ------- ------- -------- -------- ------- ------- ------- ------- -------- -------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)..................... $47,589 $32,968 $30,675 $ 20,494 $ 22,848 $25,226 Expenses to average net assets...................... 1.56 % 2.00 % 2.11% 1.98% 1.91%* 1.75% Net investment income (loss) to average net assets....... (0.99)% (1.16)% 0.02% 0.41% 0.41%* 1.41% Portfolio turnover............ 45 % 54 % 84% 19% 20% 98%
- ------------------ * Annualized + For the period February 1, 1994 to July 31, 1994. ++ For the period July 26, 1996 (commencement of offering shares) to July 31, 1996. # Effective April 1, 1996, Mitchell Hutchins took over day-to-day management of the Fund's assets. @ Calculated using the average shares outstanding for the period. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all dividends and other distributions, if any, at net asset value on the payable dates, and a sale at net asset value on the last day of each period reported. The figures do not include sales charges; results for Class A, Class B and Class C shares would be lower if sales charges were included. Total investment return information for periods of less than one year has not been annualized. -------------------- Prospectus Page 40 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
SMALL CAP FUND --------------------------------------------------------------------------- CLASS B --------------------------------------------------------------------------- FOR THE FOR THE YEARS PERIOD FOR THE ENDED JULY 31, ENDED YEAR ENDED --------------------------------------------- JULY 31, JANUARY 31, 1998 1997 1996# 1995 1994+ 1994 ------- ------- ------- --------- --------- ----------- Net asset value, beginning of period...................... 13.00 $ 9.98 $ 11.15 $ 10.22 $ 10.60 $ 10.00 ------- ------- ------- ------- ------- ------- Net investment income (loss)...................... (0.22) (0.23) (0.09)@ (0.04) (0.02) 0.06 Net realized and unrealized gains (losses) from investments................. 1.17 3.66 0.50 @ 1.49 (0.36) 0.62 ------- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations....... 0.95 3.43 0.41 1.45 (0.38) 0.68 ------- ------- ------- ------- ------- ------- Dividends from net investment income...................... -- -- -- -- -- (0.06) Distributions from net realized gains from investments................. (1.17) (0.41) (1.58) (0.52) -- (0.02) ------- ------- ------- ------- ------- ------- Total dividends and distributions............... (1.17) (0.41) (1.58) (0.52) 0.00 (0.08) ------- ------- ------- ------- ------- ------- Net asset value, end of period...................... $ 12.78 $ 13.00 $ 9.98 $ 11.15 $ 10.22 $ 10.60 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment return (1)... 7.60% 35.16% 3.90% 14.86% (3.58)% 6.81% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)..................... $54,639 $40,749 $36,612 $46,142 $52,624 $59,993 Expenses to average net assets...................... 2.33 % 2.75 % 2.90 % 2.74 % 2.69 %* 2.50% Net investment income (loss) to average net assets....... (1.75)% (1.91)% (0.78)% (0.35)% (0.37)%* 0.67% Portfolio turnover............ 45 % 54 % 84 % 19 % 20 % 98% -------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------- FOR THE FOR THE YEARS PERIOD FOR THE ENDED JULY 31, ENDED YEAR ENDED -------------------------------------------- JULY 31, JANUARY 31, 1998 1997 1996# 1995 1994+ 1994 ------- ------- ------- --------- --------- ----------- Net asset value, beginning of period...................... 12.98 $ 9.97 $ 11.14 $ 10.22 $ 10.59 $ 10.00 ----- ------- ------- ------- ------- ------- Net investment income (loss)...................... (0.21) (0.24) (0.08)@ (0.05) (0.02) 0.06 Net realized and unrealized gains (losses) from investments................. 1.16 3.66 0.49 @ 1.49 (0.35) 0.62 ----- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations....... 0.95 3.42 0.41 1.44 (0.37) 0.68 ----- ------- ------- ------- ------- ------- Dividends from net investment income...................... -- -- -- -- -- (0.07) Distributions from net realized gains from investments................. (1.17) (0.41) (1.58) (0.52) -- (0.02) ----- ------- ------- ------- ------- ------- Total dividends and distributions............... (1.17) (0.41) (1.58) (0.52) 0.00 (0.09) ----- ------- ------- ------- ------- ------- Net asset value, end of period...................... 12.76 $ 12.98 $ 9.97 $ 11.14 $ 10.22 $ 10.59 ----- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- ------- Total investment return (1)... 7.61% 35.09% 3.90% 14.76% (3.49)% 6.77% ----- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)..................... 2,174 $18,812 $18,606 $13,263 $16,285 $20,941 Expenses to average net assets...................... 2.32 % 2.77 % 2.91 % 2.73 % 2.69 %* 2.50% Net investment income (loss) to average net assets....... (1.75)% (1.93)% (0.77)% (0.34)% (0.36)%* 0.64% Portfolio turnover............ 45 % 54 % 84 % 19 % 20 % 98% CLASS Y ---------------------------------- FOR THE FOR THE YEARS PERIOD ENDED JULY 31, ENDED -------------------- JULY 31, 1998 1997 1996++ ------- --------- --------- Net asset value, beginning of period...................... 13.46 $ 10.21 $ 10.23 ----- ------- ------- Net investment income (loss)...................... (0.07) (0.11) 00.0 @ Net realized and unrealized gains (losses) from investments................. 1.20 3.77 (0.02)@ ----- ------- ------- Net increase (decrease) from investment operations....... 1.13 3.66 (0.02) ----- ------- ------- Dividends from net investment income...................... -- -- -- Distributions from net realized gains from investments................. (1.17) (0.41) -- ----- ------- ------- Total dividends and distributions............... (1.17) (0.41) 0.00 ----- ------- ------- Net asset value, end of period...................... 13.42 $ 13.46 $ 10.21 ----- ------- ------- ----- ------- ------- Total investment return (1)... 8.74 36.65% (0.20)% ----- ------- ------- ----- ------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)..................... 7,169 $ 2,768 $ 2,801 Expenses to average net assets...................... 1.39 % 1.72 % 1.72 %* Net investment income (loss) to average net assets....... (0.83)% (0.88)% 0.07 %* Portfolio turnover............ 45% 54 % 84 %
-------------------- Prospectus Page 41 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - -------------------------------------------------------------------------------- GROWTH FUND The following tables provide investors with data and ratios for one Class A, Class B, Class C and Class Y share for each of the periods shown. This information is supplemented by the financial statements, accompanying notes and the report of Ernst & Young LLP, independent auditors, which appear in the Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1998, and are incorporated by reference into the Statement of Additional Information. The financial statements and notes, as well as the information for each of the five years in the period ended August 31, 1998 appearing in the following tables, have been audited by Ernst & Young LLP, independent auditors. Further information about the Fund's performance is also included in the Annual Report to Shareholders, which may be obtained without charge by calling 1-800-647-1568. Information shown below for periods prior to the year ended August 31, 1994 has also been audited by Ernst & Young LLP, independent auditors, whose reports thereon were unqualified.
GROWTH FUND ----------------------------------------------------------------------------- CLASS A ----------------------------------------------------------------------------- FOR THE YEARS ENDED AUGUST 31, ----------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- Net asset value, beginning of period..... $ 25.94 $ 24.37 $ 22.27 $ 20.04 $ 20.60 $ 16.78 -------- -------- -------- -------- -------- -------- Net investment income (loss).................. (0.09) (0.08)(3) (0.12) 0.01 -- 0.07 Net realized and unrealized gains (losses) from investments........ 1.01 3.76 (3) 4.06 2.25 0.51 4.37 -------- -------- -------- -------- -------- -------- Total increase (decrease) from investment operations.............. 0.92 3.68 3.94 2.26 0.51 4.44 -------- -------- -------- -------- -------- -------- Dividends from net investment income....... -- -- -- -- -- -- Distributions from net realized gains on investment transactions............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) -------- -------- -------- -------- -------- -------- Total dividends and distributions to shareholders............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) -------- -------- -------- -------- -------- -------- Net asset value, end of period.................. $ 20.08 $ 25.94 $ 24.37 $ 22.27 $ 20.04 $ 20.60 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment return(1)............... 3.37% 15.85% 18.43% 11.28% 2.33% 26.97% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Ratios/Supplemental data: Net assets, end of period (000's)................. $202,253 $201,725 $203,882 $183,958 $141,342 $130,353 Expenses to average net assets**................ 1.19% 1.27% 1.28% 1.28%(2) 1.21% 1.22% Net investment income (loss) to average net assets**................ (0.39)% (0.32)% (0.49)% 0.19%(2) 0.06% 0.38% Portfolio turnover....... 52% 86% 60% 36% 24% 36% ---------------------------------------- CLASS A ---------------------------------------- FOR THE YEARS ENDED AUGUST 31, ---------------------------------------- 1992 1991 1990 1989 -------- -------- ------- ------- Net asset value, beginning of period..... $ 17.50 $ 13.43 $ 15.57 $ 11.21 -------- -------- ------- ------- Net investment income (loss).................. -- 0.02 0.17 0.06 Net realized and unrealized gains (losses) from investments........ (0.11) 4.68 (1.16) 4.40 -------- -------- ------- ------- Total increase (decrease) from investment operations.............. (0.11) 4.70 (0.99) 4.46 -------- -------- ------- ------- Dividends from net investment income....... (0.01) (0.17) -- (0.10) Distributions from net realized gains on investment transactions............ (0.60) (0.46) (1.15) -- -------- -------- ------- ------- Total dividends and distributions to shareholders............ (0.61) (0.63) (1.15) (0.10) -------- -------- ------- ------- Net asset value, end of period.................. $ 16.78 $ 17.50 $ 13.43 $ 15.57 -------- -------- ------- ------- -------- -------- ------- ------- Total investment return(1)............... (0.85)% 37.02% (7.05)% 40.10% -------- -------- ------- ------- -------- -------- ------- ------- Ratios/Supplemental data: Net assets, end of period (000's)................. $102,640 $ 96,796 $72,805 $71,681 Expenses to average net assets**................ 1.43% 1.56% 1.59% 1.37% Net investment income (loss) to average net assets**................ 0.00% 0.10% 2.96% 0.14% Portfolio turnover....... 32% 29% 39% 44%
- ------------------ * Annualized. ** During certain periods presented, PaineWebber/Mitchell Hutchins waived fees or reimbursed the Fund for portions of its operating expenses. If such waivers or reimbursements had not been made for the Class A shares, the annualized ratio of expenses to average net assets and the annualized ratio of net investment income (loss) to average net assets would have been 1.76% and (0.25)%, respectively, for the year ended August 31, 1989. + Commencement of offering of shares. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the last day of each period reported. The figures do not include sales charges; results would be lower if sales charges were included. Total investment returns information for periods less than one year have not been annualized. (2) These ratios include non-recurring reorganization expenses of 0.06%. (3) Calculated using the average shares outstanding for the year. -------------------- Prospectus Page 42 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
GROWTH FUND ------------------------------------------------------------------------------------------------ CLASS B -------------------------------------------------------------------------------------------------- FOR THE PERIOD JULY 1, FOR THE YEARS ENDED AUGUST 31, 1991+ TO ------------------------------------------------------------------------------------- AUGUST 31, 1998 1997 1996 1995 1994 1993 1992 1991 -------- -------- -------- -------- ------- ------- ------- ---------- Net asset value, beginning of period..... $ 24.51 $ 23.30 $ 21.53 $ 19.53 $ 20.25 $ 16.64 $ 17.48 $15.63 -------- -------- -------- -------- ------- ------- ------- ------ Net investment income (loss).................. (0.30) (0.26)(3) (0.39) (0.02) (0.06) (0.05) (0.06) (0.02) Net realized and unrealized gains (losses) from investments........ 1.01 3.58 (3) 4.00 2.05 0.41 4.28 (0.18) 1.87 -------- -------- -------- -------- ------- ------- ------- ------ Total increase (decrease) from investment operations.............. 0.71 3.32 3.61 2.03 0.35 4.23 (0.24) 1.85 -------- -------- -------- -------- ------- ------- ------- ------ Dividends from net investment income....... -- -- -- -- -- -- -- -- Distributions from net realized gains on investment transactions............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) -- -------- -------- -------- -------- ------- ------- ------- ------ Total dividends and distributions to shareholders............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) -- -------- -------- -------- -------- ------- ------- ------- ------ Net asset value, end of period.................. $ 18.44 $ 24.51 $ 23.30 $ 21.53 $ 19.53 $ 20.25 $ 16.64 $17.48 -------- -------- -------- -------- ------- ------- ------- ------ -------- -------- -------- -------- ------- ------- ------- ------ Total investment return(1)............... 2.55% 14.98% 17.48% 10.40% 1.55% 25.91% (1.58)% 11.84% -------- -------- -------- -------- ------- ------- ------- ------ -------- -------- -------- -------- ------- ------- ------- ------ Ratios/Supplemental data: Net assets, end of period (000's)................. $ 74,094 $115,529 $140,551 $152,357 $97,272 $60,280 $35,867 $3,804 Expenses to average net assets**................ 1.99% 2.06% 2.06% 2.06%(2) 2.00% 2.02% 2.20% 2.24%* Net investment income (loss) to average net assets**................ (1.18)% (1.12)% (1.27)% (0.60)%(2) (0.66)% (0.46)% (0.70)% (0.81)%* Portfolio turnover....... 52% 86% 60% 36% 24% 36% 32% 29% -------------------------------------------------------------------------------------------- CLASS C -------------------------------------------------------------------------------------------- FOR THE PERIOD JULY 2, FOR THE YEARS ENDED AUGUST 31, 1992+ TO --------------------------------------------------------------------------- AUGUST 31, 1998 1997 1996 1995 1994 1993 1992 ---------- -------- ------- ------- ------- ------- ---------- Net asset value, beginning of period..... $ 24.71 $ 23.48 $ 21.68 $ 19.67 $ 20.38 $ 16.75 $17.04 ---------- -------- ------- ------- ------- ------- ------ Net investment income (loss).................. (0.27) (0.27)(3) (0.34) (0.10) (0.08) (0.06) (0.01) Net realized and unrealized gains (losses) from investments........ 0.99 3.61 (3) 3.98 2.14 0.44 4.31 (0.28) ---------- -------- ------- ------- ------- ------- ------ Total increase (decrease) from investment operations.............. 0.72 3.34 3.64 2.04 0.36 4.25 (0.29) ---------- -------- ------- ------- ------- ------- ------ Dividends from net investment income....... -- -- -- -- -- -- -- Distributions from net realized gains on investment transactions............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) -- ---------- -------- ------- ------- ------- ------- ------ Total dividends and distributions to shareholders............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) -- ---------- -------- ------- ------- ------- ------- ------ Net asset value, end of period.................. $ 18.65 $ 24.71 $ 23.48 $ 21.68 $ 19.67 $ 20.38 $16.75 ---------- -------- ------- ------- ------- ------- ------ ---------- -------- ------- ------- ------- ------- ------ Total investment return(1)............... 2.59% 14.95% 17.50% 10.37% 1.59% 25.86% (2.95)% ---------- -------- ------- ------- ------- ------- ------ ---------- -------- ------- ------- ------- ------- ------ Ratios/Supplemental data: Net assets, end of period (000's)................. $ 21,714 $ 24,760 $29,923 $30,608 $28,561 $16,474 $2,275 Expenses to average net assets**................ 1.99% 2.07% 2.07% 2.05 %(2) 1.98% 2.06% 1.98%* Net investment income (loss) to average net assets**................ (1.19)% (1.13)% (1.28)% (0.57)%(2) (0.65)% (0.69)% (0.65)%* Portfolio turnover....... 52% 86% 60% 36% 24% 36% 32%
-------------------- Prospectus Page 43 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
GROWTH FUND ------------------------------------------------------------------------------------- CLASS Y ------------------------------------------------------------------------------------- FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- ------- ------- Net asset value, beginning of year....... $ 26.46 $ 24.74 $ 22.53 $ 20.22 $ 20.71 $ 16.83 $ 17.50 ------- ------- ------- ------- ------- ------- ------- Net investment income (loss).................. (0.03) (0.01)(3) (0.02) 0.24 0.03 0.08 0.05 Net realized and unrealized gains (losses) from investments............. 1.02 3.84 (3) 4.07 2.10 0.55 4.42 (0.11) ------- ------- ------- ------- ------- ------- ------- Total increase (decrease) from investment operations.............. 0.99 3.83 4.05 2.34 0.58 4.50 (0.06) ------- ------- ------- ------- ------- ------- ------- Dividends from net investment income....... -- -- -- -- -- -- (0.01) Distributions from net realized gains on investment transactions............ (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) ------- ------- ------- ------- ------- ------- ------- Total dividends and distributions........... (6.78) (2.11) (1.84) (0.03) (1.07) (0.62) (0.61) ------- ------- ------- ------- ------- ------- ------- Net asset value, end of year.................... $ 20.67 $ 26.46 $ 24.74 $ 22.53 $ 20.22 $ 20.71 $ 16.83 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total investment return(1)............... 3.61% 16.24% 18.72% 11.58% 2.67% 27.26% (0.52)% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Ratios/supplemental data: Net assets, end of year (000's)................. $21,440 $20,281 $21,409 $20,948 $30,521 $20,706 $11,581 Expenses to average net assets.................. 0.91% 1.00% 1.02% 0.97%(2) 0.94% 0.95% 1.12% Net investment income (loss) to average net assets.................. (0.12)% (0.05)% (0.23)% 0.53%(2) 0.40% 0.60% 0.38% Portfolio turnover....... 52 % 86 % 60 % 36% 24% 36% 32%
- ------------------ (1) Total investment return is calculated assuming a $1,000 investment on the first day of each year reported, reinvestment of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the last day of each year reported. (2) These ratios include non-recurring acquisition expenses of 0.05%. (3) Calculated using the average shares outstanding for the year. -------------------- Prospectus Page 44 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund [This page intentionally left blank] -------------------- Prospectus Page 45 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund [This page intentionally left blank] -------------------- Prospectus Page 46 ------------------------------ PaineWebber Growth and Income Fund Mid Cap Fund Small Cap Fund Growth Fund [This page intentionally left blank] -------------------- Prospectus Page 47 PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund PaineWebber Small Cap Fund PaineWebber Growth Fund PROSPECTUS--NOVEMBER 30, 1998 - ------------------------------------------------------------------------------- O PAINEWEBBER BOND FUNDS O PAINEWEBBER STOCK FUNDS High Income Fund Financial Services Growth Fund Investment Grade Income Fund Growth Fund Low Duration U.S. Government Growth and Income Fund Income Fund Mid Cap Fund Strategic Income Fund Small Cap Fund U.S. Government Income Fund S&P 500 Index Fund Tax-Managed Equity Fund O PAINEWEBBER TAX-FREE BOND FUNDS Utility Income Fund California Tax-Free Income Fund O PAINEWEBBER GLOBAL FUNDS Municipal High Income Fund National Tax-Free Income Fund Asia Pacific Growth Fund New York Tax-Free Income Fund Emerging Markets Equity Fund Global Equity Fund O PAINEWEBBER ASSET Global Income Fund ALLOCATION FUNDS O PAINEWEBBER MONEY MARKET FUND Balanced Fund Tactical Allocation Fund O PAINEWEBBER FUNDS OF FUNDS Mitchell Hutchins Conservative Portfolio Mitchell Hutchins Moderate Portfolio Mitchell Hutchins Aggressive Portfolio
A prospectus containing more complete information for any of these funds, including charges and expenses, can be obtained from a PaineWebber investment executive or correspondent firm. Please read it carefully before investing. It is important you have all the information you need to make a sound investment decision. (Copyright) 1998 PaineWebber Incorporated PAINEWEBBER GROWTH AND INCOME FUND PAINEWEBBER MID CAP FUND PAINEWEBBER SMALL CAP FUND PAINEWEBBER GROWTH FUND 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 STATEMENT OF ADDITIONAL INFORMATION The four funds named above (each a "Fund") are diversified series of professionally managed, open-end management investment companies organized as Massachusetts business trusts (each a "Trust"). PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of PaineWebber America Fund ("America Fund"), seeks to provide current income and capital growth by investing primarily in dividend-paying equity securities believed to have potential for rapid earnings growth. PaineWebber Mid Cap Fund ("Mid Cap Fund"), a series of PaineWebber Managed Assets Trust ("Managed Assets Trust"), seeks capital appreciation by investing primarily in common stocks of medium-sized companies. PaineWebber Small Cap Fund ("Small Cap Fund"), a series of PaineWebber Securities Trust ("Securities Trust"), seeks long-term capital appreciation by investing primarily in equity securities of small capitalization companies. PaineWebber Growth Fund ("Growth Fund"), a series of PaineWebber Olympus Fund ("Olympus Fund"), seeks long-term capital appreciation by investing primarily in equity securities of companies believed to have substantial potential for capital growth. Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), serves as investment adviser, administrator and distributor for each Fund. As distributor, Mitchell Hutchins has appointed PaineWebber 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 Funds' current Prospectus, dated November 30, 1998. A copy of the Prospectus may be obtained by calling any PaineWebber investment executive or correspondent firm or by calling toll-free 1-800-647-1568. This Statement of Additional Information is dated November 30, 1998. INVESTMENT POLICIES AND RESTRICTIONS The following supplements the information contained in the Prospectus concerning the Funds' investment policies and limitations. Except as otherwise indicated in the Prospectus or Statement of Additional Information, there are no policy limitations on a Fund's ability to use the investments or techniques discussed in these documents. YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and other nationally recognized statistical rating organizations ("NRSROs") are private services that provide ratings of the credit quality of bonds, debt obligations and certain other securities. A description of the ratings assigned to corporate debt obligations by Moody's and S&P is included in the Appendix to this Statement of Additional Information. The Funds may use these ratings in determining whether to purchase, sell or hold a security. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, securities with the same maturity, interest rate and rating may have different market prices. Ratings of debt securities represent the NRSROs' opinions regarding their quality, are not a guarantee of quality, and may be reduced after a Fund has acquired the security. Mitchell Hutchins will consider such an event in determining whether a Fund should continue to hold the security but is not required to dispose of it. In the event that, due to a downgrade of one or more debt securities, an amount in excess of the permitted percentage of a Fund's net assets is held in securities rated below investment grade and comparable unrated securities, the Fund will engage in an orderly disposition of such securities to the extent necessary to ensure that its holdings of such securities does not exceed that percentage. Debt securities rated Ba or lower by Moody's, BB or lower by S&P, comparably rated by another NRSRO or determined by Mitchell Hutchins to be of comparable quality are below investment grade, are deemed by those agencies to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal and may involve major risk exposure to adverse conditions. Lower rated debt securities generally offer a higher current yield than that available for investment grade issues, but they involve higher risks, in that they are especially subject to adverse changes in general economic conditions and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuations in response to changes in interest rates. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress which could adversely affect their ability to make payments of interest and principal and increase the possibility of default. In addition, such issuers may not have more traditional methods of financing available to them and may be unable to repay debt at maturity by refinancing. The risk of loss due to default by such issuers is significantly greater because such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness. The market for lower rated debt securities has expanded rapidly in recent years, which has been a period of generally expanding growth and lower inflation. These securities will be susceptible to greater risk when economic growth slows or reverses and when inflation increases or deflation occurs. In the past, the prices of many lower rated debt securities declined substantially, reflecting an expectation that many issuers of such securities might experience financial difficulties. As a result, the yields on lower rated debt securities rose dramatically. However, such higher yields did not reflect the value of the income stream that holders of such securities expected, but rather the risk that holders of such securities could lose a substantial portion of their value as a result of the issuers' financial restructuring or defaults. There can be no assurance that such declines will not recur. The market for lower rated debt issues generally is thinner and less active than that for higher quality securities, which may limit a Fund's ability to sell such securities at fair value in response to changes in the economy or financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of lower rated securities, especially in a thinly traded market. RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Securities of foreign issuers may not be registered with the Securities and Exchange Commission ("SEC"), nor may the issuers thereof be subject to its reporting requirements. Accordingly, there may be less publicly available information concerning foreign issuers of securities held by the Funds than is available concerning U.S. companies. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements comparable to those applicable to U.S. companies. The Funds may invest in foreign securities by purchasing American Depository Receipts ("ADRs"). Generally, ADRs, in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. For purposes of each Fund's investment policies, ADRs are deemed to have the same classification as the underlying securities they represent. Thus, an ADR representing ownership of common stock will be treated as common stock. ADRs are publicly traded on exchanges or over-the-counter ("OTC") in 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. Investment income on certain foreign securities in which the Funds may invest may be subject to foreign withholding or other taxes that could reduce the return on these securities. Tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Funds would be subject. ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets (15% for Small Cap Fund) in illiquid securities. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which a Fund has valued the securities and includes, among other things, purchased OTC options, repurchase agreements maturing in more than seven days and restricted securities other than those Mitchell Hutchins has determined are liquid pursuant to guidelines established by each Trust's board of trustees ("board"). The assets used as cover for OTC options written by each Fund will be considered illiquid unless the OTC options are sold to qualified 2 dealers who agree that the Fund may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. Restricted securities are not registered under the Securities Act of 1933 ("1933 Act") and may be sold only in privately negotiated transactions or other exempted transactions or after a 1933 Act registration statement has become effective. Where registration is required, a Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Fund might obtain a less favorable price than prevailed when it decided to sell. Not all restricted securities are illiquid. A large institutional market has developed for many securities that are not registered under the 1933 Act. Institutional investors generally will not seek to sell these instruments to the general public, but instead will often depend either on an efficient institutional market in which such unregistered securities can be readily resold or on an issuer's ability to honor a demand for repayment. Therefore, the fact that there are contractual or legal restrictions on resale to the general public or certain institutions is not dispositive of the liquidity of such investments. Institutional markets for restricted securities also have developed as a result of Rule 144A, which establishes a "safe harbor" from the registration requirements of the 1933 Act for resales of certain securities to qualified institutional buyers. Such markets include automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc. An insufficient number of qualified institutional buyers interested in purchasing Rule 144A-eligible restricted securities held by the Funds, however, could affect adversely the marketability of such portfolio securities, and the Funds might be unable to dispose of such securities promptly or at favorable prices. Each board has delegated the function of making day-to-day determinations of liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board. Mitchell Hutchins takes into account a number of factors in reaching liquidity decisions, including (1) the frequency of trades for the security, (2) the number of dealers that make quotes for the security, (3) the number of dealers that have undertaken to make a market in the security, (4) the number of other potential purchasers and (5) the nature of the security and how trading is effected (e.g., the time needed to sell the security, how offers are solicited and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of restricted securities in each Fund's portfolio and reports periodically on such decisions to the boards. CONVERTIBLE SECURITIES. A convertible security entitles the holder to receive interest paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible debt securities in that they ordinarily provide a stable stream of income with generally higher yields than those of common stocks of the same or similar issuers. Convertible securities rank senior to common stock in a corporation's capital structure but are usually subordinated to comparable non-convertible securities. Convertible securities have unique investment characteristics in that they generally (1) have higher yields than common stocks, but lower yields than comparable non-convertible securities, (2) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics and (3) provide the potential for capital appreciation if the market price of the underlying common stock increases. The value of a convertible security is a function of its "investment value" (determined by its yield comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is 3 low relative to the investment value, the price of the convertible security is governed principally by its investment value, and generally the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. In addition, a convertible security generally will sell at a premium over its conversion value determined by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security's governing instrument. If a convertible security held by a Fund is called for redemption, the Fund will be required to permit the issuer to redeem the security, convert it into underlying common stock or sell it to a third party. Lower rated convertible securities generally offer a higher current yield than that available from higher grade issues, but they involve higher risks, in that they are especially subject to adverse changes in general economic conditions and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress, which could adversely affect their ability to make payments of principal and interest (or, in the case of convertible preferred stock, dividends) and increase the possibility of default. In addition, such issuers may not have more traditional methods of financing available to them, and may be unable to repay debt at maturity by refinancing. The risk of loss due to default by such issuers is significantly greater because such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness. MONEY MARKET INSTRUMENTS. Money market instruments in which each Fund may invest include: U.S. Treasury bills and other obligations issued or guaranteed as to interest and principal by the U.S. government, its agencies and instrumentalities; obligations of U.S. banks (including certificates of deposit and bankers' acceptances); interest-bearing savings deposits in U.S. commercial and savings banks; investment grade commercial paper and other short-term corporate obligations; variable and floating-rate securities; and repurchase agreements. In addition, each Fund may hold cash and may invest in participation interests in the money market securities mentioned above, to the extent that it is permitted to invest in money market instruments. GOVERNMENT SECURITIES. Government securities in which the Funds may invest include direct obligations of the U.S. Treasury and obligations issued or guaranteed by the U.S. government or one of its agencies or instrumentalities (collectively, "U.S. government securities"). Direct obligations of the U.S. Treasury include a variety of securities that differ in their interest rates, maturities and dates of issuance. Among the U.S. government securities that may be held by the Funds are instruments that are supported by the full faith and credit of the United States and securities that are supported primarily or solely by the creditworthiness of the government-related issuer. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a Fund purchases securities or other obligations and simultaneously commits to resell them to the counterparty at an agreed-upon date or upon demand and at a price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased obligations. The Fund maintains custody of the underlying obligations prior to their repurchase, either through its regular custodian or through a special "tri-party" custodian or subcustodian that maintains separate accounts for both the Fund and its counterparty. Thus, the obligation of the counterparty to pay the repurchase price on the date agreed to or upon demand is, in effect, secured by such obligations. If their value becomes less than the repurchase price, plus any agreed-upon additional amount, the counterparty must provide additional collateral so that at all times the collateral is at least equal to the repurchase price, plus any agreed-upon additional amount. The difference between the total amount to be received upon repurchase of the obligations and the price that was paid by a Fund upon acquisition is accrued as interest and included in its net investment income. The Funds intend to enter into repurchase agreements only with banks and dealers in transactions believed by Mitchell Hutchins to present minimal credit risks in accordance with guidelines established by each board. Mitchell Hutchins reviews and monitors the creditworthiness of those institutions under each board's general supervision. 4 REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase agreements with banks and securities dealers up to an aggregate value of not more than 5% of a Fund's net assets (10% of total assets for Small Cap Fund). Such agreements involve the sale of securities held by a Fund subject to its agreement to repurchase the securities at an agreed-upon date and price reflecting a market rate of interest. Such agreements are considered to be borrowings and may be entered into only for temporary purposes. While a reverse repurchase agreement is outstanding, a Fund's custodian segregates assets to cover the Fund's obligations under the reverse repurchase agreement. See "Investment Policies and Restrictions--Segregated Accounts." Reverse repurchase agreements involve the risk that the buyer of the securities sold by a Fund might be unable to deliver them when the Fund seeks to repurchase. If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the buyer or a trustee or receiver may receive an extension of time to determine whether to enforce a Fund's obligation to repurchase the securities, and the Fund's use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend portfolio securities up to 33 1/3% of its total assets to broker-dealers or institutional investors that Mitchell Hutchins deems qualified, but only when the borrower maintains with that Fund's custodian bank acceptable collateral, marked to market daily, in an amount at least equal to the market value of the securities loaned, plus accrued interest and dividends. Acceptable collateral is limited to cash, U.S. government securities and irrevocable letters of credit that meet certain guidelines established by Mitchell Hutchins. Each Fund may reinvest cash collateral in money market instruments or other short-term liquid investments. In determining whether to lend securities to a particular broker-dealer or institutional investor, Mitchell Hutchins will consider, and during the period of the loan will monitor, all relevant facts and circumstances, including the creditworthiness of the borrower. Each Fund will retain authority to terminate any of its loans at any time. Each Fund may pay reasonable fees in connection with a loan and may pay the borrower or placing broker a negotiated portion of the interest earned on the cash or money market instruments held as collateral. Each Fund will receive amounts equivalent to any dividends, interest or other distributions on the securities loaned. Each Fund will regain record ownership of loaned securities to exercise beneficial rights, such as voting and subscription rights and rights to dividends, interest or other distributions, when regaining such rights is considered to be in the Fund's interest. Pursuant to procedures adopted by the boards governing each Fund's securities lending program, PaineWebber has been retained to serve as lending agent for each Fund. The appropriate board also has authorized the payment of fees (including fees calculated as a percentage of invested cash collateral) to PaineWebber for these services. Each board periodically reviews all portfolio securities loan transactions for which PaineWebber acted as lending agent. PaineWebber also has been approved as a borrower under each Fund's securities lending program. SHORT SALES "AGAINST THE BOX". Each Fund may engage in short sales of securities it owns or has the right to acquire at no added cost through conversion or exchange of other securities it owns (short sales "against the box"). To make delivery to the purchaser in a short sale, the executing broker borrows the securities being sold short on behalf of a Fund, and that Fund is obligated to replace the securities borrowed at a date in the future. When a Fund sells short, it establishes a margin account with the broker effecting the short sale, and deposits collateral with the broker. In addition, that Fund maintains with its custodian, in a segregated account, the securities that could be used to cover the short sale. Each Fund will incur transaction costs, including interest expense, in connection with opening, maintaining and closing short sales against the box. No Fund currently expects to have obligations under short sales that at any time during the coming year exceed 5% of its net assets. The Funds might make a short sale "against the box" in order to hedge against market risks when Mitchell Hutchins believes that the price of a security may decline, thereby causing a decline in the value of a security owned by a Fund or a security convertible into or exchangeable for a security owned by a Fund. In such case, any loss in a Fund's long position after the short sale should be reduced by a corresponding gain in the short position. Conversely, any gain in the long position after the short sale should be reduced by a corresponding loss in the short position. The extent to which gains or losses in the long position are reduced will depend upon the amount of the securities sold short relative to the amount of the securities a Fund owns, 5 either directly or indirectly, and in the case where a Fund owns convertible securities, changes in the investment values or conversion premiums of such securities. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase securities on a "when-issued" basis or may purchase or sell securities for "delayed delivery." In when-issued or delayed delivery transactions, delivery of the securities occurs beyond normal settlement periods, but a Fund generally would not pay for such securities or start earning interest or dividends on them until they are delivered. However, when a Fund purchases securities on a when-issued or delayed delivery basis, it immediately assumes the risks of ownership, including the risk of price fluctuation. Failure by a counterparty to deliver a security purchased on a when-issued or delayed delivery basis may result in a loss or missed opportunity to make an alternative investment. Depending on market conditions, a Fund's when-issued and delayed delivery purchase commitments could cause its net asset value per share to be more volatile, because such securities may increase the amount by which the Fund's total assets, including the value of when-issued and delayed delivery securities held by the Fund, exceeds its net assets. A security purchased on a when-issued or delayed delivery basis is recorded as an asset on the commitment date and is subject to changes in market value. Thus, fluctuation in the value of the security from the time of the commitment date will affect a Fund's net asset value. When a Fund agrees to purchase securities on a when-issued basis, its custodian segregates assets to cover the amount of the commitment. See "Investment Policies and Restrictions--Segregated Accounts." The Funds purchase when-issued securities only with the intention of taking delivery, but may sell the right to acquire the security prior to delivery if Mitchell Hutchins deems it advantageous to do so, which may result in capital gain or loss to a Fund. SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that involve obligations to make future payments to third parties, such as reverse repurchase agreements or the purchase of securities on a when-issued or delayed delivery basis, it will maintain with an approved custodian in a segregated account cash or liquid securities, marked to market daily, in an amount at least equal to the Fund's obligation or commitment under such transactions. As described below under "Strategies Using Derivative Instruments," segregated accounts may also be required in connection with certain transactions involving options and futures contracts. FUNDAMENTAL INVESTMENT LIMITATIONS. The following fundamental investment limitations cannot be changed for a Fund without the affirmative vote of the lesser of (a) more than 50% of the outstanding shares of that Fund or (b) 67% or more of the shares of that Fund present at a shareholders' meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from a change in values of portfolio securities or amount of total assets will not be considered a violation of any of the following limitations. Each Fund will not: (1) purchase securities of any one issuer if, as a result, more than 5% of the Fund's total assets would be invested in securities of that issuer or the Fund would own or hold more than 10% of the outstanding voting securities of that issuer, except that up to 25% of the Fund's total assets may be invested without regard to this limitation, and except that this limitation does not apply to securities issued or guaranteed by the U.S. government, its agencies and instrumentalities or to securities issued by other investment companies. The following interpretation applies to, but is not a part of, this fundamental limitation: Mortgage- and asset-backed securities will not be considered to have been issued by the same issuer by reason of the securities having the same sponsor, and mortgage- and asset-backed securities issued by a finance or other special purpose subsidiary that are not guaranteed by the parent company will be considered to be issued by a separate issuer from the parent company. (2) purchase any security if, as a result of that purchase, 25% or more of the Fund's total assets would be invested in securities of issuers having their principal business activities in the same industry, except that this limitation does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities or to municipal securities. 6 (3) issue senior securities or borrow money, except as permitted under the Investment Company Act of 1940 ("1940 Act") and then not in excess of 33 1/3% of the Fund's total assets (including the amount of the senior securities issued but reduced by any liabilities not constituting senior securities) at the time of the issuance or borrowing, except that the Fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for temporary or emergency purposes. (4) make loans, except through loans of portfolio securities or through repurchase agreements, provided that for purposes of this restriction, the acquisition of bonds, debentures, other debt securities or instruments, or participations or other interests therein and investments in government obligations, commercial paper, certificates of deposit, bankers' acceptances or similar instruments will not be considered the making of a loan. (5) engage in the business of underwriting securities of other issuers, except to the extent that the Fund might be considered an underwriter under the federal securities laws in connection with its disposition of portfolio securities. (6) purchase or sell real estate, except that investments in securities of issuers that invest in real estate and investments in mortgage-backed securities, mortgage participations or other instruments supported by interests in real estate are not subject to this limitation, and except that the Fund may exercise rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner. (7) purchase or sell physical commodities unless acquired as a result of owning securities or other instruments, but the Fund may purchase, sell or enter in financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments. NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are not fundamental and may be changed by each board without shareholder approval. Each Fund will not: (1) invest more than 10% of its net assets (15% of net assets for Small Cap Fund) in illiquid securities. (2) purchase portfolio securities while borrowings in excess of 5% of its total assets are outstanding. (3) purchase securities on margin, except for short-term credit necessary for clearance of portfolio transactions and except that the Fund may make margin deposits in connection with its use of financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments. (4) engage in short sales of securities or maintain a short position, except that the Fund may (a) sell short "against the box" and (b) maintain short positions in connection with its use of financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments. (5) purchase securities of other investment companies, except to the extent permitted by the 1940 Act (and except that each Fund will not purchase securities of registered open-end investment companies or registered unit investment trusts in reliance on sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act) and except that this limitation does not apply to securities received or acquired as dividends, through offers of exchange, or as a result of reorganization, consolidation, or merger. STRATEGIES USING DERIVATIVE INSTRUMENTS GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a variety of financial instruments ("Derivative Instruments"), including certain options, futures contracts (sometimes referred to as "futures") and options on futures contracts, to attempt to hedge each Fund's portfolio. A Fund may enter into transactions involving one or more types of Derivative Instruments under which the full value of its portfolio is at risk. Under normal circumstances, however, a Fund's use of Derivative Instruments will place at risk a much smaller portion of its assets. In particular, each Fund may use the Derivative Instruments described below: OPTIONS ON EQUITY AND DEBT SECURITIES--A call option is a short-term contract pursuant to which the purchaser of the option, in return for a premium, has the right to buy the security underlying the option at a specified price at any time during the term of the option or at specified times or at the expiration of the option, 7 depending on the type of option involved. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option during the option term, to deliver the underlying security against payment of the exercise price. A put option is a similar contract that gives its purchaser, in return for a premium, the right to sell the underlying security at a specified price during the option term or at specified times or at the expiration of the option, depending on the type of option involved. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option during the option term, to buy the underlying security at the exercise price. OPTIONS ON STOCK INDEXES--A stock index assigns relative values to the stocks included in the index and fluctuates with changes in the market values of those stocks. A stock index option operates in the same way as a more traditional stock option, except that exercise of a stock index option is effected with cash payment and does not involve delivery of securities. Thus, upon exercise of a stock index option, the purchaser will realize, and the writer will pay, an amount based on the difference between the exercise price and the closing price of the stock index. STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a bilateral agreement pursuant to which one party agrees to accept, and the other party agrees to make, delivery of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading of the contract and the price at which the futures contract is originally struck. No physical delivery of the stocks comprising the index is made. Generally, contracts are closed out prior to the expiration date of the contract. INTEREST RATE FUTURES CONTRACTS--Interest rate futures contracts are bilateral agreements pursuant to which one party agrees to make, and the other party agrees to accept, delivery of a specified type of debt security at a specified future time and at a specified price. Although such futures contracts by their terms call for actual delivery or acceptance of debt securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to options on securities, except that an option on a futures contract gives the purchaser the right, in return for the premium, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell a security, at a specified price at any time during the option term. Upon exercise of the option, the delivery of the futures position to the holder of the option will be accompanied by delivery of the accumulated balance that represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the future. The writer of an option, upon exercise, will assume a short position in the case of a call and a long position in the case of a put. GENERAL DESCRIPTION OF STRATEGIES USING DERIVATIVE INSTRUMENTS. Hedging strategies can be broadly categorized as "short hedges" and "long hedges." A short hedge is a purchase or sale of a Derivative Instrument intended to partially or fully offset potential declines in the value of one or more investments held in a Fund's portfolio. Thus, in a short hedge, a Fund takes a position in a Derivative Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged. For example, a Fund might purchase a put option on a security to hedge against a potential decline in the value of that security. If the price of the security declined below the exercise price of the put, a Fund could exercise the put and thus limit its loss below the exercise price to the premium paid plus transaction costs. In the alternative, because the value of the put option can be expected to increase as the value of the underlying security declines, a Fund might be able to close out the put option and realize a gain to offset the decline in the value of the security. Conversely, a long hedge is a purchase or sale of a Derivative Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that a Fund intends to acquire. Thus, in a long hedge, a Fund takes a position in a Derivative Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. For example, a Fund might purchase a call option on a security it intends to purchase in order to hedge against an increase in the cost of the security. If the price of the security increased above the exercise price of the call, a Fund could exercise the call and thus limit its acquisition cost to the exercise price plus the premium paid and transaction costs. Alternatively, a Fund might be able to offset the price increase by closing out an appreciated call option and realizing a gain. 8 A Fund may purchase and write (sell) covered straddles on securities or indices of securities. A long straddle is a combination of a call and a put option purchased on the same security or on the same futures contract, where the exercise price of the put is equal to the exercise price of the call. A Fund might enter into a long straddle when Mitchell Hutchins believes it likely that the prices of the securities will be more volatile during the term of the option than the option pricing implies. A short straddle is a combination of a call and put written on the same security where the exercise price of the put is equal to the exercise price of the call. A Fund might enter into a short straddle when Mitchell Hutchins believes it unlikely that the prices of the securities will be as volatile during the term of the option as the option pricing implies. Derivative Instruments on securities generally are used to hedge against price movements in one or more particular securities positions that a Fund owns or intends to acquire. Derivative Instruments on stock indices, in contrast, generally are used to hedge against price movements in broad equity market sectors in which a Fund has invested or expects to invest. Derivative Instruments on debt securities may be used to hedge either individual securities or broad fixed income market sectors. The use of Derivative Instruments is subject to applicable regulations of the SEC, the several options and futures exchanges upon which they are traded and the Commodity Futures Trading Commission ("CFTC"). In addition, a Fund's ability to use Derivative Instruments may be limited by tax considerations. See "Taxes." In addition to the products, strategies and risks described below and in the Prospectus, Mitchell Hutchins expects to discover additional opportunities in connection with options, futures contracts and other hedging techniques. These new opportunities may become available as Mitchell Hutchins develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new options, futures contracts, or other techniques are developed. Mitchell Hutchins may utilize these opportunities to the extent that they are consistent with a Fund's investment objective and permitted by the Fund's investment limitations and applicable regulatory authorities. The Funds' Prospectus or Statement of Additional Information will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus. SPECIAL RISKS OF STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of Derivative Instruments involves special considerations and risks, as described below. Risks pertaining to particular Derivative Instruments are described in the sections that follow. (1) Successful use of most Derivative Instruments depends upon the ability of Mitchell Hutchins to predict movements of the overall securities and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. While Mitchell Hutchins is experienced in the use of Derivative Instruments, there can be no assurance that any particular hedging strategy adopted will succeed. (2) There might be imperfect correlation, or even no correlation, between price movements of a Derivative Instrument and price movements of the investments being hedged. For example, if the value of a Derivative Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors affecting the markets in which Derivative Instruments are traded, rather than the value of the investments being hedged. The effectiveness of hedges using Derivative Instruments on indices will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. For example, if a Fund entered into a short hedge because Mitchell Hutchins projected a decline in the price of a security in that Fund's portfolio, and the price of that security increased instead, the gain from that might be wholly or partially offset by a decline in the price of the Derivative Instrument. Moreover, if the price of the Derivative Instrument declined by more than the increase in the price of the security, that Fund could suffer a loss. In either such case, the Fund would have been in a better position had it not hedged at all. (4) As described below, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in Derivative Instruments involving obligations to third parties (i.e., Derivative Instruments other than purchased options). If the Fund were unable to close out 9 its positions in such Derivative Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the positions expired or matured. These requirements might impair a Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. A Fund's ability to close out a position in a Derivative Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of a counterparty to enter into a transaction closing out the position. Therefore, there is no assurance that any position in a Derivative Instrument can be closed out at a time and price that is favorable to a Fund. COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using Derivative Instruments, other than purchased options, expose the Funds to an obligation to another party. A Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, other options or futures contracts or (2) cash and liquid securities, with a value sufficient at all times to cover its potential obligations to the extent not covered as provided in (1) above. The Funds will comply with SEC guidelines regarding cover for these transactions and will, if the guidelines so require, set aside cash or liquid securities in a segregated account with its custodian in the prescribed amount. Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Derivative Instrument is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or segregated accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations. OPTIONS. The Funds may purchase put and call options, and write (sell) covered put or call options, on equity and debt securities and stock indices. The purchase of call options serves as a long hedge, and the purchase of put options serves as a short hedge. Writing covered call options serves as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and the affected Fund will be obligated to sell the security at less than its market value. Writing covered put options serves as a limited long hedge because increases in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security depreciates to a price lower than the exercise price of the put option, it can be expected that the put option will be exercised and the Fund will be obligated to purchase the security at more than its market value. The securities or other assets used as cover for OTC options written by a Fund would be considered illiquid to the extent described under "Investment Policies and Restrictions--Illiquid Securities." The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options normally have expiration dates of up to nine months. Options that expire unexercised have no value. A Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, a Fund may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option; this is known as a closing purchase transaction. Conversely, a Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit a Fund to realize profits or limit losses on an option position prior to its exercise or expiration. The Funds may purchase and write both exchange-traded and OTC options. Exchange markets for options on debt securities exist but are relatively new, and these instruments are primarily traded on the OTC market. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between a Fund and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when a Fund purchases or writes an OTC option, it relies on the counterparty to make or take delivery of the underlying investment upon exercise of the 10 option. Failure by the counterparty to do so would result in the loss of any premium paid by the Fund as well as the loss of any expected benefit of the transaction. Generally, the OTC debt options used by the Funds are European-style options. This means that the option is only exercisable immediately prior to its expiration. This is in contrast to American-style options, which are exercisable at any time prior to the expiration date of the option. The Funds' ability to establish and close out positions in exchange-traded options depends on the existence of a liquid market. The Funds intend to purchase or write only those exchange-traded options for which there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any such market exists. Although the Funds will enter into OTC options only with counterparties that are expected to be capable of entering into closing transactions with the Funds, there is no assurance that the Funds will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, the Funds might be unable to close out an OTC option position at any time prior to its expiration. If a Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered put or call option written by a Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised. A Fund may purchase and write put and call options on stock indices in much the same manner as the more traditional options discussed above, except the index options may serve as a hedge against overall fluctuations in the equity securities market (or market sectors) rather than anticipated increases or decreases in the value of a particular security. LIMITATIONS ON THE USE OF OPTIONS. The Funds' use of options is governed by the following guidelines, which can be changed by each board without shareholder vote: (1) Each Fund may purchase a put or call option, including any straddle or spread, only if the value of its premium, when aggregated with the premiums on all other options held by that Fund, does not exceed 5% of its total assets. (2) The aggregate value of underlying securities on which a Fund writes covered calls will not exceed 50% of its total assets. (3) The aggregate premiums paid on all options (including options on securities and stock or bond indices and options on futures contracts) purchased by a Fund that are held at any one time will not exceed 20% of its net assets. FUTURES. The Funds may purchase and sell stock index futures contracts and interest rate futures contracts. The Funds may also purchase put and call options, and write covered put and call options, on futures in which it is allowed to invest. The purchase of futures or call options thereon can serve as a long hedge, and the sale of futures or the purchase of put options thereon can serve as a short hedge. Writing covered call options on futures contracts can serve as a limited short hedge, and writing covered put options on futures contracts can serve as a limited long hedge, using a strategy similar to that used for writing covered options on securities or indices. No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract a Fund is required to deposit in a segregated account with its custodian, in the name of the futures broker through whom the transaction was effected, "initial margin" consisting of cash, obligations of the U.S. government or obligations fully guaranteed as to principal and interest by the United States, in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to a Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, a Fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. 11 Subsequent "variation margin" payments are made to and from the futures broker daily as the value of the futures position varies, a process known as "marking to market." Variation margin does not involve borrowing, but rather represents a daily settlement of each Fund's obligations to or from a futures broker. When a Fund purchases an option on a future, the premium paid plus transaction costs is all that is at risk. In contrast, when a Fund purchases or sells a futures contract or writes a call option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If a Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Holders and writers of futures positions and options on futures can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Positions in futures and options on futures may be closed only on an exchange or board of trade that provides a secondary market. The Funds intend to enter into futures transactions only on exchanges or boards of trade where there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract at a particular time. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a future or related option can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Fund were unable to liquidate a futures or related options position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. A Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, a Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated account. Certain characteristics of the futures market might increase the risk that movements in the prices of futures contracts or related options might not correlate perfectly with movements in the prices of the investments being hedged. For example, all participants in the futures and related options markets are subject to daily variation margin calls and might be compelled to liquidate futures or related options positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, because initial margin deposit requirements in the futures market are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving arbitrage, "program trading" and other investment strategies might result in temporary price distortions. LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The Funds' use of futures and related options is governed by the following guidelines, which can be changed by each board without shareholder vote: (1) To the extent a Fund enters into futures contracts and options on futures positions that are not for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on those positions (excluding the amount by which options are "in-the-money") may not exceed 5% of its net assets. (2) The aggregate premiums paid on all options (including options on securities and stock or bond indices and options on futures contracts) purchased by a Fund that are held at any one time will not exceed 20% of its net assets. (3) The aggregate margin deposits on all futures contracts and options thereon held at any one time by a Fund will not exceed 5% of its total assets. 12 TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES The trustees and executive officers of each Trust (the same positions are held in each of the four Trusts, except as otherwise indicated), their ages, business addresses and principal occupations during the past five years are:
BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- Margo N. Alexander**; 51 Trustee and Mrs. Alexander is president, chief executive President officer and a director of Mitchell Hutch- ins (since January 1995) and an executive vice president and a director of Paine- Webber (since March 1994). Mrs. Alexander is president and a director or trustee of 32 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Richard Q. Armstrong; 63 Trustee Mr. Armstrong is chairman and principal of One Old Church Road R.Q.A. Enterprises (management consulting Unit #6 firm) (since April 1991 and principal Greenwich, CT 06830 occupation since March 1995). Mr. Armstrong was chairman of the board, chief executive officer and co-owner of Adirondack Beverages (producer and distributor of soft drinks and sparkling/still waters) (October 1993-March 1995). He was a partner of the New England Consulting Group (management consulting firm) (December 1992-September 1993). He was managing director of LVMH U.S. Corporation (U.S. subsidiary of the French luxury goods conglomerate, Louis Vuitton Moet Hennessey Corporation) (1987-1991) and chairman of its wine and spirits subsidiary, Schieffelin & Somerset Company (1987-1991). Mr. Armstrong is a director or trustee of 31 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. E. Garrett Bewkes, Jr.**; 72 Trustee and Mr. Bewkes is a director of Paine Webber Chairman of the Group Inc. ("PW Group") (holding company of Board of Trustees PaineWebber and Mitchell Hutchins). Prior to December 1995, he was a consultant to PW Group. Prior to 1988, he was chairman of the board, president and chief executive officer of American Bakeries Company. Mr. Bewkes is also a director of Interstate Bakeries Corporation. Mr. Bewkes is a director or trustee of 34 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser.
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BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- Richard R. Burt; 51 Trustee Mr. Burt is chairman of IEP Advisors Inc. 1275 Pennsylvania Avenue, N.W. (international investments and consulting Washington, D.C. 20004 firm) (since March 1994) and a partner of McKinsey & Company (management consulting firm) (since 1991). He is also a director of Archer-Daniels-Midland Co. (agricultural commodities), Hollinger International Co. (publishing), Homestake Mining Corp., Powerhouse Technologies Inc. and Wierton Steel Corp. He was the chief negotiator in the Strategic Arms Reduction Talks with the former Soviet Union (1989-1991) and the U.S. Ambassador to the Federal Republic of Germany (1985-1989). Mr. Burt is a director or trustee of 31 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Mary C. Farrell**; 48 Trustee Ms. Farrell is a managing director, senior investment strategist, and member of the Investment Policy Committee of PaineWeb- ber. Ms. Farrell joined PaineWebber in 1982. She is a member of the Financial Women's Association and Women's Economic Roundtable and appears as a regular panelist on Wall $treet Week with Louis Rukeyser. She also serves on the Board of Overseers of New York University's Stern School of Business. Ms. Farrell is a director or trustee of 31 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and Professor of Columbia University Management of the Graduate School of 101 Uris Hall Business, Columbia University. Prior to New York, New York 10027 1989, he was president of the Illinois In- stitute of Technology. Dean Feldberg is also a director of Primedia Inc., Feder- ated Department Stores Inc., and Revlon, Inc. Dean Feldberg is a director or trustee of 33 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. George W. Gowen; 69 Trustee Mr. Gowen is a partner in the law firm of 666 Third Avenue Dunnington, Bartholow & Miller. Prior to New York, New York 10017 May 1994, he was a partner in the law firm of Fryer, Ross & Gowen. Mr. Gowen is a director or trustee of 31
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BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Frederic V. Malek; 61 Trustee Mr. Malek is chairman of Thayer Capital 1455 Pennsylvania Avenue, N.W. Partners (merchant bank). From January 1992 Suite 350 to November 1992, he was campaign manager Washington, D.C. 20004 of Bush-Quayle '92. From 1990 to 1992, he was vice chairman, and from 1989 to 1990, he was president of Northwest Airlines Inc., NWA Inc. (holding company of North- west Airlines Inc.) and Wings Holdings Inc. (holding company of NWA Inc.) Prior to 1989, he was employed by the Marriott Corporation (hotels, restaurants, airline catering and contract feeding), where he most recently was an executive vice president and president of Marriott Hotels and Resorts. Mr. Malek is also a director of American Management Systems, Inc. (management consulting and computer-related services), Automatic Data Processing, Inc., CB Commercial Group, Inc. (real estate services), Choice Hotels International (hotel and hotel franchising), FPL Group, Inc. (electric services), Manor Care, Inc. (health care) and Northwest Airlines Inc. Mr. Malek is a director or trustee of 31 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Carl W. Schafer; 62 Trustee Mr. Schafer is president of the Atlantic 66 Witherspoon Street Foundation (charitable foundation sup- #1100 porting mainly oceanographic exploration Princeton, N.J. 08542 and research). He is a director of Base Ten Systems, Inc. (software), Roadway Ex- press, Inc. (trucking), The Guardian Group of Mutual Funds, the Harding, Loevner Funds, Evans Systems, Inc. (a motor fuels, convenience store and diversified company), Electronic Clearing House, Inc. (financial transactions processing), Frontier Oil Corporation and Nutraceutix Inc. (biotechnology company). Prior to January 1993, Mr. Schafer was chairman of the Investment Advisory Committee of the Howard Hughes Medical Institute. Mr. Schafer is a director or trustee of 31 investment companies for
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BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Christopher G. Altschul; 32 Vice President Mr. Altschul is a first vice president and (Managed Assets Trust only) portfolio manager of Mitchell Hutchins. Prior to April 1995, he was an equity an- alyst at Chase Manhattan Bank. Mr. Alt- schul is a vice president of one invest- ment company for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Lawrence Chinsky; 29 Vice President and Mr. Chinsky is an assistant vice president Assistant Treasurer and investment monitoring officer of the mutual fund finance department of Mitchell Hutchins. Prior to August 1997, he was a securities compliance examiner with the Office of Compliance, Inspections and Examinations in the New York Regional Office of the United States Securities and Exchange Commission. Mr. Chinsky is vice president and assistant treasurer of 32 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Karen L. Finkel; 40 Vice President Mrs. Finkel is a senior vice president and a (Olympus Fund only) portfolio manager of Mitchell Hutchins. Mrs. Finkel is a vice president of three investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Ellen R. Harris; 52 Vice President Ms. Harris is a managing director and a (Olympus Fund only) portfolio manager of Mitchell Hutchins. Ms. Harris is a vice president of two in- vestment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Donald R. Jones; 38 Vice President Mr. Jones is a senior vice president and a (Securities Trust only) portfolio manager of Mitchell Hutchins. Prior to February 1996, he was a vice president in the asset management group of First Fidelity Bancorporation. Mr. Jones is a vice president of two investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. John J. Lee; 30 Vice President and Mr. Lee is a vice president and a manager of Assistant Treasurer the mutual fund finance department of Mitchell Hutchins. Prior to September 1997, he was an audit manager in the financial services practice of Ernst &
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BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- Young LLP. Mr. Lee is a vice president and assistant treasurer of 32 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Thomas J. Libassi; 39 Vice President Mr. Libassi is a senior vice president and (Securities Trust only) portfolio manager of Mitchell Hutchins. Prior to May 1994, he was a vice president of Keystone Custodian Funds Inc. with portfolio management responsibility. Mr. Libassi is a vice president of six investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Dennis McCauley; 52 Vice President Mr. McCauley is a managing director and chief (Securities Trust only) investment officer--fixed income of Mitchell Hutchins. Prior to December 1994, he was director of fixed income in- vestments of IBM Corporation. Mr. Mc- Cauley is a vice president of 22 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Ann E. Moran; 41 Vice President and Ms. Moran is a vice president and a manager Assistant Treasurer of the mutual fund finance department of Mitchell Hutchins. Ms. Moran is a vice president and assistant treasurer of 32 in- vestment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Dianne E. O'Donnell; 46 Vice President and Ms. O'Donnell is a senior vice president and Secretary deputy general counsel of Mitchell Hutch- ins. Ms. O'Donnell is a vice president and secretary of 31 investment companies and vice president and assistant secretary of one investment company for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Emil Polito; 38 Vice President Mr. Polito is a senior vice president and director of operations and control for Mitchell Hutchins. From March 1991 to September 1993, he was director of the mutual funds sales support and ser- vice center for Mitchell Hutchins, PaineWebber. Mr. Polito is also vice president of 32 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser.
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BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- Victoria E. Schonfeld; 47 Vice President Ms. Schonfeld is a managing director and general counsel of Mitchell Hutchins. Pri- or to May 1994, she was a partner in the law firm of Arnold & Porter. Ms. Schon- feld is a vice president of 31 investment companies and a vice president and secre- tary of one investment company for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Paul H. Schubert; 35 Vice President and Mr. Schubert is a senior vice president and Treasurer the director of the mutual fund finance department of Mitchell Hutchins. From August 1992 to August 1994, he was a vice president at BlackRock Financial Manage- ment Inc. Mr. Schubert is a vice president and treasurer of 32 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Antony J. Scott; 35 Vice President Mr. Scott is a first vice president and (Managed Assets Trust only) portfolio manager of Mitchell Hutchins. Prior to May 1996, he was a research analyst at Morgan Stanley. Mr. Scott is a vice president of one investment company for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Nirmal Singh; 42 Vice President Mr. Singh is a senior vice president and a (Securities Trust only) portfolio manager of Mitchell Hutchins. Prior to September 1993, he was a member of the portfolio management team at Merrill Lynch Asset Management, Inc. Mr. Singh is vice president of four investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Barney A. Taglialatela; 37 Vice President and Mr. Taglialatela is a vice president and a Assistant Treasurer manager of the mutual fund finance de- partment of Mitchell Hutchins. Prior to February 1995, he was a manager of the mutual fund finance division of Kidder Peabody Asset Management, Inc. Mr. Taglialatela is a vice president and assis- tant treasurer of 32 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser.
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BUSINESS EXPERIENCE; NAME, ADDRESS* AND AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS - ------------------------------------ --------------------------- --------------------------------------------- Mark A. Tincher; 43 Vice President Mr. Tincher is a managing director and chief investment officer--U.S. equity invest- ments of Mitchell Hutchins. Prior to March 1995, he was a vice president and directed the U.S. funds management and equity research areas of Chase Manhattan Private Bank. Mr. Tincher is a vice president of 13 investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Craig M. Varrelman; 39 Vice President Mr. Varrelman is a senior vice president and (Securities Trust only) a portfolio manager of Mitchell Hutchins. Mr. Varrelman is a vice president of four investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Stuart Waugh; 43 Vice President Mr. Waugh is a managing director and a (Securities Trust only) portfolio manager of Mitchell Hutchins responsible for global fixed income in- vestments and currency trading. Mr. Waugh is a vice president of five investment companies for which Mitchell Hutchins, PaineWebber or their affiliates serve as investment adviser. Keith A. Weller; 37 Vice President and Mr. Weller is a first vice president and Assistant Secretary associate general counsel of Mitchell Hutchins. Prior to May 1995, he was an attorney in private practice. Mr. Weller is a vice president and assistant secretary of 31 investment companies for which Mitchell Hutchins or PaineWebber serves as in- vestment adviser.
- ------------------ * Unless otherwise indicated, the business address of each listed person is 1285 Avenue of the Americas, New York, New York 10019. ** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of each Trust as defined in the 1940 Act by virtue of their positions with Mitchell Hutchins, PaineWebber, and/or PW Group. Olympus Fund and America Fund each pays trustees who are not "interested persons" of the Trust $1,500 annually for each series; each Trust presently has one series and thus pays each such trustee $1,500 annually. Managed Assets Trust pays trustees who are not "interested persons" of the Trust $1,000 annually for each series; this Trust has only one series and thus pays each such board member $1,000 annually. Securities Trust pays trustees who are not "interested persons" of the Trust $1,500 for Small Cap Fund and $1,000 for the Trust's second series and thus pays each such trustee $2,500 annually. Each Trust also pays $150 per series for each board meeting and separate meeting of a board committee (other than committee meetings held on the same day as a board meeting). Each chairman of the audit and contract review committees of individual funds within the PaineWebber fund complex receives additional compensation, aggregating $15,000 each from the relevant funds. All Trustees are reimbursed for any expenses incurred in attending meetings. Trustees and officers own in the aggregate less than 1% of the outstanding shares of each Fund. Because PaineWebber and Mitchell Hutchins perform substantially all of the services necessary for the operation of the 19 Trusts and each Fund, the Trusts require no employees. No officer, director or employee of Mitchell Hutchins or PaineWebber presently receives any compensation from any Trust for acting as a trustee or officer. The table below includes certain information relating to the compensation of each Trust's current trustees who held office with that Trust or with other PaineWebber funds during the period indicated. COMPENSATION TABLE
AGGREGATE COMPENSATION AGGREGATE AGGREGATE AGGREGATE TOTAL FROM COMPENSATION COMPENSATION COMPENSATION COMPENSATION AMERICA FUND FROM MANAGED FROM FROM FROM THE (GROWTH AND ASSETS TRUST SECURITIES OLYMPUS FUND TRUSTS AND INCOME (MID CAP TRUST (SMALL (GROWTH THE FUND NAME OF PERSON, POSITION FUND)(1) FUND)(4) CAP FUND)(2) FUND)(1) COMPLEX(3) - ----------------------------------- -------------- ------------ ------------ ------------ ------------ Richard Q. Armstrong, Trustee...... $2,400 $2,550 $2,400 $2,400 $ 94,885 Richard R. Burt, Trustee........... $2,250 $2,400 $2,250 $2,250 $ 87,085 Meyer Feldberg, Trustee............ $3,553 $3,157 $3,369 $3,157 $117,853 George W. Gowen, Trustee........... $2,400 $2,400 $2,400 $2,250 $101,567 Frederic V. Malek, Trustee......... $2,400 $2,550 $2,400 $2,400 $ 95,845 Carl W. Schafer, Trustee........... $2,400 $2,550 $2,400 $2,400 $ 94,885
- ------------------ Only independent members of the board are compensated by the Trusts and identified above; trustees who are "interested persons," as defined by the 1940 Act, do not receive compensation. (1) Represents fees paid to each trustee during the fiscal year ended August 31, 1998. (2) Represents fees paid to each trustee during the fiscal year ended July 31, 1998. (3) Represents total compensation paid to each trustee during the calendar year ended December 31, 1997; no fund within the fund complex has a bonus, pension, profit sharing or retirement plan. (4) Represents fees paid to each trustee during the twelve months ended August 31, 1998. OWNERSHIP OF GREATER THAN 5% OF FUND SHARES The following shareholder is shown in Olympus Fund's records as owning more than 5% of Growth Fund's shares.
NUMBER AND PERCENTAGE OF SHARES OWNED NAME AND ADDRESS* AS OF NOVEMBER 1, 1998 - ---------------------------------------- ------------------------- Northern Trust Company as Trustee for the benefit of PaineWebber 401(k) Plan............... 966,468.429 5.97%
- ------------------ * The shareholder listed may be contacted c/o Mitchell Hutchins Asset Management Inc., 1285 Avenue of the Americas, New York, NY 10019. 20 INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment adviser and administrator of each Fund pursuant to separate advisory contracts (each an "Advisory Contract") with each Trust. Under the Advisory Contracts, each Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual rate specified below. Prior to August 1, 1997, pursuant to service agreements, PaineWebber provided certain services to the Funds not otherwise provided by the transfer agent. These agreements were reviewed annually by each Trust's board. Effective August 1, 1997, PaineWebber provides transfer agency related services to the Funds pursuant to a delegation of authority from PFPC Inc. and is compensated for those services by PFPC Inc., not the Funds. Under the terms of the Advisory Contracts, each Fund bears all expenses incurred in its operation that are not specifically assumed by Mitchell Hutchins. Expenses borne by each Fund include the following: (1) the cost (including brokerage commissions) of securities purchased or sold by the Fund and any losses incurred in connection therewith; (2) fees payable to and expenses incurred on behalf of the Fund by Mitchell Hutchins; (3) organizational expenses; (4) filing fees and expenses relating to the registration and qualification of the Fund's shares under federal and state securities laws and maintenance of such registrations and qualifications; (5) fees and salaries payable to trustees and officers who are not interested persons (as defined in the 1940 Act) of the Fund 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, uncollectible items of deposit and other insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the Trust or Fund for violation of any law; (10) legal, accounting and auditing expenses, including legal fees of special counsel for the independent trustees; (11) charges of custodians, transfer agents and other agents; (12) costs of preparing share certificates; (13) expenses of setting in type and printing prospectuses, statements of additional information and supplements thereto, reports and proxy materials for existing shareholders, and costs of mailing such materials to shareholders; (14) any extraordinary expenses (including fees and disbursements of counsel) incurred by the Fund; (15) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (16) costs of mailing and tabulating proxies and costs of meetings of shareholders, the boards 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. Under each Advisory Contract, Mitchell Hutchins will not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the performance of the contracts, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of Mitchell Hutchins in the performance of its duties or from reckless disregard of its duties and obligations thereunder. Each Advisory Contract terminates automatically upon assignment and is terminable at any time without penalty by the applicable board or by vote of the holders of a majority of a Fund's outstanding voting securities on 60 days' written notice to Mitchell Hutchins, or by Mitchell Hutchins on 60 days' written notice to a Fund. GROWTH AND INCOME FUND. Pursuant to the Advisory Contract dated March 1, 1989, between America Fund and Mitchell Hutchins, Growth and Income Fund pays Mitchell Hutchins a fee at the annual rate of 0.70% of the Fund's average daily net assets, computed daily and paid monthly. For the fiscal years ended August 31, 1998, August 31, 1997 and August 31, 1996, Growth and Income Fund paid (or accrued) to Mitchell Hutchins investment advisory and administration fees of $8,823,952, $5,312,189 and $4,075,174, respectively. Pursuant to the applicable service agreement, during the fiscal years ended August 31, 1997 and August 31, 1996, Growth and Income Fund paid (or accrued) to PaineWebber service fees of $191,744, $206,622 respectively. MID CAP FUND. Pursuant to the Advisory Contract dated March 20, 1992 between Managed Assets Trust and Mitchell Hutchins, Mid Cap Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual rate of 1.00% of the Fund's average daily net assets. For the five-month period ended August 31, 1998 and the fiscal years ended March 31, 1998, March 31, 1997 and March 31, 1996, Mid Cap Fund paid (or accrued) to Mitchell Hutchins investment advisory and administration fees of $964,741, $2,680,122, $2,684,390 and $2,443,715, respectively. Pursuant to the applicable service agreement PaineWebber earned 21 (or accrued) $28,077, $89,240 and $93,745, during the fiscal years ended March 31, 1998, March 31, 1997 and March 31, 1996 respectively. Prior to May 1, 1998, Denver Investment Advisors, LLC served as investment sub-adviser for the Fund pursuant to a separate contract with Mitchell Hutchins dated March 21, 1995. Under that contract and a substantially identical prior contract, for the one month period ended May 1, 1998 and the fiscal years ended March 31, 1998, March 31, 1997 and March 31, 1996, Mitchell Hutchins (not the Fund) paid Denver Investment Advisors LLC sub-advisory fees in the amount of $110,392, $1,340,049, $1,342,195 and $1,221,858, respectively. SMALL CAP FUND. Pursuant to the Advisory Contract dated January 28, 1993, between Securities Trust and Mitchell Hutchins, Small Cap Fund pays Mitchell Hutchins a fee at the annual rate of 1.00% of the Fund's average daily net assets, computed daily and paid monthly. For the fiscal years ended July 31, 1998, July 31, 1997, and July 31, 1996, Small Cap Fund paid (or accrued) to Mitchell Hutchins investment advisory and administration fees of $1,340,576, $873,636 and $731,472, respectively. Pursuant to the applicable service agreement during the fiscal years ended July 31, 1997 and July 31, 1996, Small Cap Fund paid (or accrued) to PaineWebber service fees of $35,040 and $36,944 respectively. Royce and Associates ("Royce"), formerly Quest Advisory Corp., served as a sub-adviser to Small Cap Fund from February 1, 1993 through March 31, 1996, pursuant to a sub-advisory contract between Royce and Mitchell Hutchins dated January 28, 1993, under which Mitchell Hutchins (not the Fund) paid or accrued to Royce Advisory $249,955 during the fiscal year ended July 31, 1996, in sub-advisory fees. GROWTH FUND. Pursuant to the Advisory Contract dated March 1, 1989, between Olympus Fund and Mitchell Hutchins, Growth Fund pays Mitchell Hutchins a fee at the annual rate of 0.75% of the Fund's average daily net assets, computed daily and paid monthly. For the fiscal years ended August 31, 1998, August 31, 1997 and August 31, 1996, Growth Fund paid (or accrued) to Mitchell Hutchins investment advisory and administration fees of $2,858,153, $2,934,644 and $2,985,925, respectively. Pursuant to the applicable service agreement, during the fiscal years ended August 31, 1997 and August 31, 1996, Growth Fund paid (or accrued) to PaineWebber service fees of $110,890 and $134,864 respectively. ALL FUNDS. For its services as lending agent, PaineWebber received $57,530 and $82,147 in compensation from Growth and Income Fund and Growth Fund, respectively, for the fiscal year ended August 31, 1998, $25,267 from Small Cap Fund for the fiscal year ended July 31, 1998 and $8,609 and $2,859, respectively from Mid Cap Fund for the five months ended August 31, 1998 and the fiscal year ended March 31, 1998. NET ASSETS. The following table shows the approximate net assets as of October 31, 1998, sorted by category of investment objective, of the investment companies for which Mitchell Hutchins serves as adviser or sub-adviser. An investment company may fall into more than one of the categories below.
NET ASSETS INVESTMENT CATEGORY ($ MIL) ---------------------------------------- ---------- Domestic (excluding Money Market)....... $ 7,761.7 Global.................................. 3,627.2 Equity/Balanced......................... 6,301.2 Fixed Income (excluding Money Market)... 5,087.7 Taxable Fixed Income.................. 3,496.1 Tax-Free Fixed Income................. 1,591.6 Money Market Funds...................... 31,335.1
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in securities for their own accounts pursuant to a code of ethics that describes the fiduciary duty owed to shareholders of PaineWebber mutual funds and other Mitchell Hutchins' advisory accounts by all Mitchell Hutchins' directors, officers and employees, establishes procedures for personal investing and restricts certain transactions. For example, employee accounts generally must be maintained at PaineWebber, personal trades in most securities require pre-clearance and short-term trading and participation in initial public offerings generally are prohibited. In 22 addition, the code of ethics puts restrictions on the timing of personal investing in relation to trades by PaineWebber funds and other Mitchell Hutchins advisory clients. DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of each class of shares of each Fund under separate distribution contracts with each Trust (collectively, "Distribution Contracts") that require Mitchell Hutchins to use its best efforts, consistent with its other businesses, to sell shares of each Fund. Shares of each of the Funds are offered continuously. Under separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber relating to each class of shares (collectively, "Exclusive Dealer Agreements"), PaineWebber and its correspondent firms sell the Funds' shares. Under separate plans of distribution pertaining to the Class A, Class B and Class C shares adopted by each Trust in the manner prescribed under Rule 12b-1 under the 1940 Act ("Class A Plan," "Class B Plan" and "Class C Plan," collectively, "Plans"), each Fund pays Mitchell Hutchins a service fee, accrued daily and payable monthly, at the annual rate of 0.25% of the average daily net assets for each class, except that the Class A Plans for Growth and Income Fund and Growth Fund provide that the service fee paid with respect to shares sold prior to December 2, 1988 ("Old Shares") is paid at the annual rate of 0.15% of the Fund's net assets represented by such Old Shares. Shares acquired through new purchases, reinvestment of dividends and other distributions and exchanges on/or after December 2, 1988 are not considered "Old Shares" for this purpose. Under the Class B Plan and the Class C Plan, those Funds also pay Mitchell Hutchins a distribution fee, accrued daily and payable monthly, at the annual rate of 0.75% of the average daily net assets of the Class B shares and Class C shares, respectively. There is no distribution plan with respect to the Funds' Class Y shares. Among other things, each Plan provides that (1) Mitchell Hutchins will submit to the applicable board at least quarterly, and the trustees will review, reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made, (2) the Plan will continue in effect only so long as it is approved at least annually, and any material amendment thereto is approved, by the applicable board, including those trustees who are not "interested persons" of the relevant Trust and who have no direct or indirect financial interest in the operation of the Plan or any agreement related to the Plan, acting in person at a meeting called for that purpose, (3) payments by a Fund under the Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of the relevant class of the Fund, and (4) while the Plan remains in effect, the selection and nomination of trustees who are not "interested persons" of a Trust shall be committed to the discretion of the trustees who are not "interested persons" of the respective Trust. In reporting amounts expended under the Plans to the trustees, Mitchell Hutchins allocates expenses attributable to the sale of each class of each Fund's shares to such class based on the ratio of sales of shares of such class to the sales of all three classes of shares. The fees paid by one class of a Fund's shares will not be used to subsidize the sale of any other class of Fund shares. For the fiscal years (or periods) set forth below the Funds paid (or accrued) the following fees to Mitchell Hutchins under the Plans:
GROWTH AND INCOME FUND MID CAP FUND SMALL CAP FUND GROWTH FUND FISCAL YEAR FIVE MONTH FISCAL YEAR FISCAL YEAR FISCAL YEAR ENDED PERIOD ENDED ENDED ENDED ENDED AUGUST 31, 1998 AUGUST 31, 1998 MARCH 31, 1998 JULY 31, 1998 AUGUST 31, 1998 --------------- --------------- -------------- -------------- --------------- Class A................................. $ 1,500,561 $ 130,218 $ 231,601 $113,570 $ 527,772 Class B................................. $ 4,063,846 $ 345,115 $1,478,236 $541,791 $ 1,023,937 Class C................................. $ 1,378,915 $ 98,551 $ 269,903 $302,004 $ 261,217
23 Mitchell Hutchins estimates that it and its parent corporation, PaineWebber, incurred the following shareholder service-related and distribution-related expenses with respect to each Fund during these fiscal years (or periods): CLASS A
MID CAP FUND MID CAP FUND FIVE MONTH FISCAL YEAR GROWTH AND PERIOD ENDED ENDED SMALL CAP GROWTH INCOME FUND AUGUST 31, 1998 MARCH 31, 1998 FUND FUND ----------- --------------- --------------- --------- -------- Marketing and advertising............... $ 869,936 $ 41,723 $ 67,337 $ 86,033 $146,724 Printing of prospectuses and statements of additional information to other than current shareholders............ 3,539 3,727 1,597 240 1,346 Branch network costs allocated and interest expense..................... 1,501,826 178,830 359,909 127,400 928,808 Service fees paid to PaineWebber investment executives................ 570,214 49,483 88,008 43,157 200,554 CLASS B MID CAP FUND MID CAP FUND FIVE MONTH FISCAL YEAR GROWTH AND PERIOD ENDED ENDED SMALL CAP GROWTH INCOME FUND AUGUST 31, 1998 MARCH 31, 1998 FUND FUND ----------- --------------- -------------- --------- -------- Marketing and advertising............... $ 499,240 $ 27,852 $107,737 $102,602 $ 65,570 Amortization of commissions............. 1,181,623 100,306 409,312 154,734 291,301 Printing of prospectuses and statements of additional information to other than current shareholders............ 2,022 2,262 2,247 288 495 Branch network costs allocated and interest expense..................... 1,090,830 124,891 599,585 168,851 432,606 Service fees paid to PaineWebber investment executives................ 386,065 32,786 140,433 51,470 97,273 CLASS C MID CAP FUND MID CAP FUND FIVE MONTH FISCAL YEAR GROWTH AND PERIOD ENDED ENDED SMALL CAP GROWTH INCOME FUND AUGUST 31, 1998 MARCH 31, 1998 FUND FUND ----------- --------------- --------------- --------- -------- Marketing and advertising............... $ 187,510 $ 7,938 $ 19,645 $ 57,180 $ 16,727 Amortization of commissions............. 392,990 28,087 76,923 86,071 74,447 Printing of prospectuses and statements of additional information to other than current shareholders............ 758 666 437 157 138 Branch network costs allocated and interest expense..................... 322,674 34,254 105,859 85,916 106,841 Service fees paid to PaineWebber investment executives................ 130,997 9,362 25,640 28,690 24,816
"Marketing and advertising" includes various internal costs allocated by Mitchell Hutchins to its efforts at distributing the Funds' shares. These internal costs encompass office rent, salaries and other overhead expenses of various departments and areas of operations of Mitchell Hutchins. "Branch network costs allocated and interest expense" consist of an allocated portion of the expenses of various PaineWebber departments involved in the distribution of the Funds' shares, including the PaineWebber retail branch system. 24 In approving each Fund's overall Flexible Pricing(Service Mark) system of distribution, each board considered several factors, including that implementation of Flexible Pricing would (1) enable investors to choose the purchasing option best suited to their individual situation, thereby encouraging current shareholders to make additional investments in the Funds and attracting new investors and assets to the Funds to the benefit of each Fund and its shareholders, (2) facilitate distribution of the Fund's shares and (3) maintain the competitive position of a Fund in relation to other funds that have implemented or are seeking to implement similar distribution arrangements. In approving the Class A Plan, each board considered all the features of the distribution system, including (1) the conditions under which initial sales charges would be imposed and the amount of such charges, (2) Mitchell Hutchins' belief that the initial sales charge combined with a service fee would be attractive to PaineWebber investment executives and correspondent firms, resulting in greater growth of the Funds than might otherwise be the case, (3) the advantages to the shareholders of economies of scale resulting from growth in each Fund's assets and potential continued growth, (4) the services provided to each Fund and its shareholders by Mitchell Hutchins, (5) the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related expenses and costs. In approving the Class B Plan, each board considered all the features of the distribution system, including (1) the conditions under which contingent deferred sales charges would be imposed and the amount of such charges, (2) the advantage to investors in having no initial sales charges deducted from Fund purchase payments and instead having the entire amount of their purchase payments immediately invested in Fund shares, (3) Mitchell Hutchins' belief that the ability of PaineWebber investment executives and correspondent firms to receive sales commissions when Class B shares are sold and continuing service fees thereafter while their customers invest their entire purchase payments immediately in Class B shares would prove attractive to the investment executives and correspondent firms, resulting in greater growth of each Fund than might otherwise be the case, (4) the advantages to the shareholders of economies of scale resulting from growth in each Fund's assets and potential continued growth, (5) the services provided to a Fund and its shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service- and distribution-related expenses and costs. The trustees also recognized that Mitchell Hutchins' willingness to compensate PaineWebber and its investment executives, without the concomitant receipt by Mitchell Hutchins of initial sales charges, was conditioned upon its expectation of being compensated under the Class B Plan. In approving the Class C Plan, each board considered all the features of the distribution system, including (1) the advantage to investors in having no initial sales charges deducted from Fund purchase payments and instead having the entire amount of an investor's purchase payments immediately invested in Fund shares, (2) the advantage to investors in being free from contingent deferred sales charges upon redemption for shares held more than one year and paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability of PaineWebber investment executives and correspondent firms to receive sales compensation for their sales of Class C shares on an ongoing basis, along with continuing service fees, while their customers invest their entire purchase payments immediately in Class C shares and generally do not face contingent deferred sales charges, would prove attractive to the investment executives and correspondent firms, resulting in greater growth to each Fund than might otherwise be the case, (4) the advantages to the shareholders of economies of scale resulting from growth in each Fund's assets and potential continued growth, (5) the services provided to each Fund and its shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service- and distribution-related expenses and costs. The trustees also recognized that Mitchell Hutchins' willingness to compensate PaineWebber and its investment executives without the concomitant receipt by Mitchell Hutchins of initial sales charges or contingent deferred sales charges upon redemption, was conditioned upon its expectation of being compensated under the Class C Plan. With respect to each Plan, the boards considered all compensation that Mitchell Hutchins would receive under the Plan and the Distribution Contract, including service fees and, as applicable, initial sales charges, distribution fees and contingent deferred sales charges. The boards also considered the benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell Hutchins would receive service, distribution and 25 advisory fees which are calculated based upon a percentage of the average net assets of each Fund, which fees would increase if the Plan were successful and the Funds attained and maintained significant asset levels. Under the Distribution Contracts for the Class A shares and similar prior distribution contracts, for the fiscal years (or periods) set forth below, Mitchell Hutchins earned the following approximate amounts of sales charges and retained the following approximate amounts, net of concessions to PaineWebber as exclusive dealer.
FISCAL YEARS ------------------------------------ 1998 1997 1996 ---------- ---------- -------- GROWTH AND INCOME FUND Earned.................................. $3,377,803 $1,057,894 $369,006 Retained................................ $ 200,804 $ 28,748 $ 21,741 SMALL CAP FUND Earned.................................. $ 299,265 $ 39,599 $ 16,418 Retained................................ $ 17,983 $ 2,303 $ 1,131 GROWTH FUND Earned.................................. $ 77,935 $ 113,033 $104,474 Retained................................ $ 5,776 $ 6,886 $ 6,032 FIVE MONTH FISCAL YEARS PERIOD ENDED ---------------------------------- AUGUST 31, 1998 1998 1997 1996 --------------- -------- ---------- -------- MID CAP FUND Earned.................................. $ 42,878 $ 79,480 $ 124,319 $112,032 Retained................................ $ 3,039 $ 4,826 $ 7,597 $ 6,149
Mitchell Hutchins earned and retained the following contingent deferred sales charges paid upon certain redemptions of Class A, Class B and Class C shares for the last fiscal year (and for the five month period ended August 31, 1998 for Mid Cap Fund):
GROWTH AND INCOME FUND SMALL CAP FUND GROWTH FUND ---------------------- -------------- ----------- Class A........................................ $ 0 $ 0 $ 0 Class B........................................ $420,002 $ 81,893 $ 130,715 Class C........................................ $ 38,256 $ 13,948 $ 1,052 FIVE MONTH PERIOD FISCAL YEAR ENDED ENDED AUGUST 31, 1998 MARCH 31, 1998 --------------------- ----------------- MID CAP FUND Class A............................................................... $ 0 $ 0 Class B............................................................... $ 62,744 $ 180,119 Class C............................................................... $ 873 $ 0
26 PORTFOLIO TRANSACTIONS Subject to policies established by each board, Mitchell Hutchins is responsible for the execution of each Fund's portfolio transactions and the allocation of brokerage transactions. In executing portfolio transactions, Mitchell Hutchins seeks to obtain the best net results for the Funds, taking into account such factors as the price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved. While Mitchell Hutchins generally seeks reasonably competitive commission rates, payment of the lowest commission is not necessarily consistent with obtaining the best net results. Prices paid to dealers in principal transactions, through which most debt securities and some equity securities are traded, generally include a "spread," which is the difference between the prices at which the dealer is willing to purchase and sell a specific security at the time. The Funds may invest in securities traded in the OTC market and will engage primarily in transactions directly with the dealers who make markets in such securities, unless a better price or execution could be obtained by using a broker. During the indicated fiscal years ended August 31 (for Growth and Income Fund and Growth Fund), March 31. (for Mid Cap Fund) and July 31 (for Small Cap Fund) and for the five month period ended August 31, 1998 for Mid Cap Fund, the Funds paid the brokerage commissions set forth below:
FISCAL YEARS -------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Growth and Income Fund.......................................... $1,782,530 $1,139,813 $1,246,465 Growth Fund..................................................... 455,002 665,156 400,232 Small Cap Fund.................................................. 163,052 147,913 211,004 FIVE MONTH FISCAL YEAR ENDED MARCH 31, PERIOD ENDED -------------------------------------- AUGUST 31, 1998 1998 1997 1996 --------------- ---------- ---------- ---------- Mid Cap Fund.................................. $ 673,061 $ 388,468 $ 330,810 $ 329,556
The Funds have no obligation to deal with any broker or group of brokers in the execution of portfolio transactions. The Funds contemplate that, consistent with the policy of obtaining the best net results, brokerage transactions may be conducted through PaineWebber. Each board has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to PaineWebber are reasonable and fair. Specific provisions in the Advisory Contracts authorize PaineWebber and any of its affiliates that is a member of a national security exchange to effect portfolio transactions for the Funds 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. During the indicated fiscal years ended August 31 (for Growth and Income Fund and Growth Fund), March 31, (for Mid Cap Fund), and July 31 (for Small Cap Fund), and during the five month period ended August 31, 1998 for Mid Cap Fund, the Funds paid to PaineWebber the brokerage commissions set forth below:
FISCAL YEAR ----------------------------- 1998 1997 1996 ------- ------- ------- Growth and Income Fund................................................. $51,462 $43,440 $22,470 Growth Fund............................................................ 43,380 32,130 2,400 Small Cap Fund......................................................... 0 3,900 3,066 FIVE MONTH FISCAL YEARS PERIOD ENDED -------------------------- AUGUST 31, 1998 1998 1997 1996 --------------- ---- ---- ---- Mid Cap Fund........................................... $ 0 $ 0 $ 0 $ 0
The amounts paid by the Funds to PaineWebber in brokerage commissions for their most recent fiscal years represent (1) for Growth and Income Fund, 2.89% of the total brokerage commission paid and 0.12% of the total dollar amount of transactions involving the payment of brokerage commissions and (2) for Growth Fund, 9.53% of the total brokerage commission paid and 3.37% of the total dollar amount of transactions involving the payment of brokerage commissions. 27 Transactions in futures contracts are executed through futures commission merchants ("FCMs"), who receive brokerage commissions for their services. The Funds' procedures in selecting FCMs to execute their transactions in futures contracts, including procedures permitting the use of PaineWebber, are similar to those in effect with respect to brokerage transactions in securities. Consistent with the interests of each Fund and subject to the review of its board, Mitchell Hutchins may cause the Fund to purchase and sell portfolio securities from and to dealers or through brokers who provide Mitchell Hutchins with research, analysis, advice and similar services. The Fund may pay to those brokers a higher commission than may be charged by other brokers, provided that Mitchell Hutchins determines in good faith that such commission is reasonable in terms either of that particular transaction or of the overall responsibility of Mitchell Hutchins to the particular Fund and its other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long term. During the fiscal years ended August 31, 1998 (for Growth and Income Fund and Growth Fund) March 31, 1998 (for Mid Cap Fund) and July 31, 1998 (for Small Cap Fund), and during the five month period ended August 31, 1998 for Mid Cap Fund, Mitchell Hutchins directed the portfolio transactions indicated below to brokers chosen because they provide research and analysis, for which the Funds paid the brokerage commissions indicated below:
AMOUNT OF PORTFOLIO BROKERAGE COMMISSIONS TRANSACTIONS PAID ------------------- --------------------- Growth and Income Fund.................................... $ 180,923,115 $ 201,780 Small Cap Fund............................................ 2,147,789 5,880 Growth Fund............................................... 71,769,640 84,992 Mid Cap Fund Five month period ended August 31, 1998................. $ 50,417,243 $ 67,575 Fiscal year ended March 31, 1998........................ $ 189,974,320 $ 104,232
For purchases or sales with broker-dealer firms which act as principal, Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive certain research or execution services in connection with these transactions, Mitchell Hutchins will not purchase securities at a higher price or sell securities at a lower price than would otherwise be paid if no weight were attributed to the services provided by the executing dealer. Moreover, Mitchell Hutchins will not enter into any explicit soft dollar arrangements relating to principal transactions and will not receive in principal transactions the types of services which could be purchased for hard dollars. Mitchell Hutchins may engage in agency transactions in OTC equity and debt securities in return for research and execution services. These transactions are entered into only in compliance with procedures ensuring that the transaction (including commissions) is at least as favorable as it would have been if effected directly with a market-maker that did not provide research or execution services. These procedures include Mitchell Hutchins receiving multiple quotes from dealers before executing the transactions on an agency basis. Information and research services furnished by brokers or dealers through which or with which the Funds effect securities transactions may be used by Mitchell Hutchins in advising other funds or accounts and, conversely, information and research services furnished to Mitchell Hutchins by brokers or dealers in connection with other funds or accounts that either of them advises may be used in advising the Funds. Information and research received from brokers or dealers will be in addition to, and not in lieu of, the services required to be performed by Mitchell Hutchins under the Advisory Contracts. Investment decisions for the Funds and for other investment accounts managed by Mitchell Hutchins are made independently of each other in light of differing considerations for the various accounts. However, the same investment decision may occasionally be made for a 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 that Fund and such other account(s) as to amount according to a formula deemed equitable to the Fund and such account(s). While in some cases this practice could have a detrimental effect upon the price or value of the security as far as the Funds are concerned, or upon their ability to complete their entire order, in other cases it is believed that coordination and the ability to participate in volume transactions will be beneficial to the Funds. The Funds will not purchase securities that are offered in underwritings in which PaineWebber is a member of the underwriting or selling group, except pursuant to procedures adopted by each board pursuant 28 to Rule 10f-3 under the 1940 Act. Among other things, these procedures require that the spread or commission paid in connection with such a purchase be reasonable and fair, the purchase be at not more than the public offering price prior to the end of the first business day after the date of the public offering and that PaineWebber or any affiliate thereof not participate in or benefit from the sale to the Funds. PORTFOLIO TURNOVER. The Funds' annual portfolio turnover rates may vary greatly from year to year, but they will not be a limiting factor when management deems portfolio changes appropriate. The portfolio turnover rate is calculated by dividing the lesser of each Fund's annual sales or purchases of portfolio securities (exclusive of purchases or sales of securities whose maturities at the time of acquisition were one year or less) by the monthly average value of securities in the portfolio during the year.
PORTFOLIO TURNOVER RATE ------------- GROWTH AND INCOME FUND Fiscal Year Ended August 31, 1998................. 62% Fiscal Year Ended August 31, 1997................. 70% MID CAP FUND Five Month Period Ended August 31, 1998........... 80% Fiscal Year Ended March 31, 1998.................. 64% Fiscal Year Ended March 31, 1997.................. 56% SMALL CAP FUND Fiscal Year Ended July 31, 1998................... 45% Fiscal Year Ended July 31, 1997................... 54% GROWTH FUND Fiscal Year Ended August 31, 1998................. 52% Fiscal Year Ended August 31, 1997................. 86%
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 Funds with concurrent purchases of Class A shares of any other PaineWebber mutual fund and thus take advantage of the reduced sales charges indicated in the table of sales charges for Class A shares in the Prospectus. The sales charge payable on the purchase of Class A shares of the 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 such individual(s); (e) an individual (or eligible group of individuals) and a trust created by the individual(s), the beneficiaries of which are the individual and/or the individual's spouse, parents or children; (f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account created by the individual or the individual's spouse; (g) an employer (or group of related employers) and one or more qualified retirement plans of such employer or employers (an employer controlling, controlled by or under common control with another employer is deemed related to that other employer); or 29 (h) individual accounts related together under one registered investment adviser having full discretion and control over the accounts. The registered investment adviser must communicate at least quarterly through a newsletter or investment update establishing a relationship with all of the accounts. RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available through a right of accumulation, under which investors and eligible groups of related Fund investors (as defined above) are permitted to purchase Class A shares of the Funds among related accounts at the offering price applicable to the total of (1) the dollar amount then being purchased plus (2) an amount equal to the then-current net asset value of the purchaser's combined holdings of Class A Fund shares and Class A shares of any other PaineWebber mutual fund. The purchaser must provide sufficient information to permit confirmation of his or her holdings, and the acceptance of the purchase order is subject to such confirmation. The right of accumulation may be amended or terminated at any time. WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the contingent deferred sales charge on Class B shares is waived where a total or partial redemption is made within one year following the death of the shareholder. The contingent deferred sales charge waiver is available where the decedent is either the individual shareholder or owns the shares with his or her spouse as a joint tenant with right of survivorship. This waiver applies only to redemption of shares held at the time of death. ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the Prospectus, eligible shares of the Funds may be exchanged for shares of the corresponding class of most other PaineWebber mutual funds. This exchange privilege is available only in those jurisdictions where the sale of PaineWebber fund shares to be acquired through such exchange may be legally made. 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 a Fund temporarily delays or ceases the sales of its shares because it is unable to invest amounts effectively in accordance with the Fund's investment objective, policies and restrictions. If conditions exist that make cash payments undesirable, the Funds reserve the right to honor any request for redemption by making payment in whole or in part in securities chosen by the Funds and valued in the same way as they would be valued for purposes of computing the Funds' net asset value. Any such redemption in kind will be made with readily marketable securities, to the extent available. If payment is made in securities, a shareholder may incur brokerage expenses in converting these securities into cash. Each Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which a Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day period for one shareholder. This election is irrevocable unless the SEC permits its withdrawal. The Funds may suspend redemption privileges or postpone the date of payment during any period (1) when the New York Stock Exchange ("NYSE") is closed or trading on the NYSE is restricted as determined by the SEC, (2) when an emergency exists, as defined by the SEC, that makes it not reasonably practicable for a 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 a Fund's portfolio at the time. SERVICE ORGANIZATIONS. A Fund may authorize service organizations, and their agents, to accept on its behalf purchase and redemption orders that are in "good form." A Fund will be deemed to have received these purchase and redemption orders when a service organization or its agent accepts them. Like all customer orders, these orders will be priced based on the Fund's net asset value next computed after receipt of the order by the service organizations or their agents. Service organizations may include retirement plan service providers who aggregate purchase and redemption instructions received from numerous retirement plans or plan participants. AUTOMATIC INVESTMENT PLAN. Participation in the Automatic Investment Plan enables an investor to use the technique of "dollar cost averaging." When the investor invests the same dollar amount each month under the Plan, the investor will purchase more shares when a Fund's net asset value per share is low and fewer shares when the net asset value per share is high. Using this technique, an investor's average purchase price per share over any given period will be lower than if the investor purchased a fixed number of shares on a monthly basis during the period. Of course, investing through the automatic investment plan does not assure 30 a profit or protect against loss in declining markets. Additionally, because the automatic investment plan involves continuous investing regardless of price levels, an investor should consider his or her financial ability to continue purchases through periods of both low and high price levels. SYSTEMATIC WITHDRAWAL PLAN. An investor's participation in the systematic withdrawal plan will terminate automatically if the "Initial Account Balance" (a term that means the value of the Fund account at the time the investor elects to participate in the systematic withdrawal plan) less aggregate redemptions made other than pursuant to the systematic withdrawal plan is less than $5,000 for Class A and Class C shareholders or $20,000 for Class B shareholders. Purchases of additional Fund shares concurrent with withdrawals are ordinarily disadvantageous to shareholders because of tax liabilities and, for Class A shares, initial sales charges. On or about the 20th of each month for monthly, quarterly, semiannual or annual plans, PaineWebber will arrange for redemption by a Fund of sufficient Fund shares to provide the withdrawal payment specified by participants in the Fund's systematic withdrawal plan. The payment generally is mailed approximately five Business Days (defined under "Valuation of Shares") after the redemption date. Withdrawal payments should not be considered dividends, but redemption proceeds, with the tax consequences described under "Dividends & Taxes" in the Prospectus. If periodic withdrawals continually exceed reinvested dividends, a shareholder's investment may be correspondingly reduced. A shareholder may change the amount of the systematic withdrawal or terminate participation in the systematic withdrawal plan at any time without charge or penalty by written instructions with signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in the plan, change the withdrawal amount or terminate participation in the plan will not be effective until five days after written instructions with signatures guaranteed are received by the Transfer Agent. Shareholders may request the forms needed to establish a systematic withdrawal plan from their PaineWebber investment executives, correspondent firms or the Transfer Agent at 1-800-647-1568. REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus, shareholders who have redeemed their Class A shares may reinstate their account in the Funds without a sales charge. Shareholders may exercise the reinstatement privilege by notifying the Transfer Agent of such desire and forwarding a check for the amount to be purchased within 365 days after the date of redemption. The reinstatement will be made at the net asset value per share next computed after the notice of reinstatement and check are received. The amount of a purchase under this reinstatement privilege cannot exceed the amount of the redemption proceeds. Gain on a redemption is taxable regardless of whether the reinstatement privilege is exercised; however, a loss arising out of a redemption will not be deductible to the extent the reinstatement privilege is exercised within 30 days after redemption, and an adjustment will be made to the shareholder's tax basis for shares acquired pursuant to the reinstatement privilege. Gain or loss on a redemption also will be adjusted for federal income tax purposes by the amount of any sales charge paid on Class A shares, under the circumstances and to the extent described in "Dividends & Taxes" in the Prospectus. PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SERVICE MARK); PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(REGISTERED)(RMA)(REGISTERED) Shares of PaineWebber mutual funds (each a "PW Fund" and, collectively, the "PW Funds") are available for purchase through the RMA Resource Accumulation Plan ("Plan") by customers of PaineWebber and its correspondent firms who maintain Resource Management Accounts ("RMA Accountholders"). The Plan allows an RMA accountholder to continually invest in one or more of the PW Funds at regular intervals, with payment for shares purchased automatically deducted from the client's RMA account. The client may elect to invest at monthly or quarterly intervals and may elect either to invest a fixed dollar amount (minimum $100 per period) or to purchase a fixed number of shares. A client can elect to have Plan purchases executed on the first or fifteenth day of the month. Settlement occurs three Business Days (defined under "Valuation of Shares") after the trade date, and the purchase price of the shares is withdrawn from the investor's RMA account on the settlement date from the following sources and in the following order: uninvested cash balances, balances in RMA money market funds, or margin borrowing power, if applicable to the account. To participate in the Plan, an investor must be an RMA accountholder, must have made an initial purchase of the shares of each PW Fund selected for investment under the Plan (meeting applicable minimum investment requirements) and must complete and submit the RMA Resource Accumulation Plan Client Agreement and Instruction Form available from PaineWebber. The investor must have received a 31 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 both low and high share prices. However, over time, dollar cost averaging generally results in a lower average original investment cost than if an investor invested a larger dollar amount in a mutual fund at one time. PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the 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: o monthly Premier account statements that itemize all account activity, including investment transactions, checking activity and Gold MasterCard(Registered) transactions during the period, and provide unrealized and realized gain and loss estimates for most securities held in the account; o comprehensive preliminary 9-month and year-end summary statements that provide information on account activity for use in tax planning and tax return preparation; o automatic "sweep" of uninvested cash into the RMA accountholder's choice of one of the six RMA money market funds--RMA Money Market Portfolio, RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal Money Fund, RMA New Jersey Municipal Money Fund and RMA New York Municipal Money Fund. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. o 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; o 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; o 24-hour access to account information through toll-free numbers, and more detailed personal assistance during business hours from the RMA Service Center; o expanded account protection to $100 million in the event of the liquidation of PaineWebber. This protection does not apply to shares of the RMA money market funds or the PW Funds because those shares are held at the transfer agent and not through PaineWebber; and o 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. 32 CONVERSION OF CLASS B SHARES Class B shares of a Fund will automatically convert to Class A shares of that Fund, based on the relative net asset values per share of the two classes, as of the close of business on the first Business Day (as defined under "Valuation of Shares") of the month in which the sixth anniversary of the initial issuance of such Class B shares occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean (i) the date on which such Class B shares were issued, or (ii) for Class B shares obtained through an exchange, or a series of exchanges, the date on which the original Class B shares were issued. For purposes of conversion to Class A shares, Class B shares purchased through the reinvestment of dividends and other distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through dividends and other distributions. The availability of the conversion feature is subject to the continuing availability of an opinion of counsel to the effect that the dividends and other distributions paid on Class A and Class B shares will not result in "preferential dividends" under the Internal Revenue Code and the conversion of shares will not constitute a taxable event. If the conversion feature ceased to be available, the Class B shares 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 this condition for the availability of the conversion feature will not be met. VALUATION OF SHARES The Funds determine their net asset values per share separately for each class of shares, normally as of the close of regular trading on the NYSE (usually 4:00 p.m., Eastern time) on each Business Day, which is defined as each Monday through Friday when the NYSE is open. Prices will be calculated earlier when the NYSE closes early because trading has been halted for the day. Currently the NYSE is closed on the observance of the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities that are listed on U.S. stock exchanges are valued at the last sale price prior to valuation on the day the securities are valued or, lacking any sales on such day, at the last available bid price. In cases where securities are traded on more than one exchange, the securities are generally valued on the exchange considered by Mitchell Hutchins as the primary market. Securities traded in the OTC market and listed on the Nasdaq Stock Market ("Nasdaq") are valued at the last trade price on Nasdaq prior to valuation; other OTC securities are valued at the last bid price available prior to valuation (other than short-term investments that mature in 60 days or less, which are valued as described further below). Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of each board. It should be recognized that judgment often plays a greater role in valuing thinly traded securities and lower rated securities than is the case with respect to securities for which a broader range of dealer quotations and last-sale information is available. The amortized cost method of valuation generally is used to value debt obligations with 60 days or less remaining until maturity, unless the board determines that this does not represent fair value. PERFORMANCE INFORMATION The Funds' 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. 33 TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized Return") used in each Fund's Performance Advertisements are calculated according to the following formula: n P(1 + T) = ERV where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified class T = average annual total return of shares of that class n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment at the beginning of that period.
Under the foregoing formula, the time periods used in Performance Advertisements will be based on rolling calendar quarters, updated to the last day of the most recent quarter prior to submission of the advertisement for publication. Total return, or "T" in the formula above, is computed by finding the average annual change in the value of an initial $1,000 investment over the period. In calculating the ending redeemable value, for Class A shares, the maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for Class B and Class C shares, the applicable contingent deferred sales charge imposed on a redemption of Class B or Class C shares held for the period is deducted. All dividends and other distributions are assumed to have been reinvested at net asset value. The Funds 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 Funds calculate Non-Standardized Return for specified periods of time by assuming an investment of $1,000 in Fund shares and assuming the reinvestment of all dividends and other distributions. The rate of return is determined by subtracting the initial value of the investment from the ending value and by dividing the remainder by the initial value. Neither initial nor contingent deferred sales charges are taken into account in calculating Non-Standardized Return; the inclusion of those charges would reduce the return. Both Standardized Return and Non-Standardized Return for Class B shares for periods of over six years reflect conversion of the Class B shares to Class A shares at the end of the sixth year. The following table shows performance information for each classs of shares of the Funds for the periods indicated. All returns for periods of more than one year are expressed as an average return. GROWTH AND INCOME FUND
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Year ended August 31, 1998: Standardized Return*.................. (7.85)% (8.67)% (5.11)% (3.24)% Non-Standardized Return............... (3.51)% (4.28)% (4.23)% (3.24)% Five years ended August 31, 1998: Standardized Return*.................. 12.63% 12.54% 12.81% 13.98% Non-Standardized Return............... 13.67% 12.79% 12.81% 13.98% Ten years ended August 31, 1998 Standardized Return*.................. 12.22% NA NA NA Non-Standardized Return............... 12.74% NA NA NA Inception** to August 31, 1998: Standardized Return*.................. 12.19% 11.25% 11.18% 10.80% Non-Standardized Return............... 12.54% 11.25% 11.18% 10.80% MID CAP FUND CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- One year ended August 31, 1998: Standardized Return*.................. (23.88)% (23.20)% (21.33)% NA Non-Standardized Return............... (20.28)% (20.91)% (20.89)% NA Five years ended August 31, 1998: Standardized Return*.................. 7.21% 7.18% 7.38% NA Non-Standardized Return*.............. 8.21% 7.39% 7.38% NA Inception* to August 31, 1998: Standardized Return*.................. 8.55% 8.50% 10.14% (26.82)% Non-Standardized Return............... 9.33% 8.50% 10.14% (26.82)%
34 SMALL CAP FUND
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- One year ended July 31, 1998: Standardized Return*.................. 3.58% 2.69% 6.63% 8.74% Non-Standardized Return............... 8.45% 7.60% 7.61% 8.74% Five years ended July 31, 1998: Standardized*......................... 11.71% 11.64% 11.88% NA Non-Standardized...................... 12.74% 11.90% 11.88% NA Inception** to July 31, 1998: Standardized Return*.................. 11.05% 11.03% 11.12% 21.58% Non-Standardized Return............... 11.98% 11.14% 11.12% 21.58% GROWTH FUND CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Fiscal year ended August 31, 1998: Standardized Return*.................. (1.27)% (1.21)% 1.83% 3.61% Non-Standardized Return............... 3.37% 2.55% 2.59% 3.61% Five years ended August 31, 1998: Standardized Return*.................. 9.05% 8.94% 9.21% 10.37% Non-Standardized Return*.............. 10.06% 9.20% 9.21% 10.37% Ten years ended August 31, 1998: Standardized Return*.................. 13.23% NA NA NA Non-Standardized Return*.............. 13.75% NA NA NA Inception** to August 31, 1998: Standardized Return*.................. 13.02% 11.41% 11.17% 11.31% Non-Standardized Return............... 13.41% 11.41% 11.17% 11.31%
- ------------------ * All Standardized Return figures for Class A shares reflect deduction of the current maximum sales charge of 4.5%. All Standardized Return figures for Class B and Class C shares reflect deduction of the applicable contingent deferred sales charges imposed on a redemption of shares held for the period. Class Y shares do not impose an initial or contingent deferred sales charge; therefore, Non-Standardized Return is identical to Standardized Return. ** The inception date for each class of shares is as follows:
CLASS A CLASS B CLASS C CLASS Y -------- -------- -------- -------- Growth and Income Fund.................................... 12/20/83 07/01/91 07/02/92 02/12/92 Mid Cap Fund.............................................. 04/07/92 04/07/92 07/02/92 03/17/98 Small Cap Fund............................................ 02/01/93 02/01/93 02/01/93 07/26/96 Growth Fund............................................... 03/18/85 07/01/91 07/02/92 08/26/91
35 OTHER INFORMATION. In Performance Advertisements, the Funds may compare their Standardized Return and/or their Non-Standardized Return with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Wiesenberger Investment Companies Service ("Wiesenberger"), Investment Company Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), with the performance of recognized stock and other indices, including the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), the Standard & Poor's 600 Small-Cap Index, the Standard & Poor's 400 Mid- Cap Index, the Dow Jones Industrial Average, the Nasdaq Composite Index, the Russell 2000 Index, the Russell 1000 Index (including Value and Growth sub-indexes), the Wilshire 5000 Index, Standard & Poor's Mid Cap Financials Index, Standard & Poor's Super Composite Financials Index, Standard & Poor's Financial Index, the Lehman Bond Index, 30-year and 10-year U.S. Treasury bonds, the Morgan Stanley Capital International World Index and changes in the Consumer Price Index as published by the U.S. Department of Commerce. The Funds also may refer in such materials to mutual fund performance rankings and other data, such as comparative asset, expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to discussions of the Funds and comparative mutual fund data and ratings reported in independent periodicals, including THE WALL STREET JOURNAL, MONEY, SMART MONEY, MUTUAL FUNDS, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance Advertisements may be in graphic form. The Funds 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 in additional Fund shares, any future income or capital appreciation of a 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 a Fund investment would increase more quickly than if dividends or other distributions had been paid in cash. The Funds may also compare their performance with the performance of bank certificates of deposit (CDs) as measured by the CDA Certificate of Deposit Index, the Bank Rate Monitor National Index and the averages of yields of CDs of major banks published by Banxquote(Registered) Money Markets. In comparing the Funds' performance to CD performance, investors should keep in mind that bank CDs are insured in whole or in part by an agency of the U.S. government and offer fixed principal and fixed or variable rates of interest, and that bank CD yields may vary depending on the financial institution offering the CD and prevailing interest rates. Shares of the Funds are not insured or guaranteed by the U.S. government and returns and net asset value will fluctuate. The debt securities held by the Funds generally have longer maturities than most CDs and may reflect interest rate fluctuations for longer term securities. An investment in any Fund involves greater risks than an investment in either a money market fund or a CD. The Funds may also compare their performance to general trends in the stock and bond markets, as illustrated by the following graph prepared by Ibbotson Associates, Chicago. 36 U.S. 30 Day TBill TR, $142,496* U.S. Inflation, $90,092* (*Figures are too small to be charted here) S&P 500 TR SMALL CAP U.S. LT Gvt TR 1925 10,000 10,000 10,000 1926 11,162 10,028 10,777 1927 15,347 12,243 11,739 1928 22,040 17,103 11,751 1929 20,185 8,319 12,153 1930 15,159 5,146 12,719 1931 8,590 2,586 12,044 1932 7,886 2,446 14,073 1933 12,144 5,941 14,062 1934 11,969 7,380 15,472 1935 17,674 10,346 16,243 1936 23,669 17,051 17,464 1937 15,379 7,160 17,504 1938 20,165 9,508 18,473 1939 20,002 9,541 19,570 1940 18,117 9,049 20,761 1941 16,017 8,235 20,955 1942 19,275 11,900 21,629 1943 24,267 22,417 22,080 1944 29,060 34,459 22,702 1945 39,649 59,825 25,139 1946 36,449 52,870 25,113 1947 38,529 53,354 24,454 1948 40,649 52,227 25,285 1949 48,287 62,541 26,916 1950 63,601 86,774 26,932 1951 78,875 93,546 25,873 1952 93,363 96,377 26,173 1953 92,439 90,125 27,125 1954 141,084 144,725 29,075 1955 185,614 174,308 28,699 1956 197,783 181,774 27,096 1957 176,457 155,289 29,117 1958 252,975 256,051 27,342 1959 283,219 298,039 26,725 1960 284,549 288,230 30,407 1961 361,060 390,716 30,703 1962 329,545 335,401 32,818 1963 404,685 414,440 33,216 1964 471,388 511,927 34,381 1965 530,081 725,674 34,625 1966 476,737 674,791 35,889 1967 591,038 1,238,704 32,594 1968 656,415 1,684,285 32,509 1969 600,590 1,262,332 30,860 1970 624,653 1,042,259 34,596 1971 714,058 1,214,228 39,173 1972 849,559 1,268,069 41,400 1973 725,003 876,179 40,942 1974 533,110 701,424 42,725 1975 731,443 1,071,887 46,653 1976 905,842 1,686,909 54,470 1977 840,766 2,114,997 54,095 1978 895,922 2,611,199 53,458 1979 1,061,126 3,746,139 52,799 1980 1,405,137 5,239,922 50,715 1981 1,336,161 5,967,169 51,657 1982 1,622,226 7,638,290 72,507 1983 1,987,451 10,668,278 72,979 1984 2,111,991 9,956,805 84,274 1985 2,791,166 12,412,341 110,371 1986 3,306,709 13,262,748 137,446 1987 3,479,675 12,029,656 133,716 1988 4,064,583 14,781,351 146,650 1989 5,344,555 16,285,901 173,215 1990 5,174,990 12,774,487 183,924 1991 6,755,922 18,476,288 219,420 1992 7,274,115 22,790,386 237,092 1993 8,000,785 27,571,472 280,339 1994 8,105,379 28,427,732 258,556 1995 11,139,184 38,223,980 340,436 1996 13,709,459 44,959,933 337,265 1997 18,272,762 55,199,693 390,736 The chart is shown for illustrative purposes only and does not represent any Fund's performance. These returns consist of income and capital appreciation (or depreciation) and should not be considered an indication or guarantee of future investment results. Year-to-year fluctuations in certain markets have been significant and negative returns have been experienced in certain markets from time to time. Small cap stocks are represented by an index of the ninth and tenth decile of the NYSE plus stocks listed on the American Stock Exchange (AMEX) and OTC with the same or less capitalization as the upper bound of the NYSE ninth decile. Common stocks are measured by the S&P 500, an unmanaged weighted index comprising 500 widely held common stocks and varying in composition. Unlike investors in bonds and U.S. Treasury bills, common stock investors do not receive fixed income payments and are not entitled to repayment of principal. These differences contribute to investment risk. Returns shown for long-term government bonds are based on U.S. Treasury bonds with 20-year maturities. Inflation is measured by the Consumer Price Index. The indices are unmanaged and are not available for investment. - ------------------ Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(Trademark) Ibbotson Assoc., Chi., (annual updates work by Roger C. Ibbotson & Rex A Sinquefield). Over time, small cap and large cap stocks have outperformed all other investments by a wide margin, offering a solid hedge against inflation. From 1926 to 1997, stocks beat all other traditional asset classes. TAXES To continue to qualify for treatment as a regulated investment company ("RIC") under the Internal Revenue Code, each Fund must distribute to its shareholders for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and net short-term capital gain) ("Distribution Requirement") and must meet several additional requirements. For each Fund, these requirements include the following: (1) the Fund must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other 37 disposition of securities, or other income (including gains from options or futures) derived with respect to its business of investing in securities ("Income Requirement"); (2) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with these other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund's total assets and that does not represent more than 10% of the issuer's outstanding voting securities; and (3) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer. If a Fund failed to qualify for treatment as a RIC for any taxable year, it would be taxed as an ordinary corporation on its taxable income for that year (even if that income was distributed to its shareholders) and all distributions out of its earnings and profits would be taxable to its shareholders as dividends (that is, ordinary income). Dividends and other distributions declared by a Fund in October, November or December of any year and payable to shareholders of record on a date in any of those months will be deemed to have been paid by the Fund and received by the shareholders on December 31 of that year if the distributions are paid by the Fund during the following January. Accordingly, those distributions will be taxed to shareholders for the year in which that December 31 falls. A portion of the dividends from each Fund's investment company taxable income (whether paid in cash or additional shares) may be eligible for the dividends-received deduction allowed to corporations. The eligible portion may not exceed the aggregate dividends received by a Fund from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction are subject indirectly to the alternative minimum tax. If shares of a Fund are sold at a loss after being held for six months or less, the loss will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received on those shares. Investors also should be aware that if shares are purchased shortly before the record date for any dividend or capital gain distribution, the shareholder will pay full price for the shares and receive some portion of the price back as a taxable distribution. Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31 of that year, plus certain other amounts. Each Fund may invest in the stock of "passive foreign investment companies" ("PFICs") if such stock is a permissible investment. A PFIC is a foreign corporation--other than a "controlled foreign corporation" (i.e., a foreign corporation in which, on any day during its taxable year, more than 50% of the total voting power of all voting stock therein or the total value of all stock therein is owned, directly, indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons that individually own, directly, indirectly, or constructively, at least 10% of that voting power) as to which a Fund is a shareholder--that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a Fund will be subject to federal income tax on a portion of any "excess distribution" received on the stock of a PFIC or of any gain from disposition of that stock (collectively "PFIC income"), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders. If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax and interest obligation, the Fund would be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain (the excess of net long-term capital gain over net short-term capital loss)--which probably would have to be distributed by the Fund to satisfy the Distribution Requirement and avoid imposition of the Excise Tax--even if those earnings and gain were not distributed to the Fund by the QEF. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof. 38 Each Fund may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC's stock over a Fund's adjusted basis therein as of the end of that year. Pursuant to the election, a Fund also would be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included by the Fund for prior taxable years. A Fund's adjusted basis in each PFIC's stock with respect to which it makes this election will be adjusted to reflect the amounts of income included and deductions taken thereunder (and under regulations proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). The use of hedging strategies involving Derivative Instruments, such as writing (selling) and purchasing options and futures contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a Fund realizes in connection therewith. Gains from options and futures derived by a Fund with respect to its business of investing in securities will qualify as permissible income under the Income Requirement. If a Fund has an "appreciated financial position"--generally, an interest (including an interest through an option, futures contract or short sale) with respect to any stock, debt instrument (other than "straight debt") or partnership interest the fair market value of which exceeds its adjusted basis--and enters into a "constructive sale" of the same or substantially similar property, the Fund will be treated as having made an actual sale thereof, with the result that gain will be recognized at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or a futures contract entered into by a Fund or a related person with respect to the same or substantially similar property. In addition, if the appreciated financial postion is itself a short sale or such a contract, acquisition of the underlying property or substantially similar property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Fund holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Fund's risk of loss with respect to that position reduced by reason of certain specified transactions with respect to substantially similar or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities). OTHER INFORMATION Prior to April 3, 1995, Growth and Income Fund was known as "PaineWebber Dividend Growth Fund." Prior to May 1, 1998, Mid Cap Fund was known as "PaineWebber Capital Appreciation Fund." Prior to July 26, 1996, Small Cap Fund was known as "PaineWebber Small Cap Value Fund." On July 26, 1996, Small Cap Fund was combined in a tax-free reorganization with PaineWebber Small Cap Growth Fund, a series of PaineWebber Investment Trust III. As a result of the reorganization, each shareholder of PaineWebber Small Cap Growth Fund became a shareholder of Small Cap Fund. Prior to November 10, 1995, each Fund's Class C shares were known as "Class D" shares. Prior to November 10, 1995, the Class Y shares of Growth and Income Fund and Growth Fund were known as Class C shares. Each Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of a Fund could, under certain circumstances, be held personally liable for the obligations of the applicable Trust or Fund. However, each Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust or the Fund and requires that notice of such disclaimer be given in each note, bond, contract, instrument, certificate or undertaking made or issued by the trustees or by any officers or officer by or on behalf of the Trust or Fund, the trustees or any of them in connection with the Trust. Each Declaration of Trust provides for indemnification from a Fund's property for all losses and expenses of any shareholder held personally liable for the obligations of that Fund. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund itself would be unable to meet its obligations, a possibility that Mitchell Hutchins believes is remote and not material. Upon payment of any liability incurred by a shareholder solely by reason of being or having been a shareholder, the shareholder paying such liability will be entitled to reimbursement from the general assets 39 of that Fund. The trustees intend to conduct the operations of each Fund in such a way as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Funds. CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of its expenses (in addition to service and distribution fees) to the specific classes of its shares to which those expenses are attributable. For example, Class B and Class C shares bear higher transfer agency fees per shareholder account than those borne by Class A or Class Y shares. The higher fee is imposed due to the higher costs incurred by the Transfer Agent in tracking shares subject to a contingent deferred sales charge because, upon redemption, the duration of the shareholder's investment must be determined in order to determine the applicable charge. Although the transfer agency fee will differ on a per account basis as stated above, the specific extent to which the transfer agency fees will differ between the classes as a percentage of net assets is not certain, because the fee as a percentage of net assets will be affected by the number of shareholder accounts in each class and the relative amounts of net assets in each class. COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Funds. Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell Hutchins in connection with other matters. AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, serves as independent auditors for Growth and Income Fund, Mid Cap Fund and Growth Fund. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as independent accountants for Small Cap Fund. FINANCIAL STATEMENTS Each Fund's Annual Report to Shareholders for its last fiscal year is a separate document supplied with this Statement of Additional Information, and the financial statements, accompanying notes and report of independent auditors appearing therein are incorporated herein by this reference. 40 [This page intentionally left blank] APPENDIX DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues; AA. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities; A. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future; BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well; BA. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class; B. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small; CAA. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest; CA. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings; C. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating classification from "AA" through "B" in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF S&P CORPORATE DEBT RATINGS AAA. An obligation rated AAA has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong; AA. An obligation rated AA differs from the higher rated issues only in small degree; A. An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong; BBB. An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions; BB. An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation; BB. An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation; B. An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its A-1 financial commitment on the obligation; CCC. An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitments on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation; CC. An obligation rated CC is currently highly vulnerable to nonpayment; C. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued; D. An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. A-2 [This page intentionally left blank] [This page intentionally left blank] NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY ANY FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. ------------------ TABLE OF CONTENTS
PAGE ---- Statement of Additional Information............ 1 Investment Policies and Restrictions........... 1 Strategies Using Derivative Instruments........ 7 Trustees and Officers; Principal Holders of Securities................................... 13 Investment Advisory and Distribution Arrangements................................. 21 Portfolio Transactions......................... 27 Reduced Sales Charges, Additional Exchange and Redemption Information and Other Services.... 29 Conversion of Class B Shares................... 33 Valuation of Shares............................ 33 Performance Information........................ 33 Taxes.......................................... 37 Other Information.............................. 39 Financial Statements........................... 40 Appendix....................................... A-1
(Copyright) 1998 PaineWebber Incorporated PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund PaineWebber Small Cap Fund PaineWebber Growth Fund - -------------------------------------------------------------------------------- Statement of Additional Information November 30, 1998 - -------------------------------------------------------------------------------- PAINEWEBBER PART C. OTHER INFORMATION
Item 23. Exhibits -------- (1) Amended and Restated Declaration of Trust (1) (2) Restated By-laws (1) (3) Instruments defining the rights of holders of Registrant's shares of beneficial interest (2) (4) Investment Advisory and Administration Contract (filed herewith) (5) (a) Distribution Contract with respect to Class A shares (filed herewith) (b) Distribution Contract with respect to Class B shares (filed herewith) (c) Distribution Contract with respect to Class C shares (3) (d) Distribution Contract with respect to Class Y shares (3) (e) Exclusive Dealer Agreement with respect to Class A shares (filed herewith) (f) Exclusive Dealer Agreement with respect to Class B shares (filed herewith) (g) Exclusive Dealer Agreement with respect to Class C shares (3) (h) Exclusive Dealer Agreement with respect to Class Y shares (3) (6) Bonus, profit sharing or pension plans - none (7) Custodian Agreement (filed herewith) (8) Transfer Agency Agreement (filed herewith) (9) Opinion and consent of counsel (filed herewith) (10) Other opinions, appraisals, rulings and consents: Auditor's Consent (filed herewith) (11) Financial statements omitted from prospectus-none (12) Letter of investment intent (filed herewith) (13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares (filed herewith) (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares (filed herewith) (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C shares (filed herewith) (14) and (27) Financial Data Schedule (filed herewith) (15) Plan pursuant to Rule 18f-3 (4)
- ------------------------------- (1) Incorporated by reference from Post-Effective Amendment No. 42 to the registration statement, SEC File No. 2-78626, filed November 25, 1997. (2) Incorporated by reference from Articles III, VIII, IX, X and XI of Registrant's Amended and Restated Declaration of Trust and from Articles II, VII and X of Registrant's Restated By-Laws. (3) Incorporated by reference from Post-Effective Amendment No. 38 to the registration statement, SEC File No. 2-78626, filed November 15, 1995. (4) Incorporated by reference from Post-Effective Amendment No. 40 to the registration statement, SEC File No. 2-78626, filed September 25, 1996. C-1 Item 24. Persons Controlled by or under Common Control with Registrant None. Item 25. Indemnification Section 2 of "Indemnification" in Article X of the Declaration of Trust provides that the appropriate series of the Registrant will indemnify its Trustees and officers to the fullest extent permitted by law against claims and expenses asserted against or incurred by them by virtue of being or having been a Trustee or officer; provided that no such person shall be indemnified where there has been an adjudication or other determination, as described in Article X, that such person is liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office or did not act in good faith in the reasonable belief that his or her action was in the best interest of the Registrant. Section 2 of "Indemnification" in Article X also provides that the Registrant may maintain insurance policies covering such rights of indemnification. Additionally, "Limitation of Liability" in Article X of the Declaration of Trust provides that the Trustees or officers of the Registrant shall not be personally liable to any person extending credit to, contracting with or having a claim against the Trust or a particular series thereof; and that, provided they have exercised reasonable care and have acted under the reasonable belief that their actions are in the best interest of the Registrant, the Trustees and officers shall not be liable for neglect or wrongdoing by them or any officer, agent, employee or investment adviser of the Registrant. Section 2 of Article XI of the Declaration of Trust additionally provides that, subject to the provisions of Section 1 of Article XI and to Article X, Trustees shall not be liable for errors of judgment or mistakes of fact or law, or for any act or omission in accordance with advice of counsel or other experts, or failing to follow such advice, with respect to the meaning and operation of the Declaration of Trust. Article IX of the By-laws provides that the Registrant may purchase and maintain insurance on behalf of any person who is or was a Trustee, officer or employee of the Trust, or is or was serving at the request of the Trust as a Trustee, officer or employee of a corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Registrant would have the power to indemnify him or her against such liability, provided that the Registrant may not acquire insurance protecting any Trustee or officer against liability to the Registrant or its shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Section 9 of the Investment Advisory and Administration Contract with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides that Mitchell Hutchins shall not be liable for any error of judgment or mistake of law or for any loss suffered by any series of the Registrant in connection with the matters to which the Contract relates, except for a loss resulting from the willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the performance of its duties or from its reckless disregard of its obligations and duties under the Contract. Section 10 of the Contract provides that the Trustees shall not be liable for any obligations of the Trust or any series under the Contract and that Mitchell Hutchins shall look only to the assets and property of the Registrant in settlement of such right or claim and not to the assets and property of the Trustees. Section 9 of each Distribution Contract provides that the Trust will indemnify Mitchell Hutchins and its officers, directors and controlling persons against all liabilities arising from any alleged untrue statement of material fact in the Registration Statement or from any alleged omission to state in the Registration Statement a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading, except insofar as liability arises from untrue statements or C-2 omissions made in reliance upon and in conformity with information furnished by Mitchell Hutchins to the Trust for use in the Registration Statement; and provided that this indemnity agreement shall not protect any such persons against liabilities arising by reason of their bad faith, gross negligence or willful misfeasance; and shall not inure to the benefit of any such persons unless a court of competent jurisdiction or controlling precedent determines that such result is not against public policy as expressed in the Securities Act of 1933. Section 9 of each Distribution Contract also provides that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its officers and Trustees free and harmless of any claims arising out of any alleged untrue statement or any alleged omission of material fact contained in information furnished by Mitchell Hutchins for use in the Registration Statement or arising out of an agreement between Mitchell Hutchins and any retail dealer, or arising out of supplementary literature or advertising used by Mitchell Hutchins in connection with the Contract. Section 9 of each Exclusive Dealer Agreement contains provisions similar to Section 9 of the Distribution Contract, with respect to PaineWebber Incorporated ("PaineWebber"). Section 10 of each Distribution Contract contains provisions similar to Section 10 of the Investment Advisory and Administration Contract, with respect to Mitchell Hutchins and PaineWebber, as appropriate. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be provided to Trustees, officers and controlling persons of the Trust, pursuant to the foregoing provisions or otherwise, the Trust has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Trust of expenses incurred or paid by a Trustee, officer or controlling person of the Trust in connection with the successful defense of any action, suit or proceeding or payment pursuant to any insurance policy) is asserted against the Trust by such Trustee, officer or controlling person in connection with the securities being registered, the Trust will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 26. Business and Other Connections of Investment Adviser Mitchell Hutchins, a Delaware corporation, is a registered investment adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a wholly owned subsidiary of PaineWebber Group Inc. Mitchell Hutchins is primarily engaged in the investment advisory business. Information as to the officers and directors of Mitchell Hutchins is included in its Form ADV, as filed with the Securities and Exchange Commission (registration number 801-13219), and is incorporated herein by reference. Item 27. Principal Underwriters a) Mitchell Hutchins serves as principal underwriter and/or investment adviser for the following investment companies: ALL-AMERICAN TERM TRUST INC. GLOBAL HIGH INCOME DOLLAR FUND INC. GLOBAL SMALL CAP FUND INC. INSURED MUNICIPAL INCOME FUND INC. INVESTMENT GRADE MUNICIPAL INCOME FUND INC. MANAGED HIGH YIELD FUND INC. MANAGED HIGH YIELD PLUS FUND INC. MITCHELL HUTCHINS INSTITUTIONAL SERIES MITCHELL HUTCHINS PORTFOLIOS MITCHELL HUTCHINS SERIES TRUST PAINEWEBBER AMERICA FUND C-3 PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC. PAINEWEBBER INDEX TRUST PAINEWEBBER INVESTMENT SERIES PAINEWEBBER INVESTMENT TRUST PAINEWEBBER INVESTMENT TRUST II PAINEWEBBER MANAGED ASSETS TRUST PAINEWEBBER MANAGED INVESTMENTS TRUST PAINEWEBBER MASTER SERIES, INC. PAINEWEBBER MUNICIPAL SERIES PAINEWEBBER MUTUAL FUND TRUST PAINEWEBBER OLYMPUS FUND PAINEWEBBER SECURITIES TRUST STRATEGIC GLOBAL INCOME FUND, INC. 2002 TARGET TERM TRUST INC. b) Mitchell Hutchins is the Registrant's principal underwriter. PaineWebber acts as exclusive dealer of the Registrant's shares. The directors and officers of Mitchell Hutchins, their principal business addresses, and their positions and offices with Mitchell Hutchins are identified in its Form ADV filed with the Securities and Exchange Commission (registration number 801-13219). The directors and officers of PaineWebber, their principal business addresses, and their positions and offices with PaineWebber are identified in its Form ADV, as filed with the Securities and Exchange Commission (registration number 801-7163). The foregoing information is hereby incorporated herein by reference. The information set forth below is furnished for those directors and officers of Mitchell Hutchins or PaineWebber who also serve as trustees or officers of the Registrant. Unless otherwise indicated, the principal business address of each person named is 1285 Avenue of the Americas, New York, NY 10019.
Position and Offices With Underwriter or Name Position and Offices With Registrant Exclusive Dealer ---- ------------------------------------ ---------------- Margo N. Alexander President and Trustee President, Chief Executive Officer and a Director of Mitchell Hutchins and Executive Vice President and a Director of PaineWebber Mary C. Farrell Trustee Managing Director, Senior Investment Strategist, and Member of the Investment Policy Committee of PaineWebber Lawrence Chinsky Vice President and Assistant Treasurer Assistant Vice President and Investment Monitoring Officer of the Mutual Fund Finance Department of Mitchell Hutchins John J. Lee Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund Finance Department of Mitchell Hutchins
C-4
Position and Offices With Underwriter or Name Position and Offices With Registrant Exclusive Dealer ---- ------------------------------------ ---------------- Ann E. Moran Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund Finance Department of Mitchell Hutchins Diane E. O'Donnell Vice President and Secretary Senior Vice President and Deputy General Counsel of Mitchell Hutchins Emil Polito Vice President Senior Vice President and Director of Operations and Control for Mitchell Hutchins Victoria E. Schonfeld Vice President Managing Director and General Counsel of Mitchell Hutchins Paul H. Schubert Vice President and Treasurer Senior Vice President and Director of the Mutual Fund Finance Department of Mitchell Hutchins Barney A. Taglialatela Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund Finance Department of Mitchell Hutchins Mark A. Tincher Vice President Managing Director and Chief Investment Officer - U.S. Equity Investments of Mitchell Hutchins Keith A. Weller Vice President and Assistant Secretary First Vice President and Associate General Counsel of Mitchell Hutchins
c) None. Item 28. Location of Accounts and Records The books and other documents required by paragraphs (b)(4), (c) and (d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the physical possession of Registrant's investment adviser and administrator, Mitchell Hutchins, 1285 Avenue of the Americas, New York, New York 10019. All other accounts, books and documents required by Rule 31a-1 are maintained in the physical possession of Registrant's transfer agent and custodian. Item 29. Management Services Not applicable. Item 30. Undertakings None. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of this Post-Effective Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 19th day of November, 1998. PAINEWEBBER AMERICA FUND By: /s/ Dianne E. O'Donnell ---------------------------- Dianne E. O'Donnell Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- /s/ Margo N. Alexander President and Trustee November 19, 1998 - --------------------------- (Chief Executive Officer) Margo N. Alexander * /s/ E. Garrett Bewkes, Jr. Trustee and Chairman November 19, 1998 - --------------------------- of the Board of Trustees E. Garrett Bewkes, Jr. * /s/ Richard Q. Armstrong Trustee November 19, 1998 - --------------------------- Richard Q. Armstrong * /s/ Richard R. Burt Trustee November 19, 1998 - --------------------------- Richard R. Burt * /s/ Mary C. Farrell Trustee November 19, 1998 - --------------------------- Mary C. Farrell * /s/ Meyer Feldberg Trustee November 19, 1998 - --------------------------- Meyer Feldberg * /s/ George W. Gowen Trustee November 19, 1998 - --------------------------- George W. Gowen * /s/ Frederic V. Malek Trustee November 19, 1998 - --------------------------- Frederic V. Malek * /s/ Carl W. Schafer Trustee November 19, 1998 - --------------------------- Carl W. Schafer * /s/ Paul H. Schubert Vice President and Treasurer (Chief November 19, 1998 - --------------------------- Financial and Accounting Officer) Paul H. Schubert
SIGNATURES (Continued) * Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated May 21, 1996 and incorporated by reference from Post-Effective Amendment No. 30 to the registration statement of PaineWebber Managed Municipal Trust, SEC File 2-89016, filed June 27, 1996. PAINEWEBBER AMERICA FUND EXHIBIT INDEX Exhibit Number - ------- (1) Amended and Restated Declaration of Trust (1) (2) Restated By-laws (1) (3) Instruments defining the rights of holders of Registrant's shares of beneficial interest (2) (4) Investment Advisory and Administration Contract (filed herewith) (5) (a) Distribution Contract with respect to Class A shares (filed herewith) (b) Distribution Contract with respect to Class B shares (filed herewith) (c) Distribution Contract with respect to Class C shares (3) (d) Distribution Contract with respect to Class Y shares (3) (e) Exclusive Dealer Agreement with respect to Class A shares (filed herewith) (f) Exclusive Dealer Agreement with respect to Class B shares (filed herewith) (g) Exclusive Dealer Agreement with respect to Class C shares (3) (h) Exclusive Dealer Agreement with respect to Class Y shares (3) (6) Bonus, profit sharing or pension plans - none (7) Custodian Agreement (filed herewith) (8) Transfer Agency Agreement (filed herewith) (9) Opinion and consent of counsel (filed herewith) (10) Other opinions, appraisals, rulings and consents: Auditor's Consent (filed herewith) (11) Financial statements omitted from prospectus-none (12) Letter of investment intent (filed herewith) (13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares (filed herewith) (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares (filed herewith) (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C shares (filed herewith) (14) and (27) Financial Data Schedule (filed herewith) (15) Plan pursuant to Rule 18f-3 (4)
- ------------------------------- (1) Incorporated by reference from Post-Effective Amendment No. 42 to the registration statement, SEC File No. 2-78626, filed November 25, 1997. (2) Incorporated by reference from Articles III, VIII, IX, X and XI of Registrant's Amended and Restated Declaration of Trust and from Articles II, VII and X of Registrant's Restated By-Laws. (3) Incorporated by reference from Post-Effective Amendment No. 38 to the registration statement, SEC File No. 2-78626, filed November 15, 1995. (4) Incorporated by reference from Post-Effective Amendment No. 40 to the registration statement, SEC File No. 2-78626, filed September 25, 1996. EX-99.4 2 INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT Exhibit No. 4 INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT Contract made as of March 1, 1989, between PAINEWEBBER AMERICA FUND, a Massachusetts business trust ("Trust"), and MITCHELL HUTCHINS ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation registered as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), and as an investment adviser under the Investment Advisers Act of 1940, as amended. WHEREAS the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and intends to offer for public sale distinct series of shares of beneficial interest ("Series"), each corresponding to a distinct portfolio; and WHEREAS the Trust desires to retain Mitchell Hutchins as investment adviser and administrator to furnish certain administrative, investment advisory and portfolio management services to the Trust and each Series as now exists and as hereafter may be established, and Mitchell Hutchins 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 Trust hereby appoints Mitchell Hutchins as investment adviser and administrator of the Trust and each Series for the period and on the terms set forth in this Contract. Mitchell Hutchins accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. Duties as Investment Adviser. (a) Subject to the supervision of the Trust's Board of Trustees ("Board"), Mitchell Hutchins will provide a continuous investment program for each Series, including investment research and management with respect to all securities and investments and cash equivalents in each Series. Mitchell Hutchins will determine from time to time what securities and other investments will be purchased, retained or sold by each Series. (b) Mitchell Hutchins agrees that in placing orders with brokers and dealers, it will attempt to obtain the best net result in terms of price and execution; provided that, on behalf of any Series, Mitchell Hutchins may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide the Series with research, analysis, advice and similar services, and Mitchell Hutchins may pay to those brokers and dealers, in return for research and analysis, a higher commission or spread than may be charged by other brokers and dealers, subject to Mitchell Hutchins' determining in good faith that such commission or spread is reasonable in terms either of the particular transaction or of the overall responsibility of Mitchell Hutchins to such Series and its other clients and that the total commissions or spreads 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 Mitchell Hutchins, or any affiliated person thereof, except in accordance with the federal securities laws and the rules and regulations thereunder. Whenever Mitchell Hutchins simultaneously places orders to purchase or sell the same security on behalf of a Series and one or more other accounts advised by Mitchell Hutchins, such orders will be allocated as to price and amount among all such accounts in a manner believed to be equitable to each account. The Trust recognizes that in some cases this procedure may adversely affect the results obtained for the Series. (c) Mitchell Hutchins will oversee the maintenance of all books and records with respect to the securities transactions of each Series, and will furnish the Board with such periodic and special reports as the Board reasonably may request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, Mitchell Hutchins hereby agrees that all records which it maintains for the Trust are the property of the Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for the Trust and which are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Trust any records which it maintains for the Trust upon request by the Trust. (d) Mitchell Hutchins will oversee the computation of the net asset value and the net income of each Series as described in the currently effective registration statement of the Trust under the Securities Act of 1933, as amended, and 1940 Act and any supplements thereto ("Registration Statement") or as more frequently requested by the Board. (e) The Trust hereby authorizes Mitchell Hutchins and any entity or person associated with Mitchell Hutchins which is a member of a national securities exchange to effect any transaction on such exchange for the account of any Series, which transaction is permitted by Section 11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the retention of compensation by Mitchell Hutchins or person or entity associated with Mitchell Hutchins for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). 3. Duties as Administrator. Mitchell Hutchins will administer the affairs of the Trust and each Series subject to the supervision of the Board and the following understandings: (a) Mitchell Hutchins will supervise all aspects of the operations of the Trust and each Series, including the oversight of transfer agency, custodial and accounting services, except as hereinafter set forth; provided, however, that nothing herein contained shall be deemed to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Trust and each Series. (b) Mitchell Hutchins will provide the Trust and each Series with such corporate, administrative and clerical personnel (including officers of the Trust) and services as are reasonably deemed necessary or advisable by the Board, including the maintenance of certain books and records of the Trust and each Series. (c) Mitchell Hutchins will arrange, but not pay, for the periodic preparation, updating, filing and dissemination (as applicable) of the Trust's Registration Statement, proxy material, tax returns and required reports to each Series' shareholders and the Securities and Exchange Commission and other appropriate federal or state regulatory authorities. - 2 - (d) Mitchell Hutchins will provide the Trust and each Series with, or obtain for it, adequate office space and all necessary office equipment and services, including telephone service, heat, utilities, stationery supplies and similar items. (e) Mitchell Hutchins will provide the Board on a regular basis with economic and investment analyses and reports and make available to the Board upon request any economic, statistical and investment services normally available to institutional or other customers of Mitchell Hutchins. 4. Further Duties. In all matters relating to the performance of this Contract, Mitchell Hutchins will act in conformity with the Declaration of Trust, By-Laws and Registration Statement of the Trust and with the instructions and directions of the Board and will comply with the requirements of the 1940 Act, the rules thereunder, and all other applicable federal and state laws and regulations. 5. Delegation of Mitchell Hutchins' Duties as Investment Adviser and Administrator. With respect to any or all Series, Mitchell Hutchins may enter into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with a sub-adviser or sub-administrator in which Mitchell Hutchins delegates to such sub-adviser or sub-administrator any or all its duties specified in Paragraph 2 and 3 of this Contract, provided that each Sub-Advisory or Sub-Administration Contract imposes on the sub-adviser or sub-administrator bound thereby all the duties and conditions to which Mitchell Hutchins is subject by Paragraph 2, 3 and 4 of this Contract, and further provided that each Sub-Advisory or Sub-Administration Contract meets all requirements of the 1940 Act and rules thereunder. 6. Services Not Exclusive. The services furnished by Mitchell Hutchins hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby. Nothing in this Contract shall limit or restrict the right of any director, officer or employee of Mitchell Hutchins, who may also be a Trustee, officer or employee of the Trust, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. 7. Expenses. (a) During the term of this Contract, each Series will bear all expenses, not specifically assumed by Mitchell Hutchins, incurred in its operations and the offering of its shares. (b) Expenses borne by each Series will include but not be limited to the following (or each Series' proportionate share of the following): (i) the cost (including brokerage commissions) of securities purchased or sold by the Series and any losses incurred in connection therewith; (ii) fees payable to and expenses incurred on behalf of the Series by Mitchell Hutchins under this Contract; (iii) expenses of organizing the Trust and the Series; (iv) filing fees and expenses relating to the registration and qualification of the Series' shares and the Trust under federal and/or state securities laws and maintaining such registrations and qualifications; (v) fees - 3 - and salaries payable to the Trust's Trustees and officers who are not interested persons of the Trust or Mitchell Hutchins; (vi) all expenses incurred in connection with the Trustees' services, including travel expenses; (vii) taxes (including any income or franchise taxes) and governmental fees; (viii) costs of any liability, uncollectible items of deposit and other insurance and fidelity bonds; (ix) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the Trust or Series for violation of any law; (x) legal, accounting and auditing expenses, including legal fees of special counsel for those Trustees of the Trust who are not interested persons of the Trust; (xi) charges of custodians, transfer agents and other agents; (xii) costs of preparing share certificates; (xiii) expenses of setting in type and printing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials for existing shareholders; (xiv) costs of mailing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials to existing shareholders; (xv) any extraordinary expenses (including fees and disbursements of counsel, costs of actions, suits or proceedings to which the Trust is a party and the expenses the Trust may incur as a result of its legal obligation to provide indemnification to its officers, Trustees, agents and shareholders) incurred by the Trust or Series; (xvi) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (xvii) costs of mailing and tabulating proxies and costs of meetings of shareholders, the Board and any committees thereof; (xviii) the cost of investment company literature and other publications provided by the Trust to its Trustees and officers; and (xix) costs of mailing, stationery and communications equipment. (c) The Trust or a Series may pay directly any expense incurred by it in its normal operations and, if any such payment is consented to by Mitchell Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to this Contract, the Series may reduce the fee payable to Mitchell Hutchins pursuant to Paragraph 8 hereof by such amount. To the extent that such deductions exceed the fee payable to Mitchell Hutchins on any monthly payment date, such excess shall be carried forward and deducted in the same manner from the fee payable on succeeding monthly payment dates. (d) Mitchell Hutchins will assume the cost of any compensation for services provided to the Trust received by the officers of the Trust and by those Trustees who are interested persons of the Trust. (e) The payment or assumption by Mitchell Hutchins of any expense of the Trust or a Series that Mitchell Hutchins is not required by this Contract to pay or assume shall not obligate Mitchell Hutchins to pay or assume the same or any similar expense of the Trust or a Series on any subsequent occasion. 8. Compensation. (a) For the services provided and the expenses assumed pursuant to this Contract, with respect to the PaineWebber Classic Growth and Income Fund series, the Trust will pay to Mitchell Hutchins a fee, computed daily and paid monthly, at an annual rate of 0.70% of such Series' average daily net assets. - 4 - (b) For the services provided and the expenses assumed pursuant to this Contract with respect to any Series hereafter established, the Trust will pay to Mitchell Hutchins from the assets of such Series a fee in an amount to be agreed upon in a written fee agreement ("Fee Agreement") executed by the Trust on behalf of such Series and by Mitchell Hutchins. All such Fee Agreements shall provide that they are subject to all terms and conditions of this Contract. (c) The fee shall be computed daily and paid monthly to Mitchell Hutchins on or before the first business day of the next succeeding calendar month. (d) If this Contract becomes effective or terminates before the end of any month, the fee for the period from the effective date to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 9. Limitation of Liability of Mitchell Hutchins. Mitchell Hutchins shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Series or the Trust in connection with the matters to which this Contract relates except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Contract. Any person, even though also an officer, director, employee, or agent of Mitchell Hutchins, who may be or become an officer, Trustee, employee or agent of the Trust shall be deemed, when rendering services to any Series or the Trust or acting with respect to any business of such Series or the Trust, to be rendering such service to or acting solely for the Series or the Trust and not as an officer, director, employee, or agent or one under the control or direction of Mitchell Hutchins even though paid by it. 10. Limitation of Liability of the Trustees and Shareholders of the Trust. The Trustees of the Trust and the shareholders of any Series shall not be liable for any obligations of any Series or the Trust under this Contract, and Mitchell Hutchins agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Trust in settlement of such right or claim, and not to such Trustees or shareholders. 11. Duration and Termination. (a) This Contract shall become effective upon the date hereabove written provided that, with respect to any Series, this Contract shall not take effect unless it has first been approved (i) by a vote of a majority of those Trustees of the Trust who are not parties to this Contract or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of that Series' outstanding voting securities. (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 - 5 - of the Trust who are not parties to this Contract or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to any given Series by vote of a majority of the outstanding voting securities of such Series. (c) Notwithstanding the foregoing, with respect to any Series this Contract may be terminated at any time, without the payment of any penalty, by vote of the Board or by a vote of a majority of the outstanding voting securities of such Series on sixty days' written notice to Mitchell Hutchins or by Mitchell Hutchins at any time, without the payment of any penalty, on sixty days' written notice to the Trust. Termination of this Contract with respect to any given Series shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other Series. This Contract will automatically terminate in the event of its assignment. 12. Amendment of this Contract. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Contract as to any given Series shall be effective until approved by vote of a majority of such Series' outstanding voting securities. 13. Governing Law. This Contract shall be construed in accordance with the laws of the State of Delaware 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. 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," "interested person," "assignment", "broker," "dealer," "investment adviser," "national securities exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the Securities and Exchange Commission by any rule, regulation or order. Where the effect of a requirement of the 1940 Act reflected in any provision of this Contract is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. - 6 - IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated as of the day and year first above written. Attest: PAINEWEBBER AMERICA FUND /s/ Robin Berger By: /s/ Dianne E O'Donnell - ------------------------------------- ------------------------- Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC. /s/ Robin Berger By: /s/ Joyce Fensterstock - -------------------------------------- ------------------------ - 7 - EX-99.5(A) 3 DISTRIBUTION CONTRACT CLASS A SHARES Exhibit No. 5(a) PAINEWEBBER AMERICA FUND DISTRIBUTION CONTRACT CLASS A SHARES CONTRACT made as of July 7, 1993, between PAINEWEBBER AMERICA FUND, a Massachusetts business trust ("Fund"), and MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"). WHEREAS the Fund is registered under the Investment Company Act of l940, as amended ("l940 Act"), as an open-end management investment company and currently has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as the PaineWebber Dividend Growth Fund; and WHEREAS the Fund's board of trustees ("Board") has established an unlimited number of shares of beneficial interest of the above-referenced Series as Class A shares ("Class A Shares"); and WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class A Shares ("Plan") and desires to retain Mitchell Hutchins as principal distributor in connection with the offering and sale of the Class A Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have Class A Shares established; and WHEREAS Mitchell Hutchins is willing to act as principal distributor of the Class A Shares of each such Series on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. The Fund hereby appoints Mitchell Hutchins as its exclusive agent to be the principal distributor to sell and to arrange for the sale of the Class A Shares on the terms and for the period set forth in this Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act hereunder. It is understood, however, that this appointment does not preclude sales of the Class A Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Contract, the term "Registration Statement" shall mean the currently effective registration statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. Services and Duties of Mitchell Hutchins. (a) Mitchell Hutchins agrees to sell Class A Shares on a best efforts basis from time to time during the term of this Contract as agent for the Fund and upon the terms described in the Registration Statement. (b) Upon the later of the date of this Contract or the initial offering of the Class A Shares to the public by a Series, Mitchell Hutchins will hold itself available to receive purchase orders, satisfactory to Mitchell Hutchins, for Class A Shares of that Series and will accept such orders on behalf of the Fund as of the time of receipt of such orders and promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) Mitchell Hutchins in its discretion may enter into agreements to sell Class A Shares to such registered and qualified retail dealers, including but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select. In making agreements with such dealers, Mitchell Hutchins shall act only as principal and not as agent for the Fund. (d) The offering price of the Class A Shares of each Series shall be the net asset value per Share as next determined by the Fund following receipt of an order at Mitchell Hutchins' principal office plus the applicable initial sales charge, if any, computed as set forth in the Registration Statement. The Fund shall promptly furnish Mitchell Hutchins with a statement of each computation of net asset value. (e) Mitchell Hutchins shall not be obligated to sell any certain number of Class A Shares. (f) To facilitate redemption of Class A Shares by shareholders directly or through dealers, Mitchell Hutchins is authorized but not required on behalf of the Fund to repurchase Class A Shares presented to it by shareholders and dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) Mitchell Hutchins shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Class A Shares and any other services now or hereafter deemed to be appropriate subjects for the payments of "service fees" under Section 26(d) of the National Association of Securities Dealers, Inc. ("NASD") Rules of Fair Practice (collectively, "service activities"). "Service activities" do not include the transfer agency-related and other services for which PaineWebber receives compensation under the Service Contract between PaineWebber and the Fund. - 2 - (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 with respect to the Class A Shares of the Series, as such Plan is amended from time to time, and subject to any further limitations on such fee as the Board may impose. (b) As compensation for its activities under this contract with respect to the distribution of the Class A Shares, Mitchell Hutchins shall retain the initial sales charge, if any, on purchases of Class A Shares as set forth in the Registration Statement. Mitchell Hutchins is authorized to collect the gross proceeds derived from the sale of the Class A Shares, remit the net asset value thereof to the fund upon receipt of the proceeds and retain the initial sales charge, if any. (c) As compensation for its activities under this contract with respect to the distribution of the Class A Shares, Mitchell Hutchins shall receive all contingent deferred sales charges imposed on redemptions of Class A Shares of each Series. Whether and at what rate a - 3 - contingent deferred sales charge will be imposed with respect to a redemption shall be determined in accordance with, and in the manner set forth in, the Registration Statement. (d) Mitchell Hutchins may reallow any or all of the initial sales charges, contingent deferred sales charges, or service fees which it is paid under this Contract to such dealers as Mitchell Hutchins may from time to time determine. 6. Duties of the Fund. (a) The Fund reserves the right at any time to withdraw offering Class A Shares of any or all Series by written notice to Mitchell Hutchins at its principal office. (b) The Fund shall determine in its sole discretion whether certificates shall be issued with respect to the Class A Shares. If the Fund has determined that certificates shall be issued, the Fund will not cause certificates representing Class A Shares to be issued unless so requested by shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will cause certificates evidencing Class A Shares to be issued in such names and denominations as Mitchell Hutchins shall from time to time direct. (c) The Fund shall keep Mitchell Hutchins fully informed of its affairs and shall make available to Mitchell Hutchins copies of all information, financial statements, and other papers which Mitchell Hutchins may reasonably request for use in connection with the distribution of Class A Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as Mitchell Hutchins may request, and the Fund shall cooperate fully in the efforts of Mitchell Hutchins to sell and arrange for the sale of the Class A Shares of the Series and in the performance of Mitchell Hutchins under this Contract. (d) The Fund shall take, from time to time, all necessary action, including payment of the related filing fee, as may be necessary to register the Class A Shares under the 1933 Act to the end that there will be available for sale such number of Class A Shares as Mitchell Hutchins may be expected to sell. The Fund agrees to file, from time to time, such amendments, reports, and other documents as may be necessary in order that there will be no untrue statement of a material fact in the Registration Statement, nor any omission of a material fact which omission would make the statements therein misleading. (e) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of Class A Shares of each Series for sale under the securities laws of such states or other jurisdictions as Mitchell Hutchins and the Fund may approve, and, if necessary or appropriate in connection therewith, to qualify and maintain the qualification of the Fund as a broker or dealer in such jurisdictions; provided that the Fund shall not be required to amend its Declaration of Trust or By-Laws to comply with the laws of any jurisdiction, to maintain an office in any jurisdiction, to change the terms of the offering of the Class A Shares in - 4 - any jurisdiction from the terms set forth in its Registration Statement, to qualify as a foreign corporation in any jurisdiction, or to consent to service of process in any jurisdiction other than with respect to claims arising out of the offering of the Class A Shares. Mitchell Hutchins shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualifications. 7. Expenses of the Fund. The Fund shall bear all costs and expenses of registering the Class A Shares with the Securities and Exchange Commission and state and other regulatory bodies, and shall assume expenses related to communications with shareholders of each Series, including (i) fees and disbursements of its counsel and independent public accountant; (ii) the preparation, filing and printing of registration statements and/or prospectuses or statements of additional information required under the federal securities laws; (iii) the preparation and mailing of annual and interim reports, prospectuses, statements of additional information and proxy materials to shareholders; and (iv) the qualifications of Class A Shares for sale and of the Fund as a broker or dealer under the securities laws of such jurisdictions as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e) hereof, and the costs and expenses payable to each such jurisdiction for continuing qualification therein. 8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs and expenses of (i) preparing, printing and distributing any materials not prepared by the Fund and other materials used by Mitchell Hutchins in connection with the sale of Class A Shares under this Contract, including the additional cost of printing copies of prospectuses, statements of additional information, and annual and interim shareholder reports other than copies thereof required for distribution to existing shareholders or for filing with any federal or state securities authorities; (ii) any expenses of advertising incurred by Mitchell Hutchins in connection with such offering; (iii) the expenses of registration or qualification of Mitchell Hutchins as a broker or dealer under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to Mitchell Hutchins' employees and others for selling Class A Shares, and all expenses of Mitchell Hutchins, its employees and others who engage in or support the sale of Class A Shares as may be incurred in connection with their sales efforts. 9. Indemnification. (a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins, its officers and directors, and any person who controls Mitchell Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Mitchell Hutchins, its officers, directors or any such controlling person may incur under the 1933 Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement or arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement or necessary to make the statements therein not misleading, except insofar as such claims, demands, liabilities - 5 - or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by Mitchell Hutchins to the Fund for use in the Registration Statement; provided, however, that this indemnity agreement shall not inure to the benefit of any person who is also an officer or trustee of the Fund or who controls the Fund within the meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent, that such result would not be against public policy as expressed in the 1933 Act; and further provided, that in no event shall anything contained herein be so construed as to protect Mitchell Hutchins against any liability to the Fund or to the shareholders of any Series to which Mitchell Hutchins would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations under this Contract. The Fund shall not be liable to Mitchell Hutchins under this indemnity agreement with respect to any claim made against Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other such person shall have notified the Fund in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins or the person shall have received notice of service on any designated agent). However, failure to notify the Fund of any claim shall not relieve the Fund from any liability which it may have to Mitchell Hutchins or any person against whom such action is brought otherwise than on account of this indemnity agreement. The Fund shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity agreement. If the Fund elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Fund and satisfactory to indemnified defendants in the suit whose approval shall not be unreasonably withheld. In the event that the Fund elects to assume the defense of any suit and retain counsel, the indemnified defendants shall bear the fees and expenses of any additional counsel retained by them. If the Fund does not elect to assume the defense of a suit, it will reimburse the indemnified defendants for the reasonable fees and expenses of any counsel retained by the indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of the commencement of any litigation or proceedings against it or any of its officers or trustees in connection with the issuance or sale of any of its Class A Shares. (b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund, its officers and trustees and any person who controls the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its trustees or officers, or any such controlling person may incur under the 1933 Act or under common law or otherwise arising out of or based upon any alleged untrue statement of a material fact contained in information furnished in writing by Mitchell Hutchins to the Fund for use in the Registration Statement, arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement necessary to make such information not misleading, or arising out of any agreement between Mitchell Hutchins and any retail dealer, or arising out of any supplemental sales literature or advertising - 6 - used by Mitchell Hutchins in connection with its duties under this Contract. Mitchell Hutchins shall be entitled to participate, at its own expense, in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume the defense, the defense shall be conducted by counsel chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose approval shall not be unreasonably withheld. In the event that Mitchell Hutchins elects to assume the defense of any suit and retain counsel, the defendants in the suit shall bear the fees and expenses of any additional counsel retained by them. If Mitchell Hutchins does not elect to assume the defense of any suit, it will reimburse the indemnified defendants in the suit for the reasonable fees and expenses of any counsel retained by them. 10. Limitation of Liability of the Trustees and Shareholders of the Fund. The trustees of the Fund and the shareholders of any Series shall not be liable for any obligations of the Fund or any Series under this Contract, and Mitchell Hutchins agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Fund or the particular Series in settlement of such right or claims, and not to such trustees or shareholders. 11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any person, even though also an officer, director, employee or agent of Mitchell Hutchins, who may be or become an officer, trustee, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting in any business of the Fund, to be rendering such services to or acting solely for the Fund and not as an officer, director, employee or agent or one under the control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins. 12. Duration and Termination. (a) This Contract shall become effective upon the date hereabove written, provided that, with respect to any Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those trustees of the Fund who are not interested persons of the Fund, and have no direct or indirect financial interest in the operation of the Plan relating to the Series or in any agreements related thereto (all such trustees collectively being referred to herein as the "Independent Trustees") cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for one year from the above written date. Thereafter, if not terminated, this Contract shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to any given Series by vote of a majority of the outstanding voting securities of the Class A Shares of such Series. (c) Notwithstanding the foregoing, with respect to any Series, this Contract may be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a - 7 - 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 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. - 8 - IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed by their officers designated as of the day and year first above written. ATTEST: PAINEWEBBER AMERICA FUND /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell ------------------- ------------------------------- Dianne E. O'Donnell Secretary and Vice President ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC. /s/ Jenny Ann Frank By: /s/ Jack W. Murphy -------------------- ------------------------------- Jack W. Murphy First Vice President - 9 - EX-99.5(B) 4 DISTRIBUTION CONTRACT CLASS B SHARES Exhibit No. 5(b) PAINEWEBBER AMERICA FUND DISTRIBUTION CONTRACT CLASS B SHARES CONTRACT made as of July 7, 1993, between PAINEWEBBER AMERICA FUND, a Massachusetts business trust ("Fund") and MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"). WHEREAS the Fund is registered under the Investment Company Act of l940, as amended ("l940 Act"), as an open-end management investment company and currently has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as the PaineWebber Dividend Growth Fund; and WHEREAS the Fund's board of trustees ("Board") has established an unlimited number of shares of beneficial interest of the above-referenced Series as Class B shares ("Class B Shares"); and WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class B Shares ("Plan") and desires to retain Mitchell Hutchins as principal distributor in connection with the offering and sale of the Class B Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have Class B Shares established; and WHEREAS Mitchell Hutchins is willing to act as principal distributor of the Class B Shares of each such Series on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. The Fund hereby appoints Mitchell Hutchins as its exclusive agent to be the principal distributor to sell and to arrange for the sale of the Class B Shares on the terms and for the period set forth in this Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act hereunder. It is understood, however, that this appointment does not preclude sales of the Class B Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Contract, the term "Registration Statement" shall mean the currently effective registration statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. Services and Duties of Mitchell Hutchins. (a) Mitchell Hutchins agrees to sell Class B Shares on a best efforts basis from time to time during the term of this Contract as agent for the Fund and upon the terms described in the Registration Statement. (b) Upon the later of the date of this Contract or the initial offering of the Class B Shares to the public by a Series, Mitchell Hutchins will hold itself available to receive purchase orders, satisfactory to Mitchell Hutchins, for Class B Shares of that Series and will accept such orders on behalf of the Fund as of the time of receipt of such orders and promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) Mitchell Hutchins in its discretion may enter into agreements to sell Class B Shares to such registered and qualified retail dealers, including but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select. In making agreements with such dealers, Mitchell Hutchins shall act only as principal and not as agent for the Fund. (d) The offering price of the Class B Shares of each Series shall be the net asset value per Share as next determined by the Fund following receipt of an order at Mitchell Hutchins' principal office. The Fund shall promptly furnish Mitchell Hutchins with a statement of each computation of net asset value. (e) Mitchell Hutchins shall not be obligated to sell any certain number of Class B Shares. (f) To facilitate redemption of Class B Shares by shareholders directly or through dealers, Mitchell Hutchins is authorized but not required on behalf of the Fund to repurchase Class B Shares presented to it by shareholders and dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) Mitchell Hutchins shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Class B Shares and any other services now or hereafter deemed to be appropriate subjects for the payments of "service fees" under Section 26(d) of the National Association of Securities Dealers, Inc. ("NASD") Rules of Fair Practice (collectively, "service activities"). "Service activities" do not include the transfer agency-related and other services for which PaineWebber receives compensation under the Service Contract between PaineWebber and the Fund. (h) Mitchell Hutchins shall have the right to use any list of shareholders of the Fund or any other list of investors which it obtains in connection with its provision of services 2 under this Contract; provided, however, that Mitchell Hutchins shall not sell or knowingly provide such list or lists to any unaffiliated person. 3. Authorization to Enter into Exclusive Dealer Agreements and to Delegate Duties as Distributor. With respect to the Class B Shares of any or all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber or any other registered and qualified dealer with respect to sales of the Class B Shares or the provision of service activities. In a separate contract or as part of any such exclusive dealer agreement, Mitchell Hutchins also may delegate to PaineWebber or another registered and qualified dealer ("sub-distributor") any or all of its duties specified in this Contract, provided that such separate contract or exclusive dealer agreement imposes on the sub-distributor bound thereby all applicable duties and conditions to which Mitchell Hutchins is subject under this Contract, and further provided that such separate contract or exclusive dealer agreement meets all requirements of the 1940 Act and rules thereunder. 4. Services Not Exclusive. The services furnished by Mitchell Hutchins hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby. Nothing in this Contract shall limit or restrict the right of any director, officer or employee of Mitchell Hutchins, who may also be a trustee, officer or employee of the Fund, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 5. Compensation. (a) As compensation for its service activities under this contract with respect to the Class B Shares, Mitchell Hutchins shall receive from the Fund a service fee at the rate and under the terms and conditions of the Plan adopted by the Fund with respect to the Class B Shares of the Series, as such Plan is amended from time to time, and subject to any further limitations on such fee as the Board may impose. (b) As compensation for its activities under this contract with respect to the distribution of the Class B Shares, Mitchell Hutchins shall receive from the Fund a distribution fee at the rate and under the terms and conditions of the Plan adopted by the Fund with respect to the Class B Shares of the Series, as such Plan is amended from time to time, and subject to any further limitations on such fee as the Board may impose. (c) As compensation for its activities under this contract with respect to the distribution of the Class B Shares, Mitchell Hutchins shall receive all contingent deferred sales charges imposed on redemptions of Class B Shares of each Series. Whether and at what rate a contingent deferred sales charge will be imposed with respect to a redemption shall be determined in accordance with, and in the manner set forth in, the Registration Statement. 3 (d) Mitchell Hutchins may reallow any or all of the distribution fees, contingent deferred sales charges, or service fees which it is paid under this Contract to such dealers as Mitchell Hutchins may from time to time determine. 6. Duties of the Fund. (a) The Fund reserves the right at any time to withdraw offering Class B Shares of any or all Series by written notice to Mitchell Hutchins at its principal office. (b) The Fund shall determine in its sole discretion whether certificates shall be issued with respect to the Class B Shares. If the Fund has determined that certificates shall be issued, the Fund will not cause certificates representing Class B Shares to be issued unless so requested by shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will cause certificates evidencing Class B Shares to be issued in such names and denominations as Mitchell Hutchins shall from time to time direct. (c) The Fund shall keep Mitchell Hutchins fully informed of its affairs and shall make available to Mitchell Hutchins copies of all information, financial statements, and other papers which Mitchell Hutchins may reasonably request for use in connection with the distribution of Class B Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as Mitchell Hutchins may request, and the Fund shall cooperate fully in the efforts of Mitchell Hutchins to sell and arrange for the sale of the Class B Shares of the Series and in the performance of Mitchell Hutchins under this Contract. (d) The Fund shall take, from time to time, all necessary action, including payment of the related filing fee, as may be necessary to register the Class B Shares under the 1933 Act to the end that there will be available for sale such number of Class B Shares as Mitchell Hutchins may be expected to sell. The Fund agrees to file, from time to time, such amendments, reports, and other documents as may be necessary in order that there will be no untrue statement of a material fact in the Registration Statement, nor any omission of a material fact which omission would make the statements therein misleading. (e) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of Class B Shares of each Series for sale under the securities laws of such states or other jurisdictions as Mitchell Hutchins and the Fund may approve, and, if necessary or appropriate in connection therewith, to qualify and maintain the qualification of the Fund as a broker or dealer in such jurisdictions; provided that the Fund shall not be required to amend its Declaration of Trust or By-Laws to comply with the laws of any jurisdiction, to maintain an office in any jurisdiction, to change the terms of the offering of the Class B Shares in any jurisdiction from the terms set forth in its Registration Statement, to qualify as a foreign corporation in any jurisdiction, or to consent to service of process in any jurisdiction other than with respect to claims arising out of the offering of the Class B Shares. Mitchell Hutchins shall 4 furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualifications. 7. Expenses of the Fund. The Fund shall bear all costs and expenses of registering the Class B Shares with the Securities and Exchange Commission and state and other regulatory bodies, and shall assume expenses related to communications with shareholders of each Series, including (i) fees and disbursements of its counsel and independent public accountant; (ii) the preparation, filing and printing of registration statements and/or prospectuses or statements of additional information required under the federal securities laws; (iii) the preparation and mailing of annual and interim reports, prospectuses, statements of additional information and proxy materials to shareholders; and (iv) the qualifications of Class B Shares for sale and of the Fund as a broker or dealer under the securities laws of such jurisdictions as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e) hereof, and the costs and expenses payable to each such jurisdiction for continuing qualification therein. 8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs and expenses of (i) preparing, printing and distributing any materials not prepared by the Fund and other materials used by Mitchell Hutchins in connection with the sale of Class B Shares under this Contract, including the additional cost of printing copies of prospectuses, statements of additional information, and annual and interim shareholder reports other than copies thereof required for distribution to existing shareholders or for filing with any federal or state securities authorities; (ii) any expenses of advertising incurred by Mitchell Hutchins in connection with such offering; (iii) the expenses of registration or qualification of Mitchell Hutchins as a broker or dealer under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to Mitchell Hutchins' employees and others for selling Class B Shares, and all expenses of Mitchell Hutchins, its employees and others who engage in or support the sale of Class B Shares as may be incurred in connection with their sales efforts. 9. Indemnification. (a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins, its officers and directors, and any person who controls Mitchell Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Mitchell Hutchins, its officers, directors or any such controlling person may incur under the 1933 Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement or arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement or necessary to make the statements therein not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by Mitchell Hutchins to the Fund for use in the Registration Statement; 5 provided, however, that this indemnity agreement shall not inure to the benefit of any person who is also an officer or trustee of the Fund or who controls the Fund within the meaning of Section 15 of the 1933 Act, unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent, that such result would not be against public policy as expressed in the 1933 Act; and further provided, that in no event shall anything contained herein be so construed as to protect Mitchell Hutchins against any liability to the Fund or to the shareholders of any Series to which Mitchell Hutchins would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations under this Contract. The Fund shall not be liable to Mitchell Hutchins under this indemnity agreement with respect to any claim made against Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other such person shall have notified the Fund in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins or the person shall have received notice of service on any designated agent). However, failure to notify the Fund of any claim shall not relieve the Fund from any liability which it may have to Mitchell Hutchins or any person against whom such action is brought otherwise than on account of this indemnity agreement. The Fund shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity agreement. If the Fund elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Fund and satisfactory to indemnified defendants in the suit whose approval shall not be unreasonably withheld. In the event that the Fund elects to assume the defense of any suit and retain counsel, the indemnified defendants shall bear the fees and expenses of any additional counsel retained by them. If the Fund does not elect to assume the defense of a suit, it will reimburse the indemnified defendants for the reasonable fees and expenses of any counsel retained by the indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of the commencement of any litigation or proceedings against it or any of its officers or trustees in connection with the issuance or sale of any of its Class B Shares. (b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund, its officers and trustees and any person who controls the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its trustees or officers, or any such controlling person may incur under the 1933 Act or under common law or otherwise arising out of or based upon any alleged untrue statement of a material fact contained in information furnished in writing by Mitchell Hutchins to the Fund for use in the Registration Statement, arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement necessary to make such information not misleading, or arising out of any agreement between Mitchell Hutchins and any retail dealer, or arising out of any supplemental sales literature or advertising used by Mitchell Hutchins in connection with its duties under this Contract. Mitchell Hutchins shall be entitled to participate, at its own expense, in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume the 6 defense, the defense shall be conducted by counsel chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose approval shall not be unreasonably withheld. In the event that Mitchell Hutchins elects to assume the defense of any suit and retain counsel, the defendants in the suit shall bear the fees and expenses of any additional counsel retained by them. If Mitchell Hutchins does not elect to assume the defense of any suit, it will reimburse the indemnified defendants in the suit for the reasonable fees and expenses of any counsel retained by them. 10. Limitation of Liability of the Trustees and Shareholders of the Fund. The trustees of the Fund and the shareholders of any Series shall not be liable for any obligations of the Fund or any Series under this Contract, and Mitchell Hutchins agrees that, in asserting any rights or claims under this Contract, it shall look only to the assets and property of the Fund or the particular Series in settlement of such right or claims, and not to such trustees or shareholders. 11. Services Provided to the Fund by Employees of Mitchell Hutchins. Any person, even though also an officer, director, employee or agent of Mitchell Hutchins, who may be or become an officer, trustee, employee or agent of the Fund, shall be deemed, when rendering services to the Fund or acting in any business of the Fund, to be rendering such services to or acting solely for the Fund and not as an officer, director, employee or agent or one under the control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins. 12. Duration and Termination. (a) This Contract shall become effective upon the date hereabove written, provided that, with respect to any Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those trustees of the Fund who are not interested persons of the Fund, and have no direct or indirect financial interest in the operation of the Plan relating to the Series or in any agreements related thereto (all such trustees collectively being referred to herein as the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for one year from the above written date. Thereafter, if not terminated, this Contract shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to any given Series by vote of a majority of the outstanding voting securities of the Class B Shares of such Series. (c) Notwithstanding the foregoing, with respect to any Series, this Contract may be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the Class B Shares of such Series on sixty days' written notice to Mitchell Hutchins or by Mitchell Hutchins at any time, without the payment of any penalty, on sixty days' written notice 7 to the Fund or such Series. This Contract will automatically terminate in the event of its assignment. (d) Termination of this Contract with respect to any given Series shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other Series. 13. Amendment of this Contract. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 14. Governing Law. This Contract shall be construed in accordance with the laws of the State of Delaware and the 1940 Act, provided, however, that Section 10 above will be construed in accordance with the laws of the Commonwealth of Massachusetts. To the extent that the applicable laws of the State of Delaware or the Commonwealth of Massachusetts conflict with the applicable provisions of the l940 Act, the latter shall control. 15. Notice. Any notice required or permitted to be given by either party to the other shall be deemed sufficient upon receipt in writing at the other party's principal offices. 16. Miscellaneous. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meaning as such terms have in the l940 Act. IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed by their officers designated as of the day and year first above written. ATTEST: PAINEWEBBER AMERICA FUND /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell ------------------- ----------------------------------- Dianne E. O'Donnell Secretary and Vice President ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC. /s/ Jenny Ann Frank By: /s/ Jack W. Murphy ------------------- ----------------------------------- Jack W. Murphy First Vice President 8 EX-99.5(E) 5 EXCLUSIVE DEALER AGREEMENT CLASS A SHARES Exhibit No. 5(e) EXCLUSIVE DEALER AGREEMENT CLASS A SHARES OF PAINEWEBBER AMERICA FUND AGREEMENT made as of July 7, 1993, between Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber Incorporated ("PaineWebber"), a Delaware corporation. WHEREAS PaineWebber America Fund ("Fund") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company; and WHEREAS the Fund currently has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as the PaineWebber Dividend Growth Fund; and WHEREAS the Fund's board of trustees ("Board") has established an unlimited number of shares of beneficial interest of the above-referenced Series as Class A shares ("Class A Shares") and has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class A Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have Class A Shares established; and WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as principal distributor in connection with the offering and sale of the Class A Shares of each such Series; and WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive agent in connection with the offering and sale of the Class A Shares of each Series and to delegate to PaineWebber performance of certain of the services which Mitchell Hutchins provides to the Fund under the Distribution Contract; and WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent in connection with the offering and sale of such Class A Shares and to perform such services on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows: 1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its exclusive agent to sell and to arrange for the sale of the Class A Shares on the terms and for the period set forth in this Agreement. Mitchell Hutchins also appoints PaineWebber as its agent for the performance of certain other services set forth herein which Mitchell Hutchins provides to the Fund under the Distribution Contract. PaineWebber hereby accepts such appointments and agrees to act hereunder. It is understood, however, that these appointments do not preclude sales of Class A Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Agreement, the term "Registration Statement" shall mean the currently effective Registration Statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. Services, Duties and Representations of PaineWebber. (a) PaineWebber agrees to sell the Class A Shares on a best efforts basis from time to time during the term of this Agreement as agent for Mitchell Hutchins and upon the terms described in this Agreement and the Registration Statement. (b) Upon the later of the date of this Agreement or the initial offering of Class A Shares by a Series to the public, PaineWebber will hold itself available to receive orders, satisfactory to PaineWebber and Mitchell Hutchins, for the purchase of Class A Shares and will accept such orders on behalf of Mitchell Hutchins and the Fund as of the time of receipt of such orders and will promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) PaineWebber in its discretion may sell Class A Shares to (i) its correspondent firms and customers of such firms and (ii) such other registered and qualified retail dealers as it may select, subject to the approval of Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act only as principal and not as agent for Mitchell Hutchins or the Fund. (d) The offering price of the Class A Shares of each Series shall be the net asset value per Share as next determined by the Fund following receipt of an order at PaineWebber's principal office, plus the applicable initial sales charge, if any, as set forth in the Registration Statement. Mitchell Hutchins shall promptly furnish or arrange for the furnishing to PaineWebber of a statement of each computation of net asset value. (e) PaineWebber shall not be obligated to sell any certain number of Class A Shares. 2 (f) To facilitate redemption of Class A Shares by shareholders directly or through dealers, PaineWebber is authorized but not required on behalf of Mitchell Hutchins and the Fund to repurchase Class A Shares presented to it by shareholders, its correspondent firms and other dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the applicable contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) PaineWebber shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Class A Shares and any other services now or hereafter deemed to be appropriate subjects for the payments of "service fees" under Section 26(d) of the National Association of Securities Dealers, Inc. ("NASD") Rules of Fair Practice (collectively, "service activities"). "Service activities" do not include the transfer agency-related and other services for which PaineWebber receives compensation under the Service Contract between PaineWebber and the Fund. (h) PaineWebber represents and warrants that: (i) it is a member in good standing of the NASD and agrees to abide by the Rules of Fair Practice of the NASD; (ii) it is registered as a broker-dealer with the Securities and Exchange Commission; (iii) it will maintain any filings and licenses required by federal and state laws to conduct the business contemplated under this Agreement; and (iv) it will comply with all federal and state laws and regulations applicable to the offer and sale of the Class A Shares. (i) PaineWebber shall not incur any debts or obligations on behalf of Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs in selling the Class A Shares and in complying with the terms and conditions of this Agreement as more specifically set forth in paragraph 8. (j) PaineWebber shall not permit any employee or agent to offer or sell Class A Shares to the public unless such person is duly licensed under applicable federal and state laws and regulations. (k) PaineWebber shall not (i) furnish any information or make any representations concerning the Class A Shares other than those contained in the Registration Statement or in sales literature or advertising that has been prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii) offer or sell the Class A Shares in jurisdictions in which they have not been approved for offer and sale. 3. Services Not Exclusive. The services furnished by PaineWebber hereunder are not to be deemed exclusive and PaineWebber shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby. Nothing in this Agreement shall limit or restrict the right of any director, officer or employee of PaineWebber who may also be a director, trustee, officer or employee of Mitchell Hutchins or the Fund, to engage in any 3 other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 4. Compensation. (a) As compensation for its service activities under this Agreement with respect to the Class A Shares, Mitchell Hutchins shall pay to PaineWebber service fees with respect to Class A Shares maintained in shareholder accounts serviced by PaineWebber employees, correspondent firms and other dealers in such amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon. (b) As compensation for its activities under this Agreement with respect to the distribution of the Class A Shares, PaineWebber shall retain that portion of the offering price constituting the Discount to Selected Dealers ("Discount"), if any, set forth in the Registration Statement for Class A shares sold with an initial sales charge under this Agreement. PaineWebber is authorized to collect the gross proceeds derived from the sale of such Class A Shares; remit the net asset value thereof to the Fund's Transfer Agent; remit to Mitchell Hutchins the difference between the offering price of the Class A Shares and the applicable Discount; and retain said Discount. Whether the offering price of the Class A Shares includes any initial sales charge out of which a Discount may be retained by PaineWebber shall be determined in accordance with the Registration Statement. (c) Mitchell Hutchins shall pay to PaineWebber such commissions and other compensation for sales of the Class A Shares by PaineWebber employees, correspondent firms and other dealers as Mitchell Hutchins and PaineWebber may from time to time agree upon. (d) Mitchell Hutchins' obligation to pay compensation to PaineWebber as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by Mitchell Hutchins of any compensation from the Fund or Series. Mitchell Hutchins shall advise the Board of any agreements or revised agreements as to compensation to be paid by Mitchell Hutchins to PaineWebber at their first regular meeting held after such agreement but shall not be required to obtain prior approval for such agreements from the Board. (e) PaineWebber may reallow all or any part of the service fees, commissions or other compensation which it is paid under this Agreement to its correspondent firms or other dealers, in such amounts as PaineWebber may from time to time determine. 5. Duties of Mitchell Hutchins. (a) It is understood that the Fund reserves the right at any time to withdraw all offerings of Class A Shares of any or all Series by written notice to Mitchell Hutchins. (b) Mitchell Hutchins shall keep PaineWebber fully informed of the Fund's affairs and shall make available to PaineWebber copies of all information, financial statements and other papers which PaineWebber may reasonably request for use in connection with the 4 distribution of Class A Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the efforts of PaineWebber to sell and arrange for the sale of the Class A Shares and in the performance of PaineWebber under this Agreement. (c) Mitchell Hutchins shall comply with all state and federal laws and regulations applicable to a distributor of the Class A Shares. 6. Advertising. Mitchell Hutchins agrees to make available such sales and advertising materials relating to the Class A Shares as Mitchell Hutchins in its discretion determines appropriate. PaineWebber agrees to submit all sales and advertising materials developed by it relating to the Class A Shares to Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute such materials to the public without first receiving such approval in writing. Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals of such materials that may be required of or desired by PaineWebber. 7. Records. PaineWebber agrees to maintain all records required by applicable state and federal laws and regulations relating to the offer and sale of the Class A Shares. Mitchell Hutchins and its representatives shall have access to such records during normal business hours for review or copying. 8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses of (i) preparing, printing, and distributing any materials not prepared by the Fund or Mitchell Hutchins and other materials used by PaineWebber in connection with its offering of Class A Shares for sale to the public; (ii) any expenses of advertising incurred by PaineWebber in connection with such offering; (iii) the expenses of registration or qualification of PaineWebber as a dealer or broker under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to PaineWebber's Investment Executives or other employees and others for selling Class A Shares, and all expenses of PaineWebber, its Investment Executives and employees and others who engage in or support the sale of Class A Shares as may be incurred in connection with their sales efforts. PaineWebber shall bear such additional costs and expenses as it and Mitchell Hutchins may agree upon, such agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins shall advise the Board of any such agreement as to additional costs and expenses borne by PaineWebber at their first regular meeting held after such agreement but shall not be required to obtain prior approval for such agreements from the Board. 5 9. Indemnification. (a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber, its officers and directors, and any person who controls PaineWebber within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities, and expenses (including the cost of investigating or defending such claims, demands, or liabilities and any counsel fees incurred in connection therewith) which PaineWebber, its officers, directors, or any such controlling person may incur under the 1933 Act, under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement; arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement thereof or necessary to make the statements in the Registration Statement thereof not misleading; or arising out of any sales or advertising materials with respect to the Class A Shares provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement shall not apply to any claims, demands, liabilities, or expenses that arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in the Registration Statement or in any sales or advertising material; and further provided, that in no event shall anything contained herein be so construed as to protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to the shareholders of any Series to which PaineWebber would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement. (b) PaineWebber agrees to indemnify, defend, and hold Mitchell Hutchins and its officers and directors, the Fund, its officers and trustees, and any person who controls Mitchell Hutchins or the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Mitchell Hutchins or its officers or directors or the Fund, its officers or trustees, or any such controlling person may incur under the 1933 Act, under common law or otherwise arising out of or based upon any alleged untrue statement of a material fact contained in information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in the Registration Statement; arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement or necessary to make such information not misleading; or arising out of any agreement between PaineWebber and a correspondent firm or any other retail dealer; or arising out of any sales or advertising material used by PaineWebber in connection with its duties under this Agreement. 6 10. Duration and Termination. (a) This Agreement shall become effective upon the date written above, provided that, with respect to any Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those trustees of the Fund who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related thereto (all such trustees collectively being referred to herein as the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Agreement shall continue in effect for one year from the above written date. Thereafter, if not terminated, this Agreement shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to any given Series by vote of a majority of the outstanding voting securities of the Class A Shares of such Series. (c) Notwithstanding the foregoing, with respect to any Series this Agreement may be terminated at any time, without the payment of any penalty, by either party, upon the giving of 30 days' written notice. Such notice shall be deemed to have been given on the date it is received in writing by the other party or any officer thereof. This Agreement may also be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the Class A Shares of such Series on 30 days' written notice to Mitchell Hutchins and PaineWebber. (d) Termination of this Agreement with respect to any given Series shall in no way affect the continued validity of this Agreement or the performance thereunder with respect to any other Series. This Agreement will automatically terminate in the event of its assignment or in the event that the Distribution Contract is terminated. (e) Notwithstanding the foregoing, Mitchell Hutchins may terminate this Agreement without penalty, such termination to be effective upon the giving of written notice to PaineWebber in the event that the Plan is terminated or is amended to reduce the compensation payable to Mitchell Hutchins thereunder or in the event that the Registration Statement is amended so as to reduce the amount of compensation payable to Mitchell Hutchins under the Distribution Contract, provided that Mitchell Hutchins gives notice of termination pursuant to this provision within 90 days of such amendment or termination of the Plan or amendment of the Registration Statement. 11. Amendment of this Agreement. No provision of this Agreement may be amended, changed, waived, discharged or terminated orally, but only by an instrument in writing 7 signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell Hutchins to use the name "PaineWebber Incorporated" or any name derived therefrom in any sales or advertising materials prepared and/or used by Mitchell Hutchins in connection with its duties as distributor of the Class A Shares, but only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of PaineWebber. 13. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Delaware and the 1940 Act. To the extent that the applicable laws of the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. 14. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Agreement, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meaning as such terms have in the 1940 Act. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated as of the day and year first written above. MITCHELL HUTCHINS ASSET MANAGEMENT INC. Attest: /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell ---------------------------- Dianne E. O'Donnell First Vice President PAINEWEBBER INCORPORATED Attest: /s/ Jenny Ann Frank By: /s/ Steven M. Joenk ---------------------------- Steven M. Joenk Corporate Vice President 8 EX-99.5(F) 6 EXCLUSIVE DEALER AGREEMENT CLASS B SHARES Exhibit No. 5(f) EXCLUSIVE DEALER AGREEMENT CLASS B SHARES OF PAINEWEBBER AMERICA FUND AGREEMENT made as of July 7, 1993, between Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber Incorporated ("PaineWebber"), a Delaware corporation. WHEREAS PaineWebber America Fund ("Fund") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company; and WHEREAS the Fund currently has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as the PaineWebber Dividend Growth Fund; and WHEREAS the Fund's board of trustees ("Board") has established an unlimited number of shares of beneficial interest of the above-referenced Series as Class B shares ("Class B Shares") and has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class B Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have Class B Shares established; and WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as principal distributor in connection with the offering and sale of the Class B Shares of each such Series; and WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive agent in connection with the offering and sale of the Class B Shares of each Series and to delegate to PaineWebber performance of certain of the services which Mitchell Hutchins provides to the Fund under the Distribution Contract; and WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent in connection with the offering and sale of such Class B Shares and to perform such services on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows: 1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its exclusive agent to sell and to arrange for the sale of the Class B Shares on the terms and for the period set forth in this Agreement. Mitchell Hutchins also appoints PaineWebber as its agent for the performance of certain other services set forth herein which Mitchell Hutchins provides to the Fund under the Distribution Contract. PaineWebber hereby accepts such appointments and agrees to act hereunder. It is understood, however, that these appointments do not preclude sales of Class B Shares directly through the Fund's transfer agent in the manner set forth in the Registration Statement. As used in this Agreement, the term "Registration Statement" shall mean the currently effective Registration Statement of the Fund, and any supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act. 2. Services, Duties and Representations of PaineWebber. (a) PaineWebber agrees to sell the Class B Shares on a best efforts basis from time to time during the term of this Agreement as agent for Mitchell Hutchins and upon the terms described in this Agreement and the Registration Statement. (b) Upon the later of the date of this Agreement or the initial offering of Class B Shares by a Series to the public, PaineWebber will hold itself available to receive orders, satisfactory to PaineWebber and Mitchell Hutchins, for the purchase of Class B Shares and will accept such orders on behalf of Mitchell Hutchins and the Fund as of the time of receipt of such orders and will promptly transmit such orders as are accepted to the Fund's transfer agent. Purchase orders shall be deemed effective at the time and in the manner set forth in the Registration Statement. (c) PaineWebber in its discretion may sell Class B Shares to (i) its correspondent firms and customers of such firms and (ii) such other registered and qualified retail dealers as it may select, subject to the approval of Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act only as principal and not as agent for Mitchell Hutchins or the Fund. (d) The offering price of the Class B Shares of each Series shall be the net asset value per Share as next determined by the Fund following receipt of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly furnish or arrange for the furnishing to PaineWebber of a statement of each computation of net asset value. (e) PaineWebber shall not be obligated to sell any certain number of Class B Shares. - 2 - (f) To facilitate redemption of Class B Shares by shareholders directly or through dealers, PaineWebber is authorized but not required on behalf of Mitchell Hutchins and the Fund to repurchase Class B Shares presented to it by shareholders, its correspondent firms and other dealers at the price determined in accordance with, and in the manner set forth in, the Registration Statement. Such price shall reflect the subtraction of the applicable contingent deferred sales charge, if any, computed in accordance with and in the manner set forth in the Registration Statement. (g) Painewebber shall provide ongoing shareholder services, which include responding to shareholder inquiries, providing shareholders with information on their investments in the Class B Shares and any other services now or hereafter deemed to be appropriate subjects for the payments of "service fees" under Section 26(d) of the National Association of Securities Dealers, Inc. ("NASD") Rules of Fair Practice (collectively, "service activities"). "Service activities" do not include the transfer agency-related and other services for which PaineWebber receives compensation under the Service Contract between PaineWebber and the Fund. (h) PaineWebber represents and warrants that: (i) it is a member in good standing of the NASD and agrees to abide by the Rules of Fair Practice of the NASD; (ii) it is registered as a broker-dealer with the Securities and Exchange Commission; (iii) it will maintain any filings and licenses required by federal and state laws to conduct the business contemplated under this Agreement; and (iv) it will comply with all federal and state laws and regulations applicable to the offer and sale of the Class B Shares. (i) PaineWebber shall not incur any debts or obligations on behalf of Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs in selling the Class B Shares and in complying with the terms and conditions of this Agreement as more specifically set forth in paragraph 8. (j) PaineWebber shall not permit any employee or agent to offer or sell Class B Shares to the public unless such person is duly licensed under applicable federal and state laws and regulations. (k) PaineWebber shall not (i) furnish any information or make any representations concerning the Class B Shares other than those contained in the Registration Statement or in sales literature or advertising that has been prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii) offer or sell the Class B Shares in jurisdictions in which they have not been approved for offer and sale. 3. Services Not Exclusive. The services furnished by PaineWebber hereunder are not to be deemed exclusive and PaineWebber shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby. Nothing in this Agreement shall limit or restrict the right of any director, officer or employee of PaineWebber who may also be a director, trustee, officer or employee of Mitchell Hutchins or the Fund, to engage in any - 3 - other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 4. Compensation. (a) As compensation for its service activities under this Agreement with respect to the Class B Shares, Mitchell Hutchins shall pay to PaineWebber service fees with respect to Class B Shares maintained in shareholder accounts serviced by PaineWebber employees, correspondent firms and other dealers in such amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon. (b) As compensation for its activities under this Agreement with respect to the distribution of the Class B Shares, Mitchell Hutchins shall pay to PaineWebber such commissions for sales of the Class D shares by PaineWebber employees, correspondent firms and other dealers and such other compensation as Mitchell Hutchins and PaineWebber may from time to time agree upon. (c) Mitchell Hutchins' obligation to pay compensation to PaineWebber as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by Mitchell Hutchins of any compensation from the Fund or Series. Mitchell Hutchins shall advise the Board of any agreements or revised agreements as to compensation to be paid by Mitchell Hutchins to PaineWebber at their first regular meeting held after such agreement but shall not be required to obtain prior approval for such agreements from the Board. (d) PaineWebber may reallow all or any part of the service fees, commissions or other compensation which it is paid under this Agreement to its correspondent firms or other dealers, in such amounts as PaineWebber may from time to time determine. 5. Duties of Mitchell Hutchins. (a) It is understood that the Fund reserves the right at any time to withdraw all offerings of Class B Shares of any or all Series by written notice to Mitchell Hutchins. (b) Mitchell Hutchins shall keep PaineWebber fully informed of the Fund's affairs and shall make available to PaineWebber copies of all information, financial statements and other papers which PaineWebber may reasonably request for use in connection with the distribution of Class B Shares, including, without limitation, certified copies of any financial statements prepared for the Fund by its independent public accountant and such reasonable number of copies of the most current prospectus, statement of additional information, and annual and interim reports of any Series as PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the efforts of PaineWebber to sell and arrange for the sale of the Class B Shares and in the performance of PaineWebber under this Agreement. - 4 - (c) Mitchell Hutchins shall comply with all state and federal laws and regulations applicable to a distributor of the Class B Shares. 6. Advertising. Mitchell Hutchins agrees to make available such sales and advertising materials relating to the Class B Shares as Mitchell Hutchins in its discretion determines appropriate. PaineWebber agrees to submit all sales and advertising materials developed by it relating to the Class B Shares to Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute such materials to the public without first receiving such approval in writing. Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals of such materials that may be required of or desired by PaineWebber. 7. Records. PaineWebber agrees to maintain all records required by applicable state and federal laws and regulations relating to the offer and sale of the Class B Shares. Mitchell Hutchins and its representatives shall have access to such records during normal business hours for review or copying. 8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses of (i) preparing, printing, and distributing any materials not prepared by the Fund or Mitchell Hutchins and other materials used by PaineWebber in connection with its offering of Class B Shares for sale to the public; (ii) any expenses of advertising incurred by PaineWebber in connection with such offering; (iii) the expenses of registration or qualification of PaineWebber as a dealer or broker under federal or state laws and the expenses of continuing such registration or qualification; and (iv) all compensation paid to PaineWebber's Investment Executives or other employees and others for selling Class B Shares, and all expenses of PaineWebber, its Investment Executives and employees and others who engage in or support the sale of Class B Shares as may be incurred in connection with their sales efforts. PaineWebber shall bear such additional costs and expenses as it and Mitchell Hutchins may agree upon, such agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins shall advise the Board of any such agreement as to additional costs and expenses borne by PaineWebber at their first regular meeting held after such agreement but shall not be required to obtain prior approval for such agreements from the Board. 9. Indemnification. (a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber, its officers and directors, and any person who controls PaineWebber within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities, and expenses (including the cost of investigating or defending such claims, demands, or liabilities and any counsel fees incurred in connection therewith) which PaineWebber, its officers, directors, or any such controlling person may incur under the 1933 Act, under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement; arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement thereof or necessary to make the statements in the Registration Statement thereof not misleading; or arising out of any - 5 - sales or advertising materials with respect to the Class B Shares provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement shall not apply to any claims, demands, liabilities, or expenses that arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in the Registration Statement or in any sales or advertising material; and further provided, that in no event shall anything contained herein be so construed as to protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to the shareholders of any Series to which PaineWebber would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement. (b) PaineWebber agrees to indemnify, defend, and hold Mitchell Hutchins and its officers and directors, the Fund, its officers and trustees, and any person who controls Mitchell Hutchins or the Fund within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Mitchell Hutchins or its officers or directors or the Fund, its officers or trustees, or any such controlling person may incur under the 1933 Act, under common law or otherwise arising out of or based upon any alleged untrue statement of a material fact contained in information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in the Registration Statement; arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement or necessary to make such information not misleading; or arising out of any agreement between PaineWebber and a correspondent firm or any other retail dealer; or arising out of any sales or advertising material used by PaineWebber in connection with its duties under this Agreement. 10. Duration and Termination. (a) This Agreement shall become effective upon the date written above, provided that, with respect to any Series, this Contract shall not take effect unless such action has first been approved by vote of a majority of the Board and by vote of a majority of those trustees of the Fund who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related thereto (all such trustees collectively being referred to herein as the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on such action. (b) Unless sooner terminated as provided herein, this Agreement shall continue in effect for one year from the above written date. Thereafter, if not terminated, this Agreement shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to any given Series by vote of a majority of the outstanding voting securities of the Class B Shares of such Series. - 6 - (c) Notwithstanding the foregoing, with respect to any Series this Agreement may be terminated at any time, without the payment of any penalty, by either party, upon the giving of 30 days' written notice. Such notice shall be deemed to have been given on the date it is received in writing by the other party or any officer thereof. This Agreement may also be terminated at any time, without the payment of any penalty, by vote of the Board, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the Class B Shares of such Series on 30 days' written notice to Mitchell Hutchins and PaineWebber. (d) Termination of this Agreement with respect to any given Series shall in no way affect the continued validity of this Agreement or the performance thereunder with respect to any other Series. This Agreement will automatically terminate in the event of its assignment or in the event that the Distribution Contract is terminated. (e) Notwithstanding the foregoing, Mitchell Hutchins may terminate this Agreement without penalty, such termination to be effective upon the giving of written notice to PaineWebber in the event that the Plan is terminated or is amended to reduce the compensation payable to Mitchell Hutchins thereunder or in the event that the Registration Statement is amended so as to reduce the amount of compensation payable to Mitchell Hutchins under the Distribution Contract, provided that Mitchell Hutchins gives notice of termination pursuant to this provision within 90 days of such amendment or termination of the Plan or amendment of the Registration Statement. 11. Amendment of this Agreement. No provision of this Agreement may be amended, changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell Hutchins to use the name "PaineWebber Incorporated" or any name derived therefrom in any sales or advertising materials prepared and/or used by Mitchell Hutchins in connection with its duties as distributor of the Class B Shares, but only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of PaineWebber. 13. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Delaware and the 1940 Act. To the extent that the applicable laws of the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. 14. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto - 7 - and their respective successors. As used in this Agreement, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meaning as such terms have in the 1940 Act. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated as of the day and year first written above. MITCHELL HUTCHINS ASSET MANAGEMENT INC. Attest: /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell -------------------- ----------------------- Dianne E. O'Donnell First Vice President PAINEWEBBER INCORPORATED Attest: /s/ Jenny Ann Frank By: /s/ Steven M. Joenk Steven M. Joenk Corporate Vice President - 8 - EX-99.7 7 CUSTODIAN CONTRACT Exhibit No. 7 CUSTODIAN CONTRACT Between PAINEWEBBER AMERICA FUND and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS
Page 1. Employment of Custodian and Property to be Held By It...........................................1 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian.......................................................................................2 2.1 Holding Securities.................................................................2 2.2 Delivery of Securities.............................................................2 2.3 Registration of Securities.........................................................6 2.4 Bank Accounts......................................................................6 2.5 Payments for Shares................................................................7 2.6 Investment and Availability of Federal Funds.......................................7 2.7 Collection of Income...............................................................7 2.8 Payment of Fund Moneys.............................................................8 2.9 Liability for Payment in Advance of Receipt of Securities Purchased.........................................................................10 2.10 Payments for Repurchases or Redemptions of Shares of the Fund.....................10 2.11 Appointment of Agents.............................................................10 2.12 Deposit of Fund Assets in Securities System.......................................11 2.13 Segregated Account................................................................13 2.14 Ownership Certificates for Tax Purposes...........................................14 2.15 Proxies...........................................................................14 2.16 Communications Relating to Fund Portfolio Securities..............................14 2.17 Proper Instructions...............................................................15 2.18 Actions Permitted Without Express Authority.......................................15 2.19 Evidence of Authority.............................................................16 3. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value and Net Income..............................................................16 4. Records........................................................................................17 5. Opinion of Fund's Independent Certified Public Accountants.....................................17 6. Reports to Fund by Independent Certified Public Accountants....................................18 7. Compensation of Custodian......................................................................18 8. Responsibility of Custodian....................................................................18 9. Effective Period, Termination and Amendment....................................................19 10. Successor Custodian............................................................................20
Page 11. Interpretive and Additional Provisions.........................................................21 12. Additional Funds...............................................................................21 13. Massachusetts Law to Apply.....................................................................22 14. Prior Contracts; Assignment....................................................................22 15. Headings.......................................................................................22 16. Notices........................................................................................22 17. Limitation of Liability of the Trustees and Shareholders.......................................23
CUSTODIAN CONTRACT This Contract between PaineWebber America Fund, a Massachusetts business trust organized and existing under the laws of Massachusetts, having its principal place of business at 1285 Avenue of the Americas, New York, New York 10019 hereinafter called the "Fund", and State Street Bank and Trust Company, a Massachusetts corporation, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in one series (such series together with all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 12, being herein referred to as the "Fund(s)"); NOW THEREFOR, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It The Fund hereby employs the Custodian as the custodian of its assets pursuant to the provisions of the Declaration of Trust. The Fund agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Section 2.17), the Custodian shall from time to time employ one or more sub-custodians, but only in accordance with an applicable vote by the Trustees of the Fund, and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. 2. Duties of the Custodian with Respect to Property of the Fund Held By the Custodian 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of the Fund all non-cash property, including all securities owned by the Fund, other than securities which are maintained pursuant to Section 2.12 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System". 2.2 Delivery of Securities. The Custodian shall release and deliver securities owned by the Fund held by the Custodian or in a Securities System account of the Custodian only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.12 hereof; 4) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; 2 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.11 or into the name or nominee name of any sub-custodian appointed pursuant to Article l; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; 3 provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to 4 compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus and statement of additional information ("prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, 5 and naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities. Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.11 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Fund under the terms of this Contract shall be in "street name" or other good delivery form. 2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Trustees of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 6 2.5 Payments for Shares. The Custodian shall receive from the distributor for the Fund's Shares or from the Transfer Agent of the Fund and deposit into the Fund's account such payments as are received for Shares of the Fund issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund. 2.6 Investment and Availability of Federal Funds. Upon mutual agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of Proper Instructions, make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of the Fund which are deposited into the Fund's account. 2.7 Collection of Income. The Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due the Fund on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled. 7 2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out moneys of the Fund in the following cases only: 1) Upon the purchase of securities, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such securities, or evidence of title to futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.12 hereof; or (c) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund; 8 2) In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Fund as set forth in Section 2.10 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for purchase of securities for the account of the Fund is made by the 9 Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. 2.10 Payments for Repurchases or Redemptions of Shares of the Fund. From such funds as may be available for the purpose but subject to the limitations of the Declaration of Trust and any applicable votes of the Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 2.11 Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.12 Deposit of Fund Assets in Securities Systems. The Custodian may deposit and/or maintain securities owned by the Fund in a clearing agency registered with the Securities 10 and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund; 3) The Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all 11 advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund. 4) The Custodian shall provide the Fund with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Custodian shall have received the initial or annual certificate, as the case may be, required by Article 9 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a 12 consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. 2.13 Segregated Account. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 13 2.14 Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by it and in connection with transfers of securities. 2.15 Proxies. The Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. 2.16 Communications Relating to Fund Portfolio Securities. The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. 2.17 Proper Instructions. Proper Instructions as used throughout this Article 2 means a writing signed or initialled by one or more person or persons as the Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of 14 transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Trustees of the Fund accompanied by a detailed description of procedures approved by the Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. 2.18 Actions Permitted without Express Authority. The Custodian may in its discretion, without express authority from the Fund: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Fund; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Trustees of the Fund. 15 2.19 Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Trustees of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Trustees pursuant to the Declaration of Trust as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 3. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Trustees of the Fund to keep the books of account of the Fund and/or compute the net asset value per Share of the outstanding Shares of the Fund or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or compute such net asset value per Share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Fund's currently effective prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per Share and the daily income of the Fund shall be made at the time or times described from time to time in the Fund's currently effective prospectus. 4. Records The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 16 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. 5. Opinion of Fund's Independent Certified Public Accountant The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent certified public accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 6. Reports to Fund by Independent Certified Public Accountants The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent certified public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 17 7. Compensation of Custodian The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian. 8. Responsibility of Custodian So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Fund. If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Fund requires the Custodian to advance cash or securities for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except 18 such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of Fund assets to the extent necessary to obtain reimbursement. 9. Effective Period, Termination and Amendment This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, however that the Custodian shall not act under Section 2.12 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Trustees of the Fund have approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Trustees have reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Declaration of Trust, and further provided, that the Fund may at any time by action of its Trustees (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. 19 Upon termination of the Contract, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 10. Successor Custodian If a successor custodian shall be appointed by the Trustees of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities then held by it hereunder and shall transfer to an account of the successor custodian all of the Fund's securities held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Trustees of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract and to transfer to an account of such successor custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the 20 Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 11. Interpretive and Additional Provisions In connection with the operation of this Contract, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Declaration of Trust of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 12. Additional Funds In the event that the Fund establishes one or more series of Shares in addition to the initial series with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Fund hereunder. 13. Massachusetts Law to Apply This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 14. Prior Contracts; Assignment This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund and the Custodian relating to the custody of the Fund's assets. This Contract may not be 21 assigned by the Custodian except as expressly provided for in Section 10 hereof, without the prior written consent of the Fund. 15. Headings The Headings of the Sections of this Contract are inserted for reference and convenience only, and shall not affect the construction of this Contract. 16. Notices All notices and communications, including Proper Instructions (collectively referred to as "Notice" or "Notices" in this paragraph), hereunder shall be in writing or by confirming telegram, cable or telex. Notices shall be addressed (a) if to the Custodian at its address, 225 Franklin Street, Boston, Massachusetts 02110, marked for the attention of the Insurance/Broker-Dealer Services Division, (b) if to the Fund, at the address of the Fund, or (c) if to neither of the foregoing, at such other address as shall have been notified to the sender of any such Notice. 17. Limitation of Liability of the Trustees and Shareholders A copy of the Declaration of Trust of the Trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. 22 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 1st day of March, 1987. ATTEST: PAINEWEBBER AMERICA FUND /s/ Abbe P. Stein By: /s/ Dianne E. O'Donnell - -------------------------- ---------------------------- ATTEST: STATE STREET BANK AND TRUST COMPANY /s/ By: /s/ - -------------------------- ---------------------------- Assistant Secretary Vice President 23 EX-99.8 8 TRANSFER AGENCY AND RELATED SERVICES AGREEMENT Exhibit No. 8 TRANSFER AGENCY AND RELATED SERVICES AGREEMENT THIS AGREEMENT is made as of August 1, 1997 by and between PFPC INC., a Delaware corporation ("PFPC"), and PAINEWEBBER AMERICA FUND, a Massachusetts business trust (the "Fund"). W I T N E S S E T H: WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent, registrar, dividend disbursing agent and related services agent to the Fund's Portfolios (as hereinafter defined) and PFPC wishes to furnish such services. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. As Used in this Agreement: (a) "1933 Act" means the Securities Act of 1933, as amended. (b) "1934 Act" means the Securities Exchange Act of 1934, as amended. (c) "Authorized Person" means any officer of the Fund and any other person duly authorized by the Fund's Board of Directors or Trustees ("Board") to give Oral Instructions and Written Instructions on behalf of the Fund and listed on the Authorized Persons Appendix attached hereto and made a part hereof or any amendment thereto as may be received by PFPC. An Authorized Person's scope of authority may be limited by the Fund by setting forth such limitation in the Authorized Persons Appendix. (d) "CEA" means the Commodities Exchange Act, as amended. (e) "Oral Instructions" mean oral instructions received by PFPC from an Authorized Person. (f) "Portfolio" means a series or investment portfolio of the Fund identified on Annex A hereto, as the same may from time to time be amended, if the Fund consists of more than one series or investment portfolio; however, if the Fund does not have separate series or investment portfolios, then this term shall be deemed to refer to the Fund itself. (g) "SEC" means the Securities and Exchange Commission. (h) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and the CEA. (i) "Shares" mean the shares of common stock or beneficial interest of any series or class of the Fund. (j) "Written Instructions" mean written instructions signed by an Authorized Person and received by PFPC. The instructions may be delivered by hand, mail, tested telegram, cable, telex or facsimile sending device. 2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent, registrar, dividend disbursing agent and related services agent to the Fund, and should the Fund have separate Portfolios, those Portfolios which are listed on Annex A hereto, in accordance with the terms set forth in this Agreement. PFPC accepts such appointment and agrees to furnish such services. 3. Delivery of Documents. The Fund (or a particular Portfolio, as appropriate) has provided or, where applicable, will provide PFPC with the following: 2 (a) Certified or authenticated copies of the resolutions of the Fund's Board approving the appointment of PFPC to provide services to the Fund and approving this Agreement; (b) A copy of each executed broker-dealer agreement with respect to each Fund; and (c) Copies (certified or authenticated if requested by PFPC) of any post-effective amendment to the Fund's registration statement, advisory agreement, distribution agreement, shareholder servicing agreement and all amendments or supplements to the foregoing upon request. 4. Compliance with Rules and Regulations. PFPC undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder. Except as specifically set forth herein, PFPC assumes no responsibility for such compliance by the Fund or any of its Portfolios. 5. Instructions. (a) Unless otherwise provided in this Agreement, PFPC shall act only upon Oral Instructions and Written Instructions. (b) PFPC shall be entitled to rely upon any Oral Instructions and Written Instructions it receives from an Authorized Person pursuant to this Agreement. PFPC may assume that any Oral Instruction or Written Instruction received hereunder is not in any way inconsistent with the provisions of organizational documents or of any vote, resolution or proceeding of the Fund's Board or of the Fund's shareholders, unless and until PFPC receives Written Instructions to the contrary. (c) The Fund agrees to forward to PFPC Written Instructions confirming Oral Instructions so that PFPC receives the Written Instructions by the close of business on the next day after such Oral Instructions are received. The fact that such confirming Written Instructions 3 are not received by PFPC shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions. Where Oral Instructions or Written Instructions reasonably appear to have been received from an Authorized Person, PFPC shall incur no liability to the Fund in acting upon such Oral Instructions or Written Instructions provided that PFPC's actions comply with the other provisions of this Agreement. 6. Right to Receive Advice. (a) Advice of the Fund. If PFPC is in doubt as to any action it should or should not take, PFPC may request directions or advice, including Oral Instructions or Written Instructions, from the Fund. (b) Advice of Counsel. If PFPC shall be in doubt as to any question of law pertaining to any action it should or should not take, PFPC may request advice at its own cost from such counsel of its own choosing (who may be counsel for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC). (c) Conflicting Advice. In the event of a conflict between directions, advice or Oral Instructions or Written Instructions PFPC receives from the Fund, and the advice it receives from counsel, PFPC may rely upon and follow the advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC remains liable for any action or omission on the part of PFPC which constitutes willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. (d) Protection of PFPC. PFPC shall be protected in any action it takes or does not take in reliance upon directions, advice or Oral Instructions or Written Instructions it receives from the Fund or from counsel and which PFPC believes, in good faith, to be consistent with those directions, advice or Oral Instructions or Written Instructions. Nothing in this section shall 4 be construed so as to impose an obligation upon PFPC (i) to seek such directions, advice or Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral Instructions or Written Instructions unless, under the terms of other provisions of this Agreement, the same is a condition of PFPC's properly taking or not taking such action. Nothing in this subsection shall excuse PFPC when an action or omission on the part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties, obligations or responsibilities set forth in this Agreement. 7. Records; Visits. PFPC shall prepare and maintain in complete and accurate form all books and records necessary for it to serve as transfer agent, registrar, dividend disbursing agent and related services agent to each Portfolio, including (a) all those records required to be prepared and maintained by the Fund under the 1940 Act, by other applicable Securities Laws, rules and regulations and by state laws and (b) such books and records as are necessary for PFPC to perform all of the services it agrees to provide in this Agreement and the appendices attached hereto, including but not limited to the books and records necessary to effect the conversion of Class B shares, the calculation of any contingent deferred sales charges and the calculation of front-end sales charges. The books and records pertaining to the Fund, which are in the possession or under the control of PFPC, shall be the property of the Fund. The Fund and Authorized Persons shall have access to such books and records in the possession or under the control of PFPC at all times during PFPC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records in the possession or under the control of PFPC shall be provided by PFPC to the Fund or to an Authorized Person. Upon reasonable notice by the Fund, PFPC shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visits by the 5 Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund. 8. Confidentiality. PFPC agrees to keep confidential all records of the Fund and information relating to the Fund and its shareholders (past, present and future), its investment adviser and its principal underwriter, unless the release of such records or information is otherwise consented to, in writing, by the Fund prior to its release. The Fund agrees that such consent shall not be unreasonably withheld and may not be withheld where PFPC may be exposed to civil or criminal contempt proceedings or when required to divulge such information or records to duly constituted authorities. 9. Cooperation with Accountants. PFPC shall cooperate with the Fund's independent public accountants and shall take all reasonable actions in the performance of its obligations under this Agreement to ensure that the necessary information is made available to such accountants for the expression of their opinion, as required by the Fund. 10. Disaster Recovery. PFPC shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for periodic backup of computer files and data with respect to the Fund and emergency use of electronic data processing equipment. In the event of equipment failures, PFPC shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PFPC shall have no liability with respect to the loss of data or service interruptions caused by equipment failure, provided such loss or interruption is not caused by PFPC's own willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations under this Agreement and provided further that PFPC has complied with the provisions of this paragraph 10. 6 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 affiliates from all taxes, charges, expenses, assessments, penalties, claims and liabilities (including, without limitation, liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws, and amendments thereto), and expenses, including (without limitation) reasonable attorneys' fees and disbursements, arising directly or indirectly from (i) any action or omission to act which PFPC takes (a) at the request or on the direction of or in reliance on the advice of the Fund or (b) upon Oral Instructions or Written Instructions or (ii) the acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares. Neither PFPC, nor any of its affiliates, shall be indemnified against any liability (or any expenses incident to such liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. The Fund's liability to PFPC for PFPC's acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares shall be limited to the extent of the Fund's policy(ies) of insurance that provide for coverage of such liability, and the Fund's insurance coverage shall take precedence. (b) PFPC agrees to indemnify and hold harmless the Fund from all taxes, charges, expenses, assessments, penalties, claims and liabilities arising from PFPC's obligations pursuant to this Agreement (including, without limitation, liabilities arising under the Securities Laws, and any state and foreign securities and blue sky laws, and amendments thereto) and expenses, 7 including (without limitation) reasonable attorneys' fees and disbursements arising directly or indirectly out of PFPC's or its nominee's own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. (c) In order that the indemnification provisions contained in this Paragraph 12 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. (d) The members of the Board of the Fund, its officers and Shareholders, or of any Portfolio thereof, shall not be liable for any obligations of the Fund, or any such Portfolio, under this Agreement, and PFPC agrees that in asserting any rights or claims under this Agreement, it shall look only to the assets and property of the Fund or the particular Portfolio in settlement of such rights or claims and not to such members of the Board, its officers or Shareholders. PFPC further agrees that it will look only to the assets and property of a particular Portfolio of the Fund, should the Fund have established separate series, in asserting any rights or claims under this Agreement with respect to services rendered with respect to that Portfolio and will not seek to obtain settlement of such rights or claims from the assets of any other Portfolio of the Fund. 13. Insurance. PFPC shall maintain insurance of the types and in the amounts deemed by it to be appropriate. To the extent that policies of insurance may provide for coverage of claims for liability or indemnity by the parties set forth in this Agreement, the contracts of 8 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. (a) PFPC represents and warrants that, to the best of its knowledge, the various procedures and systems which PFPC has implemented with regard to the safeguarding from loss or damage attributable to fire, theft or any other cause (including provision for twenty-four hours a day restricted access) of the Fund's blank checks, certificates, records and other data and PFPC's equipment, facilities and other property used in the performance of its obligations hereunder are adequate, and that it will make such changes therein from time to time as in its judgment are required for the secure performance of its obligations hereunder. PFPC shall review such systems and procedures on a periodic basis, and the Fund shall have reasonable access to review these systems and procedures. (b) Y2K Compliance. PFPC further represents and warrants that any and all electronic data processing systems and programs that it uses or retains in connection with the provision of services hereunder on or before January 1, 1999 will be year 2000 compliant. 15. Responsibility of PFPC. (a) PFPC shall be under no duty to take any action on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise care and diligence in the performance of its duties hereunder, to act in good faith and to use its best efforts in performing services provided for under this Agreement. PFPC shall be liable for any damages arising out of PFPC's failure to perform its duties under 9 this Agreement to the extent such damages arise out of PFPC's willful misfeasance, bad faith, negligence or reckless disregard of such duties. (b) Without limiting the generality of the foregoing or of any other provision of this Agreement, PFPC shall not be under any duty or obligation to inquire into and shall not be liable for (A) the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction, notice or other instrument which conforms to the applicable requirements of this Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to Section 10, delays or errors or loss of data occurring by reason of circumstances beyond PFPC's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply. (c) Notwithstanding anything in this Agreement to the contrary, neither PFPC nor its affiliates shall be liable to the Fund for any consequential, special or indirect losses or damages which the Fund may incur or suffer by or as a consequence of PFPC's or its affiliates' performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by PFPC or its affiliates. (d) Notwithstanding anything in this Agreement to the contrary, the Fund shall not be liable to PFPC nor its affiliates for any consequential, special or indirect losses or damages which PFPC or its affiliates may incur or suffer by or as a consequence of PFPC's performance of the services provided hereunder, whether or not the likelihood of such losses or damages was known by the Fund. 10 16. Description of Services. (a) Services Provided on an Ongoing Basis, If Applicable. (i) Calculate 12b-1 payments to financial intermediaries, including brokers, and financial intermediary trail commissions; (ii) Develop, monitor and maintain, in consultation with the Fund, all systems necessary to implement and operate the four-tier distribution system, including Class B conversion feature, as described in the registration statement and related documents of the Fund, as they may be amended from time to time; (iii) Calculate contingent deferred sales charge amounts upon redemption of Fund shares and deduct such amounts from redemption proceeds; (iv) Calculate front-end sales load amounts at time of purchase of shares; (v) Determine dates of Class B conversion and effect the same; (vi) Establish and maintain proper shareholder registrations; (vii) Review new applications and correspond with shareholders to complete or correct information; (viii) Direct payment processing of checks or wires; (ix) Prepare and certify stockholder lists in conjunction with proxy solicitations; (x) Prepare and mail to shareholders confirmation of activity; (xi) Provide toll-free lines for direct shareholder use, plus customer liaison staff for on-line inquiry response; (xii) Send duplicate confirmations to broker-dealers of their clients' activity, whether executed through the broker-dealer or directly with PFPC; (xiii) Provide periodic shareholder lists, outstanding share calculations and related statistics to the Fund; (xiv) Provide detailed data for underwriter/broker confirmations; 11 (xv) Prepare and mail required calendar and taxable year-end tax and statement information (including forms 1099-DIV and 1099-B and accompanying statements); (xvi) Notify on a daily basis the investment adviser, accounting agent, and custodian of fund activity; (xvii) Perform, itself or through a delegate, all of the services, whether or not included within the scope of another paragraph of this Paragraph 16(a), specified on Annex B hereto; and (xviii) Perform other participating broker-dealer shareholder services as may be agreed upon from time to time. (b) Services Provided by PFPC Under Oral Instructions or Written Instructions. (i) Accept and post daily Fund and class purchases and redemptions; (ii) Accept, post and perform shareholder transfers and exchanges; (iii) Pay dividends and other distributions; (iv) Solicit and tabulate proxies; and (v) Cancel certificates. (c) Purchase of Shares. PFPC shall issue and credit an account of an investor, in the manner described in the Fund's prospectus, once it receives: (i) A purchase order; (ii) Proper information to establish a shareholder account; and (iii) Confirmation of receipt or crediting of funds for such order to the Fund's custodian. (d) Redemption of Shares. PFPC shall redeem Shares only if that function is properly authorized by the Fund's organizational documents or resolutions of the Fund's Board. Shares shall be redeemed and payment therefor shall be made in accordance with the Fund's or Portfolio's prospectus. 12 (i) Broker-Dealer Accounts. When a broker-dealer notifies PFPC of a redemption desired by a customer, and the Fund's or Portfolio's custodian (the "Custodian") has provided PFPC with funds, PFPC shall (a) transfer by Fedwire or other agreed upon electronic means such redemption payment to the broker-dealer for the credit to, and for the benefit of, the customer's account or (b) shall prepare and send a redemption check to the broker-dealer, made payable to the broker-dealer on behalf of its customer. (ii) Fund-Only Accounts. If Shares (or appropriate instructions) are received in proper form, at the Fund's request Shares may be redeemed before the funds are provided to PFPC from the Custodian. If the recordholder has not directed that redemption proceeds be wired, when the Custodian provides PFPC with funds, the redemption check shall be sent to and made payable to the recordholder, unless: (a) the surrendered certificate is drawn to the order of an assignee or holder and transfer authorization is signed by the recordholder; or (b) transfer authorizations are signed by the recordholder when Shares are held in book-entry form. (e) Dividends and Distributions. Upon receipt of a resolution of the Fund's Board authorizing the declaration and payment of dividends and distributions, PFPC shall issue dividends and distributions declared by the Fund in Shares, or, upon shareholder election, pay such dividends and distributions in cash, if provided for in the appropriate Fund's or Portfolio's prospectus. Such issuance or payment, as well as payments upon redemption as described above, 13 shall be made after deduction and payment of the required amount of funds to be withheld in accordance with any applicable tax law or other laws, rules or regulations. PFPC shall mail to the Fund's shareholders and the IRS and other appropriate taxing authorities such tax forms, or permissible substitute forms, and other information relating to dividends and distributions paid by the Fund (including designations of the portions of distributions of net capital gain that are 20% rate gain distributions and 28% rate gain distributions pursuant to IRS Notice 97-64) as are required to be filed and mailed by applicable law, rule or regulation within the time required thereby. PFPC shall prepare, maintain and file with the IRS and other appropriate taxing authorities reports relating to all dividends above a stipulated amount paid by the Fund to its shareholders as required by tax or other law, rule or regulation. (f) Shareholder Account Services. (i) PFPC will arrange, in accordance with the appropriate Fund's or Portfolio's prospectus, for issuance of Shares obtained through: - The transfer of funds from shareholders' accounts at financial institutions, provided PFPC receives advance Oral or Written Instruction of such transfer; - Any pre-authorized check plan; and - Direct purchases through broker wire orders, checks and applications. (ii) PFPC will arrange, in accordance with the appropriate Fund's or Portfolio's prospectus, for a shareholder's: - Exchange of Shares for shares of another fund with which the Fund has exchange privileges; Automatic redemption from an account where that shareholder participates in a systematic withdrawal plan; and/or - Redemption of Shares from an account with a checkwriting privilege. 14 (g) Communications to Shareholders. Upon timely Written Instructions, PFPC shall mail all communications by the Fund to its shareholders, including: (i) Reports to shareholders; (ii) Confirmations of purchases and sales of Fund shares; (iii) Monthly or quarterly statements; (iv) Dividend and distribution notices; (v) Proxy material; and (vi) Tax forms (including substitute forms) and accompanying information containing the information required by paragraph 16(e). If requested by the Fund, PFPC will receive and tabulate the proxy cards for the meetings of the Fund's shareholders and supply personnel to serve as inspectors of election. (h) Records. PFPC shall maintain those records required by the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder with respect to shareholder accounts or by transfer agents generally, including records of the accounts for each shareholder showing the following information: (i) Name, address and United States Taxpayer Identification or Social Security number; (ii) Number and class of Shares held and number and class of Shares for which certificates, if any, have been issued, including certificate numbers and denominations; (iii) Historical information regarding the account of each shareholder, including dividends and distributions paid, their character (e.g. ordinary income, net capital gain (including 20% rate gain and 28% rate gain), exempt-interest, foreign tax-credit and dividends received deduction eligible) for federal income tax purposes and the date and price for all transactions on a shareholder's account; 15 (iv) Any stop or restraining order placed against a shareholder's account; (v) Any correspondence relating to the current maintenance of a shareholder's account; (vi) Information with respect to withholdings; and (vii) Any information required in order for the transfer agent to perform any calculations contemplated or required by this Agreement. (i) Lost or Stolen Certificates. PFPC shall place a stop notice against any certificate reported to be lost or stolen and comply with all applicable federal regulatory requirements for reporting such loss or alleged misappropriation. The lost or stolen certificate will be canceled and uncertificated Shares will be issued to a shareholder's account only upon: (i) The shareholder's pledge of a lost instrument bond or such other appropriate indemnity bond issued by a surety company approved by PFPC; and (ii) Completion of a release and indemnification agreement signed by the shareholder to protect PFPC and its affiliates. (j) Shareholder Inspection of Stock Records. Upon a request from any Fund shareholder to inspect stock records, PFPC will notify the Fund, and the Fund will issue instructions granting or denying each such request. Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees and does hereby release PFPC from any liability for refusal of permission for a particular shareholder to inspect the Fund's shareholder records. (k) Withdrawal of Shares and Cancellation of Certificates. Upon receipt of Written Instructions, PFPC shall cancel outstanding certificates surrendered by the Fund to reduce the total amount of outstanding shares by the number of shares surrendered by the Fund. 16 17. Duration and Termination. (a) This Agreement shall be effective on the date first written above and shall continue for a period of three (3) years (the "Initial Term"). Upon the expiration of the Initial Term, this Agreement shall automatically renew for successive terms of one (1) year ("Renewal Terms") each provided that it may be terminated by either party during a Renewal Term upon written notice given at least ninety (90) days prior to termination. During either the Initial Term or the Renewal Terms, this Agreement may also be terminated on an earlier date by either party for cause. (b) With respect to the Fund, cause includes, but is not limited to, (i) PFPC's material breach of this Agreement causing it to fail to substantially perform its duties under this Agreement. In order for such material breach to constitute "cause" under this Paragraph, PFPC must receive written notice from the Fund specifying the material breach and PFPC shall not have corrected such breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by the authorization or commencement of a voluntary or involuntary bankruptcy under the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under any applicable law of any jurisdiction relating to the liquidation or reorganization of debt, the appointment of a receiver or to the modification or alleviation of the rights of creditors; and (iii) issuance of an administrative or court order against PFPC with regard to the material violation or alleged material violation of the Securities Laws or other applicable laws related to its business of performing transfer agency services; (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. 17 (d) Any notice of termination for cause in conformity with subparagraphs (a), (b) and (c ) of this Paragraph by the Fund shall be effective thirty (30) days from the date of any such notice. Any notice of termination for cause by PFPC shall be effective 90 days from the date of such notice. (e) Upon the termination hereof, the Fund shall pay to PFPC such compensation as may be due for the period prior to the date of such termination. In the event that the Fund designates a successor to any of PFPC's obligations under this Agreement, PFPC shall, at the direction and expense of the Fund, transfer to such successor all relevant books, records and other data established or maintained by PFPC hereunder including, a certified list of the shareholders of the Fund or any Portfolio thereof with name, address, and if provided, taxpayer identification or Social Security number, and a complete record of the account of each shareholder. To the extent that PFPC incurs expenses related to a transfer of responsibilities to a successor, other than expenses involved in PFPC's providing the Fund's books and records described in the preceding sentence to the successors, PFPC shall be entitled to be reimbursed for such extraordinary expenses, including any out-of-pocket expenses reasonably incurred by PFPC in connection with the transfer. (f) Any termination effected pursuant to this Paragraph shall not affect the rights and obligations of the parties under Paragraph 12 hereof. (g) Notwithstanding the foregoing, this Agreement shall terminate with respect to the Fund or any Portfolio thereof upon the liquidation, merger, or other dissolution of the Fund or Portfolio or upon the Fund's ceasing to be a registered investment company. 18. Registration as a Transfer Agent. PFPC represents that it is currently registered with the appropriate federal agency for the registration of transfer agents, or is otherwise 18 permitted to lawfully conduct its activities without such registration and that it will remain so registered or able to so conduct such activities for the duration of this Agreement. PFPC agrees that it will promptly notify the Fund in the event of any material change in its status as a registered transfer agent. Should PFPC fail to be registered with the SEC as a transfer agent at any time during this Agreement, and such failure to register does not permit PFPC to lawfully conduct its activities, the Fund may, on written notice to PFPC, terminate this Agreement upon five days written notice to PFPC. 19. Notices. All notices and other communications, including Written Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address of the Fund or (c) if to neither of the foregoing, at such other address as shall have been given by like notice to the sender of any such notice or other communication by the other party. If notice is sent by confirming telegram, cable, telex or facsimile sending device during regular business hours, it shall be deemed to have been given immediately; if sent at a time other than regular business hours, such notice shall be deemed to have been given at the opening of the next business day. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a notice hereunder shall be paid by the sender. 20. Amendments. This Agreement, or any term thereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 19 21. Additional Portfolios. In the event that the Fund establishes one or more investment series in addition to and with respect to which it desires to have PFPC render services as transfer agent, registrar, dividend disbursing agent and related services agent under the terms set forth in this Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing to provide such services, and such investment series shall become a Portfolio hereunder, subject to such additional terms, fees and conditions as are agreed to by the parties. 22. Delegation; Assignment. (a) PFPC may, at its own expense, assign its rights and delegate its duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank, National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). The assignment and delegation of any of PFPC's duties under this subparagraph (a) shall not relieve PFPC of any of its responsibilities or liabilities under this Agreement. (b) PFPC may delegate to PaineWebber Incorporated its obligation to perform the services described on Annex B hereto. In addition, PFPC may assign its rights and delegate its other duties hereunder to PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or an affiliated person of either, provided that (I) PFPC gives the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or assignee) 20 promptly provide such information as the Fund may request, and respond to such questions as the Fund may ask, relative to the delegation (or assignment), including (without limitation) the capabilities of the delegate (or assignee). In assigning its rights and delegating its duties under this paragraph, PFPC may impose such conditions or limitations as it determines appropriate including the condition that PFPC be retained as a sub-transfer agent. (c) In the event that PFPC assigns its rights and delegates its duties under this section, no amendment of the terms of this Agreement shall become effective without the written consent of PFPC. 23. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 24. Further Actions. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 25. Miscellaneous. (a) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to services to be performed and fees payable under this Agreement. (b) Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 21 (c) Governing Law. This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law, without regard to principles of conflicts of law. (d) Partial Invalidity. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. (e) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (f) Facsimile Signatures. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PFPC INC. By: /s/ Robert F. Crouse -------------------------------- Title: Vice President PAINEWEBBER AMERICA FUND By: /s/ Dianne E. O'Donnell -------------------------------- Title: Secretary and Vice President 22 ANNEX A Portfolios PaineWebber Growth and Income Fund 23 AUTHORIZED PERSONS APPENDIX Name (Type) Signature - ---------------- ---------------- - ---------------- ---------------- - ---------------- ---------------- - ---------------- ---------------- - ---------------- ---------------- - ---------------- ---------------- 24 ANNEX B a. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all shareholder inquiries received by telephone, mail or in-person regarding the Funds and their accounts b. Provide timely execution of redemptions, exchanges and non-financial transactions directed to investment executives and specifically requested by Fund shareholders c. Issue checks from proceeds of Fund share redemptions to shareholders as directed by the shareholders or their agents d. Process and maintain shareholder account registration information e. With respect to customer accounts maintained through PaineWebber Incorporated ("PaineWebber"), review new applications and correspond with shareholders to complete or correct information f. Prepare and mail monthly or quarterly consolidated account statements that reflect PaineWebber Mutual Fund balances and transactions (such information to be combined with other activity and holdings in investors' brokerage accounts if this responsibility is delegated to PaineWebber) g. Establish and maintain a dedicated service center with sufficient facilities, equipment and skilled personnel to address all branch inquiries regarding operational issues and performance h. Capture, process and mail required tax information to shareholders and report this information to the Internal Revenue Service i. Provide the capability to margin PaineWebber Mutual Funds held within the client's brokerage account (if this responsibility is delegated to PaineWebber) j. Prepare and provide shareholder registrations for mailing of proxies, reports and other communications to shareholders k. Develop, maintain and issue checks from the PaineWebber systematic withdrawal plan offered within the client's brokerage account (if this responsibility is delegated to PaineWebber) l. Maintain duplicate shareholder records and reconcile those records with those at the transfer agent (if this responsibility is delegated to PaineWebber) 25 m. Process and mail duplicate PaineWebber monthly or quarterly statements to PaineWebber Investment Executives n. Establish and maintain shareholder distribution options (i.e., election to have dividends paid in cash, rather than reinvested in Fund shares) o. Process and mail purchase, redemption and exchange confirmations to Fund shareholders and PaineWebber Investment Executives p. Issue dividend checks to shareholders that select cash distributions to their brokerage account (if this responsibility is delegated to PaineWebber) q. Develop and maintain the automatic investment plan offered within the client's brokerage account (if this responsibility is delegated to PaineWebber) r. Provide bank-to-bank wire transfer capabilities related to transactions in Fund shares s. Maintain computerized compliance programs for blue sky and non-resident alien requirements (only with respect to PaineWebber Cashfund, Inc.) 26 EX-99.9 9 OPINION AND CONSENT OF COUNSEL Exhibit No. 9 Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. 2nd Floor Washington, D.C. 20036-1800 Telephone 202-778-9000 www.kl.com November 20, 1998 PaineWebber America Fund 1285 Avenue of the Americas New York, New York 10019 Ladies and Gentlemen: You have requested our opinion, as counsel to PaineWebber America Fund ("Trust"), as to certain matters regarding the issuance of certain Shares of the Trust. As used in this letter, the term "Shares" means the Class A, Class B, Class C and Class Y shares of beneficial interest of the series of the Trust listed below during the time that Post-Effective Amendment No. 43 to the Trust's Registration Statement on Form N-1A ("PEA") is effective and has not been superseded by another post-effective amendment. The series of the Trust is PaineWebber Growth and Income Fund. As such counsel, we have examined certified or other copies, believed by us to be genuine, of the Trust's Declaration of Trust and by-laws and such resolutions and minutes of meetings of the Trust's Board of Trustees as we have deemed relevant to our opinion, as set forth herein. Our opinion is limited to the laws and facts in existence on the date hereof, and it is further limited to the laws (other than the conflict of law rules) in the Commonwealth of Massachusetts that in our experience are normally applicable to the issuance of shares by investment companies organized as business trusts in that State and to the Securities Act of 1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the regulations of the Securities and Exchange Commission ("SEC") thereunder. Based on the foregoing, we are of the opinion that the issuance of the Shares has been duly authorized by the Trust and that, when sold in accordance with the terms contemplated by the PEA, including receipt by the Trust of full payment for the Shares and compliance with the 1933 Act and the 1940 Act, the Shares will have been validly issued, fully paid and non-assessable. We note, however, that the Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. The Declaration of Trust states that creditors of, contractors with and claimants against the Trust or any series shall look only to the assets of the Trust for the appropriate series for payment. It also requires that notice of such disclaimer be given in each note, bond, contract, certificate undertaking or instrument made or issued by the officers or the trustees of the Trust on behalf of the Trust. The Declaration PaineWebber America Fund November 20, 1998 Page 2 of Trust further provides: (1) for indemnification from the assets of the Trust or the appropriate series for all loss and expense of any shareholder held personally liable for the obligations of the Trust or any series by virtue of ownership of shares of the Trust or such series; and (2) for the Trust or appropriate series to assume the defense of any claim against the shareholder for any act or obligation of the Trust or series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust or series would be unable to meet its obligations. We hereby consent to this opinion accompanying the PEA when it is filed with the SEC and to the reference to our firm in the statement of additional information that is being filed as part of the PEA. Very truly yours, /s/ Kirkpatrick & Lockhart LLP KIRKPATRICK & LOCKHART LLP EX-99.10 10 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Highlights" in the Prospectus and "Auditors" in the Statement of Additional Information and to the incorporation by reference of our report on PaineWebber Growth and Income Fund dated October 16, 1998 in this Registration Statement (Form N-1A No. 2-78626) of PaineWebber America Fund. /s/ Ernst & Young LLP ERNST & YOUNG LLP New York, New York November 19, 1998 EX-99.12 11 LETTER OF INVESTMENT INTENT Exhibit No. 12 PAINE WEBBER JACKSON & CURTIS INCORPORATED Established 1879 Members New York Stock Exchange, Inc. and other Principal Exchanges 140 Broadway, New York, N.Y. 10005 (212) 437-2121 September 16, 1983 Paine Webber AMERICA Fund, Inc. 140 Broadway New York, New York 10005 Gentlemen: Please be advised that Paine, Webber, Jackson & Curtis Incorporated herewith tenders a sufficient number of shares of the common stock of American Telephone & Telegraph Company to purchase shares of Paine Webber AMERICA Fund, Inc. ("Fund") in order to provide the Fund with a net worth of at least the $100,000 minimum initial capital required by the Investment Company Act of 1940. We intend to purchase the shares as an investment and have no present intention of redeeming or selling such shares. Very truly yours, /s/ Carl A. Merz Carl A. Merz Vice President - Finance CAM: so EX-99.13(A) 12 PLAN OF DISTRIBUTION CLASS A Exhibit No. 13(a) PAINEWEBBER AMERICA FUND -- CLASS A SHARES PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, PaineWebber America Fund ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as PaineWebber Growth and Income Fund; and WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to the above-referenced Series and desires to replace it with this amended Plan of Distribution ("Plan") with respect to the Class A shares of the above-referenced Series and of such other Series as may hereafter be designated by the Fund's board of trustees ("Board") and have Class A shares established; and WHEREAS, the Fund has entered into a Distribution Contract ("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to which Mitchell Hutchins has agreed to serve as Distributor of the Class A shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class A shares of each Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series is authorized to pay to Mitchell Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the Series' Class A shares, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Series' Class A shares, except that the Series designated as PaineWebber Growth and Income Fund is authorized to pay to Mitchell Hutchins a service fee of no more than 0.15% of such Series' average daily net assets that are attributable to shares of that Series sold prior to December 2, 1988. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. B. Any Series may pay a service fee to Mitchell Hutchins at a lesser rate than the fee specified in Paragraph 1A of this Plan, as agreed upon by the Board and Mitchell Hutchins and as approved in the manner specified in Paragraph 4 of this Plan. 2. As Distributor of the Class A shares of each Series, Mitchell Hutchins may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class A shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of Mitchell Hutchins; compensation to and expenses, including overhead and telephone and other communication expenses, of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected dealers who engage in or support the distribution of shares or who service shareholder accounts; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class A shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a vote of a majority of the voting securities of the Class A shares of that Series. This provision does not apply to adoption as an amended Plan of Distribution where the prior Plan of Distribution either was approved by a vote of a majority of the voting securities of the Class A shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class A shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class A shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. Mitchell Hutchins shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class A shares of each Series by Mitchell Hutchins under this Plan and the Contract and the purposes for which such expenditures were made. Mitchell Hutchins shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "service activities" shall mean activities in connection with the provision by Mitchell Hutchins or PaineWebber of personal, continuing services to investors in the Class A shares of the Series; provided, however, that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of Mitchell Hutchins and PaineWebber related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 2 7. This Plan may be terminated with respect to the Class A shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class A shares of that Series. 8. This Plan may not be amended to increase materially the amount of service fees provided for in Paragraph 1A hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class A shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the service fees payable by the Series to Mitchell Hutchins under Paragraph 1A hereof and the Contract is not related directly to expenses incurred by Mitchell Hutchins on behalf of such Series in serving as Distributor of the Class A shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse Mitchell Hutchins for such expenses. The service fees set forth in Paragraph 1A hereof will be paid by the Series to Mitchell Hutchins until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class A shares of any Series, any service-related expenses incurred by Mitchell Hutchins on behalf of the Class A shares of the Series in excess of payments of the service fees specified in Paragraph 1A hereof and the Contract which Mitchell Hutchins has received or accrued through the termination date are the sole responsibility and liability of Mitchell Hutchins, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and Mitchell Hutchins or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. 3 IN WITNESS WHEREOF, the Fund has executed this Amended Plan of Distribution on the day and year set forth below in New York, New York. Date: September 10, 1998 ATTEST: PAINEWEBBER AMERICA FUND /s/ Cristina Paradiso By: /s/ Dianne E. O'Donnell - ------------------------------ -------------------------------- 4 EX-99.13(B) 13 PLAN OF DISTRIBUTION CLASS B Exhibit No. 13(b) PAINEWEBBER AMERICA FUND -- CLASS B SHARES PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, PaineWebber America Fund ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as PaineWebber Growth and Income Fund; and WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to the above-referenced Series and desires to replace it with this amended Plan of Distribution ("Plan") with respect to the Class B shares of the above-referenced Series and of such other Series as may hereafter be designated by the Fund's board of trustees ("Board") and have Class B shares established; and WHEREAS, the Fund has entered into a Distribution Contract ("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to which Mitchell Hutchins has agreed to serve as Distributor of the Class B shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class B shares of each Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series is authorized to pay to Mitchell Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the Series' Class B shares, distribution fees at the rate of 0.75%, on an annualized basis, of the average daily net assets of the Series' Class B shares. Such fees shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine: B. Each Series is authorized to pay to Mitchell Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the Series' Class B shares, a service fee at the rate of 0.25%, on an annualized basis, of the average daily net assets of the Series Class B shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. C. Any Series may pay a distribution or service fee to Mitchell Hutchins at a lesser rate than the fees specified above, as agreed upon by the Board and Mitchell Hutchins and as approved in the manner specified in Paragraph 4 of this Plan. 2. As Distributor of the Class B shares of each Series, Mitchell Hutchins may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class B shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of Mitchell Hutchins; compensation to and expenses, including overhead and telephone and other communication expenses, of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected dealers who engage in or support the distribution of shares or who service shareholder accounts; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class B shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a majority of the voting securities of the Class B shares of that Series. This provision does not apply to adoption as an amended Plan of Distribution where the prior Plan of Distribution either was approved by a vote of a majority of the voting securities of the Class B shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class B shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class B shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. Mitchell Hutchins shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class B shares of each Series by Mitchell Hutchins under this Plan and the Contract and the purposes for which such expenditures were made. Mitchell Hutchins shall submit only information regarding amounts expended for "distribution activities," as defined in this Paragraph 6, to the Board in support of the distribution fee payable hereunder and shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. For purposes of this Plan, "distribution activities" shall mean any activities in connection with Mitchell Hutchins' performance of its obligations under this Plan or the Contract that are not deemed "service activities." "Service activities" shall mean activities in connection with the provision by Mitchell Hutchins or PaineWebber of personal, continuing services to investors in the Class B shares of the Series; provided, however, that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the 2 definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of Mitchell Hutchins and PaineWebber related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class B shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class B shares of that Series. 8. This Plan may not be amended to increase materially the amount of distribution fees provided for in Paragraph 1A or the amount of service fees provided for in Paragraph 1B hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class B shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the distribution and service fees payable by the Series to Mitchell Hutchins under Paragraphs 1A and 1B hereof and the Contract is not related directly to expenses incurred by Mitchell Hutchins on behalf of such Series in serving as Distributor of the Class B shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse Mitchell Hutchins for such expenses. The distribution and service fees set forth in Paragraphs 1A and 1B hereof will be paid by the Series to Mitchell Hutchins until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class B shares of any Series, any distribution expenses incurred by Mitchell Hutchins on behalf of the Class B shares of the Series in excess of payments of the distribution and service fees specified in Paragraphs 1A and 1B hereof and the Contract which Mitchell Hutchins has received or accrued through the termination date are the sole responsibility and liability of Mitchell Hutchins, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and Mitchell Hutchins or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. 3 IN WITNESS WHEREOF, the Fund has executed this Amended Plan of Distribution on the day and year set forth below in New York, New York. Date: September 10, 1998 ATTEST: PAINEWEBBER AMERICA FUND /s/ Cristina Paradiso By: /s/ Dianne E. O'Donnell - ----------------------------- ---------------------------- 4 EX-99.13(C) 14 PLAN OF DISTRIBUTION CLASS C Exhibit No. 13(c) PAINEWEBBER AMERICA FUND -- CLASS C SHARES PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 WHEREAS, PaineWebber America Fund ("Fund") is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and has one distinct series of shares of beneficial interest ("Series"), which corresponds to a distinct portfolio and has been designated as PaineWebber Growth and Income Fund; and WHEREAS, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to the above-referenced Series and desires to replace it with this amended Plan of Distribution ("Plan") with respect to the Class C shares of the above-referenced Series and of such other Series as may hereafter be designated by the Fund's board of trustees ("Board") and have Class C shares established; and WHEREAS, the Fund has entered into a Distribution Contract ("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to which Mitchell Hutchins has agreed to serve as Distributor of the Class C shares of each such Series; NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class C shares of each Series in accordance with Rule 12b-1 under the 1940 Act. 1. A. Each Series listed below is authorized to pay to Mitchell Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the Series' Class C shares, distribution fees at the rates (on an annualized basis) set forth below of the average daily net assets of the Series' Class C shares. Such fees shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine: PaineWebber Growth and Income Fund 0.75% B. Any Series hereafter established is authorized to pay to Mitchell Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the Series Class C shares, a distribution fee in the amount to be agreed upon in a written distribution fee addendum to this Plan ("Distribution Fee Addendum") executed by the Fund on behalf of such Series. All such Distribution Fee Addenda shall provide that they are subject to all terms and conditions of this Plan. C. Each Series is authorized to pay to Mitchell Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the Series' Class C shares, a service fee at the rate of 0.25% on an annualized basis of the average daily net assets of the Series Class C shares. Such fee shall be calculated and accrued daily and paid monthly or at such other intervals as the Board shall determine. D. Any Series may pay a distribution or service fee to Mitchell Hutchins at a lesser rate than the fees specified above, as agreed upon by the Board and Mitchell Hutchins and as approved in the manner specified in Paragraph 4 of this Plan. 2. As Distributor of the Class C shares of each Series, Mitchell Hutchins may spend such amounts as it deems appropriate on any activities or expenses primarily intended to result in the sale of the Class C shares of the Series or the servicing and maintenance of shareholder accounts, including, but not limited to, compensation to employees of Mitchell Hutchins; compensation to and expenses, including overhead and telephone and other communication expenses, of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected dealers who engage in or support the distribution of shares or who service shareholder accounts; the printing of prospectuses, statements of additional information, and reports for other than existing shareholders; and the preparation, printing and distribution of sales literature and advertising materials. 3. If adopted with respect to Class C shares of a Series after any public offering of those shares, this Plan shall not take effect with respect to those shares unless it has first been approved by a majority of the voting securities of the Class C shares of that Series. This provision does not apply to adoption as an amended Plan of Distribution where the prior Plan of Distribution either was approved by a vote of a majority of the voting securities of the Class C shares of the applicable Series or such approval was not required under Rule 12b-1. 4. This Plan shall not take effect with respect to the Class C shares of any Series unless it first has been approved, together with any related agreements, by votes of a majority of both (a) the Board and (b) those Board members of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or any agreements related thereto ("Independent Board Members"), cast in person at a meeting (or meetings) called for the purpose of voting on such approval; and until the Board members who approve the Plan's taking effect with respect to such Series' Class C shares have reached the conclusion required by Rule 12b-1(e) under the 1940 Act. 5. After approval as set forth in Paragraph 3 (if applicable) and Paragraph 4, this Plan shall take effect and continue in full force and effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Paragraph 4. 6. Mitchell Hutchins shall provide to the Board and the Board shall review, at least quarterly, a written report of the amounts expended with respect to the Class C shares of each Series by Mitchell Hutchins under this Plan and the Contract and the purposes for which such expenditures were made. Mitchell Hutchins shall submit only information regarding amounts expended for "distribution activities," as defined in this Paragraph 6, to the Board in support of the distribution fee payable hereunder and shall submit only information regarding amounts expended for "service activities," as defined in this Paragraph 6, to the Board in support of the service fee payable hereunder. 2 For purposes of this Plan, "distribution activities" shall mean any activities in connection with Mitchell Hutchins' performance of its obligations under this Plan or the Contract that are not deemed "service activities." "Service activities" shall mean activities in connection with the provision by Mitchell Hutchins or PaineWebber of personal, continuing services to investors in the Class C shares of the Series; provided, however, that if the National Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service activities" in this Paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of Mitchell Hutchins and PaineWebber related to their "distribution activities" or "service activities," including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. 7. This Plan may be terminated with respect to the Class C shares of any Series at any time by vote of the Board, by vote of a majority of the Independent Board Members, or by vote of a majority of the outstanding voting securities of the Class B shares of that Series. 8. This Plan may not be amended to increase materially the amount of distribution fees provided for in Paragraph 1A or Paragraph 1B hereof or the amount of service fees provided for in Paragraph 1C hereof unless such amendment is approved by a majority of the outstanding voting securities of the Class C shares of the affected Series and no material amendment to the Plan shall be made unless approved in the manner provided for initial approval in Paragraph 4 hereof. 9. The amount of the distribution and service fees payable by the Series to Mitchell Hutchins under Paragraphs 1A, 1B and 1C hereof and the Contract is not related directly to expenses incurred by Mitchell Hutchins on behalf of such Series in serving as Distributor of the Class C shares, and Paragraph 2 hereof and the Contract do not obligate the Series to reimburse Mitchell Hutchins for such expenses. The distribution and service fees set forth in Paragraphs 1A, 1B and 1C hereof will be paid by the Series to Mitchell Hutchins until either the Plan or the Contract is terminated or not renewed. If either the Plan or the Contract is terminated or not renewed with respect to the Class C shares of any Series, any distribution expenses incurred by Mitchell Hutchins on behalf of the Class C shares of the Series in excess of payments of the distribution and service fees specified in Paragraphs 1A, 1B and 1B hereof and the Contract which Mitchell Hutchins has received or accrued through the termination date are the sole responsibility and liability of Mitchell Hutchins, and are not obligations of the Series. 10. While this Plan is in effect, the selection and nomination of the Board members who are not interested persons of the Fund shall be committed to the discretion of the Board members who are not interested persons of the Fund. 11. As used in this Plan, the terms "majority of the outstanding voting securities" and "interested person" shall have the same meaning as those terms have in the 1940 Act. 3 12. The Fund shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to Paragraph 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. 13. The Board members of the Fund and the shareholders of each Series shall not be liable for any obligations of the Fund or any Series under this Plan, and Mitchell Hutchins or any other person, in asserting any rights or claims under this Plan, shall look only to the assets and property of the Fund or such Series in settlement of such right or claim, and not to such Board members or shareholders. IN WITNESS WHEREOF, the Fund has executed this Amended Plan of Distribution on the day and year set forth below in New York, New York. Date: September 10, 1998 ATTEST: PAINEWEBBER AMERICA FUND /s/ Cristina Paradiso By: /s/ Dianne E. O'Donnell - ------------------------- ---------------------------- 4 EX-27.1 15 ARTICLE 6 FINANCIAL DATA SCHEDULE
6 0000703887 PAINEWEBBER AMERICA FUND CLASS A 001 CLASS A 1,000 12-MOS AUG-31-1998 SEP-01-1997 AUG-31-1998 635571 664927 7746 43 0 672716 289 0 1821 2110 0 587946 24909 14437 239 0 53065 0 29356 670606 7937 4240 0 (7296) 4881 59041 (107487) (43564) 0 (4317) (42192) 0 12027 (8402) 1444 159330 264 35134 0 0 4777 0 7296 85527 30.60 0.19 (1.00) (0.20) (2.67) 0 26.92 1.07 0 0
EX-27.2 16 ARTICLE 6 FINANCIAL DATA SCHEDULE
6 0000703887 PAINEWEBBER AMERICA FUND CLASS B 002 CLASS B 1,000 12-MOS AUG-31-1998 SEP-01-1997 AUG-31-1998 334700 350159 4079 22 0 354260 562 0 959 1111 0 309620 13191 12374 126 0 27945 0 15459 353149 4180 2233 0 (7116) (703) 31092 (56604) (26215) 0 0 (32083) 0 7041 (1742) 992 76314 225 29975 0 0 2516 0 7116 107196 30.46 (0.02) (1.02) 0.00 (2.65) 0 26.77 1.87 0 0
EX-27.3 17 ARTICLE 6 FINANCIAL DATA SCHEDULE
6 0000703887 PAINEWEBBER AMERICA FUND CLASS C 004 CLASS C 1,000 12-MOS AUG-31-1998 SEP-01-1997 AUG-31-1998 141650 148192 1726 9 0 149927 64 0 406 470 0 131036 5573 2782 53 0 11827 0 6543 149457 1769 945 0 (2670) 44 13159 (23956) (10754) 0 (62) (8161) 0 3720 (1192) 263 37652 51 6755 0 0 1065 0 2670 140369 30.53 0.01 (1.03) (0.02) (2.67) 0 26.82 1.85 0 0
EX-27.4 18 ARTICLE 6 FINANCIAL DATA SCHEDULE
6 0000703887 PAINEWEBBER AMERICA FUND CLASS Y 003 CLASS Y 1,000 12-MOS AUG-31-1998 SEP-01-1997 AUG-31-1998 62095 64963 757 4 0 65724 28 0 178 206 0 57442 2434 1528 23 0 5184 0 2868 65518 775 414 0 (566) 623 5768 (10501) (4110) 0 (566) (4315) 0 2051 (1306) 161 15230 28 3718 0 0 467 0 566 18137 30.59 0.30 (1.02) (0.28) (2.67) 0 26.92 0.80 0 0
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