-----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, MM/Gzf9SyDov/2OqmleXfwYf6h8RWV5Y8UNrsfr73I1zx1qv+2QYxWAskS8jGNlz 7IpfCEP9HUY8F3Hp+NBz2g== /in/edgar/work/0000950117-00-002377/0000950117-00-002377.txt : 20001102 0000950117-00-002377.hdr.sgml : 20001102 ACCESSION NUMBER: 0000950117-00-002377 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20001031 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: 485APOS SEC ACT: SEC FILE NUMBER: 002-78626 FILM NUMBER: 749462 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-03502 FILM NUMBER: 749463 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132421 MAIL ADDRESS: STREET 1: 51 WEST 52ND ST STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER GOVERNMENT FUND INC DATE OF NAME CHANGE: 19890402 485APOS 1 0001.txt PAINEWEBBER AMERICA FUND As filed with the Securities and Exchange Commission on October 31, 2000 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. 46 [ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] Amendment No. 44 [ X ] (Check appropriate box or boxes.) PAINEWEBBER AMERICA FUND (Exact name of registrant as specified in charter) 51 West 52nd Street New York, New York 10019-6114 (Address of principal executive offices) Registrant's telephone number, including area code: (212) 713-2000 AMY DOBERMAN, ESQ. Mitchell Hutchins Asset Management Inc. 1285 Avenue of the Americas New York, New York 10019-6028 (Name and address of agent for service) Copies to: ELINOR W. GAMMON, 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) [______] On ____________________ pursuant to Rule 485(b) [______] 60 days after filing pursuant to Rule 485(a)(1) [ X ] On December 31, 2000 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: Class A, B, C and Y Shares of Beneficial Interest of PaineWebber Growth and Income Fund. PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund --------------------------------- PROSPECTUS DECEMBER 31, 2000 --------------------------------- This prospectus offers Class A, Class B, Class C and Class Y shares in three of PaineWebber's stock funds. Each class has different sales charges and ongoing expenses. You can choose the class that is best for you based on how much you plan to invest and how long you plan to hold your fund shares. Class Y shares are available only to certain types of investors. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved any fund's shares or determined whether this prospectus is complete or accurate. To state otherwise is a crime. On October 6, 2000, the board of trustees for each of the above funds approved the submission to its shareholders of an Agreement and Plan of Reorganization and Termination under which the fund would transfer substantially all of its assets and liabilities to the series indicated below of PaineWebber PACE Select Advisors Trust, another open-end mutual fund (each series may be referred to as a 'PACE fund').
PROPOSED MERGER PARTNER ----------------------- PaineWebber Growth Fund PACE Large Company Growth Equity Investments PaineWebber Growth and Income Fund PACE Large Company Value Equity Investments PaineWebber Mid Cap Fund PACE Small/Medium Company Growth Equity Investments
The same sub-advisers that now manage each fund's investments also manage the investments of the PACE fund proposed as its merger partner. If a fund's shareholders approve its proposed merger, they will receive shares of the applicable PACE fund in exchange for their fund shares and the fund will cease operations. Each merger is expected to be a tax-free reorganization, which means that a fund's shareholders will not realize any gain or loss on their receipt of PACE fund shares in the merger and neither fund that is a party to the merger will realize any gain or loss. The proxy solicitation materials previously mailed to each fund's shareholders provide more information about the proposed mergers. You may continue to buy, sell and exchange your fund shares as described in this prospectus prior to the shareholder meetings. When you sell or exchange your fund shares, however, you generally will be subject to federal income tax on any gain you realize. If a merger proposal is approved for a fund, the fund expects to close to new purchases and exchange purchases approximately five business days prior to the date on which the merger is to be effected. - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund Contents THE FUNDS - ---------------------------------------------------------------------------------------------------------------- What every investor 3 PaineWebber Growth Fund should know about Investment Objective, Strategies and Risks the funds Performance Expenses and Fee Tables 6 PaineWebber Growth and Income Fund Investment Objective, Strategies and Risks Performance Expenses and Fee Tables 10 PaineWebber Mid Cap Fund Investment Objective, Strategies and Risks Performance Expenses and Fee Tables 13 More About Risks and Investment Strategies YOUR INVESTMENT - ---------------------------------------------------------------------------------------------------------------- Information for 15 Managing Your Fund Account managing your fund -- Flexible Pricing account -- Buying Shares -- Selling Shares -- Exchanging Shares -- Pricing and Valuation ADDITIONAL INFORMATION - ---------------------------------------------------------------------------------------------------------------- Additional important 20 Management information about 22 Dividends and Taxes the funds 24 Financial Highlights - ---------------------------------------------------------------------------------------------------------------- Where to learn more Back Cover about PaineWebber mutual funds
The funds are not complete or balanced investment programs. ------------ - -------------------------------------------------------------------------------- Prospectus Page 2 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth Fund INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in common stocks that are believed to have substantial potential for capital growth. The fund generally invests in larger capitalization companies but has the flexibility to invest in companies having any market capitalization. Some of the fund's investments may be in U.S. dollar denominated securities of foreign issuers and the fund also may invest in bonds. The fund may (but is not required to) use options, futures contracts and other derivatives as part of its investment strategy or to help manage portfolio risk. The fund's manager, Mitchell Hutchins Asset Management Inc., has appointed Alliance Capital Management L.P. ('Alliance Capital') and State Street Global Advisors ('SSgA') to serve as sub-advisers for the fund's investments. Alliance Capital initially manages approximately 60% of the fund's assets and SSgA manages approximately 40%. Mitchell Hutchins allocates the fund's assets between the two sub-advisers. The relative values of assets allocated to each sub-adviser can change at any time. In managing its share of the fund's assets, Alliance Capital follows its 'disciplined growth' strategy and seeks to identify the best combinations of earnings growth and reasonable valuation in selecting stocks for the fund. Alliance Capital ranks each stock in its investment universe based on its analysts' assessments and fundamental research that includes six measures of earnings growth and valuation. The fund normally invests in stocks that rank in the top 30% of this research universe and generally sells stocks that rank in the bottom half. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Growth Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap growth universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at schemes that vary by industry. SSgA ranks all companies within the investable universe from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Growth Index. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by the fund are: Equity Risk -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. Index Strategy Risk -- SSgA's proprietary strategies may not result in the portion of fund assets it manages outperforming the total return of the designated index, and these assets may underperform the index. Its performance also may deviate from that of the index because of shareholder purchases and sales of shares, which can occur daily, and because of fees and expenses borne by the fund. Derivatives Risk -- The fund's investments in derivatives may rise or fall more rapidly than other investments. Foreign Investing Risk -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad. However, because the fund's foreign investments must be denominated in U.S. dollars, it generally is not subject to the risk of changes in currency valuations. More information about risks of an investment in the fund is provided below in 'More About Risks and Investment Strategies.' ------------ - -------------------------------------------------------------------------------- Prospectus Page 3 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The chart shows Class A shares because they have the longest performance history of any class of fund shares. The chart does not reflect the effect of sales charges; if it did, the total returns shown would be lower. The table that follows the chart shows the average annual returns for each class of the fund's shares. That table does reflect fund sales charges. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any sales charges or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN ON CLASS A SHARES
[PERFORMANCE GRAPH] CALENDAR YEAR TOTAL RETURN - ------------- ------------- 1990 -7.72% 1991 47.61% 1992 4.15% 1993 19.17% 1994 -10.90% 1995 33.02% 1996 14.11% 1997 17.01% 1998 31.95% 1999
Total return January 1, 2000 to September 30, 2000 -- % Best quarter during years shown: quarter, -- % Worst quarter during years shown: quarter, -- % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999
CLASS A CLASS B* CLASS C CLASS Y S&P 500 CLASS (3/18/85) (7/1/91) (7/2/92) (8/26/91) INDEX (INCEPTION DATE) --------- -------- -------- --------- ----- One Year.......................................... % % % % % Five Years........................................ % % % % % Ten Years......................................... % N/A N/A N/A % Life of Class..................................... % % % % **
- --------- * Assumes conversion of Class B shares to Class A after six years. ** Average annual total returns for the S&P 500 Index for the life of each class were as follows: Class A -- %; Class B -- %; Class C -- %; Class Y -- %. ------------ - -------------------------------------------------------------------------------- Prospectus Page 4 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.5% None None None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5% 1% None Exchange Fee................................................ None None None None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Management Fees............................................. 0.75% 0.75% 0.75% 0.75% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 0.00 Other Expenses.............................................. ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ---- ---- ---- ---- ---- ---- ---- ----
EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Class A................................................. $ $ $ $ Class B (assuming sale of all shares at end of period)............................................... Class B (assuming no sale of shares).................... Class C (assuming sale of all shares at end of period)............................................... Class C (assuming no sale of shares).................... Class Y.................................................
------------ - -------------------------------------------------------------------------------- Prospectus Page 5 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth and Income Fund PaineWebber Growth and Income Fund INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Current income and capital growth. PRINCIPAL INVESTMENT STRATEGIES The fund invests in a combination of securities to obtain both growth and income. To obtain growth, the fund invests in stocks that are believed to have substantial potential for capital growth. To obtain current income, the fund invests in dividend paying stocks and, to a lesser extent, convertible bonds and money market instruments. The fund generally invests in large capitalization companies. Some of the fund's investments may be in U.S. dollar denominated securities of foreign issuers. The fund may (but is not required to) use options, futures contracts and other derivatives as part of its investment strategy or to help manage portfolio risks. The fund's manager, Mitchell Hutchins Asset Management Inc., has appointed Institutional Capital Corporation ('ICAP'), Westwood Management Corporation ('Westwood') and State Street Global Advisors ('SSgA') to serve as sub-advisers for the fund's investments. SSgA initially manages approximately 50% of the fund's assets and ICAP and Westwood manage approximately 25% each. Mitchell Hutchins allocates the fund's assets among the three sub-advisers. The relative values of assets allocated to each sub-adviser can change at any time. In managing its share of the fund's assets, ICAP uses its proprietary valuation model to identify large-capitalization companies that ICAP believes offer the best relative values because they sell below the price-to-earnings ratio warranted by their prospects. ICAP looks for companies where a catalyst for a positive change is about to occur with potential to produce stock appreciation of 20% or more relative to the market over a 12 to 18 month period. The catalyst can be thematic (e.g., global economic recovery) or company specific (e.g., a corporate restructuring or a new product). ICAP also uses internally generated research to evaluate the financial condition and business prospects of every company it considers. ICAP monitors each stock purchased and sells the stock when its target price is achieved, the catalyst becomes inoperative or ICAP identifies another stock with greater opportunity for appreciation. In managing its share of the fund's assets, Westwood maintains a list of securities that it believes have proven records and potential for above-average earnings growth. It considers purchasing a security on such list if Westwood's forecast for growth rates and earnings estimates exceeds Wall Street expectations or Westwood's forecasted price/earnings ratio is less than the forecasted growth rate. Westwood monitors the issuing companies and will sell a stock if Westwood expects limited future price appreciation or the projected price/earnings ratio exceeds the three-year growth rate. In managing its share of the fund's assets, SSgA seeks to outperform the Russell 1000 Value Index (before fees and expenses). SSgA uses several independent valuation measures to identify investment opportunities within a large cap value universe and combines factors to produce an overall rank. Comprehensive research determines the optimal weighting of these perspectives to arrive at schemes that vary by industry. SSgA ranks all companies within the investable universe from top to bottom based on their relative attractiveness. SSgA constructs the fund's portfolio by selecting the highest ranked stocks from the universe and manages deviations from the benchmark to maximize the risk/reward trade-off. The resulting portfolio has characteristics similar to the Russell 1000 Value Index. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by the fund are: Equity Risk -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. Index Strategy Risk -- SSgA's proprietary strategies may not result in the portion of fund assets it ------------ - -------------------------------------------------------------------------------- Prospectus Page 6 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth and Income Fund manages outperforming the total return of the designated index, and these assets may underperform the index. Its performance also may deviate from that of the index because of shareholder purchases and sales of shares, which can occur daily, and because of fees and expenses borne by the fund. Derivatives Risk -- The fund's investments in derivatives may rise or fall more rapidly than other investments. Foreign Investing Risk -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad. However, because the fund's foreign investments must be denominated in U.S. dollars, it generally is not subject to the risk of changes in currency valuations. More information about risks of an investment in the fund is provided below in 'More About Risks and Investment Strategies.' ------------ - -------------------------------------------------------------------------------- Prospectus Page 7 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth and Income Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The chart shows Class A shares because they have the longest performance history of any class of fund shares. The chart does not reflect the effect of sales charges; if it did, the total returns shown would be lower. The table that follows the chart shows the average annual returns for each class of the fund's shares. That table does reflect fund sales charges. The table compares fund returns to returns on a broad-based market index that is unmanaged and that, therefore, does not include any sales charges or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN ON CLASS A SHARES
[PERFORMANCE GRAPH] CALENDAR YEAR TOTAL RETURN - ------------- ------------- 1990 -1.01% 1991 35.34% 1992 3.90% 1993 -2.59% 1994 -5.87% 1995 33.21% 1996 23.46% 1997 31.86% 1998 17.97% 1999
Total return January 1, 2000 to September 30, 2000 -- % Best quarter during years shown: quarter, -- % Worst quarter during years shown: quarter, -- % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999
CLASS A CLASS B* CLASS C CLASS Y S&P 500 CLASS (12/20/83) (7/1/91) (7/2/92) (2/12/92) INDEX (INCEPTION DATE) ---------- -------- -------- --------- ----- One Year.......................................... % % % % % Five Years........................................ % % % % % Ten Years......................................... % N/A N/A N/A % Life of Class..................................... % % % % **
- --------- * Assumes conversion of Class B shares to Class A after six years. ** Average annual total returns for the S&P 500 Index for the life of each class were as follows: Class A -- %; Class B -- %; Class C -- %; Class Y -- %. ------------ - -------------------------------------------------------------------------------- Prospectus Page 8 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth and Income Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.5% None None None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5% 1% None Exchange Fee................................................ None None None None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Management Fees............................................. 0.70% 0.70% 0.70% 0.70% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 0.00 Other Expenses.............................................. ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ---- ---- ---- ---- ---- ---- ---- ----
EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Class A................................................. $ $ $ $ Class B (assuming sale of all shares at end of period)............................................... Class B (assuming no sale of shares).................... Class C (assuming sale of all shares at end of period)............................................... Class C (assuming no sale of shares).................... Class Y.................................................
------------ - -------------------------------------------------------------------------------- Prospectus Page 9 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Mid Cap Fund PaineWebber Mid Cap Fund INVESTMENT OBJECTIVE, STRATEGIES AND RISKS - -------------------------------------------------------------------------------- FUND OBJECTIVE Long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The fund invests primarily in common stocks of medium capitalization ('mid cap') companies that are believed to have substantial potential for capital growth. The fund considers companies with market capitalizations of between $750 million and $8 billion to be mid cap. The fund also invests, to a lesser extent, in stocks of larger and smaller companies and in bonds and money market instruments. Some of the fund's investments may be in U.S. dollar denominated securities of foreign issuers. The fund may (but is not required to) use options, futures contracts and other derivatives as part of its investment strategy or to help manage portfolio risks. The fund's manager, Mitchell Hutchins Asset Management Inc., has appointed Delaware Management Company to serve as sub-adviser for the fund's investments. In deciding which stocks to buy or sell for the fund, Delaware Management Company employs a bottom-up, fundamental analysis to attempt to identify companies that have substantially above-average earnings growth because of management changes, new products, growth of established products or structural changes in the economy. Delaware Management Company also considers the quality of a company's management team and the strength of its finances and internal controls in selecting stocks for the fund. Although Delaware Management Company follows companies in a full range of market sectors, it may focus on a limited number of attractive industries. PRINCIPAL RISKS An investment in the fund is not guaranteed; you may lose money by investing in the fund. The principal risks presented by the funds are: Equity Risk -- Stocks and other equity securities generally fluctuate in value more than bonds. The fund could lose all of its investment in a company's stock. Limited Capitalization Risk -- Securities of mid capitalization companies generally involve greater risk than securities of larger capitalization companies because they may be more vulnerable to adverse business or economic developments. Foreign Investing Risk -- The value of the fund's investments in foreign securities may fall due to adverse political, social and economic developments abroad. However, because the fund's foreign investments must be denominated in U.S. dollars, it generally is not subject to the risk of changes in currency valuations. Derivatives Risk -- The fund's investments in derivatives may rise or fall more rapidly than other investments. More information about risks of an investment in the fund is provided below in 'More About Risks and Investment Strategies.' ------------ - -------------------------------------------------------------------------------- Prospectus Page 10 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Mid Cap Fund PERFORMANCE - -------------------------------------------------------------------------------- RISK/RETURN BAR CHART AND TABLE The following bar chart and table provide information about the fund's performance and thus give some indication of the risks of an investment in the fund. The bar chart shows how the fund's performance has varied from year to year. The chart shows Class A shares because they have as long a performance history as any class of fund shares. The chart does not reflect the effect of sales charges; if it did, the total returns shown would be lower. The table that follows the chart shows the average annual returns for each class of the fund's shares. That table does reflect fund sales charges. The table compares fund returns to returns on a broad-based market index of mid-cap companies that is unmanaged and that, therefore, does not include any sales charges or expenses. The fund's past performance does not necessarily indicate how the fund will perform in the future. TOTAL RETURN ON CLASS A SHARES (1993 IS THE FUND'S FIRST FULL CALENDAR YEAR OF OPERATIONS)
[PERFORMANCE GRAPH] CALENDAR YEAR TOTAL RETURN - ------------- ------------- 1990 1991 1992 1993 16.10% 1994 -1.36% 1995 28.79% 1996 17.87% 1997 15.14% 1998 11.81% 1999
Total return January 1, 2000 to September 30, 2000 -- % Best quarter during years shown: quarter, -- % Worst quarter during years shown: quarter, -- % AVERAGE ANNUAL TOTAL RETURNS as of December 31, 1999
CLASS A CLASS B* CLASS C CLASS Y S&P MIDCAP 400 CLASS (4/7/92) (4/7/92) (7/2/92) (3/17/98) INDEX (INCEPTION DATE) -------- -------- -------- --------- ----- One Year.................................... % % % % % Five Years.................................. % % % N/A % Life of Class............................... % % % % **
- --------- * Assumes conversion of Class B shares to Class A after six years. ** Average annual total returns for the S&P MidCap 400 Index for the life of each class were as follows: Class A -- %; Class B -- %; Class C -- %; Class Y -- %. ------------ - -------------------------------------------------------------------------------- Prospectus Page 11 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Mid Cap Fund EXPENSES AND FEE TABLES - -------------------------------------------------------------------------------- FEES AND EXPENSES These tables describe the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Maximum Sales Charge (Load) Imposed on Purchases (as a % of offering price)................................ 4.5% None None None Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of offering price)................................ None 5% 1% None Exchange Fee................................................ None None None None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Management Fees............................................. 1.00% 1.00% 1.00% 1.00% Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 0.00 Other Expenses.............................................. ---- ---- ---- ---- Total Annual Fund Operating Expenses........................ % % % % ---- ---- ---- ---- ---- ---- ---- ----
EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then sell all of your shares at the end of those periods unless otherwise stated. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Class A................................................ $ $ $ $ Class B (assuming sale of all shares at end of period).............................................. Class B (assuming no sale of shares)................... Class C (assuming sale of all shares at end of period).............................................. Class C (assuming no sale of shares)................... Class Y................................................
------------ - -------------------------------------------------------------------------------- Prospectus Page 12 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund MORE ABOUT RISKS AND INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- PRINCIPAL RISKS The main risks of investing in one or more of the funds are described below. Not all of these risks apply to each fund. You can find a list of the main risks that apply to a particular fund by looking under the 'Investment Objective, Strategies and Risks' heading for that fund. Other risks of investing in a fund, along with further detail about some of the risks described below, are discussed in the funds' Statement of Additional Information ('SAI'). Information on how you can obtain the SAI is on the back cover of this prospectus. Derivatives Risk. The value of 'derivatives' -- so-called because their value 'derives' from the value of an underlying asset, reference rate or index -- may rise or fall more rapidly than other investments. For some derivatives, it is possible for a fund to lose more than the amount it invested in the derivative. Options and futures contracts are examples of derivatives. A fund's use of derivatives may not succeed for various reasons, including unexpected changes in the values of the derivatives or the assets underlying them. Also, if a fund uses derivatives to adjust or 'hedge' the overall risk of its portfolio, the hedge may not succeed if changes in the values of the derivatives are not matched by opposite changes in the values of the assets being hedged. Equity Risk. The prices of common stocks and other equity securities generally fluctuate more than those of other investments. They reflect changes in the issuing company's financial condition and changes in the overall market. A fund may lose a substantial part, or even all, of its investment in a company's stock. Foreign Investing Risk. Foreign investing involves risks relating to political, social and economic developments abroad to a greater extent than investing in the securities of U.S. issuers. In addition, there are differences between U.S. and foreign regulatory requirements and market practices. Foreign investments denominated in foreign currencies are subject to the risk that the value of a foreign currency will fall in relation to the U.S. dollar. Currency exchange rates can be volatile and can be affected by, among other factors, the general economics of a country, the actions of U.S. and foreign governments or central banks, the imposition of currency controls and speculation. Investments in foreign government bonds involve special risks because the investors may have limited legal recourse in the event of default. Political conditions, especially a country's willingness to meet the terms of its debt obligations, can be of considerable significance. Index Strategy Risk. SSgA's proprietary strategies may not result in the portion of fund assets it manages for Growth Fund and Growth and Income Fund outperforming the total return of the designated index, and these assets may underperform the index. Its performance also may deviate from that of the index because of shareholder purchases and sales of shares, which can occur daily, and because of fees and expenses borne by the fund. Limited Capitalization Risk. Securities of mid cap companies generally involve greater risk than securities of larger capitalization companies because they may be more vulnerable to adverse business or economic developments. Mid cap companies also may have limited product lines, markets or financial resources, and they may be dependent on a relatively small management group. Securities of mid cap companies may be less liquid and more volatile than securities of larger companies or the market averages in general. In general, all of these risks are greater for small capitalization companies than for mid cap companies. In addition, small capitalization 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. ADDITIONAL RISKS Credit and Interest Rate Risks. Each fund is authorized to invest in bonds and other income-producing securities. These securities are subject to credit risk and interest rate risk. Credit risk is the risk that the issuer of a bond will not make principal or interest payments when they are due. Even if an issuer does not default on a ------------ - -------------------------------------------------------------------------------- Prospectus Page 13 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund payment, a bond's value may decline if the market believes that the issuer has become less able, or less willing, to make payments on time. Even high quality bonds are subject to some credit risk. However, credit risk is higher for lower quality bonds. Bonds that are not investment grade involve high credit risk and are considered speculative. Lower quality bonds may fluctuate in value more than higher quality bonds and, during periods of market volatility, may be more difficult to sell at the time and price a fund desires. The value of bonds can be expected to fall when interest rates rise and to rise when interest rates fall. Interest rate risk is the risk that interest rates will rise, so that the value of a fund's investments in bonds will fall. Because interest rate risk is the primary risk presented by U.S. government and other very high quality bonds, changes in interest rates may actually have a larger effect on the value of those bonds than on lower quality bonds. ADDITIONAL INVESTMENT STRATEGIES Defensive Positions; Cash Reserves. In order to protect itself from adverse market conditions, a fund may take a temporary defensive position that is different from its normal investment strategy. This means that the fund may temporarily invest a larger-than-normal part, or even all, of its assets in cash or money market instruments. In addition, if a fund's board appoints a new sub-adviser to manage all or a portion of the fund's investments, the fund may increase its cash reserves to facilitate the transition to the investment style and strategies of the new sub-adviser. Since these investments provide relatively low income, a defensive or transition position may not be consistent with achieving a fund's investment objective. Each of the funds may invest up to 35% of its total assets in cash or money market instruments as a cash reserve for liquidity or, except in the case of Growth Fund, as part of its ordinary investment strategy. Portfolio Turnover. Each fund may engage in frequent trading to achieve its investment objective. Frequent trading can result in portfolio turnover in excess of 100% (high portfolio turnover). Frequent trading may increase the portion of a fund's capital gains that are realized for tax purposes in any given year. This may increase the fund's taxable dividends in that year. Frequent trading also may increase the portion of a fund's realized capital gains that are considered 'short-term' for tax purposes. Shareholders will pay higher taxes on dividends that represent short-term gains than they would pay on dividends that represent long-term gains. Frequent trading also may result in higher fund expenses due to transaction costs. The funds do not restrict the frequency of trading in order to limit expenses or the tax effect that the fund's dividends may have on shareholders. ------------ - -------------------------------------------------------------------------------- Prospectus Page 14 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund MANAGING YOUR FUND ACCOUNT - -------------------------------------------------------------------------------- FLEXIBLE PRICING The funds offer four classes of shares -- Class A, Class B, Class C and Class Y. Each class has different sales charges and ongoing expenses. You can choose the class that is best for you, based on how much you plan to invest and how long you plan to hold your fund investment. Class Y shares are only available to certain types of investors. Each fund has adopted a plan under rule 12b-1 for its Class A, Class B and Class C shares that allows it to pay service and (for Class B and Class C shares) distribution fees for the sale of its shares and services provided to shareholders. Because the 12b-1 distribution fees for Class B and Class C shares are paid out of a fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than if you paid a front-end sales charge. CLASS A SHARES Class A shares have a front-end sales charge that is included in the offering price of the Class A shares. This sales charge is not invested in the fund. Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets, but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares are lower than for Class B and Class C shares. The Class A sales charges for each fund are described in the following table. CLASS A SALES CHARGES
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE 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. Class A shares representing reinvestment of dividends are not subject to this 1% charge. Withdrawals in the first year after purchase of up to 12% of the value of the fund account under the funds' Systematic Withdrawal Plan are not subject to this charge. (2) Mitchell Hutchins pays 1% to PaineWebber. Sales Charge Reductions and Waivers. You may qualify for a lower sales charge if you already own Class A shares of a PaineWebber mutual fund. You can combine the value of Class A shares that you own in other PaineWebber funds and the purchase amount of the Class A shares of the PaineWebber fund that you are buying. You may also qualify for a lower sales charge if you combine your purchases with those of: your spouse, parents or children under age 21; your Individual Retirement Accounts (IRAs); certain employee benefit plans, including 401(k) plans; a company that you control; a trust that you created; Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created by you or by a group of investors for your children; or accounts with the same adviser. ------------ - -------------------------------------------------------------------------------- Prospectus Page 15 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund You may qualify for a complete waiver of the sales charge if you: Are an employee of PaineWebber or its affiliates or the spouse, parent or child under age 21 of a PaineWebber employee; Buy these shares through a PaineWebber Financial Advisor who was formerly employed as an investment executive with a competing brokerage firm that was registered as a broker-dealer with the SEC; and -- you were the Financial Advisor's client at the competing brokerage firm; -- within 90 days of buying shares in a fund, you sell shares of one or more mutual funds that were principally underwritten by the competing brokerage firm or its affiliates, and you either paid a sales charge to buy those shares, pay a contingent deferred sales charge when selling them or held those shares until the contingent deferred sales charge was waived; and -- you purchase an amount that does not exceed the total amount of money you received from the sale of the other mutual fund. Acquire these shares through the reinvestment of dividends of a PaineWebber unit investment trust; Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more eligible employees in the plan or at least $1 million in assets; Are a participant in the PaineWebber Members Only'sm' Program. 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; or Acquire these shares through a PaineWebber InsightOne'sm' Program brokerage account. CLASS B SHARES Class B shares have a contingent deferred sales charge. When you purchase Class B shares, we invest 100% of your purchase in fund shares. However, you may have to pay the deferred sales charge when you sell your fund shares, depending on how long you own the shares. Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net assets, as well as an annual 12b-1 service fee of 0.25% of average net assets. If you hold your Class B shares for six years, they will automatically convert to Class A shares, which have lower ongoing expenses. If you sell Class B shares before the end of six years, you will pay a deferred sales charge. We calculate the deferred sales charge by multiplying the lesser of the net asset value of the Class B shares at the time of purchase or the net asset value at the time of sale by the percentage shown below:
PERCENTAGE BY WHICH THE IF YOU SELL SHARES' NET ASSET SHARES WITHIN: 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
We will not impose the deferred sales charge on Class B shares representing reinvestment of dividends or on withdrawals in any year of up to 12% of the value of your Class B shares under the Systematic Withdrawal Plan. To minimize your deferred sales charge, we will assume that you are selling: First, Class B shares representing reinvested dividends, and Second, Class B shares that you have owned the longest. Sales Charge Waivers. You may qualify for a waiver of the deferred sales charge on a sale of shares if: You participate in the Systematic Withdrawal Plan; You are older than 59 1/2 and are selling shares to take a distribution from certain types of retirement plans; You receive a tax-free return of an excess IRA contribution; You receive a tax-qualified retirement plan distribution following retirement; The shares are sold within one year of your death and you owned the shares either (1) as the sole shareholder or (2) with your spouse as a joint tenant with the right of survivorship; or The shares are held in trust and the death of the trustee requires liquidation of the trust. ------------ - -------------------------------------------------------------------------------- Prospectus Page 16 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund CLASS C SHARES Class C shares have a level load sales charge in the form of ongoing 12b-1 distribution fees. When you purchase Class C shares, we will invest 100% of your purchase in fund shares. Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net assets, as well as an annual 12b-1 service fee of 0.25% of average net assets. Class C shares do not convert to another class of shares. This means that you will pay the 12b-1 fees for as long as you own your shares. Class C shares also have a contingent deferred sales charge. You may have to pay the deferred sales charge if you sell your shares within one year of the date you purchased them. We calculate the deferred sales charge on sales of Class C shares by multiplying 1.00% by the lesser of the net asset value of the Class C shares at the time of purchase or the net asset value at the time of sale. We will not impose the deferred sales charge on Class C shares representing reinvestment of dividends or on withdrawals in the first year after purchase, of up to 12% of the value of your Class C shares under the Systematic Withdrawal Plan. You may be eligible to sell your shares without paying a contingent deferred sales charge if you are a 401(k) or 403(b) qualified employee benefit plan with less than 100 eligible employees or less than $1 million in assets. NOTE ON SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES If you think you qualify for any of the sale charge waivers described above, you will need to provide documentation to PaineWebber or the fund. For more information, you should contact your PaineWebber Financial Advisor or correspondent firm or call 1-800-647-1568. If you want information on the Fund's Systematic Withdrawal Plan, see the SAI or contact your PaineWebber Financial Advisor or correspondent firm. CLASS Y SHARES Class Y shares have no sales charge. Only specific types of investors can purchase Class Y shares. You may be eligible to purchase Class Y shares if you: Buy shares through PaineWebber's PACE'sm' Multi Advisor Program; Buy $10 million or more of PaineWebber fund shares at any one time; Are a qualified retirement plan with 5,000 or more eligible employees or $50 million in assets; or Are a corporation, bank, trust company, insurance company, pension fund, employee benefit plan, professional firm, trust, estate or educational, religious or charitable organization with 5,000 or more employees or with over $50 million in investable assets. The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible to purchase Class Y shares. Class Y shares do not pay ongoing distribution or service fees or sales charges. The ongoing expenses for Class Y shares are the lowest for all the classes. BUYING SHARES If you are a PaineWebber client, or a client of a PaineWebber correspondent firm, you can purchase fund shares through your Financial Advisor. Otherwise, you can invest in the funds through the funds' transfer agent, PFPC Inc. You can obtain an application by calling 1-800-647-1568. You must complete and sign the application and mail it, along with a check, to: PFPC Inc. Attn.: PaineWebber Mutual Funds P.O. Box 8950 Wilmington, DE 19899. If you wish to invest in other PaineWebber funds, you can do so by: Contacting your Financial Advisor (if you have an account at PaineWebber or at a PaineWebber correspondent firm); Mailing an application with a check; or Opening an account by exchanging shares from another PaineWebber fund. You do not have to complete an application when you make additional investments in the same fund. The funds and Mitchell Hutchins reserve the right to reject a purchase order or suspend the offering of shares. ------------ - -------------------------------------------------------------------------------- Prospectus Page 17 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund MINIMUM INVESTMENTS To open an account............... $1,000 To add to an account............. $ 100
Each fund may waive or reduce these amounts for: Employees of PaineWebber or its affiliates; or Participants in certain pension plans, retirement accounts, unaffiliated investment programs or the funds' automatic investment plans. Frequent Trading. The interests of a fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as 'market timing'. When large dollar amounts are involved, the fund may have difficulty implementing long-term investment strategies, because it cannot predict how much cash it will have to invest. Market timing also may force the fund to sell portfolio securities at disadvantageous times to raise the cash needed to buy a market timer's fund shares. These factors may hurt the fund's performance and its shareholders. When Mitchell Hutchins believes frequent trading would have a disruptive effect on a fund's ability to manage its investments, Mitchell Hutchins and the fund may reject purchase orders and exchanges into the fund by any person, group or account that Mitchell Hutchins believes to be a market timer. A fund may notify the market timer that a purchase order or an exchange has been rejected after the day the order is placed. SELLING SHARES You can sell your fund shares at any time. If you own more than one class of shares, you should specify which class you want to sell. If you do not, the fund will assume that you want to sell shares in the following order: Class A, then Class C, then Class B and last, Class Y. If you want to sell shares that you purchased recently, the fund may delay payment until it verifies that it has received good payment. If you purchased shares by check, this can take up to 15 days. If you have an account with PaineWebber or a PaineWebber correspondent firm, you can sell shares by contacting your Financial Advisor. If you do not have an account at PaineWebber or a correspondent firm, and you bought your shares through the transfer agent, you can sell your shares by writing to the fund's transfer agent. Your letter must include: Your name and address; The fund's name; The fund account number; The dollar amount or number of shares you want to sell; and A guarantee of each registered owner's signature. A signature guarantee may be obtained from a financial institution, broker, dealer or clearing agency that is a participant in one of the medallion programs recognized by the Securities Transfer Agents Association. These are: Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP). The funds will not accept signature guarantees that are not a part of these programs. Mail the letter to: PFPC Inc. Attn.: PaineWebber Mutual Funds P.O. Box 8950 Wilmington, DE 19899. If you sell Class A shares and then repurchase Class A shares of the same fund within 365 days of the sale, you can reinstate your account without paying a sales charge. It costs each fund money to maintain shareholder accounts. Therefore, the funds reserve the right to repurchase all shares in any account that has a net asset value of less than $500. If a fund elects to do this with your account, it will notify you that you can increase the amount invested to $500 or more within 60 days. A fund will not repurchase shares in accounts that fall below $500 solely because of a decrease in the fund's net asset value. EXCHANGING SHARES You may exchange Class A, Class B or Class C shares of each fund for shares of the same class of most other PaineWebber funds. You may not exchange Class Y shares. You will not pay either a front-end sales charge or a deferred sales charge when you exchange shares. However, you may have to pay a deferred sales ------------ - -------------------------------------------------------------------------------- Prospectus Page 18 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund charge if you later sell the shares you acquired in the exchange. Each fund will use the date that you purchased the shares in the first fund to determine whether you must pay a deferred sales charge when you sell the shares in the acquired fund. Other PaineWebber funds may have different minimum investment amounts. You may not be able to exchange your shares if your exchange is not as large as the minimum investment amount in that other fund. You may exchange shares of one fund for shares of another fund only after the first purchase has settled and the first fund has received your payment. PaineWebber and Correspondent Firm Clients. If you bought your shares through PaineWebber or a correspondent firm, you may exchange your shares by placing an order with your Financial Advisor. Other Investors. If you are not a PaineWebber or correspondent firm client, you may exchange your shares by writing to the fund's transfer agent. You must include: Your name and address; The name of the fund whose shares you are selling and the name of the fund whose shares you want to buy; Your account number; How much you are exchanging (by dollar amount or by number of shares to be sold); and A guarantee of your signature. (See 'Selling Shares' for information on obtaining a signature guarantee.) Mail the letter to: PFPC Inc. Attn.: PaineWebber Mutual Funds P.O. Box 8950 Wilmington, DE 19899. A fund may modify or terminate the exchange privilege at any time. PRICING AND VALUATION The price at which you may buy, sell or exchange fund shares is based on net asset value per share. Each fund calculates net asset value on days that the New York Stock Exchange is open. Each fund calculates net asset value separately for each class as of the close of regular trading on the NYSE (generally, 4:00 p.m., Eastern time). The NYSE normally is not open, and the funds do not price their shares, on most national holidays and on Good Friday. If trading on the NYSE is halted for the day before 4:00 p.m., Eastern time, the fund's net asset value per share will be calculated as of the time trading was halted. Your price for buying, selling or exchanging shares will be based on the net asset value that is next calculated after the fund accepts your order. If you place your order through PaineWebber, your PaineWebber Financial Advisor is responsible for making sure that your order is promptly sent to the fund. You should keep in mind that a front-end sales charge may be applied to your purchase if you buy Class A shares. A deferred sales charge may be applied when you sell Class B or Class C shares. Each fund calculates its net asset value based on the current market value for its portfolio securities. The funds normally obtain market values for their securities from independent pricing services that use reported last sales prices, current market quotations or valuations from computerized 'matrix' systems that derive values based on comparable securities. If a market value is not available from an independent pricing source for a particular security, that security is valued at a fair value determined by or under the direction of the fund's board. The funds normally use the amortized cost method to value bonds that will mature in 60 days or less. Judgment plays a greater role in valuing thinly traded securities, including many lower-rated bonds, because there is less reliable, objective data available. ------------ - -------------------------------------------------------------------------------- Prospectus Page 19 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund MANAGEMENT - -------------------------------------------------------------------------------- MANAGER Mitchell Hutchins Asset Management Inc. is the manager and administrator of each fund. Mitchell Hutchins is located at 51 West 52nd Street, New York, New York, 10019-6114, and is a wholly owned asset management subsidiary of PaineWebber Incorporated, which is a wholly owned indirect subsidiary of UBS AG, an internationally diversified organization with headquarters in Switzerland and operations in many areas of the financial services industry. On October 31, 2000, Mitchell Hutchins was adviser or sub-adviser of 31 investment companies with 75 separate portfolios and aggregate assets of approximately $ billion. Mitchell Hutchins, with the approval of each fund's board, has selected investment sub-advisers for the funds and reviews the performance of those sub- advisers. SUB-ADVISERS AND PORTFOLIO MANAGERS GROWTH FUND. Alliance Capital Management L.P. ('Alliance Capital') and State Street Global Advisors ('SSgA') serve as sub-advisers for this fund. Alliance Capital is located at 1345 Avenue of the Americas, New York, New York 10105. It is a leading international investment manager supervising client accounts with assets as of June 30, 2000 of approximately $388 billion. Jane Mack Gould is primarily responsible for the day-to-day portfolio management of the fund's assets allocated to Alliance Capital and has held her fund responsibilities since October 10, 2000. Ms. Gould is a senior vice president and portfolio manager and has been with Alliance Capital since 1971. SSgA is located at Two International Place, Boston, Massachusetts 02110, and is the investment management division of State Street Bank and Trust Company. SSgA uses a team approach in the day-to-day management of its share of the fund's assets. SSgA has held its fund responsibilities since October 10, 2000. GROWTH AND INCOME FUND. Institutional Capital Corporation ('ICAP'), Westwood Management Corporation ('Westwood') and State Street Global Advisors ('SSgA') serve as sub-advisers for this fund. ICAP is located at 225 West Wacker Drive, Suite 2400, Chicago, Illinois 60606-1229, and has been in the investment management business since 1970. As of September 30, 2000, ICAP had approximately $14.4 billion in assets under management. ICAP uses a team approach in the day-to-day management of its share of the fund's assets. ICAP has held its fund responsibilities since October 10, 2000. Westwood is located at 300 Crescent Court, Suite 1300, Dallas, Texas 75201, and has been in the investment management business since 1983. As of September 30, 2000, Westwood had approximately $3.2 billion in assets under management. Susan M. Byrne, president of Westwood since 1983, is primarily responsible for the day-to-day management of Westwood's share of the fund's assets. Ms. Byrne has held her fund responsibilities since October 10, 2000. SSgA is located at Two International Place, Boston, Massachusetts 02110, and is the investment management division of State Street Bank and Trust Company. SSgA uses a team approach in the day-to-day management of its share of the fund's assets. SSgA has held its fund responsibilities since October 10, 2000. MID CAP FUND. Delaware Management Company, a series of Delaware Management Business Trust, a Delaware business trust, serves as sub-adviser for this fund. Delaware Management Company is located at One Commerce Square, Philadelphia, PA 19103. Delaware Management Company and its predecessors have been managing funds for affiliated organizations in the financial services industry since 1938. As of September 30, 2000, Delaware Management Company and its affiliates had over $80 billion in assets under management. Gerald S. Frey is primarily responsible for the fund's day-to-day portfolio management and has held his fund responsibilities since October 10, 2000. ------------ - -------------------------------------------------------------------------------- Prospectus Page 20 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund Mr. Frey is a vice president of Delaware Management Company. Prior to joining the group of companies of which Delaware Management Company is a part in 1996, Mr. Frey was a senior director with Morgan Grenfell Capital Management, Incorporated in New York. He has 18 years of experience in the money management business. In making investment decisions for the fund, Mr. Frey regularly consults with other members of the Delaware Management Company team: John A. Heffern, Marshall T. Bassett, Jeffrey Hynoski, Steven Lampe, Lori F. Wachs and Frank Houghton. All team members have held their fund responsibilities since October 10, 2000. Mr. Heffern joined Delaware Management Company in 1997 and serves as a vice president. Previously, he was a senior vice president, equity research at NatWest Security Corporation's Specialty Financial Services unit. Prior to that, he was a principal and senior regional bank analyst at Alex. Brown & Sons. Mr. Bassett joined Delaware Management Company in 1997 and serves as a vice president. Previously, he was employed by Morgan Stanley Asset Management's Emerging Growth Group, most recently as a vice president, where he analyzed small growth companies. Prior to that, he was trust officer at Sovran Bank and Trust Company. Mr. Hynoski joined Delaware Management Company in 1998 and serves as a vice president. Previously, he held the position of vice president with Bessemer Trust since 1993. Prior to that, he served as an analyst for Lord Abbett and Cowen Asset Management. Mr. Lampe joined Delaware Management Company in 1995 and serves as a vice president. Prior to that, he held a manager position with Price Waterhouse servicing the financial services industry. Ms. Wachs joined Delaware Management Company in 1992 and serves as an assistant vice president. Previously, she was an equity analyst at Goldman Sachs & Company for two years. Mr. Houghton joined Delaware Management Company in March 2000 and serves as a vice president. Previously, he was with Lynch & Mayer, Inc., which he joined in 1990 as a portfolio manager and where he served as president from 1999 to 2000. Prior to joining Lynch & Mayer, Inc., Mr. Houghton was chairman of BMI Capital from 1984 to 1990, a portfolio manager at Neuberger & Berman from 1977 to 1984 and a partner of Oppenheimer & Co., Inc., from 1969 to 1977. ADVISORY FEES The funds paid advisory fees to Mitchell Hutchins for the most recent fiscal year at the following rate of average daily net assets: Growth Fund.................... 0.75% Growth and Income Fund......... 0.70% Mid Cap Fund................... 1.00%
OTHER INFORMATION The funds have received an exemptive order from the SEC that permits their boards to appoint and replace sub-advisers and to amend sub-advisory contracts without obtaining shareholder approval. A fund's shareholders must approve this policy before its board may implement it. As of the date of this prospectus, the shareholders of the funds have not been asked to do so. ------------ - -------------------------------------------------------------------------------- Prospectus Page 21 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund DIVIDENDS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS Growth and Income Fund normally pays semi-annual dividends and distributes any gains annually. The other funds normally declare and pay dividends and distribute any gains annually. Classes with higher expenses are expected to have lower dividends. For example, Class B shares and Class C are expected to have the lowest dividends of any class of a fund's shares, while Class Y shares are expected to have the highest. You will receive dividends in additional shares of the same class unless you elect to receive them in cash. Contact your Financial Advisor at PaineWebber or one of its correspondent firms if you prefer to receive dividends in cash. TAXES The dividends that you receive from a fund generally are subject to federal income tax regardless of whether you receive them in additional fund shares or in cash. If you hold fund shares through a tax-exempt account or plan, such as an IRA or 401(k) plan, dividends on your shares generally will not be subject to tax. When you sell fund shares, you generally will be subject to federal income tax on any gain you realize. If you exchange any fund's shares for shares of another PaineWebber mutual fund, the transaction will be treated as a sale of the first fund's shares, and any gain will be subject to federal income tax. Growth and Income Fund expects that its dividends will include both ordinary income and capital gain distributions. The other funds expect that their dividends will be comprised primarily of capital gain distributions. The distribution of capital gains will be taxed at a lower rate than ordinary income if the fund held the assets that generated the gains for more than 12 months. Your fund will tell you annually how you should treat its dividends for tax purposes. ------------ - -------------------------------------------------------------------------------- Prospectus Page 22 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund [THIS PAGE INTENTIONALLY LEFT BLANK] ------------ - -------------------------------------------------------------------------------- Prospectus Page 23 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following financial highlights tables are intended to help you understand the funds' financial performance for the past 5 years. Shorter periods are shown for classes of fund shares that have existed for less than 5 years. Certain information reflects financial results for a single fund share. In the tables, 'total investment return' represents the rate that an investor would have earned (or lost) on an investment in a fund (assuming reinvestment of all dividends). This information in the financial highlights has been audited by Ernst & Young LLP, independent auditors, whose reports, along with the funds' financial statements, are included in the funds' Annual Reports to Shareholders. Annual Reports may be obtained without charge by calling 1-800-647-1568. PAINEWEBBER GROWTH FUND
CLASS A ---------------------------------------------------- FOR THE YEARS ENDED AUGUST 31, ---------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net asset value, beginning of year... $ $ 20.08 $ 25.94 $ 24.37 $ 22.27 -------- -------- -------- -------- -------- Net investment income (loss)......... (0.10) (0.09) (0.08)'D' (0.12) Net realized and unrealized gains from investments.................... 8.88 1.01 3.76'D' 4.06 -------- -------- -------- -------- -------- Total increase from investment operations.......................... 8.78 0.92 3.68 3.94 -------- -------- -------- -------- -------- Distributions from net realized gains from investment transactions........ (2.01) (6.78) (2.11) (1.84) -------- -------- -------- -------- -------- Net asset value, end of year......... $ $ 26.85 $ 20.08 $ 25.94 $ 24.37 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment return(1)........... % 44.97% 3.37% 15.85% 18.43% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Ratios/Supplemental data: Net assets, end of year (000's)...... $ $295,906 $202,253 $201,725 $203,882 Expenses to average net assets, net of waivers from adviser............. % 1.15% 1.19% 1.27% 1.28% Net investment income (loss) to average net assets, net of waivers from adviser........................ % (0.41)% (0.39)% (0.32)% (0.49)% Portfolio turnover................... % 38% 52% 86% 60% CLASS B -------------------------------------------------- FOR THE YEARS ENDED AUGUST 31, -------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net asset value, beginning of year... $ $ 18.44 $ 24.51 $ 23.30 $ 21.53 ------- ------- -------- -------- -------- Net investment income (loss)......... (0.30) (0.30) (0.26)'D' (0.39) Net realized and unrealized gains from investments.................... 8.13 1.01 3.58 'D' 4.00 ------- ------- -------- -------- -------- Total increase from investment operations.......................... 7.83 0.71 3.32 3.61 ------- ------- -------- -------- -------- Distributions from net realized gains from investment transactions........ (2.01) (6.78) (2.11) (1.84) ------- ------- -------- -------- -------- Net asset value, end of year......... $ $ 24.26 $ 18.44 $ 24.51 $ 23.30 ------- ------- -------- -------- -------- ------- ------- -------- -------- -------- Total investment return(1)........... % 43.75% 2.55% 14.98% 17.48% ------- ------- -------- -------- -------- ------- ------- -------- -------- -------- Ratios/Supplemental data: Net assets, end of year (000's)...... $ $85,576 $ 74,094 $115,529 $140,551 Expenses to average net assets, net of waivers from adviser............. % 1.96% 1.99% 2.06% 2.06% Net investment income (loss) to average net assets, net of waivers from adviser........................ % (1.22)% (1.18)% (1.12)% (1.27)% Portfolio turnover................... % 38% 52% 86% 60%
- --------- 'D' Calculated using the average shares outstanding for the year. (1) Total investment return is calculated assuming a $1,000 investment on the first day of each year reported, reinvestment of all dividends and distributions, if any, at net asset value on the payable dates and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. ------------ - -------------------------------------------------------------------------------- Prospectus Page 24 - -------------------------------------------------------------------------------- PAINEWEBBER GROWTH FUND
CLASS C CLASS Y ------------------------------------------------------- ----------------------------------------------- FOR THE YEARS ENDED AUGUST 31, FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------------- ----------------------------------------------- 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- $ $ 18.65 $ 24.71 $ 23.48 $ 21.68 $ $ 20.67 $ 26.46 $ 24.74 $ 22.53 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (0.26) (0.27) (0.27)'D' (0.34) (0.03) (0.03) (0.01)'D' (0.02) 8.18 0.99 3.61 'D' 3.98 9.16 1.02 3.84 'D' 4.07 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 7.92 0.72 3.34 3.64 9.13 0.99 3.83 4.05 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (2.01) (6.78) (2.11) (1.84) (2.01) (6.78) (2.11) (1.84) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- $ $ 24.56 $ 18.65 $ 24.71 $ 23.48 $ $ 27.79 $ 20.67 $ 26.46 $ 24.74 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- % 43.74% 2.59% 14.95% 17.50% % 45.40% 3.61% 16.24% 18.72% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- $ $35,793 $21,714 $24,760 $29,923 $ $33,383 $21,440 $20,281 $21,409 % 1.94% 1.99% 2.07% 2.07% % 0.86% 0.91% 1.00% 1.02% % (1.20)% (1.19)% (1.13)% (1.28)% % (0.12)% (0.12)% (0.05)% (0.23)% % 38% 52% 86% 60% % 38% 52% 86% 60%
------------ - -------------------------------------------------------------------------------- Prospectus Page 25 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- PAINEWEBBER GROWTH AND INCOME FUND
CLASS A ------------------------------------------------------ FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net asset value, beginning of year............................... $ $ 26.92 $ 30.60 $ 24.35 $ 22.52 -------- -------- -------- -------- -------- Net investment income............... 0.13 0.19 0.23 0.22 Net realized and unrealized gains (losses) from investments and options............................ 6.88 (0.99) 9.29 3.46 -------- -------- -------- -------- -------- Total increase (decrease) from investment operations.............. 7.01 (0.80) 9.52 3.68 -------- -------- -------- -------- -------- Dividends from net investment income............................. (0.08) (0.21) (0.25) (0.34) Distributions from net realized gains from investment transactions....................... (1.78) (2.67) (3.02) (1.51) -------- -------- -------- -------- -------- Total dividends and distributions to shareholders....................... (1.86) (2.88) (3.27) (1.85) -------- -------- -------- -------- -------- Net asset value, end of year........ $ $ 32.07 $ 26.92 $ 30.60 $ 24.35 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment return(1).......... % 26.48% (3..51)% 42.42% 17.40% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Ratios/Supplemental data: Net assets, end of year (000's)..... $ $844,415 $670,606 $441,699 $276,016 Expenses to average net assets...... % 1.08% 1.07% 1.15% 1.20%(2) Net investment income (loss) to average net assets................. % 0.41% 0.71% 0.88% 0.98%(2) Portfolio turnover.................. % 57% 62% 70% 112% CLASS B ------------------------------------------------------ FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net asset value, beginning of year............................... $ $ 26.77 $ 30.46 $ 24.26 $ 22.37 -------- -------- -------- -------- -------- Net investment income............... (0.15) (0.02) 0.04 0.04 Net realized and unrealized gains (losses) from investments and options............................ 6.88 (1.02) 9.23 3.45 -------- -------- -------- -------- -------- Total increase (decrease) from investment operations.............. 6.73 (1.04) 9.27 3.49 -------- -------- -------- -------- -------- Dividends from net investment income............................. -- -- (0.05) (0.09) Distributions from net realized gains from investment transactions....................... (1.78) (2.65) (3.02) (1.51) -------- -------- -------- -------- -------- Total dividends and distributions to shareholders....................... (1.78) (2.65) (3.07) (1.60) -------- -------- -------- -------- -------- Net asset value, end of year........ $ $ 31.72 $ 26.77 $ 30.46 $ 24.26 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment return(1).......... % 25.51% (4.28)% 41.33% 16.49% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Ratios/Supplemental data: Net assets, end of year (000's)..... $ $306,557 $353,150 $376,840 $277,753 Expenses to average net assets...... % 1.86% 1.87% 1.93% 1.99%(2) Net investment income (loss) to average net assets................. % (0.37)% (0.08)% 0.11% 0.17%(2) Portfolio turnover.................. % 57% 62% 70% 112%
- --------- (1) Total investment return is calculated assuming a $1,000 investment on the first day of each year reported, reinvestment of all dividends and distributions, if any, at net asset value on the payable dates and a sale at net asset value on the last day of each year reported. The figures do not include any applicable sales charges or program fees; results would be lower if they were included. (2) These ratios include non-recurring acquisition expenses of 0.04%. ------------ - -------------------------------------------------------------------------------- Prospectus Page 26 - -------------------------------------------------------------------------------- PAINEWEBBER GROWTH AND INCOME FUND
CLASS C CLASS Y ---------------------------------------------------- ----------------------------------------------- FOR THE YEARS ENDED AUGUST 31, FOR THE YEARS ENDED AUGUST 31, ---------------------------------------------------- ----------------------------------------------- 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- $ $ 26.82 $ 30.53 $ 24.33 $ 22.43 $ $ 26.92 $ 30.59 $ 24.35 $ 22.54 -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- (0.12) 0.01 0.05 0.05 0.24 0.30 0.32 0.30 6.86 (1.03) 9.24 3.46 6.86 (1.02) 9.26 3.45 -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- 6.74 (1.02) 9.29 3.51 7.10 (0.72) 9.58 3.75 -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -- (0.02) (0.07) (0.10) (0.12) (0.28) (0.32) (0.43) (1.78) (2.67) (3.02) (1.51) (1.78) (2.67) (3.02) (1.51) -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- (1.78) (2.69) (3.09) (1.61) (1.90) (2.95) (3.34) (1.94) -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- $ $ 31.78 $ 26.82 $ 30.53 $ 24.33 $ $ 32.12 $ 26.92 $ 30.59 $ 24.35 -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- % 25.49% (4.23)% 41.30% 16.52% % 26.82% (3.24)% 42.74% 17.77% -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ------- ------- ------- ------- ------- $ $165,948 $149,458 $ 84,922 $ 43,148 $ $30,468 $65,104 $65,518 $46,745 % 1.85% 1.85% 1.92% 1.99%(2) % 0.79% 0.80% 0.88% 0.92%(2) % (0.36)% (0.07)% 0.10% 0.18%(2) % 0.70% 0.99% 1.14% 1.26%(2) % 57% 62% 70% 112% % 57% 62% 70% 112%
------------ - -------------------------------------------------------------------------------- Prospectus Page 27 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- PAINEWEBBER MID CAP FUND
CLASS A ------------------------------------------------------------------ FOR THE FIVE FOR THE YEARS MONTHS ENDED AUGUST 31, ENDED FOR THE YEARS ENDED MARCH 31, ------------------- AUGUST 31, ------------------------------- 2000 1999 1998# 1998 1997 1996 -------- -------- ----- ---- ---- ---- Net asset value, beginning of period.... $ $ 7.97 $ 15.00 $ 13.44 $ 15.61 $ 12.81 -------- -------- ------- -------- ------- ------- Net investment loss..... (0.07) (0.03) (0.13) (0.17) (0.16) Net realized unrealized gains (losses) from investments............ 3.43 (3.15) 5.15 0.32 3.71 -------- -------- ------- -------- ------- ------- Net increase (decrease) from investment operations............. 3.36 (3.18) 5.02 0.15 3.55 -------- -------- ------- -------- ------- ------- Distributions from net realized gains from investments............ (0.66) (3.85) (3.46) (2.32) (0.75) -------- -------- ------- -------- ------- ------- Net asset value, end of period................. $ $ 10.67 $ 7.97 $ 15.00 $ 13.44 $ 15.61 -------- -------- ------- -------- ------- ------- -------- -------- ------- -------- ------- ------- Total investment return(1).............. % 43.38% (27.31)% 41.50% (0.21)% 28.16% -------- -------- ------- -------- ------- ------- -------- -------- ------- -------- ------- ------- Ratios/Supplemental Data: Net assets, end of period (000's)......... $ $113,126 $90,650 $101,698 $76,909 76,558 Expenses to average net assets, net of waivers from adviser........... % 1.60% 1.48%* 1.51% 1.60% 1.58% Net investment loss to average net assets, net of waivers from adviser................ % (0.64)% (0.61)%* (1.16)% (1.20)% (1.11)% Portfolio turnover...... % 79% 80% 64% 56% 57% CLASS B ----------------------------------------------------------------- FOR THE FIVE FOR THE YEARS MONTHS ENDED AUGUST 31, ENDED FOR THE YEARS ENDED MARCH 31, ------------------- AUGUST 31, ------------------------------- 2000 1999 1998# 1998 1997 1996 -------- -------- ----- ---- ---- ---- Net asset value, beginning of period.... $ $ 7.99 $ 15.07 $ 13.59 $ 15.88 $ 13.11 ------- ------- ------- -------- -------- -------- Net investment loss..... (0.27) (0.07) (0.31) (0.31) (0.29) Net realized unrealized gains (losses) from investments............ 3.53 (3.16) 5.25 0.34 3.81 ------- ------- ------- -------- -------- -------- Net increase (decrease) from investment operations............. 3.26 (3.23) 4.94 0.03 3.52 ------- ------- ------- -------- -------- -------- Distributions from net realized gains from investments............ (0.66) (3.85) (3.46) (2.32) (0.75) ------- ------- ------- -------- -------- -------- Net asset value, end of period................. $ $ 10.59 $ 7.99 $ 15.07 $ 13.59 $ 15.88 ------- ------- ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- Total investment return(1).............. % 41.95% (27.54)% 40.39% (0.99)% 27.28% ------- ------- ------- -------- -------- -------- ------- ------- ------- -------- -------- -------- Ratios/Supplemental Data: Net assets, end of period (000's)......... $ $28,077 $54,978 $143,058 $134,495 $157,021 Expenses to average net assets, net of waivers from adviser........... % 2.55% 2.32%* 2.28% 2.36% 2.34% Net investment loss to average net assets, net of waivers from adviser................ % (1.61)% (1.48)%* (1.92)% (1.95)% (1.87)% Portfolio turnover...... % 79% 80% 64% 56% 57%
- --------- * Annualized. # Effective May 1, 1998, Mitchell Hutchins took over day-to-day management of the Fund's assets. 'D' Commencement of issuance 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 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 any applicable sales charges or program fees; results would be lower if they were included. Total investment return for periods less than one year has not been annualized. ------------ - -------------------------------------------------------------------------------- Prospectus Page 28 - -------------------------------------------------------------------------------- PAINEWEBBER MID CAP FUND
CLASS C CLASS Y --------------------------------------------------------------- ------------------------------------------- FOR THE FOR THE FOR THE FIVE FIVE PERIOD FOR THE YEARS MONTHS FOR THE YEARS MONTHS MARCH 17, ENDED AUGUST 31, ENDED FOR THE YEARS ENDED MARCH 31, ENDED AUGUST 31, ENDED 1998'D' TO ----------------- AUGUST 31, ------------------------------ ----------------- AUGUST 31, MARCH 31, 2000 1999 1998# 1998 1997 1996 2000 1999 1998# 1998 ------- ------- ----- ---- ---- ---- ------- ------- ----- ---- $ $ 7.26 $ 14.07 $ 12.87 $ 15.14 $ 12.54 $ $ 7.97 $15.00 $14.90 ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ (0.15) (0.06) (0.26) (0.29) (0.27) (0.02) (0.01) 0.00 3.12 (2.90) 4.92 0.34 3.62 3.41 (3.17) 0.10 ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ 2.97 (2.96) 4.66 0.05 3.35 3.39 (3.18) 0.10 ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ (0.66) (3.85) (3.46) (2.32) (0.75) (0.66) (3.85) -- ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ $ $ 9.57 $ 7.26 $ 14.07 $ 12.87 $ 15.14 $ $10.70 $ 7.97 $15.00 ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ % 42.17% (27.58)% 40.46% (0.91)% 27.16% % 43.77% (27.31)% 0.67% ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------- ------- ------- ------- ------- ------- ------ ------ ------ ------ $ $16,594 $16,875 $27,814 $24,810 $27,601 $ $ 290 $ 65 $ 35 % 2.43% 2.28%* 2.29% 2.37% 2.36% % 1.36% 1.23%* 1.22%* % (1.47)% (1.42)%* (1.94)% (1.97)% (1.89)% % (0.36)% (0.29)%* 0.00%* % 79% 80% 64% 56% 57% % 79% 80% 64%
------------ - -------------------------------------------------------------------------------- Prospectus Page 29 - -------------------------------------------------------------------------------- ------------------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund TICKER SYMBOL: Growth Fund Class: A: PGRAX Growth and Income Fund Class: A: PDGAX B: PGRBX B: PDGBX C: PGRDX C: PWDDX Y: PGRYZ Y: PWGYX Mid Cap Fund Class: A: PWCAX B: PWCBX C: PWCDX Y: None
If you want more information about the funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS Additional information about the funds' investments is available in the funds' annual and semi-annual reports to shareholders. In the funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the funds' performance during the last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed information about the funds and is incorporated by reference into this prospectus. You may discuss your questions about the funds by contacting your Financial Advisor. You may obtain free copies of the funds' annual and semi-annual reports and the SAI by contacting the funds directly at 1-800-647-1568. You may review and copy information about the funds, including shareholder reports and the SAI, at the Public Reference Room of the Securities and Exchange Commission. You may obtain information about the operations of the SEC's Public Reference Room by calling the SEC at 1-202-942-8090. You may get copies of reports and other information about the funds: For a fee, by electronic request at publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102; or Free, from the EDGAR Database on the SEC's Internet website at: http://www.sec.gov PaineWebber Olympus Fund -- PaineWebber Growth Fund Investment Company Act File No. 811-4180 PaineWebber America Fund -- PaineWebber Growth and Income Fund Investment Company Act File No. 811-3502 PaineWebber Managed Assets Trust -- PaineWebber Mid Cap Fund Investment Company Act File No. 811-6376 'c'2000 PaineWebber Incorporated. All rights reserved. ------------ - -------------------------------------------------------------------------------- PAINEWEBBER GROWTH FUND PAINEWEBBER GROWTH AND INCOME FUND PAINEWEBBER MID CAP FUND 51 WEST 52ND STREET NEW YORK, NEW YORK 10019-6114 STATEMENT OF ADDITIONAL INFORMATION The three funds named above are diversified series of professionally managed, open-end management investment companies organized as Massachusetts business trusts (each a 'Trust'). PaineWebber Growth Fund is a series of PaineWebber Olympus Fund. PaineWebber Growth and Income Fund is a series of PaineWebber America Fund. PaineWebber Mid Cap Fund is a series of PaineWebber Managed Assets Trust. Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned asset management subsidiary of PaineWebber Incorporated ('PaineWebber') serves as the manager and administrator for each fund. As distributor for the funds, Mitchell Hutchins has appointed PaineWebber to serve as dealer for the sale of fund shares. Mitchell Hutchins has appointed unaffiliated investment advisers (each a 'sub-adviser') to serve as sub-advisers for each fund's investments. Portions of each fund's Annual Report to Shareholders are incorporated by reference into this Statement of Additional Information ('SAI'). The Annual Reports accompany this SAI. You may obtain an additional copy of a fund's Annual Report without charge by calling toll-free 1-800-647-1568. This SAI is not a prospectus and should be read only in conjunction with the funds' current Prospectus, dated December 31, 2000. A copy of the Prospectus may be obtained by calling any PaineWebber Financial Advisor or correspondent firm or by calling toll-free 1-800-647-1568. This SAI is dated December 31, 2000. TABLE OF CONTENTS
PAGE ---- The Funds and Their Investment Policies..................... 2 The Funds' Investments, Related Risks and Limitations....... 3 Strategies Using Derivative Instruments..................... 11 Organization of Trusts; Trustees and Officers; Principal Holders and Management Ownership of Securities............ 18 Investment Management, Administration and Distribution Arrangements.............................................. 25 Portfolio Transactions...................................... 32 Reduced Sales Charges, Additional Exchange and Redemption Information and Other Services............................ 34 Conversion of Class B Shares................................ 39 Valuation of Shares......................................... 40 Performance Information..................................... 40 Taxes....................................................... 44 Other Information........................................... 47 Financial Statements........................................ 48 Appendix.................................................... A-1
THE FUNDS AND THEIR INVESTMENT POLICIES No fund's investment objective may be changed without shareholder approval. Except where noted, the other investment policies of each fund may be changed by its board without shareholder approval. As with other mutual funds, there is no assurance that a fund will achieve its investment objective. The investment objective of GROWTH FUND is long-term capital appreciation. The fund generally invests in common stocks of larger capitalization companies that are believed to have substantial potential for capital growth. Alliance Capital Management L.P. and State Street Global Advisors serve as the fund's sub-advisers. Under normal circumstances, the fund invests at least 65% of its total assets in equity securities. Growth 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 that are rated below investment grade. These bonds may be convertible bonds and may be rated no lower than B+ by Standard and Poor's, a division of The McGraw-Hill Companies, Inc. ('S&P'), B-1 by Moody's Investors Service, Inc. ('Moody's) or comparably rated by another rating agency or, if unrated, determined by a sub-adviser to be of comparable quality. The fund may invest up to 25% of its total assets 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 market. Growth Fund may invest up to 10% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks or through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The fund may invest in the securities of other investment companies and may sell short 'against the box.' The investment objective of GROWTH AND INCOME FUND is current income and capital growth. Institutional Capital Corporation, Westwood Management Corporation and State Street Global Advisors serve as the fund's sub-advisers. Under normal circumstances, the fund invests at least 65% of its total assets in equity securities believed to have substantial potential for capital growth. The fund seeks to achieve the income portion of its objective by investing, under normal circumstances, at least 65% of its total assets in income-producing securities, which may include dividend-paying equity securities, bonds and money market instruments. The fund may invest up to 10% of its total assets in convertible securities rated below investment grade but no lower than B by S&P or Moody's, comparably rated by another rating agency or, if unrated, determined by a sub-adviser to be of comparable quality. The fund may also invest up to 25% of its total assets in U.S. dollar denominated equity securities of foreign issuers that are traded on recognized U.S. exchanges or in the U.S. over-the- counter market. Growth and Income Fund may invest up to 10% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks or through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The fund may invest in the securities of other investment companies and may sell short 'against the box.' The investment objective of MID CAP FUND is long-term capital appreciation. Delaware Management Company serves as the fund's sub-adviser. Under normal circumstances, the fund invests at least 65% of its total assets in equity securities of medium capitalization ('mid cap') companies, which the fund defines as companies having market capitalizations of at least $750 million and no more than $8 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 or smaller than mid cap companies, as well as in bonds and money market instruments. The fund may invest up to 35% of its total assets in U.S. dollar denominated equity securities of foreign issuers that are traded on recognized U.S. exchanges or in the U.S. over-the-counter market. Mid Cap Fund may invest up to 10% of its net assets in illiquid securities. The fund may purchase securities on a when-issued or delayed delivery basis. The fund may lend its portfolio securities to 2 qualified broker-dealers or institutional investors in an amount up to 33 1/3% of its total assets. The fund may borrow from banks or through reverse repurchase agreements for temporary or emergency purposes, but not in excess of 10% of its total assets. The fund may invest in the securities of other investment companies and may sell short 'against the box.' THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS The following supplements the information contained in the Prospectus and above concerning the funds' investments, related risks and limitations. Except as otherwise indicated in the Prospectus or this SAI, the funds have established no policy limitations on their ability to use the investments or techniques discussed in these documents. EQUITY SECURITIES. Equity securities include common stocks, most preferred stocks and securities that are convertible into them, including common stock purchase warrants and rights, equity interests in trusts, partnerships, joint ventures or similar enterprises and depositary receipts. 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 actually it is equity that is senior to a company's common stock. Convertible bonds may include debentures and notes that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. Some preferred stock also may be converted into or exchanged for common stock. Depositary receipts typically are issued by banks or trust companies and evidence ownership of underlying equity securities. While past performance does not guarantee future results, equity securities historically have provided the greatest long-term growth potential in a company. However, their prices generally fluctuate more than other securities and reflect changes in a company's financial condition and in overall market and economic conditions. Common stocks generally represent the riskiest investment in a company. It is possible that a fund may experience a substantial or complete loss on an individual equity investment. While this is possible with bonds, it is less likely. BONDS. Bonds are fixed or variable rate debt obligations, including bills, notes, debentures, money market instruments and similar instruments and securities. Mortgage- and asset-backed securities are types of bonds, and certain types of income-producing, non-convertible preferred stocks may be treated as bonds for investment purposes. Bonds generally are used by corporations and governments to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and normally must repay the amount borrowed on or before maturity. Many preferred stocks and some bonds are 'perpetual' in that they have no maturity date. Bonds are subject to interest rate risk and credit risk. Interest rate risk is the risk that interest rates will rise and that, as a result, bond prices will fall, lowering the value of a fund's investments in bonds. In general, bonds having longer durations are more sensitive to interest rate changes than are bonds with shorter durations. Credit risk is the risk that an issuer may be unable or unwilling to pay interest and/or 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. CONVERTIBLE SECURITIES. A convertible security is a bond, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest or dividends until the convertible security matures or is redeemed, converted or exchanged. 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 because they have fixed income characteristics and (3) provide the potential for capital appreciation if the market price of the underlying common stock increases. While no securities investment is without some risk, investments in convertible securities generally entail less risk than the issuer's common stock. However, the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. 3 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. WARRANTS. Warrants are securities permitting, but not obligating, holders to subscribe for other securities. Warrants do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holder to purchase, and they do not represent any rights in the assets of the issuer. As a result, warrants may be considered more speculative than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to its expiration date. CREDIT RATINGS; NON-INVESTMENT GRADE BONDS. Moody's, S&P and other rating agencies are private services that provide ratings of the credit quality of debt obligations and certain other securities. A description of the ratings assigned to corporate bonds by Moody's and S&P is included in the Appendix to this SAI. Credit ratings attempt to evaluate the safety of principal and interest payments, but they do not evaluate the volatility of a debt security's value or its liquidity and do not guarantee the performance of the issuer. Rating agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer's current financial condition may be better or worse than the rating indicates. There is a risk that rating agencies may downgrade the rating of a bond. 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. In addition to ratings assigned to individual bond issues, the applicable sub-adviser will analyze interest rate trends and developments that may affect individual issuers, including factors such as liquidity, profitability and asset quality. The yields on bonds are dependent on a variety of factors, including general money market conditions, general conditions in the bond market, the financial condition of the issuer, the size of the offering, the maturity of the obligation and its rating. There is a wide variation in the quality of bonds, both within a particular classification and between classifications. An issuer's obligations under its bonds are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of bond holders or other creditors of an issuer; litigation or other conditions may also adversely affect the power or ability of issuers to meet their obligations for the payment of interest and principal on their bonds. Investment grade bonds are rated in one of the four highest rating categories by Moody's or S&P, comparably rated by another rating agency or, if unrated, determined by a sub-adviser to be of comparable quality. Moody's considers bonds rated Baa (its lowest investment grade rating) to have speculative characteristics. This means that 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 bonds. Non-investment grade bonds (commonly known as 'junk bonds') are rated Ba or lower by Moody's, BB or lower by S&P, comparably rated by another rating agency or, if unrated, determined by a sub-adviser to be of comparable quality. A fund's investments in non-investment grade bonds entail greater risk than its investments in higher rated bonds. Non-investment grade bonds, which are sometimes referred to as 'high yield' bonds, are considered predominantly speculative with respect to the issuer's ability to pay interest and repay principal and may involve significant risk exposure to adverse conditions. Non-investment grade bonds generally offer a higher current yield than that available for investment grade issues; however, they involve greater risks, in that they are especially sensitive 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 4 frequently are unsecured by collateral and will not receive payment until more senior claims are paid in full. The market for non-investment grade bonds, especially those of foreign issuers, 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, many lower rated bonds experienced substantial price declines reflecting an expectation that many issuers of such securities might experience financial difficulties. As a result, the yields on lower rated bonds 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 restructurings or defaults. There can be no assurance that such declines will not recur. The market for non-investment grade bonds 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 non-investment grade securities, especially in a thinly traded market. U.S. GOVERNMENT SECURITIES. U.S. government securities include direct obligations of the U.S. Treasury (such as Treasury bills, notes or bonds) and obligations issued or guaranteed as to principal and interest (but not as to market value) by the U.S. government, its agencies or its instrumentalities. U.S. government securities include mortgage-backed securities issued or guaranteed by government agencies or government-sponsored enterprises. Other U.S. government securities may be backed by the full faith and credit of the U.S. government or supported primarily or solely by the creditworthiness of the government-related issuer or, in the case of mortgage-backed securities, by pools of assets. U.S. government securities also include separately traded principal and interest components of securities issued or guaranteed by the U.S. Treasury, which are traded independently under the Separate Trading of Registered Interest and Principal of Securities ('STRIPS') program. Under the STRIPS program, the principal and interest components are individually numbered and separately issued by the U.S. Treasury. Treasury inflation-protected securities ('TIPS') (also known as 'inflation-indexed securities') are Treasury bonds on which the principal value is adjusted daily in accordance with changes in the Consumer Price Index. Interest on TIPS is payable semi-annually on the adjusted principal value. The principal value of TIPS would decline during periods of deflation, but the principal amount payable at maturity would not be less than the original par amount. If inflation is lower than expected while a fund holds TIPS, the fund may earn less on the TIPS than it would on conventional Treasury bonds. Any increase in the value of TIPS is taxable in the year the increase occurs, even though holders do not receive cash representing the increase at that time. See 'Taxes -- Other Information,' below. INVESTING IN FOREIGN SECURITIES. The funds may invest in U.S. dollar-denominated equity securities of foreign issuers that are traded on recognized U.S. exchanges or in the U.S. over-the-counter market. Securities of foreign issuers may not be registered with the Securities and Exchange Commission ('SEC'), and the issuers thereof may not 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 Depositary Receipts ('ADRs'). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. They generally are in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets. For purposes of each fund's investment policies, ADRs generally 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 in the United States and are issued through 'sponsored' or 'unsponsored' arrangements. In a sponsored ADR arrangement, the foreign 5 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. The term 'illiquid securities' 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 over-the-counter options, repurchase agreements maturing in more than seven days and restricted securities other than those the applicable sub-adviser has determined are liquid pursuant to guidelines established by each fund's board. The assets used as cover for over-the-counter options written by the funds will be considered illiquid unless the over-the-counter options are sold to qualified dealers who agree that the funds may repurchase any over-the-counter options they write at a maximum price to be calculated by a formula set forth in the option agreements. The cover for an over-the-counter 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. A fund may not be able readily to liquidate its investments in illiquid securities and may have to sell other investments if necessary to raise cash to meet its obligations. The lack of a liquid secondary market for illiquid 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. Restricted securities are not registered under the Securities Act of 1933, as amended ('Securities Act'), and may be sold only in privately negotiated or other exempted transactions or after a Securities 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 a 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 U.S. and foreign securities that are not registered under the Securities 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 under the Securities Act, which establishes a 'safe harbor' from the registration requirements of the Securities 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 a fund, however, could affect adversely the marketability of the securities, and the fund might be unable to dispose of them 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. A sub-adviser 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 bids are solicited and the mechanics of transfer). A sub-adviser monitors the liquidity of restricted securities in the portion of a fund's portfolio that it manages and reports periodically on such decisions to the fund's board. 6 Each sub-adviser also monitors the holdings of illiquid securities in the portion of a fund's investments that it manages. If a fund's holdings of illiquid securities exceeds its limitation on investments in illiquid securities for any reason (such as a particular security becoming illiquid, changes in the relative market values of liquid and illiquid portfolio securities or shareholder redemptions), the applicable sub-adviser and Mitchell Hutchins will consider what action would be in the best interests of a fund and its shareholders. Such action may include engaging in an orderly disposition of securities to reduce the fund's holdings of illiquid securities. However, a fund is not required to dispose of illiquid securities under these circumstances.) REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a fund purchases securities or other obligations from a bank or securities dealer (or its affiliate) 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. A fund maintains custody of the underlying obligations prior to their repurchase, either through its regular custodian or through a special 'tri-party' custodian or sub-custodian 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. Repurchase agreements carry certain risks not associated with direct investments in securities, including a possible decline in the market value of the underlying 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. 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, the fund may suffer delays, costs and possible losses in connection with the disposition of collateral. Each fund intends to enter into repurchase agreements only in transactions with counterparties believed by Mitchell Hutchins to present minimum credit risks. REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the sale of securities held by a fund subject to the fund's agreement to repurchase the securities at an agreed-upon date or upon demand and at a price reflecting a market rate of interest. Reverse repurchase agreements are subject to each fund's limitation on borrowings and may be entered into only with banks or securities dealers or their affiliates. While a reverse repurchase agreement is outstanding, a fund will maintain, in a segregated account with its custodian, cash or liquid securities, marked to market daily, in an amount at least equal to its obligations under the reverse repurchase agreement. See 'The Funds' Investments, Related Risks and Limitations -- 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 that fund seeks to repurchase. If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the buyer or 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. TEMPORARY AND DEFENSIVE INVESTMENTS; MONEY MARKET INVESTMENTS. Each fund may invest in money market investments for temporary or defensive purposes, to reinvest cash collateral from its securities lending activities or as part of its normal investment program. Such investments include, among other things, (1) securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, (2) debt obligations of banks, savings and loan institutions, insurance companies and mortgage bankers, (3) commercial paper and notes, including those with variable and floating rates of interest, (4) debt obligations of foreign branches of U.S. banks, U.S. branches of foreign banks and foreign branches of foreign banks, (5) debt obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities, including obligations of supranational entities, (6) bonds issued by foreign issuers, (7) repurchase agreements and (8) securities 7 of other investment companies that invest exclusively in money market instruments and similar private investment vehicles. INVESTMENTS IN OTHER INVESTMENT COMPANIES. Each fund may invest in securities of other investment companies, subject to limitations imposed by the Investment Company Act of 1940, as amended ('Investment Company Act'). Among other things, these limitations currently restrict a fund's aggregate investments in other investment companies to no more than 10% of its total assets. The fund's investment in certain private investment vehicles are not subject to this restriction. A shares of other investment companies are subject to the management fees and other expenses of those companies, and the purchase of shares of some investment companies requires the payment of sales loads and (in the case of closed-end investment companies) sometimes substantial premiums above the value of such companies' portfolio securities. At the same time, a fund would continue to pay its own management fees and expenses with respect to all its investments, including shares of other investment companies. A fund may invest in the shares of other investment companies when, in the judgment of the applicable sub-adviser, the potential benefits of the investment outweigh the payment of any management fees and expenses and, where applicable, premium or sales load. LENDING OF PORTFOLIO SECURITIES. Each fund is authorized to lend its portfolio securities to broker-dealers or institutional investors that Mitchell Hutchins deems qualified. Lending securities enables a fund to earn additional income, but could result in a loss or delay in recovering these securities. The borrower of a fund's portfolio securities must maintain acceptable collateral with the fund's custodian in an amount, marked to market daily, 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 any cash collateral in money market investments or other short-term liquid investments, including other investment companies. The fund also may reinvest cash collateral in private investment vehicles similar to money market funds, including one managed by Mitchell Hutchins. 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 reinvestment of cash held as collateral. A 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, 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 boards also have 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 incurs transaction costs, including interest expense, in connection with opening, maintaining and closing short sales against the box. A fund might make a short sale 'against the box' to hedge against market risks when a sub-adviser 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 gain in the short 8 position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which gains or losses in the long position are reduced will depend upon the amount of the securities sold short relative to the amount of securities a fund owns, either directly or indirectly, and in the case where a fund owns convertible securities, changes in the investment value 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, i.e., for issuance or delivery to or by the fund later than the normal settlement date for such securities at a stated price and yield. A fund generally would not pay for such securities or start earning interest on them until they are received. However, when a fund undertakes a when-issued or delayed delivery obligation, it immediately assumes the risks of ownership, including the risks of price fluctuation. Failure of the issuer to deliver a security purchased by a fund on a when-issued or delayed delivery basis may result in the fund's incurring or missing an 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 that 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, generally based upon changes in the level of interest rates. Thus, fluctuation in the value of the security from the time of the commitment date will affect a fund's net asset value. When a fund commits to purchase securities on a when-issued or delayed delivery basis, its custodian segregates assets to cover the amount of the commitment. See 'The Funds' Investments, Related Risks and Limitations -- Segregated Accounts.' A fund's when-issued and delayed delivery purchase commitments could cause its net asset value per share to be more volatile. A fund may sell the right to acquire the security prior to delivery if a sub-adviser deems it advantageous to do so, which may result in a gain or loss to the fund. COUNTERPARTIES. The funds may be exposed to the risk of financial failure or insolvency of another party. To help lessen those risks, each sub-adviser, subject to the supervision of the applicable board, monitors and evaluates the creditworthiness of the parties with which a fund does business. SEGREGATED ACCOUNTS. When a fund enters into certain transactions that involve obligations to make future payments to third parties, including the purchase of securities on a when-issued or delayed delivery basis and reverse repurchase agreements, 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, futures and swaps. INVESTMENT LIMITATIONS OF THE FUNDS FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be changed for a fund without the affirmative vote of the lesser of (a) more than 50% of its outstanding shares or (b) 67% or more of the shares present at a shareholders' meeting if more than 50% of its 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 changing 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. 9 The following interpretation applies to, but is not a part of, this fundamental restriction: Mortgage- and asset-backed securities will not be considered to have been issued by the same issuer by reason of the securities having the same sponsor, and mortgage- and asset-backed securities issued by a finance or other special purpose subsidiary that are not guaranteed by the parent company will be considered to be issued by a separate issuer from the parent company. (2) purchase any security if, as a result of that purchase, 25% or more of the fund's total assets would be invested in securities of issuers having their principal business activities in the same industry, except that this limitation does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities or to municipal securities. (3) issue senior securities or borrow money, except as permitted under the Investment Company Act, and then not in excess of 33 1/3% of the fund's total assets (including the amount of the senior securities issued but reduced by any liabilities not constituting senior securities) at the time of the issuance or borrowing, except that the fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for temporary or emergency purposes. (4) make loans, except through loans of portfolio securities or through repurchase agreements, provided that for purposes of this restriction, the acquisition of bonds, debentures, other debt securities or instruments, or participations or other interests therein and investments in government obligations, commercial paper, certificates of deposit, bankers' acceptances or similar instruments will not be considered the making of a loan. (5) engage in the business of underwriting securities of other issuers, except to the extent that the fund might be considered an underwriter under the federal securities laws in connection with its disposition of portfolio securities. (6) purchase or sell real estate, except that investments in securities of issuers that invest in real estate and investments in mortgage-backed securities, mortgage participations or other instruments supported by interests in real estate are not subject to this limitation, and except that the fund may exercise rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner. (7) purchase or sell physical commodities unless acquired as a result of owning securities or other instruments, but the fund may purchase, sell or enter into financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments. NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are non-fundamental and may be changed by the vote of the appropriate board without shareholder approval. If a percentage restriction is adhered to at the time of an investment or transaction, later changes in percentage resulting from a change in values of portfolio securities or amount of total assets will not be considered a violation of any of the following limitations. Each fund will not: (1) invest more than 10% of its net assets 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. 10 (5) purchase securities of other investment companies, except to the extent permitted by the Investment Company Act and except that this limitation does not apply to securities received or acquired as dividends, through offers of exchange, or as a result of reorganization, consolidation, or merger (and except that a fund will not purchase securities of registered open-end investment companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the Investment Company Act). STRATEGIES USING DERIVATIVE INSTRUMENTS GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Each sub-adviser may use a variety of financial instruments ('Derivative Instruments'), including certain options, futures contracts (sometimes referred to as 'futures'), options on futures contracts and swap transactions. 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, each fund's use of these instruments will place at risk a much smaller portion of its assets. The particular Derivative Instruments that may be used by the funds are described below. A fund might not use any Derivative Instruments or derivative strategies, and there can be no assurance that using any strategy will succeed. If a sub-adviser is incorrect in its judgment on market values, interest rates or other economic factors in using a Derivative Instrument or strategy, a fund may have lower net income and a net loss on the investment. 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, 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 Securities Indices -- A securities index assigns relative values to the securities included in the index and fluctuates with changes in the market values of those securities. A securities index option operates in the same way as a more traditional securities option, except that exercise of a securities index option is effected with cash payment and does not involve delivery of securities. Thus, upon exercise of a securities 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 securities index. Securities Index Futures Contracts -- A securities 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 securities 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 securities 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 11 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. A fund may use Derivative Instruments to attempt to hedge its portfolio and also to attempt to enhance income or return or realize gains or to manage the duration of its bond investments. For example, a fund may use Derivative Instruments to stimulate full investment by the fund while retaining a cash balance for fund management purposes (such as to provide liquidity to meet anticipated shareholder sales of fund shares and for fund operating expenses), to reduce transaction costs and to facilitate trading. Hedging strategies can be broadly categorized as 'short hedges' and 'long hedges.' A short hedge is a purchase or sale of a Derivative Instrument intended partially or fully to offset potential declines in the value of one or more investments held in 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. A fund may purchase and write (sell) 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 a sub-adviser believes it likely that the prices of the securities will be more volatile during the term of the option than the option pricing implies. A short straddle is a combination of a call and a put written on the same security where the exercise price of the put is equal to the exercise price of the call. A fund might enter into a short straddle when a sub-adviser 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 stock market sectors in which a fund has invested or expects to invest. Derivative Instruments on bonds may be used to hedge either individual securities or broad fixed income market sectors. Income strategies using Derivative Instruments may include the writing of covered options to obtain the related option premiums. Return or gain strategies may include using Derivative Instruments to increase or decrease a fund's exposure to different asset classes without buying or selling the underlying instruments. A fund also may use derivatives to simulate full investment by the fund while maintaining a cash balance for fund management purposes (such as to provide liquidity to meet anticipated shareholder sales of fund shares and for fund operating expenses). 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.' 12 In addition to the products, strategies and risks described below and in the Prospectus, a sub-adviser may discover additional opportunities in connection with Derivative Instruments and with hedging, income, return and gain strategies. These new opportunities may become available as regulatory authorities broaden the range of permitted transactions and as new Derivative Instruments and techniques are developed. Each sub-adviser may use these opportunities for a fund to the extent that they are consistent with the fund's investment objective and permitted by its investment limitations and applicable regulatory authorities. The funds' Prospectus or this SAI 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 a sub-adviser to predict movements of the overall securities or interest rate markets, which requires different skills than predicting changes in the prices of individual securities. While each sub-adviser is experienced in the use of Derivative Instruments, there can be no assurance that any particular 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 that are 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 a sub-adviser 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 increase might be wholly or partially offset by a decline in the price of the Derivative Instrument. Moreover, if the price of the Derivative Instrument declined by more than the increase in the price of the security, the fund could suffer a loss. In either such case, the fund would have been in a better position had it not hedged at all. (4) As described below, 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 was unable to close out its positions in such Derivative Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the positions expired or matured. These requirements might impair 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 hedging position 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 a fund 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 or other options or futures contracts or (2) cash or liquid securities with a value sufficient at all times to cover its potential obligations to the extent not covered as provided in (1) above. Each fund will comply with SEC guidelines regarding cover for such 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. 13 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, committing a large portion of a fund's assets to cover positions or to segregated accounts could impede portfolio management or the fund's ability to meet redemption requests or other current obligations. OPTIONS. The funds may purchase put and call options, and write (sell) covered put or call options on securities in which they invest and related indices. The purchase of call options may serve as a long hedge, and the purchase of put options may serve as a short hedge. A fund may also use options to attempt to enhance return or realize gains by increasing or reducing its exposure to an asset class without purchasing or selling the underlying securities. Writing covered put or call options can enable a fund to enhance income by reason of the premiums paid by the purchasers of such options. 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 over-the-counter options written by a fund would be considered illiquid to the extent described under 'The Funds' Investments, Related Risks and Limitations -- 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. Generally, over-the-counter options on bonds are European-style options. This means that the option can only be exercised immediately prior to its expiration. This is in contract to American-style options that may be exercised at any time. There are also other types of options that may be exercised on certain specified dates before expiration. 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 over-the-counter options. Currently, many options on equity securities (stocks) are exchange-traded. Exchange markets for options on bonds exist but are relatively new, and these instruments are primarily traded on the over-the-counter 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, over-the-counter 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 over-the-counter option, it relies on the counterparty to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by the fund as well as the loss of any expected benefit of the transaction. The funds' ability to establish and close out positions in exchange-listed 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 over-the-counter 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 over-the-counter options only with counterparties that are expected to be capable of entering into closing transactions with a fund, there is no assurance 14 that a fund will in fact be able to close out an over-the-counter option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, a fund might be unable to close out an over-the-counter 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 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 a securities market (or market sector) rather than anticipated increases or decreases in the value of a particular security. LIMITATIONS ON THE USE OF OPTIONS. Each fund's use of options is governed by the following guidelines, which can be changed by its board without shareholder vote: (1) A 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 the fund, does not exceed 5% of its total assets. (2) The aggregate value of securities underlying put options written by a fund, determined as of the date the put options are written, will not exceed 50% of its net 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 time will not exceed 20% of its net assets. FUTURES. The funds may purchase and sell securities index futures contracts and interest rate future contracts. The funds may 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. In addition, a fund may purchase or sell futures contracts or purchase options thereon to increase or reduce its exposure to an asset class without purchasing or selling the underlying securities, either as a hedge or to enhance return or realize gains. Futures strategies also can be used to manage the average duration of a fund's bond portfolio. If a sub-adviser wishes to shorten the average duration of a fund's bond portfolio, the fund may sell a futures contract or a call option thereon, or purchase a put option on that futures contract. If a sub- adviser wishes to lengthen the average duration of a fund's bond portfolio, the fund may buy a futures contract or a call option thereon, or sell a put option thereon. A fund may also write put options on futures contracts while at the same time purchasing call options on the same futures contracts in order synthetically to create a long futures contract position. Such options would have the same strike prices and expiration dates. A fund will engage in this strategy only when it is more advantageous to a fund than is purchasing the futures contract. 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 United States 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 15 level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent 'variation margin' payments are made to and from the futures broker daily as the value of the futures position varies, a process known as 'marking to market.' Variation margin does not involve borrowing, but rather represents a daily settlement of 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. Each fund's use of futures and related options is governed by the following guidelines, which can be changed by its board without shareholder vote: (1) The aggregate initial margin and premiums on futures contracts and options on futures positions that are not for bona fide hedging purposes (as defined by the CFTC), 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, foreign currencies and securities indices and options on futures contracts) purchased by each fund that are held at any time will not exceed 20% of its net assets. (3) The aggregate margin deposits on all futures contracts and options thereon held at any time by each fund will not exceed 5% of its total assets. 16 SWAP TRANSACTIONS. Each fund may enter into swap transactions, which include swaps, caps, floors and collars relating to interest rates, securities or other instruments. Interest rate swaps involve an agreement between two parties to exchange payments that are based, for example, on variable and fixed rates of interest and that are calculated on the basis of a specified amount of principal (the 'notional principal amount') for a specified period of time. Interest rate cap and floor transactions involve an agreement between two parties in which the first party agrees to make payments to the counterparty when a designated market interest rate goes above (in the case of a cap) or below (in the case of a floor) a designated level on predetermined dates or during a specified time period. Interest rate collar transactions involve an agreement between two parties in which payments are made when a designated market interest rate either goes above a designated ceiling level or goes below a designated floor level on predetermined dates or during a specified time period. Equity swaps or other swaps relating to securities or other instruments are also similar, but they are based on changes in the value of the underlying securities or instruments. For example, an equity swap might involve an exchange of the value of a particular security or securities index in a certain notional amount for the value of another security or index or for the value of interest on that notional amount at a specified fixed or variable rate. A fund may enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its bond portfolio or to protect against any increase in the price of securities it anticipates purchasing at a later date. A fund may use interest rate swaps, caps, floors and collars as a hedge on either an asset-based or liability-based basis, depending on whether it is hedging its assets or its liabilities. Interest rate swap transactions are subject to risks comparable to those described above with respect to other derivatives strategies. A fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with the fund receiving or paying, as the case may be, only the net amount of the two payments. Since segregated accounts will be established with respect to such transactions, each sub-adviser believes such obligations do not constitute senior securities and, accordingly, will not treat them as being subject to the fund's borrowing restrictions. The net amount of the excess, if any, of the fund's obligations over its entitlements with respect to each swap will be accrued on a daily basis, and appropriate fund assets having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account as described above in 'Investment Policies and Restrictions -- Segregated Accounts.' The fund also will establish and maintain such segregated accounts with respect to its total obligations under any swaps that are not entered into on a net basis. A fund will enter into interest rate swap transactions only with banks and recognized securities dealers or their respective affiliates believed by the applicable sub-adviser to present minimal credit risk in accordance with guidelines established by the fund's board. If there is a default by the other party to such a transaction, the fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. 17 ORGANIZATION OF TRUSTS; TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS MANAGEMENT OWNERSHIP OF SECURITIES Each Trust was formed as a business trust under the laws of the Commonwealth of Massachusetts. America Fund and Olympus Fund were formed on October 31, 1986. Managed Assets Trust was formed on August 9, 1991. Each Trust has one series. Each Trust is governed by a board of trustees, which is authorized to establish additional series and to issue an unlimited number of shares of beneficial interest of each existing or future series, par value $0.001 per share. The board of each Trust oversees its operations. The trustees and executive officers of each Trust, their ages, business addresses and principal occupations during the past five years are:
NAME AND ADDRESS; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------------ ---------------------------------------- Margo N. Alexander*; 53 Trustee and President Mrs. Alexander is Chairman (since March 1999), and a director of Mitchell Hutchins (since January 1995), and an executive vice president and a director of PaineWebber (since March 1984). She was chief executive officer of Mitchell Hutchins from January 1995 to October 2000. Mrs. Alexander is president and a director or trustee of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Richard Q. Armstrong; 65 Trustee Mr. Armstrong is chairman and principal One Old Church Road of R.Q.A. Enterprises (management Unit #6 consulting firm) (since April 1991 and Greenwich, CT 06830 principal occupation since March 1995). Mr. Armstrong was chairman of the board, chief executive officer and co-owner of Adirondack Beverages (producer and distributor of soft drinks and sparkling/still waters) (October 1993-March 1995). He was a partner of The New England Consulting Group (management consulting firm) (December 1992-September 1993). He was managing director of LVMH U.S. Corporation (U.S. subsidiary of the French luxury goods conglomerate, Louis Vuitton Moet Hennessey Corporation) (1987-1991) and chairman of its wine and spirits subsidiary, Schieffelin & Somerset Company (1987-1991). Mr. Armstrong is a director or trustee of 29 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser.
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NAME AND ADDRESS; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------------ ---------------------------------------- E. Garrett Bewkes, Jr.**'D'; Trustee and Chairman of Mr. Bewkes is a director of Paine Webber 74 the Board of Trustees Group Inc. ('PW Group') (holding company of PaineWebber and Mitchell Hutchins). Prior to December 1995, he was a consultant to PW Group. Prior to 1988, he was chairman of the board, president and chief executive officer of American Bakeries Company. Mr. Bewkes is a director of Interstate Bakeries Corporation. Mr. Bewkes is a director or trustee of 40 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Richard R. Burt; 55 Trustee Mr. Burt is chairman of IEP Advisors, 1275 Pennsylvania Ave, N.W. LLP (international investments and Washington, DC 20004 consulting 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. (gold mining), six investment companies in the Deutsche Bank family of funds, nine investment companies in the Flag Investors family of funds, The Central European Fund, Inc. and The Germany Fund, Inc., vice chairman of Anchor Gaming (provides technology to gaming and wagering industry) (since July 1999) and chairman of Weirton Steel Corp. (makes and finishes steel products) (since April 1996). He was the chief negotiator in the Strategic Arms Reduction Talks with the former Soviet Union (1989-1991) and the U.S. Ambassador to the Federal Republic of Germany (1985-1989). Mr. Burt is a director or trustee of 29 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser.
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NAME AND ADDRESS; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------------ ---------------------------------------- Meyer Feldberg; 58 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, NY 10027 1989, he was president of the Illinois Institute of Technology. Dean Feldberg is also a director of Primedia, Inc. (publishing), Federated Department Stores, Inc. (operator of department stores) and Revlon, Inc. (cosmetics). Dean Feldberg is a director or trustee of 37 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. George W. Gowen; 71 Trustee Mr. Gowen is a partner in the law firm 666 Third Avenue of Dunnington, Bartholow & Miller. Prior New York, NY 10017 to May 1994, he was a partner in the law firm of Fryer, Ross & Gowen. Mr. Gowen is a director or trustee of 37 investment companies for which Mitchell Hutchins, Paine Webber or one of their affiliates serves as investment adviser. Frederic V. Malek; 63 Trustee Mr. Malek is chairman of Thayer Capital 1455 Pennsylvania Ave, N.W. Partners (merchant bank) and chairman of Suite 350 of Thayer Hotel Investors II and Lodging Washington, DC 20004 Opportunities Fund (hotel investment partnerships). From January 1992 to November 1992, he was campaign manager of Bush-Quayle '92. From 1990 to 1992, he was vice chairman and, from 1989 to 1990, he was president of Northwest Airlines Inc. and NWA Inc. (holding company of Northwest Airlines 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 Aegis Communications, Inc. (tele-services), American Management Systems, Inc. (management consulting and computer related services), Automatic Data Processing, Inc. (computing services), CB Richard Ellis, Inc. (real estate services), FPL Group, Inc. (electric services), Global Vacation Group (packaged vacations), HCR/Manor Care, Inc. (health care), SAGA Systems, Inc. (software company) and Northwest Airlines Inc. Mr. Malek is a director or trustee of 29 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser.
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NAME AND ADDRESS; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------------ ---------------------------------------- Carl W. Schafer; 64 Trustee Mr. Schafer is president of the Atlantic 66 Witherspoon Street, #1100 Foundation (charitable foundation Princeton, NJ 08542 supporting mainly oceanographic exploration and research). He is a director of Labor Ready, Inc. (temporary employment), Roadway Express, Inc. (trucking), The Guardian Group of Mutual Funds, the Harding, Loevner Funds, E.I.I. Realty Trust (investment company), Evans Systems, Inc. (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, he was chairman of the Investment Advisory Committee of the Howard Hughes Medical Institute. Mr. Schafer is a director or trustee of 29 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Brian M. Storms*'D'; 46 Trustee Mr. Storms is chief executive officer (since October 2000), president and chief operating officer of Mitchell Hutchins (since March 1999). Mr. Storms was president of Prudential Investments (1996-1999). Prior to joining Prudential, he was a managing director at Fidelity Investments. Mr. Storms is a director or trustee of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Amy Doberman**; 38 Vice President Ms. Doberman is a senior vice president and general counsel of Mitchell Hutchins. From December 1996 through July 2000, she was general counsel of Aeltus Investment Management, Inc. Prior to working at Aeltus, Ms. Doberman was a Division of Investment Management Assistant Chief Counsel at the SEC. Ms. Doberman is a vice president of 29 investment companies and a vice president and secretary of one investment company for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser.
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NAME AND ADDRESS; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------------ ---------------------------------------- John J. Lee***; 32 Vice President and Mr. Lee is a vice president and a Assistant Treasurer manager of the mutual fund finance department of Mitchell Hutchins. Prior to September 1997, he was an audit manager in the financial services practice of Ernst & Young LLP. Mr. Lee is a vice president and assistant treasurer of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Kevin J. Mahoney***; 35 Vice President and Mr. Mahoney is a first vice president Assistant Treasurer and a senior manager of the mutual fund finance department of Mitchell Hutchins. From August 1996 through March 1999, he was the manager of the mutual fund internal control group of Salomon Smith Barney. Prior to August 1996, he was an associate and assistant treasurer for BlackRock Financial Management L.P. Mr. Mahoney is a vice president and assistant treasurer of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Ann E. Moran***; 43 Vice President and Ms. Moran is a vice president and a Assistant Treasurer manager of the mutual fund finance department of Mitchell Hutchins. Ms. Moran is a vice president and assistant treasurer of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Dianne E. O'Donnell**; 48 Vice President and Ms. O'Donnell is a senior vice president Secretary and deputy general counsel of Mitchell Hutchins. Ms. O'Donnell is a vice president and secretary of 29 investment companies and a vice president and assistant secretary of one investment company for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Paul H. Schubert***; 37 Vice President and Mr. Schubert is a senior vice president Treasurer and director of the mutual fund finance department of Mitchell Hutchins. Mr. Schubert is a vice president and treasurer of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser.
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NAME AND ADDRESS; AGE POSITION WITH EACH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS --------------------- ------------------------ ---------------------------------------- Barney A. Taglialatela***; 39 Vice President and Mr. Taglialatela is a vice president and Assistant Treasurer a manager of the mutual fund finance department of Mitchell Hutchins. Mr. Taglialatela is a vice president and assistant treasurer of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser. Keith A. Weller**; 39 Vice President and Mr. Weller is a first vice president and Assistant Secretary associate general counsel of Mitchell Hutchins. Mr. Weller is a vice president and assistant secretary of 30 investment companies for which Mitchell Hutchins, PaineWebber or one of their affiliates serves as investment adviser.
- --------- * This person's business address is 51 West 52nd Street, New York, New York 10019-6114. ** This person's business address is 1285 Avenue of the Americas, New York, New York 10019-6028. *** This person's business address is Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, New Jersey 07310-1998. 'D' Mrs. Alexander, Mr. Bewkes and Mr. Storms are 'interested persons' of each fund as defined in the Investment Company Act by virtue of their positions with Mitchell Hutchins, PaineWebber, and/or PW Group. Board members are compensated as follows: OLYMPUS FUND AND AMERICA FUND pay each board member who is not an 'interested person' of the Trust $1,500 annually per series. Each Trust presently has one series and thus pays each such board member $1,500 annually, plus any additional amounts due for board or committee meetings. MANAGED ASSETS TRUST pays each board members who are not 'interested persons' of the Trust $1,000 annually for its sole series, plus any additional amounts due for board or committee meetings. Each Trust pays up to $150 per series for attending each board meeting and each separate meeting of a board committee. Each chairman of the audit and contract review committees of individual funds within the PaineWebber fund complex receives additional compensation, aggregating $15,000 annually, from the relevant funds. All board members are reimbursed for any expenses incurred in attending meetings. Board members and officers own in the aggregate less than 1% of the outstanding shares of any class of each fund. Because PaineWebber and Mitchell Hutchins perform substantially all the services necessary for the operation of the Trusts and each fund, the Trusts require no employees. No officer, director or employee of Mitchell Hutchins or PaineWebber presently receives any compensation from the Trust for acting as a board member or officer. The table below includes certain information relating to the compensation of each Trust's current board members from the Trust and the compensation of those board members from all PaineWebber funds during the periods indicated. 23 COMPENSATION TABLE'D'
AGGREGATE AGGREGATE AGGREGATE TOTAL COMPENSATION COMPENSATION COMPENSATION COMPENSATION FROM AMERICA FROM MANAGED FROM OLYMPUS FROM THE FUND NAME OF PERSON, POSITION FUND(1) ASSETS TRUST(1) FUND* COMPLEX** ------------------------ ------- --------------- ----- --------- Richard Q. Armstrong, Trustee........... $-- $-- $-- $-- Richard R. Burt, Trustee................ $-- $-- $-- $-- Meyer Feldberg, Trustee................. $-- $-- $-- $-- George W. Gowen, Trustee................ $-- $-- $-- $-- Frederic V. Malek, Trustee.............. $-- $-- $-- $-- Carl W. Schafer, Trustee................ $-- $-- $-- $--
- --------- 'D' Only independent board members are compensated by the PaineWebber funds and identified above; board members who are 'interested persons,' as defined by the Investment Company Act, do not receive compensation from the PaineWebber funds. * Represents fees paid to each board member from the Trust indicated for the fiscal year ended August 31, 2000. ** Represents total compensation paid during the calendar year ended December 31, 1999, to each board member by 31 investment companies (34 in the case of Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one of their affiliates served as investment adviser. No fund within the PaineWebber fund complex has a bonus, pension, profit sharing or retirement plan. PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES As of November 30, 2000, trustees and officers owned in the aggregate less than 1% of the outstanding shares of any class of each fund. As of November 30, 2000, the following shareholders were shown in the Fund's records as owning 5% or more of any class of a Fund's shares:
NUMBER AND PERCENTAGE OF SHARES NAME AND ADDRESS* BENEFICIALLY OWNED AS OF NOVEMBER 30, 2000 - ----------------- ------------------------------------------
- --------- * The shareholder listed may be contacted c/o Mitchell Hutchins Asset Management Inc., 51 West 52nd Street, New York, NY 10019-6114. 24 INVESTMENT MANAGEMENT, AMINISTRATION AND DISTRIBUTION ARRANGEMENTS INVESTMENT MANAGEMENT AND ADMINISTRATION ARRANGEMENTS. Mitchell Hutchins acts as the investment manager and administrator for each fund pursuant to separate interim investment management and administration contracts dated October 10, 2000 (each a 'Management Contract') with each Trust. Under the Management Contracts, the funds pay fees (expressed as a percentage of the fund's average daily net assets) to Mitchell Hutchins for these services at the annual contract rates of 0.75% for Growth Fund, 0.70% for Growth and Income Fund and 1.00% for Mid Cap Fund. All fees paid under the Management Contracts are computed daily and paid monthly. During the periods indicated, Mitchell Hutchins earned (or accrued) fees under prior investment advisory and administration contracts relating to each fund in the amounts set forth below:
FISCAL YEARS ENDED -------------------------------------- 2000 1999 1998 ---- ---- ---- Growth Fund............................................ $ $ 3,177,112 $2,858,153 Growth and Income Fund................................. $ $10,130,336 $8,823,952
FISCAL YEAR FISCAL YEAR FIVE MONTH PERIOD FISCAL YEAR ENDED ENDED ENDED ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 1998 MARCH 31, 1998 --------------- --------------- --------------- -------------- Mid Cap Fund.................... $ $1,733,828 $964,741 $2,680,122
Prior to May 1, 1998, Denver Investment Advisors, LLC served as investment sub-adviser for Mid Cap 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 ended May 1, 1998 and the fiscal year ended March 31, 1998, Mitchell Hutchins (not the fund) paid Denver Investment Advisors LLC sub-advisory fees in the amount of $110,392 and $1,340,049, respectively. Under the terms of the applicable Management Contract, each fund bears all expenses incurred in its operation that are not specifically assumed by Mitchell Hutchins. General expenses of a Trust not readily identifiable as belonging to a specific series of the Trust are allocated among series by or under the direction of the Trust's board in such manner as the board deems fair and equitable. Expenses borne by each fund include the following: (1) the cost (including brokerage commissions, if any) of securities purchased or sold by the fund and any losses incurred in connection therewith; (2) fees payable to and expenses incurred on behalf of the fund by Mitchell Hutchins; (3) organizational expenses; (4) filing fees and expenses relating to the registration and qualification of the fund's shares under federal and state securities laws and maintenance of such registrations and qualifications; (5) fees and salaries payable to board members who are not interested persons of the applicable Trust or Mitchell Hutchins; (6) all expenses incurred in connection with the board members' services, including travel expenses; (7) taxes (including any income or franchise taxes) and governmental fees; (8) costs of any liability, uncollectible items of deposit and other insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the fund for violation of any law; (10) legal, accounting and auditing expenses, including legal fees of special counsel for the independent board members; (11) charges of custodians, transfer agents and other agents; (12) costs of preparing share certificates; (13) expenses of setting in type and printing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials for existing shareholders and costs of mailing such materials to existing shareholders; (14) any extraordinary expenses (including fees and disbursements of counsel) incurred by the fund; (15) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (16) costs of mailing and tabulating proxies and costs of meetings of shareholders, the board and any committees thereof; (17) the cost of investment company literature and other publications provided to trustees and officers; and (18) costs of mailing, stationery and communications equipment. Under each Management 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 Management Contract, except a loss resulting from willful misfeasance, bad faith or gross negligence on 25 the part of Mitchell Hutchins in the performance of its duties or from reckless disregard of its duties and obligations thereunder. The current Management Contract for each fund may be terminated without penalty on 10 days' written notice to Mitchell Hutchins by the board of the fund or by vote of a majority of the outstanding voting securities of the fund and will terminate 150 days after October 10, 2000 (on March 9, 2000) unless it has by then been approved by a majority of the outstanding voting securities of the fund. The Management Contracts authorize Mitchell Hutchins to retain one or more sub-advisers for the management of a fund's investment portfolio and, as described below, Mitchell Hutchins has entered into one or more interim sub-advisory contracts (each a 'Sub-Advisory Contract') for each fund. Mitchell Hutchins is responsible for monitoring the services furnished pursuant to the Sub-Advisory Contracts and making recommendations to the applicable board with respect to the retention or replacement of sub-advisers and renewal of Sub-Advisory Contracts. Under each Sub-Advisory Contract, the sub-adviser will not be liable for any error or judgment or mistake of law or for any loss suffered by a fund, its shareholders or Mitchell Hutchins in connection with the performance of the contract, except a loss resulting from willful misfeasance, bad faith, or gross negligence on the part of the sub-adviser in the performance of its duties or from reckless disregard of its duties and obligations thereunder. Each Sub-Advisory Contract terminates automatically 150 days after October 10, 2000 (on March 9, 2000) and is terminable at any time without penalty on 10 days' written notice to Mitchell Hutchins by the board of the fund or by vote of a majority of the fund's outstanding voting securities and may be terminated by the sub-adviser upon not more than 60 days' written notice to Mitchell Hutchins. A Sub-Advisory Contract may be terminated by Mitchell Hutchins (1) upon material breach by the sub-adviser of its representations and warranties, which breach shall not be cured within a 20 day period after notice of such breach; or (2) if the sub-adviser becomes unable to discharge its duties and obligations under the Sub-Advisory Contract. For Growth Fund, Mitchell Hutchins has entered into separate Sub-Advisory Contracts with Alliance Capital Management L.P. ('Alliance Capital') and State Street Global Advisors ('SSgA'). Mitchell Hutchins (not the fund) pays Alliance a fee in the annual amount of 0.30% and SSgA a fee at the annual rate of 0.15% of the fund's average daily net assets that it manages. Prior to October 10, 2000, Mitchell Hutchins managed the fund's assets. SSgA is the investment management division of State Street Bank and Trust Company, which is a wholly owned subsidiary of State Street Corporation, a publicly held bank holding company. Alliance Capital Management Corporation ('ACMC') is a general partner of Alliance Capital and an indirect wholly owned subsidiary of AXA Financial, Inc. ('AXA Financial'), a Delaware corporation whose shares are traded on the New York Stock Exchange, Inc. As of June 30, 2000, AXA Financial and its subsidiaries were the beneficial owners of an approximately 62.5% partnership interest in Alliance Capital, and Alliance Capital Management Holding L.P. ('Alliance Holding') owned an approximately 35% partnership interest in Alliance Capital. Equity interests in Alliance Holding are traded on the New York Stock Exchange in the form of units. Approximately 97.9% of Alliance Holding's units are owned by the public and management or employees of Alliance Capital and approximately 2.1% are owned by certain wholly owned subsidiaries of AXA Financial. The general partner of Alliance Holding is ACMC. As of March 1, 2000, AXA, a French insurance holding company, owned approximately 60.3% of the issued and outstanding shares of the common stock of AXA Financial. For Growth and Income Fund, Mitchell Hutchins has entered into separate Sub-Advisory Contracts with Institutional Capital Corporation ('ICAP'), Westwood Management Corporation ('Westwood') and State Street Global Advisors ('SSgA'). Mitchell Hutchins (not the fund) pays each investment adviser a fee at the annual rate of 0.30% (0.15% for SSgA) of the fund's average daily net assets that it manages. Prior to October 10, 2000, Mitchell Hutchins managed the fund's assets. Robert H. Lyon, who serves as president, chief investment officer and a director of ICAP owns a 51% controlling interest in ICAP. Westwood is a wholly owned subsidiary of Southwest Securities Group, Inc., a Dallas-based securities firm. SSgA is the investment management division of State Street Bank and Trust Company, which is a wholly owned subsidiary of State Street Corporation, a publicly held bank holding company. 26 For Mid Cap Fund, Mitchell Hutchins has entered into a Sub-Advisory Contract with Delaware Management Company. Mitchell Hutchins (not the fund) pays fees to Delaware Management Company for its services under the Sub-Advisory Contract at the annual rate of 0.40% of the fund's average daily net assets. Delaware Management Company assumed its fund responsibilities on October 10, 2000. Prior to October 10, 2000, Mitchell Hutchins managed the fund's assets. Delaware Management Company is a series of Delaware Management Business Trust, a Delaware business trust. It is a member of Delaware Investments, a subsidiary of Lincoln National Corporation ('Lincoln National'). Lincoln National is a diversified organization with operations in many aspects of the financial services industry, including insurance and investment management. Prior to August 1, 1997, PaineWebber provided certain services to each fund not otherwise provided by its transfer agent. Pursuant to an agreement between PaineWebber and each fund relating to those services, PaineWebber earned (or accrued) the amounts set forth below during the period indicated:
FISCAL YEAR ENDED MARCH 31, 1998 -------------- Mid Cap Fund................................................ $28,077
Subsequent to July 31, 1997, PFPC (not the funds) pays PaineWebber for certain transfer agency-related services that PFPC has delegated to PaineWebber. SECURITIES LENDING. During the periods indicated, each fund paid (or accrued) the following fees to PaineWebber for its services as securities lending agent:
FISCAL YEAR ENDED --------------------------- FUND 2000 1999 1998 ---- ---- ---- ---- Growth Fund................................................. $ $48,764 $82,147 Growth and Income Fund...................................... 13,888 57,530
FISCAL YEAR FISCAL YEAR FIVE MONTH PERIOD FISCAL YEAR ENDED ENDED ENDED ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 1998 MARCH 31, 1998 --------------- --------------- --------------- -------------- Mid Cap Fund...................... $ $31,282 $8,609 $2,859
NET ASSETS. The following table shows the approximate net assets as of November 30, 2000, sorted by category of investment objective, of the investment companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An investment company may fall into more than one of the categories below.
NET ASSETS INVESTMENT CATEGORY ($MIL) ------------------- ------ Domestic (excluding Money Market)........................... $ Global...................................................... Equity/Balanced............................................. Fixed Income (excluding Money Market)....................... Taxable Fixed Income.................................... Tax-Free Fixed Income................................... Money Market Funds..........................................
PERSONAL TRADING POLICIES. The funds and Mitchell Hutchins each have adopted a code of ethics under rule 17j-1 of the Investment Company Act, which permits personnel covered by the rule to invest in securities that may be purchased or held by a fund but prohibits fraudulent, deceptive or manipulative conduct in connection with that personal investing. Each sub-adviser also has adopted a code of ethics under rule 17j-1. 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, 27 'Exclusive Dealer Agreements') PaineWebber and its correspondent firms sell the Funds' shares. Mitchell Hutchins is located at 51 West 52nd Street, New York, New York 10019-6114 and PaineWebber is located at 1285 Avenue of the Americas, New York, New York 10019-6028. 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 Investment Company Act (each, respectively, a 'Class A Plan,' 'Class B Plan' and 'Class C Plan,' and, 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 Fund and Growth and Income 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, each funds also pays Mitchell Hutchins a distribution fee, accrued daily and payable monthly, at the annual rate of 0.75% of the average daily net assets of the Class B shares and Class C shares, respectively. There is no distribution plan with respect to the funds' Class Y shares and the funds pay no service or distribution fees with respect to their Class Y shares. Mitchell Hutchins uses the service fees under the Plans for Class A, B and C shares primarily to pay PaineWebber for shareholder servicing, currently at the annual rate of 0.25% of the aggregate investment amounts maintained in each fund by PaineWebber clients. PaineWebber then compensates its Financial Advisors for shareholder servicing that they perform and offsets its own expenses in servicing and maintaining shareholder accounts. Mitchell Hutchins uses the distribution fees under the Class B and Class C Plans to: Offset the commissions it pays to PaineWebber for selling each fund's Class B and Class C shares, respectively. 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 Financial Advisors 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 Class A, Class B and Class C shares specify that each fund must pay service and distribution fees to Mitchell Hutchins for its service- and distribution-related 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 the Plans and Mitchell Hutchins' corresponding expenses for each class separately from the Plans and expenses of the other classes. 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 28 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 a 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 each fund's fiscal year ended August 31, 2000, the fund paid (or accrued) the following fees to Mitchell Hutchins under the Plans:
GROWTH AND GROWTH FUND INCOME FUND MID CAP FUND ----------- ----------- ------------ Class A....................................... $ $ $ Class B....................................... $ $ $ Class C....................................... $ $ $
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 the fund's August 31, 2000 fiscal year, as shown below: CLASS A
GROWTH AND GROWTH FUND INCOME FUND MID CAP FUND ----------- ----------- ------------ Marketing and advertising..................... $ $ $ Amortization of commissions................... 0 0 0 Printing of prospectuses and statements of additional information to other than current shareholders................................ Branch network costs allocated and interest expense..................................... Service fees paid to PaineWebber financial advisors....................................
CLASS B
GROWTH AND GROWTH FUND INCOME FUND MID CAP FUND ----------- ----------- ------------ Marketing and advertising..................... $ $ $ Amortization of commissions................... Printing of prospectuses and statements of additional information to other than current shareholders................................ Branch network costs allocated and interest expense..................................... Service fees paid to PaineWebber financial advisors....................................
29 CLASS C
GROWTH AND GROWTH FUND INCOME FUND MID CAP FUND ----------- ----------- ------------ Marketing and advertising..................... $ $ $ Amortization of commissions................... Printing of prospectuses and statements of additional information to other than current shareholders................................ Branch network costs allocated and interest expense..................................... Service fees paid to PaineWebber financial advisors....................................
'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. In approving each fund's overall Flexible Pricing'sm' 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 fund and attracting new investors and assets to the fund to the benefit of the fund and its shareholders, (2) facilitate distribution of the fund's shares and (3) maintain the competitive position of the fund in relation to other funds that have implemented or are seeking to implement similar distribution arrangements. In approving the Class A Plan, 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 fund than might otherwise be the case, (3) the advantages to the shareholders of economics of scale resulting from growth in the fund's assets and potential continued growth, (4) the services provided to the fund and its shareholders by Mitchell Hutchins, (5) the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder service-related expenses and costs. In approving the Class B Plan, 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 to Class B shares would prove attractive to the investment executives and correspondent firms, resulting in greater growth of the fund than might otherwise be the case, (4) the advantages to the shareholders of economics of scale resulting from growth in the fund's assets and potential continued growth, (5) the services provided to the fund and its shareholders by Mitchell Hutchins and (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 30 invested in fund shares, (2) the advantage to investors in being free from contingent deferred sales charges upon redemption for shares held more than one year and paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability of PaineWebber investment executives and correspondent firms to receive sales compensation for their sales of Class C shares on an ongoing basis, along with continuing service fees, while their customers invest their entire purchase payments immediately in Class C shares and generally do not face contingent deferred sales charges, would prove attractive to the investment executives and correspondent firms, resulting in greater growth to the fund than might otherwise be the case, (4) the advantages to the shareholders of economies of scale resulting from growth in the fund's assets and potential continued growth, (5) the services provided to the fund and its shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service-and distribution-related expenses and costs. The trustees also recognized that Mitchell Hutchins' willingness to compensate PaineWebber and its investment executives without the concomitant receipt by Mitchell Hutchins of initial sales charges or contingent deferred sales charges upon redemption, was conditioned upon its expectation of being compensated under the Class C Plan. With respect to each Plan, the 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 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, 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 ENDED -------------------------------- 2000 1999 1998 ---- ---- ---- GROWTH FUND Earned...................................................... $ $222,025 $ 77,935 Retained.................................................... 15,108 5,776 GROWTH AND INCOME FUND Earned...................................................... 554,856 3,377,803 Retained.................................................... 26,318 200,804
FISCAL YEAR FISCAL YEAR FIVE MONTH PERIOD FISCAL YEAR ENDED ENDED ENDED ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 1998 MARCH 31, 1998 --------------- --------------- --------------- -------------- MID CAP FUND Earned............................ $ $26,484 $42,878 $79,840 Retained.......................... 2,128 3,039 4,826
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 each fund's August 31, 2000 fiscal year:
GROWTH AND GROWTH FUND INCOME FUND MID CAP FUND ----------- ----------- ------------ Class A....................................... $ $ $ Class B....................................... $ $ $ Class C....................................... $ $ $
31 PORTFOLIO TRANSACTIONS Subject to policies established by each board, each sub-adviser is responsible for the execution of the funds' portfolio transactions and the allocation of brokerage transactions with respect to the fund assets that it manages. In executing portfolio transactions, each sub-adviser seeks to obtain the best net results for a fund, taking into account such factors as the price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved. While each sub-adviser 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 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 over-the-counter 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 periods indicated, the funds paid the brokerage commissions set forth below:
FISCAL YEARS ENDED ------------------------------------ 2000 1999 1998 ---- ---- ---- Growth Fund.............................................. $ $ 306,183 $ 455,002 Growth and Income Fund................................... $ $1,833,422 $1,782,530
FISCAL YEAR FISCAL YEAR FIVE MONTH PERIOD FISCAL YEAR ENDED ENDED ENDED ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 1998 MARCH 31, 1998 --------------- --------------- --------------- -------------- Mid Cap Fund.................... $ $411,285 $673,061 $388,468
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 or its affiliates or through brokerage affiliates of a sub-adviser. Each board has adopted procedures in conformity with Rule 17e-1 under the Investment Company Act to ensure that all brokerage commissions paid to PaineWebber or brokerage affiliates of a sub-adviser are reasonable and fair. Specific provisions in the Advisory Contracts and each Sub-Advisory Contract authorize Mitchell Hutchins and the sub-advisers and any of their affiliates that is a member of a national securities 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 periods indicated, the funds paid to PaineWebber the brokerage commissions set forth below:
FISCAL YEARS ENDED AUGUST 31, ------------------------------ 2000 1999 1998 ---- ---- ---- Growth Fund................................................. $ $ 34,416 $ 43,380 Growth and Income Fund...................................... $ $124,174 $ 51,462
FISCAL YEAR FISCAL YEAR FIVE MONTH PERIOD FISCAL YEAR ENDED ENDED ENDED ENDED AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 1998 MARCH 31, 1998 --------------- --------------- --------------- -------------- Mid Cap Fund.................... $ $22,902 $0 $0
The amounts paid by the funds to PaineWebber in brokerage commissions for their most recent fiscal year represent (1) for Growth Fund, % of the total brokerage commission paid and % of the total dollar amount of transactions involving the payment of brokerage commissions; (2) for Growth and Income Fund, % of the total brokerage commission paid and % of the total dollar amount of transactions involving the payment of brokerage commissions; and (3) for Mid Cap Fund, % of the total brokerage commission paid and % of the total dollar amount of transactions involving the payment of brokerage commissions. Transaction in futures contracts are executed through futures commission merchants ('FCMs'), who receive brokerage commissions for their services. The funds' procedures in selecting FCMs to 32 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. In selecting brokers, each sub-adviser will consider the full range and quality of a broker's services. Consistent with the interests of the funds and subject to the review of each board a sub-adviser may cause a fund to purchase and sell portfolio securities through brokers who provide the sub-adviser with brokerage or research services. The funds may pay those brokers a higher commission than may be charged by other brokers, provided that the sub-adviser determines in good faith that the commission is reasonable in terms either of that particular transaction or of the overall responsibility of the sub-adviser to that fund and its other clients. Research services obtained from brokers may include written reports, pricing and appraisal services, analysis of issues raised in proxy statements, educational seminars, subscriptions, portfolio attribution and monitoring services, and computer hardware, software and access charges which are directly related to investment research. Research services may be received in the form of written reports, online services, telephone contacts and personal meetings with securities analysts, economists, corporate and industry spokespersons and government representatives. During each fund's 2000 fiscal year, 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:
BROKERAGE AMOUNT OF PORTFOLIO COMMISSIONS TRANSACTIONS PAID ------------ ---- Growth Fund................................................. $ $ Growth and Income Fund...................................... $ $ Mid Cap Fund................................................ $ $
For purchases or sales with broker-dealer firms which act as principal, each sub-adviser seeks best execution. Although a sub-adviser may receive certain research or execution services in connection with these transactions, it 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. Each sub-adviser may engage in agency transactions in over-the-counter 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. Research services and information received from brokers or dealers are supplemental to a sub-adviser is own research efforts and, when utilized, are subject to internal analysis before being incorporated into its investment processes. Information and research services furnished by brokers or dealers through which or with which the funds effect securities transactions may be used by a sub-adviser in advising other funds or accounts and, conversely, research services furnished to a sub-adviser by brokers or dealers in connection with other funds or accounts that it advises may be used in advising a fund. Investment decisions for fund and for other investment accounts managed by each sub-adviser are made independently of each other in light of differing considerations for the various accounts. However, the same investment decision may occasionally be made for 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 in a manner 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 a fund is concerned, or upon its ability to complete its entire order, in other cases it is believed that coordination and the ability to participate in volume transactions will be beneficial to the fund. The 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 to Rule 10f-3 under the Investment Company Act. Among other things, these procedures require that the spread or commission paid in connection with such a purchase be reasonable and fair, 33 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. For the periods shown, the funds' portfolio turnover rates were:
PORTFOLIO TURNOVER RATE ------------- GROWTH FUND Fiscal Year Ended August 31, 2000........................... % Fiscal Year Ended August 31, 1999........................... 38% GROWTH AND INCOME FUND Fiscal Year Ended August 31, 2000........................... % Fiscal Year Ended August 31, 1999........................... 57% MID CAP FUND Fiscal Year Ended August 31, 2000........................... % Fiscal Year Ended August 31, 1999........................... 79%
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND OTHER SERVICES WAIVERS OF SALES CHARGES/CONTINGENT DEFERRED SALES CHARGES -- CLASS A SHARES. The following additional sales charge waivers are available for Class A shares if you: Purchase shares through 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 l% of the amount invested; Acquire 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 shares at net asset value to that program. For investments made pursuant to this waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own resources in an amount not to exceed 1% of the amount invested. For subsequent investments or exchanges made to implement a rebalancing feature of such an investment program, the minimum subsequent investment requirement is also waived; Acquire shares in connection with a reorganization pursuant to which a fund acquires substantially all of the assets and liabilities of another fund in exchange solely for shares of the acquiring fund; or Acquire 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 meet certain other conditions described in its prospectus. In addition, reduced sales charges on Class A shares are available through the combined purchase plan or through rights of accumulation described below. Class A shares 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. 34 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 the individual(s); (e) an individual (or eligible group of individuals) and a trust created by the individual(s), the beneficiaries of which are the individual and/or the individual's spouse, parents or children; (f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account created by the individual or the individual's spouse; (g) an employer (or group of related employers) and one or more qualified retirement plans of such employer or employers (an employer controlling, controlled by or under common control with another employer is deemed related to that other employer); or (h) individual accounts related together under one registered investment adviser having full discretion and control over the accounts. The registered investment adviser must communicate at least quarterly through a newsletter or investment update establishing a relationship with all of the accounts. RIGHTS OF ACCUMULATION -- CLASS A SHARES. Reduced sales charges are available through a right of accumulation, under which investors and eligible groups of related fund investors (as defined above) are permitted to purchase Class A shares of the funds among related accounts at the offering price applicable to the total of (1) the dollar amount then being purchased plus (2) an amount equal to the then-current net asset value of the purchaser's combined holdings of Class A fund shares and Class A shares of any other PaineWebber mutual fund. The purchaser must provide sufficient information to permit confirmation of his or her holdings, and the acceptance of the purchase order is subject to such confirmation. The right of accumulation may be amended or terminated at any time. REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed Class A shares of a fund may reinstate their account without a sales charge 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 'Taxes' in the SAI. WAIVERS OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. 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. Among other circumstances, the contingent deferred sales charge on Class B shares is waived where a total or partial redemption is 35 made within one year following the death of the shareholder. The contingent deferred sales charge waiver is available where the decedent is either the sole shareholder or owns the shares with his or her spouse as a joint tenant with right of survivorship. This waiver applies only to redemption of shares held at the time of death. PURCHASES AND SALES OF CLASS Y SHARES THROUGH THE PACE'sm' MULTI ADVISOR PROGRAM. An investor who participates in the PACE'sm' Multi Advisor Program is eligible to purchase Class Y shares. The PACE'sm' 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'sm' 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 Financial Advisor or PaineWebber's correspondent firms for more information concerning mutual funds that are available through the PACE'sm' Multi Advisor Program. PURCHASES OF CLASS A SHARES THROUGH THE PAINEWEBBER INSIGHTONE'sm' PROGRAM. Investors who purchase shares through the PaineWebber InsightOne'sm' Program are eligible to purchase Class A shares without a sales load. The PaineWebber InsightOne'sm' Program offers a nondiscretionary brokerage account to investors for an asset-based fee at an annual rate of up to 1.50% of the assets in the account. Account holders may purchase or sell certain investment products without paying commissions or other markups/markdowns. PURCHASES AND SALES OF CLASS Y SHARES FOR PARTICIPANTS IN PW 401(K) PLUS PLAN. The trustee of the PW 401(k) Plus Plan, a defined contribution plan sponsored by PW Group, buys and sells Class Y shares of the funds that are included as investment options under the Plan to implement the investment choices of individual participants with respect to their Plan contributions. Individual Plan participants should consult the Summary Plan Description and other plan material of the PW 401(k) Plus 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 price at which Class Y shares are bought and sold by the trustee of PW 401(k) Plus Plan might be more or less than the price per share at the time the participants made their investment choices. 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. Class Y shares are not eligible for exchange. Shareholders will receive at least 60 days' notice of any termination or material modification of the exchange offer, except 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, each fund reserves the right to honor any request for redemption by making payment in whole or in part in securities chosen by the fund and valued in the same way as they would be valued for purposes of computing the fund's net asset value. Any such redemption in kind will be made with readily marketable securities, to the extent available. If payment is made in securities, a shareholder may incur brokerage expenses in converting these securities into cash. Each fund has elected, however, to be governed by Rule 18f-1 under the Investment Company Act, under which it 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 is closed or trading on the New York Stock Exchange 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 36 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' in accordance with the policies of the service organizations. 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. 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, semi-annual or annual basis from the investor's bank account to invest directly in the fund. Participation in the Automatic Investment Plan enables an investor to use the technique of 'dollar cost averaging.' When an 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 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. The Systematic Withdrawal Plan allows investors to set up monthly, quarterly (March, June, September and December), semi-annual (June and December) or annual (December) withdrawals from their PaineWebber Mutual Fund accounts. Minimum balances and withdrawals vary according to the class of shares: Class A and Class C shares. Minimum value of fund shares in $5,000; minimum withdrawals of $100. Class B shares. Minimum value of fund shares is $10,000; minimum monthly, quarterly, and semi-annual and annual withdrawals of $100, $200, $300 and $400, respectively. Withdrawals under the Systematic Withdrawal Plan will not be subject to a contingent deferred sales charge. An investor may withdraw no more than 12% of the value of the fund account when the investor signed up for the Plan (for Class B shares, annually; for Class A and Class C shares, during the first year under the Plan). Shareholders who elect to receive dividends or other distributions in cash may not participate in this 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 the minimum values specified above. Purchases of additional shares of a fund concurrent with withdrawals are ordinarily disadvantageous to shareholders because of tax liabilities and, for Class A shares, initial sales charges. On or about the 20th of a month for monthly, quarterly, semi-annual and annual plans, PaineWebber will arrange for redemption by the funds of sufficient fund shares to provide the withdrawal payments specified by participants in the funds' systematic withdrawal plan. The payments generally are mailed approximately five Business Days (defined under 'Valuation of Shares') after the redemption date. Withdrawal payments should not be considered dividends, but redemption proceeds. If periodic withdrawals continually exceed reinvested dividends and other distributions, a shareholder's investment may be correspondingly reduced. A shareholder may change the amount of the systematic withdrawal or terminate participation in the systematic withdrawal plan at any time without charge or penalty by written instructions with signatures guaranteed to PaineWebber or PFPC Inc. ('Transfer Agent'). Instructions to participate in the plan, change the withdrawal amount or terminate participation in the 37 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 Financial Advisors, correspondent firms or the Transfer Agent at 1-800-647-1568. INDIVIDUAL RETIREMENT ACCOUNTS. Self-directed IRAs are available through PaineWebber in which purchases of PaineWebber mutual funds and other investments may be made. Investors considering establishing an IRA should review applicable tax laws and should consult their tax advisers. TRANSFER OF ACCOUNTS. If investors holding shares of 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. PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN'sm'; PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT'r' (RMA)'r' Shares of PaineWebber mutual funds (each a 'PW Fund' and, collectively, the 'PW Funds') are available for purchase through the RMA Resource Accumulation Plan ('Plan') by customers of PaineWebber and its correspondent firms who maintain Resource Management Accounts ('RMA accountholders'). The Plan allows an RMA accountholder to continually invest in one or more of the PW Funds at regular intervals, with payment for shares purchased automatically deducted from the client's RMA account. The client may elect to invest at monthly or quarterly intervals and may elect either to invest a fixed dollar amount (minimum $100 per period) or to purchase a fixed number of shares. A client can elect to have Plan purchases executed on the first or fifteenth day of the month. Settlement occurs three Business Days (defined under 'Valuation of Shares') after the trade date, and the purchase price of the shares is withdrawn from the investor's RMA account on the settlement date from the following sources and in the following order: uninvested cash balances, balances in RMA money market funds, or margin borrowing power, if applicable to the account. To participate in the Plan, an investor must be an RMA accountholder, must have made an initial purchase of the shares of each PW Fund selected for investment under the Plan (meeting applicable minimum investment requirements) and must complete and submit the RMA Resource Accumulation Plan Client Agreement and Instruction Form available from PaineWebber. The investor must have received a current prospectus for each PW Fund selected in connection with 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. In deciding whether to use dollar cost averaging, an investor should also consider whether a large, single investment would qualify for sales load reductions. 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 38 is PaineWebber's comprehensive asset management account and offers investors a number of features, including the following: monthly Premier account statements that itemize all account activity, including investment transactions, checking activity and Platinum MasterCard'r' transactions during the period, and provide unrealized and realized gain and loss estimates for most securities held in the account; comprehensive year-end summary statements that provide information on account activity for use in tax planning and tax return preparation; automatic 'sweep' of uninvested cash into the RMA accountholder's choice of one of the six RMA money market funds-RMA Money Market Portfolio, RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal Money Fund, RMA New Jersey Municipal Money Fund and RMA New York Municipal Money Fund. 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. 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; Platinum MasterCard'r', 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 Platinum MasterCard'r' are debited to the RMA account once monthly, permitting accountholders to remain invested for a longer period of time; 24-hour access to account information through toll-free numbers, and more detailed personal assistance during business hours from the RMA Service Center; unlimited electronic funds transfers and bill payment services for an additional fee; expanded account protection for the net equity securities balance in the event of the liquidation of PaineWebber. This protection does not apply to shares of funds that are held at PFPC and not through PaineWebber; and automatic direct deposit of checks into your RMA account and automatic withdrawals from the account. The annual account fee for an RMA account is $85, which includes the Platinum MasterCard'r', with an additional fee of $40 if the investor selects an optional line of credit with the Platinum MasterCard'r'. 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 (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, the date on which the original Class B shares were issued. For purposes of conversion to Class A 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 that the conversion of 39 shares does 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 continue to be met. VALUATION OF SHARES Each fund determines its net asset value per share separately for each class of shares, normally as of the close of regular trading (usually 4:00 p.m., Eastern time) on the New York Stock Exchange on each Business Day, which is defined as each Monday through Friday when the New York Stock Exchange is open. Prices will be calculated earlier when the New York Stock Exchange closes early because trading has been halted for the day. Currently the New York Stock Exchange is closed on the observance of the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities that are listed on U.S. stock exchanges are valued at the last sale price on the day the securities are valued or, lacking any sales on such day, at the last available bid price. In cases where securities are traded on more than one exchange, the securities are generally valued on the exchange considered by Mitchell Hutchins as the primary market. Securities traded in the over-the-counter market and listed on the Nasdaq Stock Market ('Nasdaq') are valued at the last trade price on Nasdaq prior to valuation; other over-the-counter 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 the applicable board. It should be recognized that judgment often plays a greater role in valuing thinly traded securities and lower rated bonds 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 applicable 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. TOTAL RETURN CALCULATIONS. Average annual total return quotes ('Standardized Return') used in each fund's Performance Advertisements are calculated according to the following formula: P(1 + T)'pp'n = ERV where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified class T = average annual total return of shares of that class n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment 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 40 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 tables show performance information for each class of the funds' shares outstanding for the periods indicated. All returns for periods of more than one year are expressed as an average return. GROWTH FUND
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Year ended August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % % Five Years ended August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % % Ten years ended August 31, 2000: Standardized Return*........................ % N/A N/A N/A Non-Standardized............................ % N/A N/A N/A Inception** to August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % %
GROWTH AND INCOME FUND
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Year ended August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % % Five Years ended August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % % Ten years ended August 31, 2000: Standardized Return*........................ % N/A N/A N/A Non-Standardized............................ % N/A N/A N/A Inception** to August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % %
41 MID CAP FUND
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Year ended August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % % Five Years ended August 31, 2000: Standardized Return*........................ % % % % Non-Standardized............................ % % % % Inception** to August 31, 2000: Standardized Return*........................ % % % Non-Standardized............................ % % %
- ------------------- * 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 Fund................................... 03/18/85 07/01/91 07/02/92 08/26/91 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
OTHER INFORMATION. In Performance Advertisements, the funds may compare their Standardized Return and/or their Non-Standardized Return with data published by Lipper 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 (but not limited to) 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 International Finance Corporation Global Total Return Index, 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, the Lehman Brothers 20+ Year Treasury Bond Index, the Lehman Brothers Government/Corporate Bond Index, other similar Lehman Brothers indices or components thereof, 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 MAGAZINE, 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. 42 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'r' 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 values will fluctuate. The bonds held by the funds generally have longer maturities than most CDs and may reflect interest rate fluctuations for longer term bonds. An investment in any fund involves greater risks than an investment in either a money market fund or a CD. Each fund may also compare its performance to general trends in the stock and bond markets, as illustrated by the following graph prepared by Ibbotson Associates, Chicago. Chart showing performance of S&P 500, long-term U.S. government bonds. Treasury Bills and inflation from 1925 through 1998.
LONG- TERM COMMON GOV'T TREASURY YEAR STOCKS BONDS INFLATION/CPI BILLS - ---- ------ ----- ------------- -------- 1925 $10,000 $10,000 $10,000 $10,000 1926 $11,162 $10,777 $9,851 $10,327 1927 $15,347 $11,739 $9,646 $10,649 1928 $22,040 $11,751 $9,553 $11,028 1929 $20,185 $12,153 $9,572 $11,552 1930 $15,159 $12,719 $8,994 $11,830 1931 $8,590 $12,044 $8,138 $11,957 1932 $7,886 $14,073 $7,300 $12,072 1933 $12,144 $14,062 $7,337 $12,108 1934 $11,969 $15,472 $7,486 $12,128 1935 $17,674 $16,243 $7,710 $12,148 1936 $23,669 $17,464 $7,803 $12,170 1937 $15,379 $17,504 $8,045 $12,207 1938 $20,165 $18,473 $7,821 $12,205 1939 $20,082 $19,570 $7,784 $12,208 1940 $18,117 $20,761 $7,859 $12,208 1941 $16,017 $20,955 $8,622 $12,216 1942 $19,275 $21,629 $9,423 $12,248 1943 $24,267 $22,080 $9,721 $12,291 1944 $29,060 $22,702 $9,926 $12,332 1945 $39,649 $25,139 $10,149 $12,372 1946 $36,449 $25,113 $11,993 $12,416 1947 $38,529 $24,454 $13,073 $12,478 1948 $40,649 $25,285 $13,426 $12,580 1949 $48,287 $26,916 $13,184 $12,718 1950 $63,601 $26,932 $13,948 $12,870 1951 $78,875 $25,873 $14,767 $13,063 1952 $93,363 $26,173 $14,898 $13,279 1953 $92,439 $27,125 $14,991 $13,521 1954 $141,084 $29,075 $14,916 $13,638 1955 $185,614 $28,699 $14,972 $13,852 1956 $197,783 $27,096 $15,400 $14,193 1957 $176,457 $29,117 $15,866 $14,639 1958 $252,975 $27,342 $16,145 $14,864 1959 $283,219 $26,725 $16,387 $15,303 1960 $284,549 $30,407 $16,629 $15,711 1961 $361,060 $30,703 $16,741 $16,045 1962 $329,545 $32,818 $16,946 $16,483 1963 $404,685 $33,216 $17,225 $16,997 1964 $471,388 $34,381 $17,430 $17,598 1965 $530,081 $34,625 $17,765 $18,289 1966 $476,737 $35,889 $18,361 $19,159 1967 $591,038 $32,594 $18,920 $19,966 1968 $656,415 $32,509 $19,814 $21,005 1969 $600,590 $30,860 $21,024 $22,388 1970 $624,653 $34,596 $22,179 $23,849 1971 $714,058 $39,173 $22,924 $24,895 1972 $849,559 $41,400 $23,706 $25,851 1973 $725,003 $40,942 $25,792 $27,643 1974 $533,110 $42,725 $28,939 $29,855 1975 $731,443 $46,653 $30,969 $31,588 1976 $905,842 $54,470 $32,458 $33,193 1977 $840,766 $54,095 $34,656 $34,893 1978 $895,922 $53,458 $37,784 $37,398 1979 $1,061,126 $52,799 $42,812 $41,279 1980 $1,405,137 $50,715 $48,120 $45,917 1981 $1,336,161 $51,657 $52,421 $52,671 1982 $1,622,226 $72,507 $54,451 $58,224 1983 $1,987,451 $72,979 $56,518 $63,347 1984 $2,111,991 $84,274 $58,753 $69,586 1985 $2,791,166 $110,371 $60,968 $74,960 1986 $3,306,709 $137,446 $61,657 $79,580 1987 $3,479,675 $133,716 $64,376 $83,929 1988 $4,064,583 $146,650 $67,221 $89,257 1989 $5,344,555 $173,215 $70,345 $96,728 1990 $5,174,990 $183,924 $74,640 $104,286 1991 $6,755,922 $219,420 $76,927 $110,121 1992 $7,274,115 $237,092 $79,159 $113,982 1993 $8,000,785 $280,339 $81,334 $117,284 1994 $8,105,379 $258,556 $83,510 $121,862 1995 $11,139,184 $340,435 $85,630 $128,680 1996 $13,709,459 $337,265 $88,475 $135,381 1997 $18,272,762 $390,735 $89,897 $142,496 1998 $23,495,420 $441,777 $91,513 $149,416
Source: Stocks, Bonds, Bills and Inflation 1999 Yearbook'TM', Ibbotson Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield). 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. Stocks are measured by the S&P 500, an unmanaged weighted index comprising 500 widely held common stocks and varying in composition. Unlike investors in bonds and U.S. Treasury bills, common stock investors do not receive fixed income payments and are not entitled to repayment of principal. These differences contribute to investment risk. Returns shown for long-term government bonds are based on U.S. Treasury bonds with 20-year maturities. Inflation is measured by the Consumer Price Index. The indexes are unmanaged and are not available for investment. Over time, stocks have outperformed all other investments by a wide margin, offering a solid hedge against inflation. From January 1, 1926 to December 31, 1999, stocks beat all other traditional asset classes. A $10,000 investment in the S&P 500 grew to $28,456,286, significantly more than any other investment. 43 TAXES BACKUP WITHHOLDING. Each fund is required to withhold 31% of all dividends, capital gain distributions and redemption proceeds payable to individuals and certain other non-corporate shareholders who do not provide the fund or PaineWebber with a correct taxpayer identification number. Withholding at that rate also is required from dividends and capital gain distributions payable to those shareholders who otherwise are subject to backup withholding. SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale (redemption) of fund shares may result in a taxable gain or loss, depending on whether the shareholder receives more or less than his or her 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 the fund (regardless of class) at a loss, all or a portion of that loss will not be deductible and will increase the basis of the newly purchased shares. SPECIAL RULE FOR CLASS A SHAREHOLDERS. A special tax rule applies when a shareholder sells or exchanges Class A shares of a fund within 90 days of purchase and subsequently acquires Class A shares of the same or another PaineWebber mutual fund without paying a sales charge due to the 365-day reinstatement privilege or the exchange privilege. In these cases, any gain on the sale or exchange of the original Class A shares would be increased, or any loss would be decreased, by the amount of the sales charge paid when those shares were bought, and that amount will increase the basis of the PaineWebber mutual fund shares subsequently acquired. CONVERSION OF CLASS B SHARES. No gain or loss will be recognized by a shareholder as a result of a conversion of Class B shares to Class A shares. QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each fund intends to continue to qualify for treatment as a regulated investment company ('RIC') under the Internal Revenue Code. To so qualify, 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 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 that are 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, (1) it would be taxed as an ordinary corporation on its taxable income for that year without being able to deduct the distributions it makes to its shareholders and (2) the shareholders would treat all those distributions, including distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss), as dividends (that is, ordinary income) to the extent of the fund's earnings and profits. In addition, the fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for RIC treatment. OTHER INFORMATION. Dividends and other distributions each fund declares in October, November or December of any year that are 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 funds pays the distributions during the following January. A portion of the dividends (whether paid in cash or additional shares) from each fund's investment company taxable income may be eligible for the dividends-received deduction allowed to corporations. The eligible portion for a fund may not exceed the aggregate dividends received by the fund from U.S. 44 corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction are subject indirectly to the federal alternative minimum tax. If 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 that stock is a permissible investment. A PFIC is any foreign corporation (with certain exceptions) 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 will be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain (which it may have to distribute to satisfy the Distribution Requirement and avoid imposition of the Excise Tax) even if the QEF does not distribute those earnings and gain to the fund. In most instances it will be very difficult, if not impossible, to make this election because of certain of its requirements. 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 under the election (and under regulations proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). A fund's adjusted basis in each PFIC's stock with respect to which it has made this election will be adjusted to reflect the amounts of income included and deductions taken thereunder. 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 be treated as qualifying income under the Income Requirement. Certain futures contracts in which a fund may invest may be subject to section 1256 of the Internal Revenue Code ('section 1256 contracts'). Any section 1256 contracts a fund holds at the end of each taxable year generally must be 'marked-to-market' (that is, treated as having been sold at that time for their fair market value) for federal income tax purposes, which the result that unrealized gains or losses will be treated as though they were realized. Sixty percent of any net gain or loss recognized on these deemed sales, and 60% of any net realized gain or loss from any actual sales of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be treated as short-term capital gain or loss. These rules may operate to increase the amount that a fund must distribute to satisfy the Distribution Requirement (i.e., with respect to the portion treated as short-term capital gain), which will be taxable to its shareholders as ordinary income, and to increase the net capital gain a fund recognizes, 45 without in either case increasing the cash available to the fund. A fund may elect not to have the foregoing rules apply to any 'mixed straddle' (that is, a straddle, clearly identified by the fund in accordance with the regulations, at least one (but not all) the positions of which are section 1256 contracts), although doing so may have the effect of increasing the relative proportion of net short-term capital gain (taxable as ordinary income) and thus increasing the amount of dividends that must be distributed. Offsetting positions in any actively traded security, option or futures contract entered into or held by a fund may constitute a 'straddle' for federal income tax purposes. Straddles are subject to certain rules that may affect the amount, character and timing of a fund's gains and losses with respect to positions of the straddle by requiring, among other things, that (1) loss realized on disposition of one position of a straddle be deferred to the extent of any unrealized gain in an offsetting position until the latter position is disposed of, (2) the fund's holding period in certain straddle positions not begin until the straddle is terminated (possibly resulting in gain being treated as short-term rather than long-term capital gain) and (3) losses recognized with respect to certain straddle positions, that otherwise would constitute short-term capital losses, be treated as long-term capital losses. Applicable regulations also provide certain 'wash sale' rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and 'short sale' rules applicable to straddles. Different elections are available to the funds, which may mitigate the effects of the straddle rules, particularly with respect to mixed straddles. When a covered call option written (sold) by a fund expires, it will realize a short-term capital gain equal to the amount of the premium it received for writing the option. When a fund terminates its obligations under such an option by entering into a closing transaction, it will realize a short-term capital gain (or loss), depending on whether the cost of the closing transaction is less (or more) than the premium it received when it wrote the option. When a covered call option written by a fund is exercised, the fund will be treated as having sold the underlying security, producing long-term or short-term capital gain or loss, depending on the holding period of the underlying security and whether the sum of the option price received on the exercise plus the premium received when it wrote the option is more or less than the basis of the underlying security. If a fund has an 'appreciated financial position' -- generally, an interest (including an interest through an option or 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 position, 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 identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to a fund's 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 regarding that position reduced by reason of certain specified transactions with respect to substantially identical 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). The foregoing is only a general summary of some of the important federal tax considerations generally affecting the funds and their shareholders. No attempt is made to present a complete explanation of the federal tax treatment of the funds' activities, and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential investors are urged to consult their own tax advisers for more detailed information and for information regarding any state, local or foreign taxes applicable to the funds and to dividends and other distributions therefrom. 46 OTHER INFORMATION MASSACHUSETTS BUSINESS TRUSTS. 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 fund or its Trust. However, each Trust's Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust or the fund and requires that notice of such disclaimer be given in each note, bond, contract, instrument, certificate or undertaking made or issued by the board members or by any officers or officer by or on behalf of the Trust or the fund, the board members or any of them in connection with the Trust. Each Declaration of Trust provides for indemnification from the relevant fund's property for all losses and expenses of any shareholder held personally liable for the obligations of the fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the fund itself would be unable to meet its obligations, a possibility that Mitchell Hutchins believes is remote and not material. Upon payment of any liability incurred by a shareholder solely by reason of being or having been a shareholder, the shareholder paying such liability would be entitled to reimbursement from the general assets of the relevant fund. The board members intend to conduct each fund's operations in such a way as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the fund. CLASSES OF SHARES. A share of each class 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 and liquidation proceeds on Class A, B, C and Y shares will differ. 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 board members of that fund or 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 when an aggregate vote of all the series is required by law. 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 board member through a declaration in writing or by vote cast in person or by proxy at a meeting called for that purpose. A meeting will be called to vote on the removal of a board member at the written request of holders of 10% of the outstanding shares of a fund or Securities Trust. 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. PRIOR NAMES. 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 November 10, 1995, each fund's Class C shares were known as 'Class D' 47 shares. Prior to November 10, 1995, the Class Y shares of Growth and Income Fund and Growth Fund were known as Class C shares. CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State Street Bank and Trust Company, located at 1776 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. COMBINED PROSPECTUS. Although each fund is offering only its own shares, it is possible that a fund might become liable for a misstatement in the Prospectus about another fund. The board of each fund has considered this factor in approving the use of a single, combined Prospectus. 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 Fund, Growth and Income Fund and Mid Cap Fund. FINANCIAL STATEMENTS Each fund's Annual Report to Shareholders for its fiscal year ended August 31, 2000 is a separate document supplied with this SAI, and the financial statements, accompanying notes and report of independent auditors or independent accountants appearing therein are incorporated herein by this reference. 48 APPENDIX RATINGS INFORMATION 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 edged.' Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues; Aa. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risk 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 payment 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 applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that 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 highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong; A. An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than 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 obligations 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; B. An obligation rated B is more vulnerable to nonpayment A-1 than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation; CCC. An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation; CC. An obligation rated CC is currently highly vulnerable to nonpayment; C. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on 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. r. This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk -- such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. A-2 [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFER TO SELL SHARES OF THE FUNDS IN ANY JURISDICTION WHERE THE FUNDS OR THEIR DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES. ------------ PaineWebber Growth Fund PaineWebber Growth and Income Fund PaineWebber Mid Cap Fund ------------------------------------------ Statement of Additional Information December 31, 2000 ------------------------------------------ 'c'2000 PaineWebber Incorporated. All rights reserved. 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) (a) Interim Investment Management and Administration Contract (filed herewith) (b) Interim Sub-Advisory Contract with Institutional Capital Corporation (filed herewith) (c) Interim Sub-Advisory Contract with State Street Global Advisors (filed herewith) (d) Interim Sub-Advisory Contract with Westwood Management Corporation (filed herewith) (5) (a) Form of Distribution Contract (filed herewith) (b) Form of Dealer Agreement (filed herewith) (6) Bonus, profit sharing or pension plans - none (7) Custodian Agreement 3/ (8) Transfer Agency Agreement 3/ (9) Opinion and consent of counsel (to be filed) (10) Other opinions, appraisals, rulings and consents: Auditor's Consent (to be filed) (11) Financial statements omitted from prospectus - none (12) Letter of investment intent 3/ (13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares 3/ (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares 3/ (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C shares 3/ (14) Multiple Class Plan pursuant to Rule 18f-3 (filed herewith) (15) (a) Code of Ethics for Registrant, its investment manager and its principal distributor 4/ (b) Code of Ethics for Institutional Capital Corporation (filed herewith) (c) Code of Ethics for State Street Global Advisors (filed herewith) (d) Code of Ethics for Westwood Management Corporation (filed herewith) - ------------------------------- 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. 43 to the registration statement, SEC File No. 2-78626, filed November 20, 1998. 4/ Incorporated by reference from Post-Effective Amendment No. 29 to the registration statement of PaineWebber Mutual Fund Trust, SEC File No. 2-98149, filed June 27, 2000. 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 Interim Investment Management and Administration Contract ("Management 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 Management 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 Management Contract. Section 10 of the Management Contract provides that the Trustees shall not be liable for any obligations of the Trust or any series under the Management 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. C-2 Section 6 of each Interim Sub-Advisory Contract contains provisions similar to Section 9 of the Management Contract, with respect to the applicable sub-adviser. Section 9 of the Distribution Contract provides that the Trust will indemnify Mitchell Hutchins and its officers, directors and controlling persons against all liabilities arising from any alleged untrue statement of material fact in the Registration Statement or from any alleged omission to state in the Registration Statement a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading, except insofar as liability arises from untrue statements or omissions made in reliance upon and in conformity with information furnished by Mitchell Hutchins to the Trust for use in the Registration Statement; and provided that this indemnity agreement shall not protect any such persons against liabilities arising by reason of their bad faith, gross negligence or willful misfeasance; and shall not inure to the benefit of any such persons unless a court of competent jurisdiction or controlling precedent determines that such result is not against public policy as expressed in the Securities Act of 1933. Section 9 of the 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 Distribution Contract. Section 9 of the Dealer Agreement contains provisions similar to Section 9 of the Distribution Contract, with respect to PaineWebber Incorporated ("PaineWebber"). Section 10 of the Distribution Contract contains provisions similar to Section 10 of the Management 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 Paine Webber Group Inc. Mitchell Hutchins is primarily engaged in the investment advisory business. Information as to the officers and directors of Mitchell Hutchins is included in its Form ADV, as filed with the Securities and Exchange Commission (registration number 801-13219), and is incorporated herein by reference. Institutional Capital Corporation ("ICAP") serves as a sub-adviser for PaineWebber Growth and Income Fund. Information on the officers and directors of ICAP is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-40779) and is incorporated herein by reference. Westwood Management Corporation ("Westwood") serves as a sub-adviser for PaineWebber Growth and Income Fund. Information on the officers and directors of Westwood is included in its Form ADV filed with the Securities and Exchange Commission (registration number 801-18727) and is incorporated herein by reference. C-3 State Street Global Advisors ("SSgA"), the investment management division of State Street Bank & Trust Company, serves as a sub-adviser for PaineWebber Growth and Income Fund. 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. INSURED MUNICIPAL INCOME FUND INC. INVESTMENT GRADE MUNICIPAL INCOME FUND INC. MANAGED HIGH YIELD PLUS FUND INC. MITCHELL HUTCHINS LIR MONEY SERIES MITCHELL HUTCHINS SECURITIES TRUST MITCHELL HUTCHINS SERIES TRUST PAINEWEBBER AMERICA FUND PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC. PAINEWEBBER INDEX TRUST PAINEWEBBER INVESTMENT SERIES PAINEWEBBER INVESTMENT TRUST PAINEWEBBER INVESTMENT TRUST II PAINEWEBBER MANAGED ASSETS TRUST PAINEWEBBER MANAGED INVESTMENTS TRUST PAINEWEBBER MASTER SERIES, INC. PAINEWEBBER MUNICIPAL SERIES PAINEWEBBER MUTUAL FUND TRUST PAINEWEBBER OLYMPUS FUND PAINEWEBBER SECURITIES TRUST STRATEGIC GLOBAL INCOME FUND, INC. 2002 TARGET TERM TRUST INC. b) Mitchell Hutchins is the 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.
Position and Offices With Underwriter Name Position and Offices With Registrant or Dealer ---- ------------------------------------ --------- Margo N. Alexander* Trustee and President Chairman and a Director of Mitchell Hutchins and an Executive Vice President and a Director of PaineWebber
C-4
Position and Offices With Underwriter Name Position and Offices With Registrant or Dealer ---- ------------------------------------ --------- Brian M. Storms* Trustee Chief Executive Officer, President and Chief Operating Officer of Mitchell Hutchins Amy Doberman** Vice President Senior Vice President and General Counsel 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 Kevin J. Mahoney*** Vice President and Assistant Treasurer First Vice President and a Senior Manager of the Mutual Fund Finance Department of Mitchell Hutchins Ann E. Moran*** Vice President and Assistant Treasurer Vice President and a Manager of the Mutual Fund Finance Department of Mitchell Hutchins Dianne E. O'Donnell** Vice President and Secretary Senior Vice President and Deputy 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 Keith A. Weller** Vice President and Assistant Secretary First Vice President and Associate General Counsel of Mitchell Hutchins
- -------- * This person's business address is 51 West 52nd Street, New York, New York 10019-6114. ** This person's business address is 1285 Avenue of the Americas, New York, New York 10019-6028. *** This person's business address is Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, New Jersey 07310-1998. c) None. C-5 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 at 1285 Avenue of the Americas, New York, New York 10019-6028 and 51 West 52nd Street, New York, New York 10019-6114. 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-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 30th day of October, 2000. 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 October 30, 2000 - ------------------------------------- (Chief Executive Officer) Margo N. Alexander * /s/ E. Garrett Bewkes, Jr. Trustee and Chairman October 30, 2000 - ------------------------------------- of the Board of Trustees E. Garrett Bewkes, Jr. * /s/ Richard Q. Armstrong Trustee October 30, 2000 - ------------------------------------ Richard Q. Armstrong * /s/ Richard R. Burt Trustee October 30, 2000 - ------------------------------------ Richard R. Burt * /s/ Meyer Feldberg Trustee October 30, 2000 - ------------------------------------ Meyer Feldberg * /s/ George W. Gowen Trustee October 30, 2000 - ------------------------------------ George W. Gowen * /s/ Frederic V. Malek Trustee October 30, 2000 - ------------------------------------ Frederic V. Malek * /s/ Carl W. Schafer Trustee October 30, 2000 - ------------------------------------ Carl W. Schafer * /s/ Brian M. Storms Trustee October 30, 2000 - ------------------------------------ Brian M. Storms ** /s/ Paul H. Schubert Vice President and Treasurer (Chief October 30, 2000 - ------------------------------------ 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. ** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated May 14, 1999 and incorporated by reference from Post-Effective Amendment No. 61 to the registration statement of PaineWebber Managed Investments Trust, SEC File 2-91362, filed June 1, 1999. 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) (a) Interim Investment Management and Administration Contract (filed herewith) (b) Interim Sub-Advisory Contract with Institutional Capital Corporation (filed herewith) (c) Interim Sub-Advisory Contract with State Street Global Advisors (filed herewith) (d) Interim Sub-Advisory Contract with Westwood Management Corporation (filed herewith) (5) (a) Form of Distribution Contract (filed herewith) (b) Form of Dealer Agreement (filed herewith) (6) Bonus, profit sharing or pension plans - none (7) Custodian Agreement 3/ (8) Transfer Agency Agreement 3/ (9) Opinion and consent of counsel (to be filed) (10) Other opinions, appraisals, rulings and consents: Auditor's Consent (to be filed) (11) Financial statements omitted from prospectus - none (12) Letter of investment intent 3/ (13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares 3/ (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares 3/ (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C shares 3/ (14) Multiple Class Plan pursuant to Rule 18f-3 (filed herewith) (15) (a) Code of Ethics for Registrant, its investment manager and its principal distributor 4/ (b) Code of Ethics for Institutional Capital Corporation (filed herewith) (c) Code of Ethics for State Street Global Advisors (filed herewith) (d) Code of Ethics for Westwood Management Corporation (filed herewith)
- ------------------------------- 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. 43 to the registration statement, SEC File No. 2-78626, filed November 20, 1998. 4/ Incorporated by reference from Post-Effective Amendment No. 29 to the registration statement of PaineWebber Mutual Fund Trust, SEC File No. 2-98149, filed June 27, 2000. STATEMENT OF DIFFERENCES ------------------------ The trademark symbol shall be expressed as............................. 'TM' The copyright symbol shall be expressed as............................. 'c' The registered trademark symbol shall be expressed as.................. 'r' The service mark symbol shall be expressed as.......................... 'sm' The dagger symbol shall be expressed as................................ 'D' Characters normally expressed as superscript shall be preceded by...... 'pp' EX-99.D 2 0002.txt EXHIBIT 4(A) Exhibit No. 4(a) INTERIM INVESTMENT MANAGEMENT AND ADMINISTRATION CONTRACT Contract made as of October 10, 2000, between PAINEWEBBER AMERICA FUND, a Massachusetts business trust ("Trust"), and MITCHELL HUTCHINS ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation registered as an investment adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act"), and as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"); WHEREAS the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company, and is authorized to offer for public sale distinct series of shares of beneficial interest; and WHEREAS the Trust desires and intends to have one or more investment advisers ("Sub-Advisers") provide investment advisory and portfolio management services with respect to the series of shares of beneficial interest of the Trust designated as PaineWebber Growth and Income Fund ("Series"); and WHEREAS the Trust desires to retain Mitchell Hutchins as investment manager and administrator to furnish certain administrative and portfolio management services to the Trust with respect to the Series, 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 manager and administrator of the Trust and the 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 Manager; Appointment of Sub-Advisers (a) Subject to the oversight and direction of the Trust's Board of Trustees ("Board"), Mitchell Hutchins will provide to the Trust investment management evaluation services principally by performing initial reviews of prospective Sub-Advisers for the Series and supervising and monitoring performance of the Sub-Advisers thereafter. Mitchell Hutchins agrees to report to the Trust the results of its evaluation, supervision and monitoring functions and to keep certain books and records of the Trust in connection therewith. Mitchell Hutchins further agrees to communicate performance expectations and evaluations to the Sub-Advisers, and to recommend to the Trust whether agreements with Sub-Advisers should be renewed, modified or terminated. (b) Mitchell Hutchins is responsible for informing the Sub-Advisers of the investment objective(s), policies and restrictions of the Series, for informing or ascertaining that it is aware of other legal and regulatory responsibilities applicable to the Sub-Adviser with respect to the Series, and for monitoring the Sub-Advisers' discharge of their duties; but Mitchell Hutchins is not responsible for the specific actions (or inactions) of a Sub-Adviser in the performance of the duties assigned to it. (c) With respect to each Sub-Adviser for the Series, Mitchell Hutchins shall enter into an agreement ("Sub-Advisory Agreement") with the Sub-Adviser in substantially the form previously approved by the Board. (d) Mitchell Hutchins shall be responsible for the fees payable to and shall pay the Sub-Adviser of the Series the fee as specified in the Sub-Advisory Agreement relating thereto. 3. Duties as Administrator. Mitchell Hutchins will administer the affairs of the Trust and Series subject to the oversight and direction of the Board and the following understandings: (a) Mitchell Hutchins will supervise all aspects of the operations of the Trust and the Series, including oversight of transfer agency, custodial and accounting services, except as hereinafter set forth; provided, however, that nothing herein contained shall be deemed to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Trust and the Series. (b) Mitchell Hutchins will provide the Trust and the 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 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 shareholders of the Series and the Securities and Exchange Commission and other appropriate federal or state regulatory authorities. (d) Mitchell Hutchins will provide the Trust and the 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 the currently effective registration statement of the Trust and any amendments or supplements thereto ("Registration Statement") and with the instructions and directions of the Board and will comply with the requirements of the 1940 Act, the Advisers Act, and the rules under each, and all other applicable federal and state laws and regulations. 5. 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 2 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. 6. Expenses. (a) During the term of this Contract, the 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 the Series will include but not be limited to 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) filing fees and expenses relating to the registrations and qualification of the Series' shares and the Trust under federal and/or state securities laws and maintaining such registration and qualifications; (iv) fees and salaries payable to the Trust's Trustees and officers who are not interested persons of the Trust or Mitchell Hutchins; (v) all expenses incurred in connection with the Trustees' services, including travel expenses; (vi) taxes (including any income or franchise taxes) and governmental fees; (vii) costs of any liability, uncollectible items of deposit and other insurance and fidelity bonds; (viii) any costs, expenses or losses arising out of a liability of or claim for damages or other relief asserted against the Trust or the Series for violation of any law; (ix) 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; (x) charges of custodians, transfer agents and other agents; (xi) costs of preparing share certificates; (xii) 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; (xiii) costs of mailing prospectuses and supplements thereto, statements of additional information and supplements thereto, reports and proxy materials to existing shareholders; (xiv) 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 the Series; (xv) fees, voluntary assessments and other expenses incurred in connection with membership in investment company organizations; (xvi) costs of mailing and tabulating proxies and costs of meetings of shareholders, the Board and any committees thereof; (xvii) the cost of investment company literature and other publications provided by the Trust to its Trustees and officers; (xviii) costs of mailing, stationery and communications equipment; (xix) expenses incident to any dividend, withdrawal or redemption options; (xx) charges and expenses of any outside pricing service used to value portfolio securities; (xxi) interest on borrowings of the Trust; and (xxii) fees or expenses related to license agreements with respect to securities indices. (c) The Trust or the Series may pay directly any expenses incurred by it in its normal operations and, if any such payment is consented to by Mitchell Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to this Contract, the Series may reduce the fee payable to Mitchell Hutchins pursuant to Paragraph 7 thereof by such amount. To the extent that such deductions exceed the fee payable to Mitchell Hutchins on any monthly payment date, such excess shall be carried forward and deducted in the same manner from the fee payable on succeeding monthly payment dates. 3 (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 expenses of the Trust or the 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 the Series on any subsequent occasion. 7. Compensation. (a) For the services provided and the expenses assumed pursuant to this Contract, with respect to the Series, the Trust will pay to Mitchell Hutchins a fee, computed daily and paid monthly, at an annual rate of 0.70%, expressed as a percentage of average daily net assets of the Series. (b) 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. (c) If this Contract becomes effective or terminates before the end of any month, the fee for the period from the effective day to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 8. Limitation of Liability of Mitchell Hutchins. Mitchell Hutchins and its officers, directors, employees and delegates, including any Sub-Adviser to the Series, shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust, the Series or any of its shareholders, in connection with the matters to which this Contract relates, except to the extent that such a loss results from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Contract. Any person, even though also an officer, director, employee, or agent of Mitchell Hutchins, who may be or become an officer, Trustee, employee or agent of the Trust shall be deemed, when rendering services to the Series or the Trust or acting with respect to any business of the 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. 9. Limitation of Liability of the Trustees and Shareholders of the Trust. The Trustees of the Trust and the shareholders of the Series shall not be liable for any obligations of the Series or the Trust under this Agreement and Mitchell Hutchins agrees that, in asserting any rights or claims under this Agreement, 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. 10. Duration and Termination. (a) This Contract shall become effective for the Series upon the day and year first written above, provided that this Contract has been approved for the Series by a vote of a 4 majority of those Trustees of the Trust who are not parties to this Contract or interested persons of any such party cast at a meeting called for the purpose of voting on such approval and in which the Trustees may participate by any means of communication that allows all Trustees participating to hear each other simultaneously during the meeting. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for the Series for a period of 150 days after the day and year first above written. (c) Notwithstanding the foregoing, with respect to the 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 the Series on ten days' written notice to Mitchell Hutchins and may be terminated 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 the Series shall in no way affect the continued validity of this Contract. 11. Amendment of this Contract. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this contract as to the Series shall be effective until approved by vote of the Independent Trustees or a majority of the Series' outstanding voting securities. 12. Governing Law. This Contract shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act, provided, however, that section 9 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 New York or the Commonwealth of Massachusetts conflict with the applicable provisions of the 1940 Act, the latter shall control. 13. Miscellaneous. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "national securities exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the Securities and Exchange Commission by any rule, regulation or order. Where the effect of a requirement of the 1940 Act reflected in any provision of this contract is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. 5 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. PAINEWEBBER AMERICA FUND Attest: /s/ Cristina Paradiso By /s/ Dianne E. O'Donnell ------------------------- ----------------------- Assistant Secretary Name: Dianne E. O'Donnell Title: Vice President and Secretary MITCHELL HUTCHINS ASSET MANAGEMENT INC. Attest: /s/ Keith A. Weller By /s/ Amy R. Doberman ------------------------- ------------------- First Vice President and Name: Amy R. Doberman Associate General Counsel Title: Senior Vice President and General Counsel
6 EX-99.D 3 0003.txt EXHIBIT 4(B) Exhibit No. 4(b) INTERIM SUB-ADVISORY CONTRACT Agreement made as of October 10, 2000 ("Contract") between MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"), and INSTITUTIONAL CAPITAL CORPORATION, a Delaware corporation ("Sub-Adviser"). RECITALS (1) Mitchell Hutchins has entered into an Interim Investment Management and Administration Agreement, dated October 10, 2000 ("Management Agreement"), with PaineWebber America Fund ("Trust"), an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"), with respect to the series of the Trust designated as PaineWebber Growth and Income Fund ("Series"); (2) Mitchell Hutchins wishes to retain the Sub-Adviser to furnish certain investment advisory services to Mitchell Hutchins and the Series; and (3) The Sub-Adviser is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows: 1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as an investment sub-adviser with respect to the Series for the period and on the terms set forth in this Contract. The Sub-Adviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. Duties as Sub-Adviser. (a) Subject to the supervision and direction of the Trust's Board of Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a continuous investment program for all or a designated portion of the assets ("Segment") of the Series, including investment research and discretionary management with respect to all securities and investments and cash equivalents in the Series or Segment. The Sub-Adviser will determine from time to time what investments will be purchased, retained or sold by the Series or Segment. The Sub-Adviser will be responsible for placing purchase and sell orders for investments and for other related transactions for the Series or Segment. The Sub-Adviser will be responsible for voting proxies of issuers of securities held by the Series or Segment. The Sub-Adviser understands that the Series' assets need to be managed so as to permit it to qualify or to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended ("Code"). The Sub-Adviser will provide services under this Contract in accordance with the Series' investment objective, policies and restrictions as stated in the Trust's currently effective registration statement under the 1940 Act, and any amendments or supplements thereto ("Registration Statement"). (b) The Sub-Adviser agrees that, in placing orders with brokers, it will attempt to obtain the best net result in terms of price and execution; provided that, on behalf of the Series, the Sub-Adviser may, in its discretion, use brokers that provide the Sub-Adviser with research, analysis, advice and similar services to execute portfolio transactions on behalf of the Series or Segment, and the Sub-Adviser may pay to those brokers in return for brokerage and research services a higher commission than may be charged by other brokers, subject to the Sub-Adviser's determining in good faith that such commission is reasonable in terms either of the particular transaction or of the overall responsibility of the Sub-Adviser to the Series and its other clients and that the total commissions paid by the Series or Segment 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 the Sub-Adviser, or any affiliated person thereof, except in accordance with the federal securities laws and the rules and regulations thereunder. The Sub-Adviser may aggregate sales and purchase orders with respect to the assets of the Series or Segment with similar orders being made simultaneously for other accounts advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or sell the same security on behalf of the Series and one or more other accounts advised by the Sub-Adviser, the orders will be allocated as to price and amount among all such accounts in a manner believed to be equitable over time to each account. Mitchell Hutchins recognizes that in some cases this procedure may adversely affect the results obtained for the Series or Segment. (c) The Sub-Adviser will maintain all books and records required to be maintained pursuant to the 1940 Act and the rules and regulations promulgated thereunder with respect to transactions by the Sub-Adviser on behalf of the Series or Segment, and will furnish the Board and Mitchell Hutchins with such periodic and special reports as the Board or Mitchell Hutchins reasonably may request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records that it maintains for the Series are the property of the Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and that are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Trust any records that it maintains for the Series upon request by the Trust. (d) At such times as shall be reasonably requested by the Board or Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins with economic and investment analyses and reports as well as quarterly reports setting forth the performance of the Series or Segment and make available to the Board and Mitchell Hutchins any economic, statistical and investment services that the Sub-Adviser normally makes available to its institutional or other customers. (e) In accordance with procedures adopted by the Board, as amended from time to time, the Sub-Adviser is responsible for assisting in the fair valuation of all portfolio securities in the Series or Segment and will use its reasonable efforts to arrange for the provision of a price from one or more parties independent of the Sub-Adviser for each portfolio security for which the custodian does not obtain prices in the ordinary course of business from an automated pricing service. 3. Further Duties. In all matters relating to the performance of this Contract, the Sub-Adviser will act in conformity with the Trust's Trust Instrument, By-Laws and Registration Statement and with the written instructions and written directions of the Board and Mitchell Hutchins; and will comply with the requirements of the 1940 Act and the Investment Advisers Act of 1940, as amended ("Advisers Act") and the rules under each, Subchapter M of the Internal Revenue Code ("Code"), as applicable to regulated investment companies; and all other federal and 2 state laws and regulations applicable to the Trust and the Series. Mitchell Hutchins agrees to provide to the Sub-Adviser copies of the Trust's Trust Instrument, By-Laws, Registration Statement, written instructions and directions of the Board and Mitchell Hutchins, and any amendments or supplements to any of these materials as soon as practicable after such materials become available; and further agrees to identify to the Sub-Adviser in writing any broker-dealers that are affiliated with Mitchell Hutchins (other than PaineWebber Incorporated and Mitchell Hutchins itself). 4. Expenses. During the term of this Contract, the Sub-Adviser will bear all expenses incurred by it in connection with its services under this Contract. The Sub-Adviser shall not be responsible for any expenses incurred by the Trust, the Series or Mitchell Hutchins. 5. Compensation. (a) For the services provided and the expenses assumed by the Sub-Adviser pursuant to this Contract, Mitchell Hutchins, not the Series, will pay to the Sub-Adviser a sub-advisory fee, computed daily and paid monthly, at an annual rate of 0.30% of the average daily net assets of the Series or Segment (computed in the manner specified in the Management Agreement) and will provide the Sub-Adviser with a schedule showing the manner in which the fee was computed. If the Sub-Adviser is managing a Segment, its fees will be based on the value of assets of the Series within the Sub-Adviser's Segment. (b) The fee shall be accrued daily and payable monthly to the Sub-Adviser on or before the last business day of the next succeeding calendar month. (c) 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 pro-rated according to the proportion that such period bears to the full month in which such effectiveness or termination occurs. 6. Limitation of Liability. (a) The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Series, the Trust, its shareholders or by Mitchell Hutchins 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. (b) In no event will the Sub-Adviser have any responsibilities for any other series of the Trust, for any portion of the Series' investments not managed by the Sub-Adviser or for the acts or omissions of any other sub-adviser to the Trust or Series. In particular, in the event the Sub-Adviser shall manage only a portion of the Series' investments, the Sub-Adviser shall have no responsibility for the Series' being in violation of any applicable law or regulation or investment policy or restriction applicable to the Series as a whole or for the Series' failing to qualify as a regulated investment company under the Code, if the securities and other holdings of the Segment managed by the Sub-Adviser are such that such Segment would 3 not be in such violation or fail to so qualify if such segment were deemed a separate series of the Trust or a separate "regulated investment company" under the Code. Nothing in this section shall be deemed a limitation or waiver of any obligation or duty that may not by law be limited or waived. 7. Representations of Sub-Adviser. The Sub-Adviser represents, warrants and agrees as follows: (a) The Sub-Adviser (i) is registered as an investment adviser under the Advisers Act and will continue to be so registered for so long as this Contract remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Contract; (iii) has met and will seek to continue to meet for so long as this Contract remains in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency necessary to be met in order to perform the services contemplated by this Contract; (iv) has the authority to enter into and perform the services contemplated by this Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise. (b) The Sub-Adviser has adopted a written code of ethics and appropriate procedures complying with the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell Hutchins and the Board with a copy of such code of ethics, together with evidence of its adoption. Within fifteen days of the end of the last calendar quarter of each year that this Contract is in effect, the president or a vice president of the Sub-Adviser shall certify to Mitchell Hutchins that the Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous year and that there has been no material violation of the Sub-Adviser's code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of Mitchell Hutchins, the Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to examine the reports required to be made by the Sub-Adviser pursuant to Rule 17j-1 and all other records relevant to the Sub-Adviser's code of ethics. (c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form ADV, as most recently filed with the Securities and Exchange Commission ("SEC") and promptly will furnish a copy of all amendments to Mitchell Hutchins at least annually. (d) The Sub-Adviser will notify Mitchell Hutchins of any change of control of the Sub-Adviser, including any change of its general partners or 25% shareholders or 25% limited partners, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of the Series or senior management of the Sub-Adviser, in each case prior to, or promptly after, such change. (e) The Sub-Adviser agrees that neither it, nor any of its affiliates, will in any way refer directly or indirectly to its relationship with the Series, the Trust, Mitchell Hutchins or any of their respective affiliates in offering, marketing or other promotional materials without the prior express written consent of Mitchell Hutchins. 4 8. Representation of Mitchell Hutchins. Mitchell Hutchins represents that (i) the Trust was duly organized as a Massachusetts business trust under the laws of Massachusetts, (ii) the appointment of the Sub-Adviser has been duly authorized and (iii) the Trust has acted and will continue to act in conformity with the 1940 Act and other applicable laws. 9. Services Not Exclusive. The services furnished by the Sub-Adviser hereunder are not to be deemed exclusive and the Sub-Adviser shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby or unless otherwise agreed to by the parties hereunder in writing. Nothing in this Contract shall limit or restrict the right of any trustee, director, officer or employee of the Sub-Adviser, 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. 10. Duration and Termination. (a) This Contract shall become effective upon the day and year first written above, provided that this Contract has been approved for the Series 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 ("Independent Trustees") cast at a meeting called for the purpose of voting on such approval and in which the Trustees may participate by any means of communication that allow all Trustees participating to hear each other simultaneously during the meeting. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for a period of 150 days after the day and year first above written. (c) Notwithstanding the foregoing, with respect to the 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 the Series on ten days' written notice to the Sub-Adviser and may be terminated by the Sub-Adviser at any time, without the payment of any penalty, on sixty days' written notice to Mitchell Hutchins. The Contract may also be terminated, without payment of penalty, by Mitchell Hutchins (i) upon material breach by the Sub-Adviser of any of the representations and warranties get forth in Paragraph 7 of this Contract, if such breach shall not have been cured within a 20 day period after notice of such breach or (ii) if, in the reasonable judgment of Mitchell Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations under this Contract, including circumstances such as financial insolvency of the Sub-Adviser or other circumstances that could adversely affect the Series. 11. Amendment of this Contract. No provision of this Contract may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. No amendment of this Contract as to the Series shall be effective until approved by vote of the Independent Trustees or a majority of the Series' outstanding voting securities. 5 12. Governing Law. This Contract shall be construed in accordance with the 1940 Act and the laws of the State of New York, without giving effect to the conflicts of laws principles thereof. To the extent that the applicable laws of the State of New York conflict with the applicable provisions of the 1940 Act, the latter shall control. 13. Miscellaneous. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "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 SEC by any rule, regulation or order. Where the effect of a requirement of the federal securities laws reflected in any provision of this Contract is made less restrictive by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Contract may be signed in counterpart. 14. Notices. Any notice herein required is to be in writing and is deemed to have been given to the Sub-Adviser or Mitchell Hutchins upon receipt of the same at their respective addresses set forth below. All written notices required or permitted to be given under this Contract will be delivered by personal service, by postage mail -- return receipt requested or by facsimile machine or a similar means of same day delivery which provides evidence of receipt (with a confirming copy by mail as set forth herein). All notices provided to Mitchell Hutchins will be sent to the attention of Dianne E. O'Donnell, Deputy General Counsel. All notices provided to the Sub-Adviser will be sent to the attention of Pamela H. Conroy, Senior Vice President. 6 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized signatories as of the date and year first above written. MITCHELL HUTCHINS ASSET MANAGEMENT INC. 51 West 52nd Street Attest: New York, New York 10019-6114 By: /s/ Keith A. Weller By: /s/ Dianne E. O'Donnell ------------------- ----------------------- Name: Keith A. Weller Name: Dianne E. O'Donnell Title: First Vice President Title: Deputy General Counsel INSTITUTIONAL CAPITAL CORPORATION 225 West Wacker Drive, Suite 2400 Chicago, Illinois 60606 By: /s/ Celeste E. Hill By: /s/ Pamela H. Conroy ------------------- -------------------- Name: Celeste E. Hill Name: Pamela H. Conroy Title: Title: Senior Vice President
7 EX-99.D 4 0004.txt EXHIBIT 4(C) Exhibit No. 4(c) INTERIM SUB-ADVISORY CONTRACT Agreement made as of October 10, 2000 ("Contract") between MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"), and STATE STREET GLOBAL ADVISORS, a division of STATE STREET BANK AND TRUST COMPANY, a Massachusetts Trust company ("Sub-Adviser"). RECITALS (1) Mitchell Hutchins has entered into an Interim Investment Management and Administration Agreement, dated October 10, 2000 ("Management Agreement"), with PaineWebber America Fund ("Trust"), an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"), with respect to the series of the Trust designated as PaineWebber Growth and Income Fund ("Series"); (2) Mitchell Hutchins wishes to retain the Sub-Adviser to furnish certain investment advisory services to Mitchell Hutchins and the Series; and (3) The Sub-Adviser is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows: 1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as an investment sub-adviser with respect to the Series for the period and on the terms set forth in this Contract. The Sub-Adviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. Duties as Sub-Adviser. (a) Subject to the supervision and direction of the Trust's Board of Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a continuous investment program for all or a designated portion of the assets ("Segment") of the Series, including investment research and discretionary management with respect to all securities and investments and cash equivalents in the Series or Segment. The Sub-Adviser will determine from time to time what investments will be purchased, retained or sold by the Series or Segment. The Sub-Adviser will be responsible for placing purchase and sell orders for investments and for other related transactions for the Series or Segment. The Sub-Adviser will be responsible for voting proxies of issuers of securities held by the Series or Segment. The Sub-Adviser understands that the Series' assets need to be managed so as to permit it to qualify or to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended ("Code"). The Sub-Adviser will provide services under this Contract in accordance with the Series' investment objective, policies and restrictions as stated in the Trust's currently effective registration statement under the 1940 Act, and any amendments or supplements thereto ("Registration Statement"). (b) The Sub-Adviser agrees that, in placing orders with brokers, it will obtain the best net result in terms of price and execution; provided that, on behalf of the Series, the Sub-Adviser may, in its discretion, use brokers that provide the Sub-Adviser with research, analysis, advice and similar services to execute portfolio transactions on behalf of the Series or Segment, and the Sub-Adviser may pay to those brokers in return for brokerage and research services a higher commission than may be charged by other brokers, subject to the Sub-Adviser's determining in good faith that such commission is reasonable in terms either of the particular transaction or of the overall responsibility of the Sub-Adviser to the Series and its other clients and that the total commissions paid by the Series or Segment 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 the Sub-Adviser, or any affiliated person thereof, except in accordance with the federal securities laws and the rules and regulations thereunder. The Sub-Adviser may aggregate sales and purchase orders with respect to the assets of the Series or Segment with similar orders being made simultaneously for other accounts advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or sell the same security on behalf of the Series and one or more other accounts advised by the Sub-Adviser, the orders will be allocated as to price and amount among all such accounts in a manner believed to be equitable over time to each account. Mitchell Hutchins recognizes that in some cases this procedure may adversely affect the results obtained for the Series or Segment. (c) The Sub-Adviser will maintain all books and records required to be maintained pursuant to the 1940 Act and the rules and regulations promulgated thereunder with respect to transactions by the Sub-Adviser on behalf of the Series or Segment, and will furnish the Board and Mitchell Hutchins with such periodic and special reports as the Board or Mitchell Hutchins reasonably may request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records that it maintains for the Series are the property of the Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and that are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Trust any records that it maintains for the Series upon request by the Trust. (d) At such times as shall be reasonably requested by the Board or Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins with economic and investment analyses and reports as well as quarterly reports setting forth the performance of the Series or Segment and make available to the Board and Mitchell Hutchins any economic, statistical and investment services that the Sub-Adviser normally makes available to its institutional or other customers. (e) In accordance with procedures adopted by the Board, as amended from time to time, the Sub-Adviser is responsible for assisting in the fair valuation of all portfolio securities in the Series or Segment and will use its reasonable efforts to arrange for the provision of a price from one or more parties independent of the Sub-Adviser for each portfolio security for which the custodian does not obtain prices in the ordinary course of business from an automated pricing service. 3. Further Duties. In all matters relating to the performance of this Contract, the Sub-Adviser will seek to act in conformity with the Trust's Declaration of Trust, By-Laws and Registration Statement and with the written instructions and written directions of the Board and Mitchell Hutchins; and will comply with the requirements of the 1940 Act and, to the extent applicable, the Investment Advisers Act of 1940, as amended ("Advisers Act") and the rules under 2 each, Subchapter M of the Internal Revenue Code ("Code"), as applicable to regulated investment companies; and all other federal and state laws and regulations applicable to the Trust and the Series. Mitchell Hutchins agrees to provide to the Sub-Adviser copies of the Trust's Declaration of Trust, By-Laws, Registration Statement, written instructions and directions of the Board and Mitchell Hutchins, and any amendments or supplements to any of these materials as soon as practicable after such materials become available; and further agrees to identify to the Sub-Adviser in writing any broker-dealers that are affiliated with Mitchell Hutchins (other than PaineWebber Incorporated and Mitchell Hutchins itself). 4. Expenses. During the term of this Contract, the Sub-Adviser will bear all expenses incurred by it in connection with its services under this Contract. The Sub-Adviser shall not be responsible for any expenses incurred by the Trust, the Series or Mitchell Hutchins. 5. Compensation. (a) For the services provided and the expenses assumed by the Sub-Adviser pursuant to this Contract, Mitchell Hutchins, not the Series, will pay to the Sub-Adviser a sub-advisory fee, computed daily and paid monthly, at an annual rate of 0.15% of the average daily net assets of the Series or Segment (computed in the manner specified in the Management Agreement) and will provide the Sub-Adviser with a schedule showing the manner in which the fee was computed. If the Sub-Adviser is managing a Segment, its fees will be based on the value of assets of the Series within the Sub-Adviser's Segment. (b) The fee shall be accrued daily and payable monthly to the Sub-Adviser on or before the last business day of the next succeeding calendar month. (c) 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 pro-rated according to the proportion that such period bears to the full month in which such effectiveness or termination occurs. 6. Limitation of Liability. (a) The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Series, the Trust, its shareholders or by Mitchell Hutchins 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. (b) In no event will the Sub-Adviser have any responsibilities for any other series of the Trust, for any portion of the Series' investments not managed by the Sub-Adviser or for the acts or omissions of any other sub-adviser to the Trust or Series. In particular, in the event the Sub-Adviser shall manage only a portion of the Series' investments, the Sub-Adviser shall have no responsibility for the Series' being in violation of any applicable law or regulation or investment policy or restriction applicable to the Series as a whole or for the Series' failing to qualify as a regulated investment company under the Code, if the securities and other holdings of the Segment managed by the Sub-Adviser are such that such Segment would 3 not be in such violation or fail to so qualify if such segment were deemed a separate series of the Trust or a separate "regulated investment company" under the Code. Nothing in this section shall be deemed a limitation or waiver of any obligation or duty that may not by law be limited or waived. 7. Representations of Sub-Adviser. The Sub-Adviser represents, warrants and agrees as follows: (a) The Sub-Adviser (i) is not required to be registered as an investment adviser under the Advisers Act; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Contract; (iii) has met and will seek to continue to meet for so long as this Contract remains in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency necessary to be met in order to perform the services contemplated by this Contract; (iv) has the authority to enter into and perform the services contemplated by this Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise. (b) The Sub-Adviser has adopted a written code of ethics and appropriate procedures complying with the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell Hutchins and the Board with a copy of such code of ethics, together with evidence of its adoption. Within fifteen days of the end of the last calendar quarter of each year that this Contract is in effect, the president or a vice president of the Sub-Adviser shall certify to Mitchell Hutchins that the Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous year and that there has been no material violation of the Sub-Adviser's code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of Mitchell Hutchins, the Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to examine the reports required to be made by the Sub-Adviser pursuant to Rule 17j-1 and all other records relevant to the Sub-Adviser's code of ethics. (c) The Sub-Adviser will notify Mitchell Hutchins of any change of control of the Sub-Adviser, including any change of its general partners or 25% shareholders or 25% limited partners, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of the Series or senior management of the Sub-Adviser, in each case prior to, or promptly after, such change. (d) The Sub-Adviser agrees that neither it, nor any of its affiliates, will in any way refer directly or indirectly to its relationship with the Series, the Trust, Mitchell Hutchins or any of their respective affiliates in offering, marketing or other promotional materials without the prior express written consent of Mitchell Hutchins. 8. Services Not Exclusive. The services furnished by the Sub-Adviser hereunder are not to be deemed exclusive and the Sub-Adviser shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby or unless otherwise agreed to by the parties hereunder in writing. Nothing in this Contract shall limit or restrict the right of any trustee, director, officer or employee of the Sub-Adviser, who may also be a Trustee, officer or employee of 4 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. 9. Duration and Termination. (a) This Contract shall become effective upon the day and year first written above, provided that this Contract has been approved for the Series 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 ("Independent Trustees") cast at a meeting called for the purpose of voting on such approval and in which the Trustees may participate by any means of communication that allows all Trustees participating to hear each other simultaneously during the meeting. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for a period of 150 days after the day and year first above written. (c) Notwithstanding the foregoing, with respect to the 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 the Series on ten days' written notice to the Sub-Adviser and may be terminated by the Sub-Adviser at any time, without the payment of any penalty, on sixty days' written notice to Mitchell Hutchins. The Contract may also be terminated, without payment of penalty, by Mitchell Hutchins (i) upon material breach by the Sub-Adviser of any of the representations and warranties set forth in Paragraph 7 of this Contract, if such breach shall not have been cured within a 20 day period after notice of such breach or (ii) if, in the reasonable judgment of Mitchell Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations under this Contract, including circumstances such as financial insolvency of the Sub-Adviser or other circumstances that could adversely affect the Series. 10. 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 whom enforcement of the change, waiver, discharge or termination is sought. No amendment of this Contract as to the Series shall be effective until approved by vote of the Independent Trustees or a majority of the Series' outstanding voting securities. 11. Governing Law. This Contract shall be construed in accordance with the 1940 Act and the laws of the State of New York, without giving effect to the conflicts of laws principles thereof. To the extent that the applicable laws of the State of New York conflict with the applicable provisions of the 1940 Act, the latter shall control. 12. Miscellaneous. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," 5 "net assets," "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 SEC by any rule, regulation or order. Where the effect of a requirement of the federal securities laws reflected in any provision of this Contract is made less restrictive by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Contract may be signed in counterpart. 13. Notices. Any notice herein required is to be in writing and is deemed to have been given to the Sub-Adviser or Mitchell Hutchins upon receipt of the same at their respective addresses set forth below. All written notices required or permitted to be given under this Contract will be delivered by personal service, by postage mail - return receipt requested or by facsimile machine or a similar means of same day delivery which provides evidence of receipt (with a confirming copy by mail as set forth herein). All notices provided to Mitchell Hutchins will be sent to the attention of Dianne E. O'Donnell, Deputy General Counsel. All notices provided to the Sub-Adviser will be sent to the attention of the Compliance Officer. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized signatories as of the date and year first above written. MITCHELL HUTCHINS ASSET MANAGEMENT INC. 51 West 52nd Street Attest: New York, New York 10019-6114 By: /s/ Keith A. Weller By: /s/ Dianne E. O'Donnell ------------------- ----------------------- Name: Keith A. Weller Name: Dianne E. O'Donnell Title: First Vice President Title: Deputy General Counsel STATE STREET BANK AND TRUST COMPANY, on behalf of its division, State Street Global Advisors Two International Place Boston, Massachusetts 02110 By: /s/ Gregory J. Mulready By: /s/ John R. Serhant ----------------------- ------------------- Name: Gregory J. Mulready Name: John R. Serhant Title: Principal Title: Executive Vice President
6 EX-99.D 5 0005.txt EXHIBIT 4(D) Exhibit No. 4(d) INTERIM SUB-ADVISORY CONTRACT Agreement made as of October 10, 2000 ("Contract") between MITCHELL HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"), and WESTWOOD MANAGEMENT CORPORATION, a New York corporation ("Sub-Adviser"). RECITALS (1) Mitchell Hutchins has entered into an Interim Investment Management and Administration Agreement, dated October 10, 2000 ("Management Agreement"), with PaineWebber America Fund ("Trust"), an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"), with respect to the series of the Trust designated as PaineWebber Growth and Income Fund ("Series"); (2) Mitchell Hutchins wishes to retain the Sub-Adviser to furnish certain investment advisory services to Mitchell Hutchins and the Series; and (3) The Sub-Adviser is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows: 1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as an investment sub-adviser with respect to the Series for the period and on the terms set forth in this Contract. The Sub-Adviser accepts that appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. Duties as Sub-Adviser. (a) Subject to the supervision and direction of the Trust's Board of Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a continuous investment program for all or a designated portion of the assets ("Segment") of the Series, including investment research and discretionary management with respect to all securities and investments and cash equivalents in the Series or Segment. The Sub-Adviser will determine from time to time what investments will be purchased, retained or sold by the Series or Segment. The Sub-Adviser will be responsible for placing purchase and sell orders for investments and for other related transactions for the Series or Segment. The Sub-Adviser will be responsible for voting proxies of issuers of securities held by the Series or Segment. The Sub-Adviser understands that the Series' assets need to be managed so as to permit it to qualify or to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended ("Code"). The Sub-Adviser will provide services under this Contract in accordance with the Series' investment objective, policies and restrictions as stated in the Trust's currently effective registration statement under the 1940 Act, and any amendments or supplements thereto ("Registration Statement"). (b) The Sub-Adviser agrees that, in placing orders with brokers, it will obtain the best net result in terms of price and execution; provided that, on behalf of the Series, the Sub-Adviser may, in its discretion, use brokers that provide the Sub-Adviser with research, analysis, advice and similar services to execute portfolio transactions on behalf of the Series or Segment, and the Sub-Adviser may pay to those brokers in return for brokerage and research services a higher commission than may be charged by other brokers, subject to the Sub-Adviser's determining in good faith that such commission is reasonable in terms either of the particular transaction or of the overall responsibility of the Sub-Adviser to the Series and its other clients and that the total commissions paid by the Series or Segment 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 the Sub-Adviser, or any affiliated person thereof, except in accordance with the federal securities laws and the rules and regulations thereunder. The Sub-Adviser may aggregate sales and purchase orders with respect to the assets of the Series or Segment with similar orders being made simultaneously for other accounts advised by the Sub-Adviser or its affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or sell the same security on behalf of the Series and one or more other accounts advised by the Sub-Adviser, the orders will be allocated as to price and amount among all such accounts in a manner believed to be equitable over time to each account. Mitchell Hutchins recognizes that in some cases this procedure may adversely affect the results obtained for the Series or Segment. (c) The Sub-Adviser will maintain all books and records required to be maintained pursuant to the 1940 Act and the rules and regulations promulgated thereunder with respect to transactions by the Sub-Adviser on behalf of the Series or Segment, and will furnish the Board and Mitchell Hutchins with such periodic and special reports as the Board or Mitchell Hutchins reasonably may request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records that it maintains for the Series are the property of the Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and that are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Trust any records that it maintains for the Series upon request by the Trust. (d) At such times as shall be reasonably requested by the Board or Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins with economic and investment analyses and reports as well as quarterly reports setting forth the performance of the Series or Segment and make available to the Board and Mitchell Hutchins any economic, statistical and investment services that the Sub-Adviser normally makes available to its institutional or other customers. (e) In accordance with procedures adopted by the Board, as amended from time to time, the Sub-Adviser is responsible for assisting in the fair valuation of all portfolio securities in the Series or Segment and will use its reasonable efforts to arrange for the provision of a price from one or more parties independent of the Sub-Adviser for each portfolio security for which the custodian does not obtain prices in the ordinary course of business from an automated pricing service. 3. Further Duties. In all matters relating to the performance of this Contract, the Sub-Adviser will act in conformity with the Trust's Trust Instrument, By-Laws and Registration Statement and with the written instructions and written directions of the Board and Mitchell Hutchins; and will comply with the requirements of the 1940 Act and the Investment Advisers Act of 1940, as amended ("Advisers Act") and the rules under each, Subchapter M of the Internal Revenue Code ("Code"), as applicable to regulated investment companies; and all other federal and 2 state laws and regulations applicable to the Trust and the Series. Mitchell Hutchins agrees to provide to the Sub-Adviser copies of the Trust's Trust Instrument, By-Laws, Registration Statement, written instructions and directions of the Board and Mitchell Hutchins, and any amendments or supplements to any of these materials as soon as practicable after such materials become available; and further agrees to identify to the Sub-Adviser in writing any broker-dealers that are affiliated with Mitchell Hutchins (other than PaineWebber Incorporated and Mitchell Hutchins itself). 4. Expenses. During the term of this Contract, the Sub-Adviser will bear all expenses incurred by it in connection with its services under this Contract. The Sub-Adviser shall not be responsible for any expenses incurred by the Trust, the Series or Mitchell Hutchins. 5. Compensation. (a) For the services provided and the expenses assumed by the Sub-Adviser pursuant to this Contract, Mitchell Hutchins, not the Series, will pay to the Sub-Adviser a sub-advisory fee, computed daily and paid monthly, at an annual rate of 0.30% of the average daily net assets of the Series or Segment (computed in the manner specified in the Management Agreement) and will provide the Sub-Adviser with a schedule showing the manner in which the fee was computed. If the Sub-Adviser is managing a Segment, its fees will be based on the value of assets of the Series within the Sub-Adviser's Segment. (b) The fee shall be accrued daily and payable monthly to the Sub-Adviser on or before the last business day of the next succeeding calendar month. (c) 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 pro-rated according to the proportion that such period bears to the full month in which such effectiveness or termination occurs. 6. Limitation of Liability. (a) The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Series, the Trust, its shareholders or by Mitchell Hutchins 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. (b) In no event will a Sub-Adviser have any responsibilities for any other series of the Trust, for any portion of the Series' investments not managed by the Sub-Adviser or for the acts or omissions of any other sub-adviser to the Trust or Series. In particular, in the event the Sub-Adviser shall manage only a portion of the Series' investments, the Sub-Adviser shall have no responsibility for the Series' being in violation of any applicable law or regulation or investment policy or restriction applicable to the Series as a whole or for the Series' failing to qualify as a regulated investment company under the Code, if the securities and other holdings of the Segment managed by the Sub-Adviser are such that such Segment would 3 not be in such violation or fail to so qualify if such segment were deemed a separate series of the Trust or a separate "regulated investment company" under the Code. Nothing in this section shall be deemed a limitation or waiver of any obligation or duty that may not by law be limited or waived. 7. Representations of Sub-Adviser. The Sub-Adviser represents, warrants and agrees as follows: (a) The Sub-Adviser (i) is registered as an investment adviser under the Advisers Act and will continue to be so registered for so long as this Contract remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Contract; (iii) has met and will seek to continue to meet for so long as this Contract remains in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency necessary to be met in order to perform the services contemplated by this Contract; (iv) has the authority to enter into and perform the services contemplated by this Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise. (b) The Sub-Adviser has adopted a written code of ethics and appropriate procedures complying with the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell Hutchins and the Board with a copy of such code of ethics, together with evidence of its adoption. Within fifteen days of the end of the last calendar quarter of each year that this Contract is in effect, the president or a vice president of the Sub-Adviser shall certify to Mitchell Hutchins that the Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous year and that there has been no material violation of the Sub-Adviser's code of ethics or, if such a violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of Mitchell Hutchins, the Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to examine the reports required to be made by the Sub-Adviser pursuant to Rule 17j-1 and all other records relevant to the Sub-Adviser's code of ethics. (c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form ADV, as most recently filed with the Securities and Exchange Commission ("SEC") and promptly will furnish a copy of all amendments to Mitchell Hutchins at least annually. (d) The Sub-Adviser will notify Mitchell Hutchins of any change of control of the Sub-Adviser, including any change of its general partners or 25% shareholders or 25% limited partners, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of the Series or senior management of the Sub-Adviser, in each case prior to, or promptly after, such change. (e) The Sub-Adviser agrees that neither it, nor any of its affiliates, will in any way refer directly or indirectly to its relationship with the Series, the Trust, Mitchell Hutchins or any of their respective affiliates in offering, marketing or other promotional materials without the prior express written consent of Mitchell Hutchins. 4 8. Services Not Exclusive. The services furnished by the Sub-Adviser hereunder are not to be deemed exclusive and the Sub-Adviser shall be free to furnish similar services to others so long as its services under this Contract are not impaired thereby or unless otherwise agreed to by the parties hereunder in writing. Nothing in this Contract shall limit or restrict the right of any trustee, director, officer or employee of the Sub-Adviser, 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. 9. Duration and Termination. (a) This Contract shall become effective upon the day and year first written above, provided that this Contract has been approved for the Series 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 ("Independent Trustees") cast at a meeting called for the purpose of voting on such approval and in which the Trustees may participate by any means of communication that allow all Trustees participating to hear each other simultaneously during the meeting. (b) Unless sooner terminated as provided herein, this Contract shall continue in effect for a period of 150 days after the day and year first above written. (c) Notwithstanding the foregoing, with respect to the 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 the Series on ten days' written notice to the Sub-Adviser and may be terminated by the Sub-Adviser at any time, without the payment of any penalty, on sixty days' written notice to Mitchell Hutchins. The Contract may also be terminated, without payment of penalty, by Mitchell Hutchins (i) upon material breach by the Sub-Adviser of any of the representations and warranties set forth in Paragraph 7 of this Contract, if such breach shall not have been cured within a 20 day period after notice of such breach or (ii) if, in the reasonable judgment of Mitchell Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations under this Contract, including circumstances such as financial insolvency of the Sub-Adviser or other circumstances that could adversely affect the Series. 10. 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 whom enforcement of the change, waiver, discharge or termination is sought. No amendment of this Contract as to the Series shall be effective until approved by vote of the Independent Trustees or a majority of the Series' outstanding voting securities. 11. Governing Law. This Contract shall be construed in accordance with the 1940 Act and the laws of the State of New York, without giving effect to the conflicts of laws principles thereof. To the extent that the applicable laws of the State of New York conflict with the applicable provisions of the 1940 Act, the latter shall control. 12. 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 5 construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," "broker," "investment adviser," "net assets," "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 SEC by any rule, regulation or order. Where the effect of a requirement of the federal securities laws reflected in any provision of this Contract is made less restrictive by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. This Contract may be signed in counterpart. 13. Notices. Any notice herein required is to be in writing and is deemed to have been given to the Sub-Adviser or Mitchell Hutchins upon receipt of the same at their respective addresses set forth below. All written notices required or permitted to be given under this Contract will be delivered by personal service, by postage mail - return receipt requested or by facsimile machine or a similar means of same day delivery which provides evidence of receipt (with a confirming copy by mail as set forth herein). All notices provided to Mitchell Hutchins will be sent to the attention of Dianne E. O'Donnell, Deputy General Counsel. All notices provided to the Sub-Adviser will be sent to the attention of Jacqueline L. Finley, Compliance Officer. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized signatories as of the date and year first above written. MITCHELL HUTCHINS ASSET MANAGEMENT INC. 51 West 52nd Street Attest: New York, New York 10019-6114 By: /s/ Keith A. Weller By: /s/ Dianne E. O'Donnell ------------------- ----------------------- Name: Keith A. Weller Name: Dianne E. O'Donnell Title: First Vice President Title: Deputy General Counsel WESTWOOD MANAGEMENT CORPORATION 300 Crescent Court, Suite 1300 Dallas, Texas 75201 By: /s/ Blair Baker By: /s/ Brian O. Casey --------------- ------------------ Name: Blair Baker Name: Brian O. Casey Title: Manager Client Services Title: Executive Vice President and Chief Operating Officer
6 EX-99.E 6 0006.txt EXHIBIT 5(A) Exhibit No. 5(a) PAINEWEBBER AMERICA FUND DISTRIBUTION CONTRACT CONTRACT made as of September 12, 2000, 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 1940, as amended ("l940 Act"), as an open-end management investment company and currently offers distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and for which the Fund's board of trustees ("Board") has established an unlimited number of shares of beneficial interest as Class A shares, Class B shares, Class C shares and/or Class Y shares (referred to collectively as "Shares"); and WHEREAS the Fund desires to retain Mitchell Hutchins as principal distributor in connection with the offering and sale of the Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have one or more classes of Shares established and has adopted separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class A shares, Class B shares and Class C shares (respectively, "Class A Plan", "Class B Plan" and "Class C Plan"); and WHEREAS Mitchell Hutchins is willing to act as principal distributor of the 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 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 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 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 Shares to the public by a Series, Mitchell Hutchins will hold itself available to receive purchase orders, satisfactory to Mitchell Hutchins, for 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 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 Shares 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 Shares. (f) To facilitate redemption of Shares by shareholders directly or through dealers, Mitchell Hutchins is authorized but not required on behalf of the Fund to repurchase 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 Shares and any other services now or hereafter deemed to be appropriate activities for the payment of "service fees" under Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") (collectively, "service activities"). (h) Mitchell Hutchins shall have the right to use any list of shareholders of the Fund or any other list of investors which it obtains in connection with its provision of services under this Contract; provided, however, that Mitchell Hutchins shall not sell or knowingly provide such list or lists to any unaffiliated person. 3. Authorization to Enter into Dealer Agreements and to Delegate Duties as Distributor. With respect to the Shares of any or all Series, Mitchell Hutchins may enter into dealer agreements with PaineWebber and any other registered and qualified dealer with respect to sales of Shares or the provision of service activities. In a separate contract or as part of any such 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 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 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 -2- 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 Board member, 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 Class A, B and C shares, Mitchell Hutchins shall receive from the Fund a service fee at the rate and under the terms and conditions of the Class A Plan, Class B Plan and Class C Plan, respectively, as 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 and C shares, Mitchell Hutchins shall receive from the Fund a distribution fee at the rate and under the terms and conditions of the Class B Plan and Class C Plan, respectively, as 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 Shares, Mitchell Hutchins shall retain the initial sales charge, if any, on purchases of Shares as set forth in the Registration Statement. Mitchell Hutchins is authorized to collect the gross proceeds derived from the sale of 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 Shares, Mitchell Hutchins shall receive all contingent deferred sales charges imposed on redemptions of Shares. 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. (e) Mitchell Hutchins may reallow any or all of the initial sales charges, contingent deferred sales charges, distribution fees 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 any class or classes of 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 Shares. If the Fund has determined that certificates shall be issued, the Fund will not cause certificates representing Shares to be issued unless so requested by shareholders. If Mitchell Hutchins transmits such request, the Fund will cause certificates evidencing Shares to be issued in such names and denominations as Mitchell Hutchins shall from time to time direct. -3- (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 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 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 Shares under the 1933 Act to the end that there will be available for sale such number of 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 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 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 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 Shares with the Securities and Exchange Commission and qualifying the Shares for offer and sale with 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 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 Shares under this Contract, including the additional cost of printing copies of prospectuses, statements of -4- 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 Shares, and all expenses of Mitchell Hutchins, its employees and others who engage in or support the sale of Shares as may be incurred in connection with their sales efforts. 9. Indemnification. (a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins, its officers and directors, and any person who controls Mitchell Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which Mitchell Hutchins, its officers, directors or any such controlling person may incur under the 1933 Act, or under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement or arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement or necessary to make the statements therein not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by Mitchell Hutchins to the Fund for use in the Registration Statement; provided, however, that this indemnity agreement shall not inure to the benefit of any person who is also an officer or Board member 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 -5- 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 Board members in connection with the issuance or sale of any of its Shares. (b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund, its officers and Board members 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 Board members 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 by Mitchell Hutchins to the Fund for use in the Registration Statement, arising out of or based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement necessary to make such information not misleading, or arising out of any agreement between Mitchell Hutchins and any retail dealer, or arising out of any supplemental sales literature or advertising used by Mitchell Hutchins in connection with its duties under this Contract. Mitchell Hutchins shall be entitled to participate, at its own expense, in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume the defense, the defense shall be conducted by counsel chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose approval shall not be unreasonably withheld. In the event that Mitchell Hutchins elects to assume the defense of any suit and retain counsel, the defendants in the suit shall bear the fees and expenses of any additional counsel retained by them. If Mitchell Hutchins does not elect to assume the defense of any suit, it will reimburse the indemnified defendants in the suit for the reasonable fees and expenses of any counsel retained by them. 10. 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, Board member, 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. 11. Duration and Termination. (a) This Contract shall become effective upon the date written above, provided that, with respect to any class of Shares of a 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 Board members who are not interested persons of the Fund and, for a class of Shares for which a Plan of Distribution has been adopted, also have no direct or indirect financial interest in the operation of the Plan of Distribution or in any agreements related thereto (all such Board members collectively being referred to herein as the "Independent Board Members"), cast in person at a meeting called for the purpose of voting on such action. -6- (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 the Independent Board Members, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to a class of Shares of any given Series by vote of a majority of the outstanding voting securities of that class of Shares of such Series. (c) Notwithstanding the foregoing, with respect to a class of Shares of a 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 Board Members or by vote of a majority of the outstanding voting securities of that class of Shares of the 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 a class of Shares of any given Series shall in no way affect the continued validity of this Contract or the performance thereunder with respect to any other classes of Shares of that Series or any classes of Shares of any other Series. 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. 13. 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. 14. Governing Law. This Contract shall be construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act, provided, however, that Section 15 below will be construed in accordance with the laws of the Commonwealth of Massachusetts. To the extent that the applicable laws of the Commonwealth of Massachusetts conflict with the applicable provisions of the 1940 Act, the latter shall control. 15. Limitation of Liability of the Board Members and Shareholders of the Fund. The Board members and the shareholders of the Fund 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 Board members or shareholders. 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 -7- voting securities," "interested person" and "assignment" 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. 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. PAINEWEBBER AMERICA FUND ATTEST: By: ---------------------------------- --------------------- MITCHELL HUTCHINS ASSET MANAGEMENT INC. ATTEST: By: ---------------------------------- --------------------- -8- EX-99.E 7 0007.txt EXHIBIT 5(B) Exhibit No. 5(b) DEALER AGREEMENT PAINEWEBBER AMERICA FUND AGREEMENT made as of September 12, 2000, 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 offers distinct series of shares of beneficial interest ("Series"), which correspond to distinct portfolios and for which the Fund's board of trustees ("Board") has established an unlimited number of shares of beneficial interest as Class A shares, Class B shares, Class C Shares and/or Class Y shares (referred to collectively as "Shares") and has adopted separate Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act for its Class A shares, Class B shares and Class C shares (respectively, "Class A Plan," "Class B Plan" and "Class C Plan"); 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 Shares of the above-referenced Series and of such other Series as may hereafter be designated by the Board and have one or more classes of Shares established; and WHEREAS Mitchell Hutchins desires to retain PaineWebber as its agent in connection with the offering and sale of the 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' agent in connection with the offering and sale of such 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 agent to sell and to arrange for the sale of the 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 Mitchell Hutchins from enteringinto agreements with other registered and qualified retail dealers for the sale of Shares or preclude sales of the 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 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 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 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 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 Shares 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 from the Fund of a statement of each computation of net asset value. (e) PaineWebber shall not be obligated to sell any certain number of Shares. (f) To facilitate redemption of Shares by shareholders directly or through dealers, PaineWebber is authorized but not required on behalf of Mitchell Hutchins and the Fund to repurchase 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 Shares and any other services now or hereafter deemed to be appropriate activities for the payment of "service fees" under Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") (collectively, "service activities"). (h) PaineWebber represents and warrants that: (i) it is a member in good standing of the NASD and agrees to abide by the Conduct Rules 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 Shares. -2- (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 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 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 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 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, Board member, officer or employee of Mitchell Hutchins or the Fund, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or a dissimilar nature. 4. Compensation. (a) As compensation for its service activities under this Agreement with respect to the Class A, B and C shares, Mitchell Hutchins shall pay to PaineWebber service fees with respect to Class A, B and C shares maintained in shareholder accounts serviced by PaineWebber employees, correspondent firms and other dealers in such amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon. (b) As compensation for its activities under this Agreement with respect to the distribution of Shares sold with an initial sales charge, PaineWebber shall retain that portion of the offering price constituting the Discount to Selected Dealers ("Discount"), if any, set forth in the Registration Statement. PaineWebber is authorized to collect the gross proceeds derived from the sale of such 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 Shares and the applicable Discount; and retain said Discount. Whether the offering price of any Shares includes an initial sales charge out of which PaineWebber may retain a Discount shall be determined in accordance with the Registration Statement. (c) Also as compensation for its activities under this Agreement, Mitchell Hutchins shall pay to PaineWebber such commissions and other compensation as Mitchell Hutchins and PaineWebber may from time to time agree upon. (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. -3- (e) 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 but shall not be required to obtain prior approval for such agreements from the Board. 5. Duties of Mitchell Hutchins. (a) It is understood that the Fund reserves the right at any time to withdraw all offerings of any class or classes of 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 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 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 Shares. 6. Advertising. Mitchell Hutchins agrees to make available such sales and advertising materials relating to the Shares as Mitchell Hutchins in its discretion determines appropriate. PaineWebber agrees to submit all sales and advertising materials developed by it relating to the 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 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 the 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 Financial Advisors or other employees and others for selling Shares, and all expenses of PaineWebber, its Financial Advisors -4- and employees and others who engage in or support the sale of 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. Mitchell Hutchins shall advise the Board of any such agreement as to additional costs and expenses borne by but shall not be required to obtain prior approval for such agreements from the Board. 9. Indemnification. (a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber, its officers and directors, and any person who controls PaineWebber within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities, and expenses (including the cost of investigating or defending such claims, demands, or liabilities and any counsel fees incurred in connection therewith) which PaineWebber, its officers, directors, or any such controlling person may incur under the 1933 Act, under common law or otherwise, arising out of or based upon any alleged untrue statement of a material fact contained in the Registration Statement; arising out of or based upon any alleged omission to state a material fact required to be stated in the Registration Statement thereof or necessary to make the statements in the Registration Statement thereof not misleading; or arising out of any sales or advertising materials with respect to the 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 Board members, 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 Board members, 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. -5- 10. Duration and Termination. (a) This Agreement shall become effective upon the date written above, provided that, with respect to any class of Shares of a 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 Board members who are not interested persons of the Fund and, for a class of Shares for which a Plan of Distribution has been adopted, who also have no direct or indirect financial interest in the operation of the Plan of Distribution or in any agreements related thereto (all such Board members collectively being referred to herein as the "Independent Board Members"), 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 two years 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 Board Members, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or with respect to a class of Shares of any given Series by vote of a majority of the outstanding voting securities of that class of Shares of such Series. (c) Notwithstanding the foregoing, with respect to a class of Shares of 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 Board Members or, with respect to a class of Shares of a Series, by vote of a majority of the outstanding voting securities of that class of Shares on 30 days' written notice to Mitchell Hutchins and PaineWebber. (d) Termination of this Agreement with respect to a class of Shares of any given Series shall in no way affect the continued validity of this Agreement or the performance thereunder with respect to any other classes of Shares of that Series or any classes of Shares of 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 with respect to a class of Shares of a Series without penalty, such termination to be effective upon the giving of written notice to PaineWebber in the event that the Plan of Distribution relating to that class of Shares 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 with respect to that class of Shares 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 of Distribution 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 -6- 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 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 New York and the 1940 Act. To the extent that the applicable laws of the State of New York 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. 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. 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 ATTEST: MANAGEMENT INC. By: By: ------------------------- ------------------------- ATTEST: PAINEWEBBER INCORPORATED By: By: ------------------------- -------------------------
-7- EX-99.N 8 0008.txt EXHIBIT 14 Exhibit No. 14 PAINEWEBBER AMERICA FUND MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3 PaineWebber America Fund ("Fund") hereby adopts this Multiple Class Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended ("1940 Act"), on behalf of its current series for which the board of trustees ("Board") has established Class A, Class B, Class C and/or Class Y shares and any series for which the Board in the future establishes Class A, Class B, Class C and/or Class Y shares (each referred to hereinafter as a "Series"). A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED. Class A, Class B, Class C and Class Y shares have the general characteristics described below. Each class of shares is described in greater detail in the Fund's Registration Statement. The term "Registration Statement" shall mean the Registration Statement of the Fund on Form N-1A under the Securities Act of 1933, as amended, and the 1940 Act, as such Registration Statement may be amended or supplemented from time to time. The description below sets out the maximum initial sales charges, contingent deferred sales charges ("CDSCs"), 12b-1 service fees and 12b-1 distribution fees for each class of shares. These charges and fees may be lower for types of Series or individual Series, as described in the Registration Statement. Initial sales charges and CDSCs will be waived or reduced for the types of investors or under the circumstances described in the Registration Statement. 1. CLASS A SHARES. Class A shares are sold to the general public subject to an initial sales charge. The maximum initial sales charge is 4.5% of the public offering price. Class A shares are subject to an service fee at the annual rate of up to 0.25% of their average daily net assets, paid pursuant to a plan of distribution adopted in accordance with Rule 12b-1 under the 1940 Act. Class A shares held less than one year are subject to a CDSC upon redemption if the Class A shares were purchased without an initial sales charge due to an initial sales charge waiver for large purchases. The maximum Class A CDSC is equal to 1% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class A shares held one year or more or acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. 2. CLASS B SHARES. Class B shares are sold to the general public subject to a CDSC, but without imposition of an initial sales charge. The maximum CDSC for Class B shares is equal to 5% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class B shares held for the time specified in the Registration Statement (usually six years or longer) and Class B shares acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Class B shares of certain Series may cease to be subject to the CDSC before the end of six years, as described in the Registration Statement. Class B shares are subject to a service fee at the annual rate of up to 0.25% of their average daily net assets and a distribution fee at the annual rate of up to 0.75% of their average daily net assets. These service and distribution fees are paid pursuant to a plan of distribution adopted in accordance with Rule 12b-1 under the 1940 Act. Class B shares of a Series convert to Class A shares of the same Series approximately six years after issuance at their relative net asset values. 3. CLASS C SHARES. Class C shares are subject to a service fee at the annual rate of up to 0.25% of their average daily net assets and a distribution fee at the annual rate of up to 0.75% of their average daily net assets. These service and distribution fees are paid pursuant to a plan of distribution adopted in accordance with Rule 12b-1 under the 1940 Act. Class C shares held less than one year are subject to a CDSC upon redemption. The maximum CDSC for Class C shares is equal to 1% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class C shares held for one year or more or acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Class C shares may be sold to the general public subject to a maximum initial sales charge of 1.0% of the public offering price. 4. CLASS Y SHARES. Class Y shares are sold without imposition of an initial sales charge or CDSC and are not subject to any service or distribution fees. Class Y shares are available for purchase only by the types of investors described in the Registration Statement. B. EXPENSE ALLOCATIONS OF EACH CLASS: Certain expenses of a Series may be attributable to a particular class of its shares ("Class Expenses"). Class Expenses are charged directly to the net assets of that class and, thus, are borne on a pro rata basis by the outstanding shares of that class. In addition to the distribution and service fees described above, each class may also pay a different amount of the following other expenses: (1) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders of a specific class; (2) Blue Sky fees incurred by a specific class of shares; (3) SEC registration fees incurred by a specific class of shares; (4) expenses of administrative personnel and services required to support the shareholders of a specific class of shares; (5) Board members' fees incurred as a result of issues relating to a specific class of shares; 2 (6) litigation expenses or other legal expenses relating to a specific class of shares; and (7) transfer agent fees identified as being attributable to a specific class. C. EXCHANGE PRIVILEGES: Class A, Class B and Class C shares of a Series may be exchanged for the corresponding class of shares of other PaineWebber mutual funds or may be acquired through an exchange of shares of the corresponding class of those funds. Class Y shares are not exchangeable. These exchange privileges may be modified or terminated by a Series, and exchanges may only be made into PaineWebber mutual funds that are legally registered for sale in the investor's state of residence. D. CLASS DESIGNATION: Subject to approval by the Board, a Series may alter the nomenclature for the designations of one or more of its classes of shares. E. ADDITIONAL INFORMATION: This Multiple Class Plan is qualified by and subject to the terms of the Fund's Registration Statement; provided, however, that none of the terms set forth in the Registration Statement shall be inconsistent with the terms of the classes contained in this Plan. The Registration Statement contains additional information about the classes and each Series' multiple class structure. F. DATE OF EFFECTIVENESS: This Multiple Class Plan is effective as of the date hereof, provided that this Plan shall not become effective with respect to any Series unless such action has first been approved by the vote of a majority of the Board and by vote of a majority of those Board members who are not interested persons of the Fund. September 12, 2000 3 EX-99.P 9 0009.txt EXHIBIT 15(B) Exhibit No. 15(b) CODE OF ETHICS INCLUDING A STATEMENT OF POLICIES AND PROCEDURES REGARDING CONFIDENTIAL INFORMATION AND CONFLICTS OF INTEREST For Access Persons of ICAP FUNDS, INC. and INSTITUTIONAL CAPITAL CORPORATION Restated Effective as of September 30, 1998 and amended March 1, 2000 I. DEFINITIONS A. "Act" means the Investment Company Act of 1940, as amended. B. "Advisers Act" means the Investment Advisers Act of 1940, as amended. C. "Fund" means ICAP Funds, Inc. D. "ICAP" means Institutional Capital Corporation. E. "Access person" means ICAP, any director, officer or advisory person of ICAP or any director, officer or advisory person of the Fund. F. "Candidate List" includes those securities under active consideration for purchase by ICAP for the Fund or any client. G. "Advisory person" means: (i) any employee of the Fund or of ICAP; and (ii) any natural person in a control relationship to the Fund or ICAP who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security on ICAP's Candidate List. H. A security is "being considered for purchase or sale" when: (i) a recommendation to purchase or sell a security has been made and communicated; (ii) the security appears on ICAP's Candidate List; or (iii) with respect to the person making the recommendation, when such person seriously considers making such a recommendation. I. "Beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, except that the determination of direct or indirect beneficial ownership shall apply to all securities which an access person has or acquires. As a general matter, "beneficial ownership" will be attributed to an access person in all instances where the person (i) possesses the ability to purchase or sell the security (or the ability to direct the disposition of the security); (ii) possesses the voting power (including the power to vote or to direct the voting) over such security; or (iii) receives any benefits substantially equivalent to those of ownership. Although the following is not an exhaustive list, a person generally would be regarded to be the beneficial owner of the following: (i) securities held in the person's own name; (ii) securities held with another in joint tenancy, as tenants in common, or in other joint ownership arrangements; (iii) securities held by a bank or broker as a nominee or custodian on such persons' behalf or pledged as collateral for a loan; (iv) securities held by members of the person's immediate family sharing the same household if the person is a custodian, guardian or otherwise has controlling influence over the purchase, sale, or voting of such securities ("immediate family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships); (v) securities held by a relative not residing in the person's home if the person is a custodian, guardian, or otherwise has controlling influence over the purchase, sale, or voting of such securities; (vi) securities held by a trust for which the person serves as a trustee and in which the person has a pecuniary interest (including pecuniary interests by virtue of performance fees and by virtue of holdings by the person's immediate family); (vii) securities held by a trust in which the person is a beneficiary and has or shares the power to make purchase or sale decisions; (viii) securities held by a general partnership or limited partnership in which the person is a general partner; and (ix) securities owned by a corporation which is directly or indirectly controlled by, or under common control with, such person. Any uncertainty as to whether an access person beneficially owns a security should be brought to the attention of ICAP's Compliance Officer or the Assistant Compliance Officer. Such questions will be resolved in accordance with, and this definition is subject to, the definition of "beneficial owner" found in Rules 16a-1(a)(2) and (5) promulgated under the Securities Exchange Act of 1934. 2 J. "Control" shall be interpreted as it would be in Section 2(a)(9) of the Act. As a general matter, "control" means the power to exercise a controlling influence. The "power to exercise a controlling influence" is intended to include situations where there is less than absolute and complete domination and includes not only the active exercise of power, but also the latent existence of power. Anyone who beneficially owns, either directly or through one or more controlled entities, more than 25% of the voting securities of an entity shall be presumed to control such entity. K. "Disinterested director" means (i) a director of the Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Act and (ii) a director of ICAP who is not an employee of ICAP. L. "Limited offering" means an offering of securities to a limited number of purchasers. Such offerings are ordinarily made pursuant to a private offering memorandum or similar document, although they need not be, and are exempt from the registration requirements of the federal securities laws. M. "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security. N. "Security" shall have the meaning set forth in Section 2(a)(36) of the Act and shall include: common stocks, preferred stocks, debt securities; options on and warrants to purchase common stocks, preferred stocks or debt securities; shares of closed-end investment companies, futures, commodities and Related Securities. "Related Securities" are instruments and securities that are related to, but not the same as, a security. For example, a Related Security may be convertible into a security, or give its holder the right to purchase the security. The term "Security" also includes private investments, including oil and gas ventures, real estate syndicates and other investments which are not publicly traded. It shall not include shares of registered open-end investment companies, direct obligations of the Government of the United States, high quality short-term debt instruments, bankers' acceptances, bank certificates of deposit, commercial paper, and such other money market instruments as designated by the Fund's Board of Directors. II. FIDUCIARY PRINCIPLES Incorporated within this Code of Ethics is a Statement of Policies and Procedures Regarding Confidential Information and Conflicts of Interest (the "Statement"). Failure to observe the policies and procedures outlined in the Statement and/or the Code could result in the imposition of sanctions (including dismissal) and could constitute a criminal act in violation of, among other, federal and/or state securities laws. 3 A. The Statement ICAP seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in ICAP by our clients is something we value and must endeavor to protect. Any breach of that confidence or trust could have a disastrous, long-term effect on ICAP's client relationships. In the course of their employment with ICAP, employees will have access to confidential information concerning ICAP, its clients and various other matters. The proper treatment of such information is a key aspect of preserving ICAP's integrity. Accordingly, employees shall not disclose, directly or indirectly, confidential information to anyone other than employees and agents of ICAP who need such information to discharge their duties. As far as investments and investment opportunities are concerned, employees should remember that their first obligation is to the client. To meet this obligation, ICAP must ensure that all advice rendered by employees is free from any conflict of interest. Therefore, no employee shall engage in any activity which may in any way jeopardize his or her ability to render impartial and disinterested investment counseling. This includes scrupulously avoiding any affiliation which may influence or even appear to influence the employee's ability to treat each client in an unbiased manner. ICAP's business depends, in part, on investor confidence in the fairness and integrity of the securities markets. The problem of insider trading poses a serious threat to that confidence. While there is no precise statutory definition of insider trading, the term is generally understood to mean participating in a decision to buy, sell or tender securities while in possession of material nonpublic information. Material nonpublic information is any information (i) that is not generally available and (ii) which would be important to an investor in making a decision to buy, sell, or tender a security. The prohibition against trading on material nonpublic information extends to any situation where an employee participates in a decision to buy, sell or tender securities based on material nonpublic information that they acquire from an issuer or its representatives prior to the information being made available to the public. An employee participates in a decision to buy, sell or tender securities if he or she influences or controls the decision. Thus, this policy would apply to transactions in which an employee exercises investment discretion or influence even though he or she does not own the securities (such as accounts for which the employee serves as an advisor or fiduciary). Specifically, the policy against insider trading would prohibit ICAP employees from "tipping" clients, friends, family or third parties based on their knowledge of material nonpublic information. As used herein, "Trading" includes any securities transactions in which an employee participated, exerted influence, "tipped" or was tipped by 4 others. Employees are absolutely prohibited from engaging in any activities that would fall within the above description of insider trading. In the event an employee receives material nonpublic information regarding an issuer, the employee must immediately notify the Compliance Officer or the Assistant Compliance Officer who will place the issuer's securities on a Restricted List. Employees are prohibited from trading in the securities of issuers placed on the Restricted List. B. General Fiduciary Principles In addition to the specific principles enunciated in this Code and the Statement, all access persons shall be governed by the following general fiduciary principles: (i) The duty at all times to place the interests of Fund shareholders and clients of ICAP above all others. Access persons must scrupulously avoid serving their own personal interests ahead of the interests of ICAP's clients. (ii) The requirement that all personal securities transactions be conducted consistent with the Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility; and (iii) The fundamental standard that no access person should take inappropriate advantage of their position with the Fund or ICAP. (iv) Information as to what securities ICAP has recommended or will recommend is to be held in strictest confidence. III. POLICY ON SECURITY OWNERSHIP In addition to the prohibitions contained in Section IV below, it is the general policy of the Fund and ICAP that no access person shall have any direct or indirect beneficial ownership of any security which is also owned by the Fund or ICAP's clients. Upon the discovery by ICAP or any access person that an access person has a direct or indirect beneficial ownership of a security which is also owned by the Fund or ICAP's clients, such access person shall promptly report such fact to ICAP's Compliance Officer or Assistant Compliance Officer, and may be required to divest himself or herself of such ownership if the Compliance Officer or Assistant Compliance Officer determines that any significant conflict of interest or potential conflict of interest exists as a result of such ownership. This policy shall not apply to disinterested directors. 5 IV. PROHIBITED ACTIVITIES - DISINTERESTED DIRECTORS No disinterested director shall purchase or sell a security if such disinterested director knew or, in the ordinary course fulfilling his or her official duties as a director, should have known that, during the 15-day period immediately before or after the date of the transaction by the disinterested director, such security was: (i) purchased or sold by the Fund or ICAP on behalf of its clients; (ii) being considered by the Fund or ICAP on behalf of its clients for purchase or sale; or (iii) on ICAP's Candidate List. V. PROHIBITED ACTIVITIES - ALL OTHERS A. No access person shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership if such security is owned by the Fund, any client of ICAP, is on ICAP's Candidate List, or is otherwise being considered for purchase by ICAP on behalf of its clients. ICAP employees are responsible for ascertaining the securities listed from time to time on the Candidate List which, if the employee does not have a copy, is always available in the trading room. B. An access person may sell a previously held position in a security which is being considered for purchase or is on the Candidate List until ICAP purchases such security for a client or the Fund. At the time ICAP purchases such securities and so long as ICAP holds such securities for a client or the Fund, the access person must refrain from selling such securities until all positions in such issuer's securities are liquidated, except with the prior written approval of the Compliance Officer or the Assistant Compliance Officer. C. No access person shall acquire any securities in an initial public offering. D. No access person shall engage in (i) any short sale transaction, or (ii) any transaction in an option, future or an option on a future in which ICAP actively deals except with the prior written approval of the Compliance Officer or the Assistant Compliance Officer. E. No access person shall acquire securities in a Limited offering, without prior approval from ICAP's Compliance Officer or Assistant Compliance Officer. In determining whether approval should be granted, the Compliance Officer or Assistant Compliance Officer should consider: (i) whether the investment opportunity should be reserved for the Fund or clients of ICAP; and (ii) whether the opportunity is being offered to an individual by virtue of his or her position with the Fund, ICAP or ICAP's advisory relationship with any client. 6 ICAP's Compliance Officer must maintain a record of any decision, and the reasons supporting the decision, to approve the acquisition by an access person for at least five years after the end of the fiscal year in which the approval is granted. In the event approval is granted, the access person must disclose the investment when he or she plays a material role in a client's or the Fund's, subsequent consideration of an investment in the issuer. In such circumstances, the decision to purchase securities of the issuer will be subject to an independent review by investment personnel with no personal interest in the issuer. F. No access person shall receive any gift or other thing of more than de minimis value from any person or entity that does business with or on behalf of the Fund or any client of ICAP. On occasion, an access person may be offered, or may receive without notice, gifts from clients, brokers, vendors, or other persons not affiliated with such entities, including companies that ICAP on behalf of its clients may be invested in or may be considering making an investment in. Acceptance of extraordinary or extravagant gifts is not permissible. G. No access person shall serve on the board of directors of a publicly traded company without prior authorization from ICAP's Board of Directors and the Fund's Board of Directors based upon a determination that the board service would be consistent with the interests of the Fund and clients of ICAP. In the event the board service is authorized, access persons serving as directors must be isolated from those making investment decisions through a "Chinese wall." VI. EXEMPTED TRANSACTIONS The prohibitions of Sections IV and V shall not apply to: A. Purchases or sales effected in any account over which an access person has no direct or indirect influence or control (e.g., a blind trust); B. Purchases or sales of securities which are not eligible for purchase or sale by ICAP's client accounts or the Fund; C. Purchases or sales which are non-volitional on the part of either the access person, the Fund or ICAP's client accounts; D. Purchases which are part of an automatic dividend reinvestment plan; E. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; and 7 F. Purchases or sales which receive the prior approval of ICAP's Compliance Officer or Assistant Compliance Officer because (i) they are only remotely potentially harmful to the Fund and ICAP's clients; (ii) they would be very unlikely to affect a highly institutional market; or (iii) they clearly are not related economically to securities to be purchased, sold or held by the Fund or ICAP's clients. VII. REPORTING - DISINTERESTED DIRECTORS A disinterested director shall report quarterly to Sunstone Financial Group, Inc. ("Sunstone") or ICAP's Compliance Officer even if such director has no securities transactions to report for the reporting period. Such report shall be in the form described in Section VIII(E) and may contain the statement that the report shall not be construed as an admission that the director has any direct or indirect beneficial ownership in the security to which the report relates. A disinterested director need only report a transaction in a security if such director, knew or, in the ordinary course of fulfilling his or her official duties as a disinterested director, should have known that, during the 15-day period immediately before or after the date of the transaction by the disinterested director, such security was: (i) purchased or sold by the Fund or ICAP on behalf of its clients; (ii) being considered by the Fund or ICAP on behalf of its clients for purchase or sale; or (iii) on ICAP's Candidate List. VIII. REPORTING - ALL OTHERS A. All securities transactions in which an access person has a direct or indirect beneficial ownership interest will be monitored by Sunstone and ICAP's Compliance Officer. To facilitate Sunstone's monitoring, ICAP's Compliance Officer shall inform Sunstone on a timely basis of any changes in ICAP's Candidate List. B. ICAP's Compliance Officer shall report his or her personal securities transactions in accordance with this Section VIII and shall also report such transactions directly to the Assistant Compliance Officer who shall additionally monitor such transactions. C. Every access person shall report to Sunstone and ICAP's Compliance Officer the information described in Section VIII(E) with respect to the transactions in any security in which such access person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership. D. Every access person shall report quarterly to Sunstone and ICAP's Compliance Officer even if such access person has no securities transactions to report for the reporting period. 8 E. Every report required to be made by Sections VII and VIII shall be made not later than ten (10) days after the end of the calendar quarter in which the transaction to which the report relates and shall contain the following information: (i) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares, and the principal amount of each security involved; (ii) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (iii) The price of the security at which the transaction was effected; and (iv) The name of the broker, dealer or bank with or through whom the transaction was effected. The determination date for timely compliance is the date the report is received by Sunstone and ICAP's Compliance Officer, which date must be recorded on the report. F. Any report filed pursuant to Section VIII(E) of this Code of Ethics may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates. G. In addition to the above reporting requirements, every access person shall direct his or her brokers to supply to Sunstone and ICAP's Compliance Officer, on a timely basis, duplicate copies of all personal securities transactions and copies of periodic statements for all securities accounts in which such access person has a beneficial ownership interest. Attached hereto as Appendix 1 is a form letter that may be used to request such documents from the respective broker, dealer, or bank. It is the responsibility of the access person to make sure that his or her broker does in fact send ICAP and Sunstone the duplicate confirmations and the duplicate statements. These forms, confirmations and statements will be maintained in strictest confidence in the respective files of ICAP and Sunstone. H. In addition to the above reporting requirements, every access person shall disclose to ICAP's Compliance Officer and Sunstone all personal securities holdings within ten (10) days of such person's commencement of employment, such disclosures shall be made on the form attached hereto at Appendix 2. Shortly after becoming an access person, such person must meet with the Compliance Officer to review the obligations imposed by the Statement and this Code of Ethics. Each such access person shall then sign an acknowledgment, attached hereto as Appendix 3, to affirm that they have reviewed the Statement and this Code of Ethics. 9 I. In addition to the above reporting requirements, every access person shall disclose to ICAP's Compliance Officer and Sunstone all personal securities holdings in an annual report which reflects such person's securities holdings as of June 30th. Such disclosures must be made on the form attached hereto as Appendix 4 and received by the Compliance Officer and Sunstone no later than July 31st of each year. IX. COMPLIANCE WITH THE CODE OF ETHICS A. All access persons shall certify annually in the form attached hereto as Appendix 5 that: (i) They have read and understand the Code of Ethics and recognize that they are subject thereto; and (ii) They have complied with the requirements of the Code of Ethics and disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the Code. B. Sunstone, in conjunction with ICAP's Compliance Officer and the Fund's legal counsel, shall include a report in the Fund's Board of Directors quarterly materials and ICAP shall include a report in its Board of Directors quarterly materials which shall: (i) Identify any violations during the previous quarter or state that no violations occurred during the previous quarter; and (ii) Identify any recommended changes in existing restrictions or procedures based upon the Fund's experience under its Code of Ethics, evolving industry practices, or developments in laws or regulations. C. The quarterly reports shall be summarized in an annual report to the Fund's Board of Directors and shall include a certification from the Fund and ICAP stating that the respective entity has adopted procedures reasonably necessary to prevent its access persons from violating this Statement and Code of Ethics. X. SANCTIONS Upon discovering a violation or potential violation of this Statement or Code of Ethics, the Compliance Officer or Assistant Compliance Officer will conduct an inquiry into the circumstances and, if appropriate, will report such violation or potential violation to the Board of Directors of ICAP and the Fund. Technical compliance with the Code's procedures will not automatically insulate from scrutiny any trades that indicate an abuse 10 of fiduciary duties. Each Board of Directors may impose such sanctions as it deems appropriate, including, among other sanctions, a letter of censure or suspension, or termination of the employment of the violator. Each Board of Directors will be promptly informed of any serious violations of this Code of Ethics or the Statement. 11 Appendix 1 FORM OF LETTER TO BROKER, DEALER OR BANK Subject: Account # -------------------------- Dear : ------------------------------- Institutional Capital Corporation ("ICAP"), my employer, is a registered investment adviser. You are requested to send duplicate confirmations of individual transactions as well as duplicate periodic statements for the above-referenced account to ICAP and Sunstone Financial Group, Inc. Please address the confirmations and statements directly to: General Counsel Compliance Officer Sunstone Financial Group, Inc. Institutional Capital Corporation 207 E. Buffalo Street, Suite 400 225 W. Wacker Drive, Suite 2400 Milwaukee, WI 53202 Chicago, IL 60606
Your cooperation is most appreciated. If you have any questions regarding these requests, please contact me or Mr. Donald Niemann of ICAP at (312) 424-9100. Sincerely, cc: Mr. Donald Niemann Appendix 2 PERSONAL SECURITIES HOLDINGS - INITIAL In accordance with Section VIII(H) of the Code of Ethics, please provide a list of all securities in which you have a beneficial interest. (1) Name of Access Person: ------------------------- (2) If different than (1), name of the person in whose name the account is held: ------------------------- (3) Relationship of (2) to (1): ------------------------- (4) Broker at which Account is maintained: ------------------------- (5) Account Number: ------------------------- (6) Contact person at Broker and phone number: -------------------------
(7) For each account, attach the most recent account statement listing securities in that account. If you have a beneficial interest in securities that are not listed in an attached account statement, list them below:
Name of Security Quantity Value Custodian ---------------- -------- ----- --------- 1. ------------------------------------------------------------------------------ 2. ------------------------------------------------------------------------------ 3. ------------------------------------------------------------------------------ 4. ------------------------------------------------------------------------------ 5. ------------------------------------------------------------------------------ (ATTACH SEPARATE SHEET IF NECESSARY)
I certify that this form and the attached statements (if any) include all of the securities in which I have a beneficial interest. ------------------------------ Access Person Signature Dated: ------------------------- ------------------------------ Print Name Date of commencement of employment: --------------------------------------------- Appendix 3 ACKNOWLEDGMENT OF RECEIPT OF STATEMENT AND CODE OF ETHICS I acknowledge that I have received and understand the Statement and Code of Ethics dated September 30,1998 and amended March 1, 2000 and represent: 1. In accordance with the Code of Ethics, I will report all securities transactions in which I have a beneficial interest and which are required to be reported. 2. I will comply with the Statement and Code of Ethics in all other respects. --------------------------------- Signature ---------------------------------- Print Name Dated: ------------------------ Appendix 4 PERSONAL SECURITIES HOLDINGS - ANNUAL In accordance with Section VIII(I) of the Code of Ethics, please provide a list of all securities in which you have a beneficial interest as of June 30th. (1) Name of Access Person: ------------------------- (2) If different than (1), name of the person in whose name the account is held: ------------------------- (3) Relationship of (2) to (1): ------------------------- (4) Broker(s) at which Account(s) is (are) maintained: ---------------------------- ------------------------- ---------------------------- ------------------------- (5) Account Number(s): ---------------------------- ------------------------- ---------------------------- -------------------------
(6) For each account, attach the account statement listing securities in that account as of June 30th. If you have a beneficial interest in securities that are not listed in an attached account statement, list them below:
Name of Security Quantity Value Custodian ---------------- -------- ----- --------- 1. --------------------------------------------------------------------------------------------- 2. --------------------------------------------------------------------------------------------- 3. --------------------------------------------------------------------------------------------- 4. --------------------------------------------------------------------------------------------- 5. --------------------------------------------------------------------------------------------- (ATTACH SEPARATE SHEET IF NECESSARY)
I certify that this form and the attached statements (if any) include all of the securities in which I have a beneficial interest. ------------------------------ Access Person Signature Dated: ------------------------- ------------------------------ Print Name [This form must be received by the Compliance Officer and Sunstone no later than July 31st.] Appendix 5 ANNUAL CERTIFICATION OF COMPLIANCE WITH THE STATEMENT AND CODE OF ETHICS I certify that during the past year: 1. I have reported all securities transactions which I am required to report pursuant to the Code of Ethics. 2. I have complied with the Statement and Code of Ethics in all other respects. 3. I have read and understand the Statement and Code of Ethics and recognize that I am subject thereto. --------------------------------- Signature ---------------------------------- Print Name Dated: ------------------------ EX-99.P 10 0010.txt EXHIBIT 15(C) Code of Ethics July, 2000 [LOGO] Code of Ethics - Table of Contents Statement of General Principles...............................................1 Applicability of Code to Employees of Non-US Offices..........................1 What is the Code of Ethics....................................................2 Section 1 - Definitions.......................................................2 Section 2 - Exempted Transactions.............................................6 Section 3 - Trading Restrictions A. Personal Securities Transactions "Black-out" Trading Restricitions............................................6 B. Securities Maintained on an "Approved List"......................8 Section 4 - Preclearance A. Preclearance of Securities Transactions.........................12 B. Short-term Trading..............................................12 Section 5 - Reporting........................................................13 Section 6 - Annual Certification.............................................16 Section 7 - Exemptive Relief.................................................16 Section 8 - Violations and Sanctions.........................................16 Section 9 - Issues Forum.....................................................17
July, 2000 Code Of Ethics State Street Global Advisors ("SSgA") Statement of General Principles In addition to any particular duties or restrictions set forth in the SSgA Code of Ethics (the "Code"), every employee of the Adviser must adhere to the following general principles: I. Since our clients have entrusted us with their assets, we must, at all times, place the interests of these clients first. These clients include the mutual funds which we advise, participants in the State Street Bank and Trust Company collective investment vehicles and those clients for whom we manage discretionary accounts. II. Transactions executed for the employee's personal account must be conducted in a manner consistent with this Code and in such a manner as to avoid any actual or perceived conflict of interest or any abuse of the employee's position of trust and responsibility. III. Employees are encouraged to make investment decisions regarding their personal accounts with a long term view. Short-term trading is strongly discouraged. IV. Employees must not take inappropriate advantage of their position. Applicability of Code to Employees of Non-US Offices Employees of the Adviser's Non-US offices are subject to the terms of the Code. In addition, however, such employees remain subject to any local laws and regulations affecting personal investments, investments on behalf of customers and other activities governed by the Code. It is the responsibility of each employee to adhere to such regulations. In the event of any inconsistency between local law or regulation and the terms of this Code, the employee must adhere to the highest applicable standard. July, 2000 What is the Code of Ethics? The Code of Ethics, hereafter referred to as the "Code", is the policy statement that State Street Global Advisors has adopted which primarily governs personal securities transactions of its employees. It is designed to ensure that employees conduct their personal securities transactions in a manner which does not create an actual or potential conflict of interest to the bank's business or fiduciary responsibilities. In addition, the Code establishes standards that prohibit the trading in or recommending of securities based upon material, non-public information or the tipping of such information to others. The SSgA Risk Management and Compliance Department oversees overall compliance with the Code. Failure to comply with the Code could result in company imposed sanctions, and possible criminal and civil liability, depending on the circumstances. Section 1 - Definitions A. "Access Person" or "Investment Personnel" as defined by Rule 17j-1 under the Investment Company Act of 1940, as amended ("the 1940 Act"), means "any Portfolio Manager, Investment Person or Reporting Associate of State Street Global Advisors or of such other divisions as determined by the Adviser from time to time, and any other employee of the Adviser designated as an Access Person by the Compliance Officer by virtue of his or her stature within the organization." The following Access Person levels have been established by the SSgA Boston office. The levels reflect the minimum requirements of the Code of Ethics. A listing of Access Persons is maintained by the local Compliance Officer. The local Compliance Officer, at his or her discretion, can impose higher standards in their local environment. 1. "Portfolio Manager" (Level 1) means "the persons identified by the Adviser, as the portfolio manager or back-up portfolio manager of a Fund." 2. "Investment Person" (Level 2) means "any employee of the Adviser who, in connection with his or her regular functions or duties, July, 2000 -2- makes, participates in, or obtains information regarding the purchase or sale of a Security by a Fund prior to or contemporaneous with such purchase or sale, or whose functions relate to the making of any recommendations with respect to such purchase or sale." 3. "Reporting Associate" (Level 3) means "(i) any director, officer or employee of the Adviser who, with respect to any Fund, makes any recommendation, participates in the determination of which recommendation will be made, or whose principal function or duties relate to the determination of which recommendation will be made, or who, in connection with his or her duties, obtains any information concerning recommendations on Securities being made by the Adviser to any Fund, and (ii) any employee of the Adviser who, in connection with his or her regular functions or duties, makes, participates in or obtains information regarding the purchases or sales of Securities made by a Fund or whose functions relate to the making of any recommendations with respect to the purchases or sales. B. "Adviser" means "State Street Global Advisors" and any other investment advisory division of State Street Bank and Trust Company, "State Street Global Advisors, Inc." and any subsidiary thereof, "State Street Brokerage" and "State Street Banque, S.A." and such other entities as from time to time designated by the Compliance Officer. C. "Approved List" means Securities followed by the Global Fundamental Research Group and tracked on the Approved List. Securities may be added, removed, or undergo periodic ratings changes. D. "Associated Portfolio" means with respect to an Access Person any Portfolio in the fund group for which such person acts as a Portfolio Manager, Investment Person or Reporting Associate (e.g., accounts for which the Access Person is Portfolio Manager, designated Back-up Portfolio Manager). E. "Beneficial Ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except July, 2000 -3- that the determination of direct or indirect Beneficial Ownership shall apply to all Securities which an Access Person has or acquires other than those Securities which are acquired through dividend reinvestment. Beneficial Ownership generally extends to accounts in the name of: o the Access Person; o the Access Person's spouse; o the Access Person's minor children; o the Access Person's adult children living in the Access Person's home; and o any other relative whose investments the Access Person directs (regardless of whether he or she resides in the Access Person's home). Beneficial Ownership also includes accounts of another person or entity if by reason of any contract, understanding, relationship, agreement or other arrangement the Access Person obtains therefrom benefits substantially equivalent to those of ownership. Access Persons should contact the local Compliance Officer regarding any questions they may have concerning Beneficial Ownership. F. "Compliance Officer" shall mean the person identified by the State Street Global Advisors division of the Adviser, from time to time, as the local Compliance Officer of SSgA. G. "Control" means the power to exercise a controlling influence over an account. H. "de minimis transaction" is a personal trade that, when client orders are pending, meets the following conditions: i) proposed personal trade does not exceed 2% of the average 10 day trading volume in the subject security, AND ii) pending client orders do not exceed the 2% limit. I. "Fund" or "Funds" means "any mutual fund, bank collective fund, common trust fund, separate account or other type of account advised or sub-advised by the Adviser." J. "Fundamental Access Person" means "any Access Person (Level 1-3) who either has access to or receives updates concerning the fundamental research (as distinguished from July, 2000 -4- the quantitative management process) used in connection with the managing a Fund, and who is identified as such on a list maintained by the Compliance Department." K. "Level 4 Person" means "any individual employed by the Adviser who is not an Access Person (Level 1-3) and who is identified as a Level 4 Person by SSgA Risk Management and Compliance." L. "Portfolio" means "any investment portfolio of a Fund." M. "Purchase or Sale of a Security" includes, among other things, the writing of an option to purchase or sell a Security. N. "Security" shall have the meaning set forth in Section 2(a)(36) of the 1940 Act, provided that "Security" shall not include direct obligations of the government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, and shares issued by an open-end investment company registered under the 1940 Act (e.g., open-end mutual funds.) This definition of "Security" includes, but is not limited to: any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificates of interest or participation in any profit-sharing agreement, any put, call, straddle, option or privilege on any Security or on any group or index of Securities, or any put, call, straddle, option or privilege entered into on a national securities exchange relating to foreign currency. Further, for the purpose of this Code, "Security" shall include any commodities contracts as defined in Section 2(a)(1)(A) of the Commodity Exchange Act. This definition includes but is not limited to futures contracts on equity indices. Any questions as to whether a particular investment constitutes a "Security" should be referred to the local Compliance Officer. O. "Short-term Trading" means buying and selling or selling and buying the same security within a 60 day period. July, 2000 -5- Section 2 - Exempted Transactions The "Trading Restrictions" (Section 3A) and "Preclearance" requirements (Section 4) of this Code shall not apply to: A. Purchases or sales effected in any account over which the Access Person or Level 4 Person has no direct or indirect influence or control (e.g., assignment of management discretion in writing to another party). However, if management authority is ceded to a person in the same household (spouse, dependent children or other individual living in the same household as the Access Person or the Level 4 Person), then trading restrictions and preclearance requirements still have to be met. B. Acquisition of a Security due to dividend reinvestment or similar automatic periodic investments process or through the exercise of rights, warrants or tender offers. However, these transactions remain subject to the Code's "Reporting" requirements as set forth in Section 5. C. Securities issued by the U.S. Government or an agency or instrumentality thereof. However, only direct obligations of the U.S. Government are exempt from the reporting requirements set forth in Section 5. E. With respect to Access Persons employed in a non-US office, purchases or sales of Securities issued by the government of the country in which such office is located. However, these transactions remain subject to the Code's "Reporting" requirements as set forth in Section 5. Section 3 - Trading Restrictions/Prohibitions A. Personal Securities Transaction "Black-out" Trading Restrictions 1. Prohibited trading "black-out" periods. The following categories of personnel are subject to the following restrictions upon execution of personal securities transactions for his or her own personal account or on behalf of an account in which he or she has Beneficial Ownership: July, 2000 -6- (a) "Pending order" restriction. Subject only to the de minimis transaction exceptions noted below, no Access Person (Level 1-3) may purchase or sell a Security or any equivalent Security with respect to which such Access Person knows or should have known that any Fund (i) has outstanding a purchase or sale order (the "pending order"), or (ii) is considering purchasing or selling. A Fund "is considering purchasing or selling" a Security when a recommendation has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such recommendation. (b) Seven-day restriction. No Portfolio Manager may purchase or sell a Security or any equivalent security within seven (7) calendar days after the trade date of a purchase or sale of the same Security or any equivalent Security by or on behalf of any Associated Portfolio. In the event that a transaction in a Security is effected in contravention of either of the two forgoing restrictions, the Access Person or Portfolio Manager involved shall, as soon as practicable after becoming aware of the violative nature of his or her personal transaction (irrespective of any pre-execution clearance which may have been previously granted for the transaction), promptly, (I) advise the office of the Compliance Officer of the violation, and (II) comply with whatever directions which the Compliance Officer may issue in order for the violation to be fully and adequately rectified. 2. de minimis transaction exceptions to the "pending order" restriction. An Access Person shall be excepted from the "pending order" restriction with respect to any de minimis transaction; provided, however, that the de minimis transaction exception shall not be applicable for transactions effected by Portfolio Managers that would July, 2000 -7- otherwise be restricted pursuant to subparagraph (1)(b), above. Transactions effected pursuant to the de minimis exception remain subject to the Preclearance (Section 4) and Reporting (Section 5) requirements of this Code. B. Securities Maintained on an "Approved List" Employees who have access to investment strategy information developed by the Fundamental Research Group prior to or contemporaneous with its implementation are prohibited for a period of seven (7) days from purchasing or selling a Security that is added to, removed from, or which has been subject to a rating change on the Approved List. C. Additional Prohibited Activities 1. Neither an Access Person nor Level 4 Person shall, in connection with the purchase or sale (directly or indirectly) by the Adviser, of a Security held or to be acquired by a Fund: a. employ any device, scheme or artifice to defraud a Fund; b. make any material misstatement to a Fund or omit any material fact in any statement to a Fund where such omission would tend to make the statement misleading; c. engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a Fund; or d. engage in any manipulative practice with respect to a Fund. July, 2000 -8- The above prohibited activities shall at all times include, but shall not be limited to, the following: (i) purchasing or selling securities on the basis of material(1) non-public(2) information; (ii) purchasing or selling, knowingly, directly or indirectly, securities in such a way as to compete personally in the market with a Fund, or acting personally in such a way as to injure a Fund's transactions; (iii) using knowledge of securities transactions by a Fund, including securities being considered for purchase or sale, to profit personally, directly or indirectly, by the market effect of such transactions. (iv) engaging in short selling and options trading of State Street securities (except to the extent such options are issued by the Corporation as part of an employee's compensation.) 2. Each of the following activities by an Access Person or Level 4 Person shall be prohibited: a. purchasing Securities in an initial public offering unless the transaction is approved in writing by an SSgA Compliance Officer and either: - -------- (1) Material Information: information the dissemination of which would have a substantial impact on the market price of the company's securities, or is likely to be considered important by reasonable investors in determining whether to trade in such securities. Examples of the type of information that might be "material" would include the following: earnings estimates or changes in previously released earnings estimates, merger or acquisition proposals, major litigation, significant contracts, dividend changes, extraordinary management developments. (2) Non-public Information: information that has not been generally disclosed to the investing public. Information found in a report filed with a local regulatory agency, such as the SEC, or appearing in publications of wide circulation would be considered public. July, 2000 -9- (i) the Access Person or Level 4 Person has a right to purchase the Security due to the Access Person's or Level 4 Person's pre-existing status as a policy holder or depositor with respect to such Security or as a shareholder of a related company; or, (ii) the right to purchase is awarded by lottery or other non-discretionary method by the issuer. b. participation in a private offering (e.g., offerings of securities not registered with a local regulatory agency, such as the SEC, stocks of privately held companies, private placements and non-publicly traded limited partnerships) without prior written consent from an SSgA Compliance Officer by use of the form attached here as Appendix C; c. participation in a private offering and failing to disclose any subsequent conflicts of interests to the Compliance Officer. An example of this would be a portfolio manager purchasing Securities of an issuer in a private offering (with approval as detailed in 2(b) above) and then causing an Associated Portfolio to purchase Securities of the issuer without disclosing this conflict of interest. d. using any derivative, or using any evasive tactic, to avoid the restrictions of this Code; e. serving as a director of the following without prior written consent of State Street Global Advisors' Area Executive and notice to the Compliance Officer: o a publicly traded company other than State Street Corporation or its subsidiaries or its affiliates; or July, 2000 -10- o any company the Securities of which are owned by a Fund, f. accepting or receiving, either directly or indirectly, from any organization or employee thereof with which we conduct a business relationship (e.g., customers or vendors) a gratuity or anything of value in excess of one hundred (US $100) dollars per individual per calendar year. A gratuity includes a gift of any type. The purpose of this gratuity restriction is to allow only proper and customary business amenities. Amenities considered permissible include the following: o occasional meals, social gatherings or meetings conducted for business purposes; or o gifts in the nature of promotional materials, such as a pen, calendar, umbrella or the like, which are inscribed with the giver's name or a business message. Amenities considered not to be permissible include, but are not limited to, the following: o transportation expenditures, such as airfare or rental car; or o hotel or other lodging accommodation expenditures July, 2000 -11- Section 4 - Preclearance A. Preclearance of Securities Transactions Each Access Person shall preclear all transactions in Securities (other than those exempted in Section 2, above) in accordance with the Personal Transactions Preclearance Procedure via Lotus Notes. o Preclearance must be obtained after 10:00 a.m. EST (or at such local time as is designated by each Non-US office) of the day on which the Access Person proposes to trade. o Such preclearance is good until midnight of the day it is granted in the location of the primary exchange where the security is traded. It is also allowable to order a market trade electronically up to this time deadline. Any order not executed on the day of preclearance must be re-submitted for preclearance before being executed on a subsequent day (e.g., "good-'til-canceled" or "limit" orders must receive preclearance every day that the order is open). o The Lotus Notes preclearance process must be used in sites where available consistent with policies established from time to time by Risk Management and Compliance. B. Short-term Trading In order to monitor short-term trading activity, each Access Person is required to identify on the Quarterly Report whether he or she has traded in the proposed security within the past 60 days. Short-term trades will be monitored and reported to management to ensure that Access Persons are adhering to SSgA's long-term investment philosophy generally. July, 2000 -12- Section 5 - Reporting All Securities (defined in Section 1.N) are subject to the reporting requirements of this section. Such securities include, but are not limited to, those issued by the U.S. Government agencies, non-US government obligations, and open-end mutual funds (or their equivalent that are not registered in the U.S. A. Initial Holdings Report. No later than 10 days after becoming an Access Person, whether through outside hiring or internal transfer, every Access Person shall report to the Compliance Officer the following information. 1. The title, number of share and principal amount of each Security in which the Access Person had any Beneficial Ownership when the person became an Access Person; 2. The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and 3. The date the report is submitted by the Access Person. B. Quarterly Transaction Reports. No later than 10 days after the end of each calendar quarter, every Access Person shall report to the Compliance Officer, the following information(3): 1. With respect to any transaction during the quarter in a Security in which the Access Person had any direct or indirect Beneficial Ownership: a. The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Security involved: - ------------- (3) Access Persons are required to provide copies of confirmations and periodic statements to the Compliance Officer pursuant to Section 5 of this Code. Accordingly, Access Persons need only certify on their Quarterly Transaction Form that no other transactions were executed during the applicable quarter. July, 2000 -13- b. The nature of the transaction, (i.e., purchase, sale, or other type of acquisition or disposition); c. The price of the Security at which the transaction was effected; d. The name of the broker, dealer or bank with or through which transaction was effected; and e. The date that the report is submitted by the Access Person. 2. With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: a. The name of the broker, dealer, or bank with whom the Access Person established the account; b. The date the account was established; and c. The date the report is submitted by the Access Person. C. Annual Holdings Reports. Annually, every Access Person shall report the following information (which information must be current as of a date no more that 30 days before the report is submitted): 1. The title, number of shares and principal amount of each Security in which the Access Person had any direct or indirect Beneficial Ownership; 2. The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; 3. The date that the report is submitted by the Access Person. July, 2000 -14- D. Exceptions to Reporting Requirements. An Access Person need not make a report under this Section 5 with respect to transactions effected for, and Securities held in, any account over which the person has no direct or indirect influence or control. E. Access Persons are required to notify any brokers, dealers, investment advisers, banks and other financial institutions with whom they have their securities trading accounts to forward duplicate confirms of any and all of their trades and periodic account statements containing trading activity to the Compliance Officer and may use the form letter attached as Appendix B to notify such financial institutions. F. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect Beneficial Ownership in the Security to which the report relates. G. Access Persons transacting in Securities, as defined in Section 1-N. of the Code, contained in self directed pension brokerage accounts, self managed brokerage accounts (SMBA) or 401(k) retirement accounts are included in any reporting or preclearance requirements. H. Investment in the State Street Stock Fund through the State Street 401(k) plan do not require regular preclearance or reporting. Although transactions in the State Street Stock Fund do not need to be reported, as they are not defined as a Security, employees trading in the State Street Stock Fund should be aware that these transactions are subject to the insider trading restrictions contained in the Code of Ethics and State Street's Standard of Conduct. I. Access Persons are prohibited from engaging in short selling and options trading of State Street securities (except to the extent such options are issued by the Corporation as part of an employee's compensation). J. State Street options granted in conjunction with an employee's compensation do not need to be precleared or reported if exercised at first opportunity as dictated by Global Human Resources. Options exercised on any other date are subject to preclearance and reporting requirements. July, 2000 -15- Section 6 - Annual Certification All Access Persons and Level 4 Persons must certify annually that he or she has read, understands and recognizes that he or she is subject to the Code. In addition, all Access Persons must certify annually that he or she has complied with the Code and has disclosed and reported all personal securities transactions required to be disclosed or reported. Section 7 - Exemptive Relief An Access Person or Level 4 Person who believes that aspects of the Code impose a particular hardship or unfairness upon them with respect to a particular transaction or situation, without conferring a corresponding benefit toward the goals of the Code, may appeal to the Compliance Officer for relief from Code provision(s) relating to a particular transaction or ongoing activity or reporting requirement. If relief is granted, the Compliance Officer may impose alternative controls or requirements. Any relief granted in this regard shall apply only to the Access Person or Level 4 Person who had sought relief and no other Access Person may rely on such individual relief unless specifically authorized by their local Compliance Officer. If circumstances warrant, the Compliance Officer may submit the anonymous request to the Code of Ethics Committee for input. Section 8 - Violations and Sanctions The Adviser will monitor compliance with the Code of Ethics and take such action as it deems appropriate designed to reasonably ensure compliance. The Adviser may establish a Code of Ethics Committee to review and develop procedures for giving effect to this Code. The Code of Ethics Committee reviews the facts and circumstances surrounding potential violations and may recommend that the Adviser impose a sanction as identified below. Upon discovering a violation of this Code, its policies or procedures, the Adviser may impose such sanctions as it deems appropriate, including, among other things, the following: o a letter of censure to the violator; o a monetary fine levied on the violator; July, 2000 -16- o suspension of the employment of the violator; o termination of the employment of the violator; o civil referral to the SEC or other civil regulatory authorities determined by the Adviser or other appropriate entity; or o criminal referral -- determined by the Adviser or other appropriate entity. If the Adviser reasonably determines that the actions of an Access Person creates the appearance of impropriety, it may take such action as it deems necessary, including but not limited to, unwinding a trade and/or disgorgement of profits. The Access Person or Level 4 Person is given an opportunity to appeal a Committee decision if he/she believes there are extenuating facts and circumstances of which the Committee and Compliance were unaware. Section 9 - Issues Forum If you have a concern or question, you can voice this concern, i.e., issue or personal complaint on an anonymous basis by submitting it in writing to: State Street Global Advisors Attention: Compliance Officer P.O. Box 9185 Boston, MA 02209 July, 2000 -17- EX-99.P 11 0011.txt EXHIBIT 15(D) Exhibit No. 15(d) Dated: February 15, 2000 CODE OF ETHICS Gabelli Westwood Funds Westwood Management Corp. Each Registered Investment Company or series thereof (each of which is considered to be a Company for this purpose) for which any of the companies listed above presently or hereafter provides investment advisory or principal underwriting services, other than a money market fund or a fund that does not invest in Securities. Introduction This Code of Ethics establishes rules of conduct for persons who are associated with the companies named above or with the registered investment companies for which such companies provide investment advisory or principal underwriter services. The Code governs their personal investment and other investment-related activities. The basic rule is very simple: put the client's interests first. The rest of the rules elaborate this principle. Some of the rules are imposed specifically by law. For example, the laws that govern investment advisers specifically prohibit fraudulent activity, making statements that are not true or that are misleading or omit something that is significant in the context and engaging in manipulative practices. These are general words, of course, and over the years the courts, the regulators and investment advisers have interpreted these words and established codes of conduct for their employees and others who have access to their investment decisions and trading activities. Indeed, the rules obligate investment advisers to adopt written rules that are reasonably designed to prevent the illegal activities described above and must follow procedures that will enable them to prevent such activities. This Code is intended to assist the companies in fulfilling their obligations under the law. The first part lays out who the Code applies to, the second part deals with personal investment activities, the third part deals with other sensitive business practices, and subsequent parts deal with reporting and administrative procedures. The Code is very important to the companies and their employees. Violations can not only cause the companies embarrassment, loss of business, legal restrictions, fines and other punishments, but for employees can lead to demotion, suspension, firing, ejection from the securities business, and very large fines. I. Applicability (A) The Code applies to each of the following: 1. The Companies named or described at the top of page one of the Code and all entities that are under common management with these Companies or otherwise agree to be subject to the Code ("Affiliates"). A listing of the Affiliates, which is periodically updated, is attached as Exhibit A. 2. Any officer, director or employee of any Company, Affiliate or Fund Client (as defined below) whose job regularly involves him in the investment process. This includes the formulation and making of investment recommendations and decisions, the purchase and sale of securities for clients and the utilization of information about investment recommendations, decisions and trades. Due to the manner in which the Companies and the Affiliates conduct their business, every employee should assume that he is subject to the Code unless the Compliance Officer specifies otherwise. 3. Any natural person who controls any of the companies, Affiliates or Fund Clients and who obtains information regarding the Companies' or the Affiliates' investment recommendations or decisions. However, a person whose control arises only as a result of his official position with such entity is excluded. Disinterested directors of Fund Clients, for example, are excluded from coverage under this item. 4. Any director, officer, general partner or person performing a similar function even if he has no knowledge of and is not involved in the investment process. Disinterested directors of Fund Clients and independent directors of Affiliates are included in coverage under this item. 5. As an exception, the Code does not apply to any director, officer or employee of any fund Client (such as certain of The Gabelli Westwood Funds) with respect to which the Companies' services do not involve the formulation or making of investment recommendations or decisions or the execution of portfolio transactions if that person is also a director, officer or employee of any entity that does perform such services (such as Westwood Management Corp.). These individuals are covered by codes of ethics adopted by such entities. (B) Definitions Page 2 of 19 1. Access Persons. The Companies and the persons described in items (A)2 and (A)3 above other than those excluded by item (A)5 above. 2. Access Person Account. Includes all advisory, brokerage, trust or other accounts or forms of direct beneficial ownership in which one or more Access Person and/or one or more members of an Access Person's immediate family have a substantial proportionate economic interest. Immediate family includes an Access Person's spouse and minor children living with the Access Person. A substantial proportionate economic interest will generally be 10% of the equity in the account in the case of an Access Person and 25% of the equity in the account in the case of all Access Persons in the aggregate whichever is first applicable. Investment partnerships and similar indirect means of ownership other than registered open-end investment companies are also treated as accounts. As an exception, accounts in which one or more Access Persons and/or their immediate family have a substantial proportionate interest which are maintained with persons who have no affiliation with the companies and with respect to which no Access Person has, in the judgment of the Compliance Officer after reviewing the terms and circumstances, any direct or indirect influence or control over the investment or portfolio execution process are not Access Person Accounts. As a further exception, subject to the provisions of Article II(I)7, bona fide market making accounts of Gabelli & Company are not Access Person Accounts. As a further exception, subject to the provisions of Article II(I)7, bona fide error accounts of the Companies and the Affiliates are not Access Person Accounts. 3. Associate Portfolio Managers. Access persons who are engaged in securities research and analysis for designated Clients or are responsible for investment recommendations for designated Clients but who are not particularly responsible for investment decisions with respect to any Client accounts. 4. Clients. Investment advisory accounts maintained with any of the Companies or Affiliates by any person, other than Access Person Accounts. However, Fund Clients covered by item (A)5 above are considered Client accounts only with respect to employees specifically identified by the Compliance Officer as having regular information regarding investment recommendations or decisions or portfolio transactions for such Fund Clients. 5. Companies. The companies named or described at the top of page one of the Code. Page 3 of 19 6. Compliance Officer. The persons designated as the compliance officers of the Companies. 7. Covered Persons. The Companies, the Access Persons and the persons described in item (A)4 above. 8. Fund Clients. Clients that are registered investment companies or series thereof. 9. Portfolio Managers. Access Persons who are principally responsible for investment decisions with respect to any Client accounts. 10. Security. Any financial instrument treated as a security for investment purposes and any related instrument such as futures, forward or swap contract entered into with respect to one or more securities, a basked of or an index of securities or components of securities. However, the term security does not include securities issued by the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, units of bank regulated commingled funds, or shares of registered open-end investment companies. II. Restrictions on Personal Investing Activities (A) Basic Restriction on Investing Activities If a purchase or sale order is pending or under active consideration for any Client account by any Company or Affiliate, neither the same Security nor any related Security (such as an option, warrant or convertible security) may be bought or sold for any Access Person Account. (B) Initial Public Offerings No Security or related Security may be acquired in an initial public offering for any Access Person Account. (C) Blackout Period No Security or related Security may be bought or sold for the account of any Portfolio Manager or Associate Portfolio Manager during the period commencing seven (7) days prior to and ending seven (7) calendar days after the purchase or sale (or entry of an order for the purchase or sale) of that Security or any related Security for the account of any Client with respect to which such person has been designated a Portfolio Manager or Associate Portfolio Manager, unless the Client account receives at least as good a price as the account of the Portfolio Manager or Associate Portfolio Manager and the Compliance Officer determines under the Page 4 of 19 circumstances that the Client account has not been adversely affected (including with respect to the amount of such Security able to be bought by the Client account) by the transaction for the account of the Portfolio Manager or Associate Portfolio Manager. (D) Short-term Trading No Security or related Security may, within a 60 day period, be bought and sold or sold and bought at a profit for any Access Person Account if the Security or related Security was held at any time during that period in any Client account. (E) Exempt Transactions Participation on an ongoing basis in an issuer's dividend reinvestment or stock purchase plan, participation in any transaction over which no Access Person had any direct or indirect influence or control, involuntary transactions (such as mergers, inheritances, gifts, etc.), and securities transactions processed for an Access Person account which has been formed for the sole purpose of product development are exempt from the restrictions set forth in paragraphs (A) and (C) above without case by case preclearance under paragraph (G) below: (F) Permitted Exceptions Purchases and sales of the following Securities for Access Person Accounts are exempt from the restrictions set forth in paragraphs A, C and D above if such purchases and sales comply with the preclearance requirements of paragraph (G) below: 1. Non-convertible fixed income Securities rated at least "A"; 2. Equity Securities of a class having a market capitalization in excess of $1 billion; 3. Equity Securities of a class having a market capitalization in excess of $500 million if the transaction in question and the aggregate amount of such Securities and any related Securities purchased and sold for the Access Person Account in question during the preceding 60 days does not exceed or 100 shares; 4. Municipal Securities; and 5. Securities transactions effected for federal, state or local income tax purposes that are identified to the Compliance Officer at the time as being effected for such purposes. In addition, the exercise of rights that were received pro rata with other security holders is exempt if the preclearance procedures are satisfied. Page 5 of 19 (G) Pre-Clearance of Personal Securities Transactions No Security may be bought or sold for an Access Person Account unless (i) the Access Person obtains prior approval from the Compliance Officer or, in the absence of the Compliance Officer, from a designee of the Compliance Officer; (ii) the approved transaction is completed on the same day approval is received; and (iii) the Compliance Officer does not rescind such approval prior to execution of the transaction (See paragraph I below for details of the Pre-Clearance Process.) (H) Private Placements The Compliance Officer will not approve purchases or sale of Securities that are not publicly traded, unless the Access Person provides full details of the proposed transaction (including written certification that the investment opportunity did not arise by virtue of such person's activities on behalf of any Client) and the Compliance Officer concludes, after consultation with one or more of the relevant Portfolio Managers, that the Companies would have no foreseeable interest in investing in such Security or any related Security for the account of any Client. (I) Pre-Clearance Process 1. No Security may be purchased or sold for any Access Person Account unless the particular transaction has been approved in writing by the Compliance Officer or, in his absence, a designee of the Compliance Officer. The Compliance Officer shall review not less frequently than weekly reports from the trading desk (or, if applicable, confirmations from brokers) to assure that all transactions effected for Access Person Accounts are effected in compliance with this Code. 2. No Securities may be purchased or sold for any Access Person Account other than through the trading desk of Southwest Securities Inc., unless express permission is granted by the Compliance Officer. Such permission may be granted only on the condition that the third party broker supply the Compliance Officer, on a timely basis, duplicate copies of confirmations of all personal Securities transactions for such Access Person in the accounts maintained with such third party broker and copies of periodic statements for all such accounts. 3. A Trading Approval Form, attached as Exhibit B, must be completed and submitted to the Compliance Officer for approval prior to entry of an order. 4. After reviewing the proposed trade and the level of potential investment interest on behalf of Clients in the Security in question, the Compliance Officer shall approve (or disapprove) a trading order on behalf of an Access Person as expeditiously as possible. The Compliance Officer will Page 6 of 19 generally approve transactions described in paragraph (F) above unless the compliance Officer believes for any reason that the Access Person Account should not trade in such Security at such time. 5. Once an Access Person's Trading Approval Form is approved, the form must be forwarded to the trading desk (or, if a third party broker is permitted, to the Compliance Officer) for execution on the same day. If the Access person's trading order request is not approved, or is not executed on the same day it is approved, the clearance lapses although such trading order request may be resubmitted at a later date. 6. In the absence of the Compliance officer, an Access Person may submit his or her Trading Approval Form to the CEO of Westwood Management Corp.. Trading approval for the Compliance Officer must be obtained from the CEO, and trading approval for the CEO msut be obtained from the Compliance Officer. In no case will the Trading Desk accept an order for an Access Person Account unless it is accompanied by a signed Trading Approval Form. 7. The Compliance Officer shall review all Trading Approval Forms, all initial, quarterly and annual disclosure certifications and the trading activities on behalf of all Client accounts with a view to ensuring that all Covered Persons are complying with the spirit as well as the detailed requirements of this Code. III. Other Investment-Related Restrictions (A) Gifts No Access person shall accept any gift or other item of more than $100 in value from any person or entity that does business with or on behalf of any Client. (B) Service As A Director No Access Person shall commence service on the Board of Directors of a publicly traded company or any company in which any Client account has an interest without prior authorization from the Compliance Officer based upon a determination that the Board service would not be inconsistent with the interests of the Clients. IV. Report and Additional Compliance Procedures (A) Every Covered Person, except independent directors of Affiliates of the Companies, must submit a report (a form of which is appended as Exhibit C) containing the information set forth in paragraph (B) below with respect to transactions in any Security in which such Covered Person has or by reason of such transactions acquires, any direct or indirect beneficial ownership (as defined Page 7 of 19 in Exhibit D) in the Security; and with respect to any account established by the Covered Person in which any Securities were held for the direct or indirect benefit of the covered Person; provided, however, that: 1. A Covered Person who is required to make reports only because he is a director of one of the Fund Clients and who is a "disinterested" director thereof need not make a report with respect to any transactions other than those where he knew or should have known in the course of his duties as a director that any Fund Client of which he is a director has made or makes a purchase or sale of the same or a related Security within 15 days before or after the purchase or sale of such Security or related Security by such director. 2. A Covered Person need not make a report with respect to any transactions effected for, and Securities held in, any account over which such person does not have any direct or indirect influence or control; and 3. A Covered Person will be deemed to have complied with the requirements of this Article IV insofar as the Compliance Officer receives in a timely fashion duplicate monthly or quarterly brokerage statements on which all transactions required to be reported hereunder are described. (B) A Covered Person must submit the report required by this Article to the Compliance Officer no later than 10 days after the end of the calendar quarter in which the transaction or account to which the report relates was effected or established, and the report must contain the date that the report is submitted. 1. A report must contain the following information: a. The date of the transaction, the title and number of shares and the principal amount of each Security involved; b. The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); c. The price at which the transaction was effected; and d. The name of the broker, dealer or bank with or through whom the transaction was effected. 2. This report must contain the following information with respect to accounts established: a. The name of the broker, dealer or bank with whom the account was established; and b. The date the account was established. Page 8 of 19 (C) Any report submitted to comply with the requirements of this Article IV may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect benefit ownership in the Security to which the report relates. A person need not make any report under this Article IV with respect to transaction effected for, and Securities held in, any account over which the person has no direct or indirect influence or control. (D) No later than 10 days after beginning employment with any of the Companies or Affiliates or otherwise becoming a Covered Person, each Covered Person (except for a "disinterested" director of the Fund Client who is required to submit reports solely by reason of being such a director) must submit a report containing the following information: 1. The title, number of shares and principal amount of each Security in which the Covered Person had any direct or indirect beneficial ownership when the person became a Covered Person; 2. The name of any broker, dealer or bank with whom the Covered Person maintained an account in which any Securities were held for the direct or indirect benefit of the Covered Person as of the date the person became a Covered Person; and 3. The date that the report is submitted. The form of such report is attached as Exhibit E. (E) Annually each Covered Person must certify that he has read and understood the Code and recognizes that he is subject to such Code. In addition, annually each Covered Person must certify that he has disclosed or reported all personal Securities transactions required to be disclosed or reported under the Code and that he is not subject to any regulatory disability described in the annual certification form. Furthermore, each Covered Person (except for a "disinterested" director of the Fund Client who is required to submit reports solely by reason of being such a director) annually must submit a report containing the following information (which information must be current as of a date no more than 30 days before the report is submitted): 1. The title, number of shares and principal amount of each Security in which the Covered Person had any direct or indirect beneficial ownership; 2. The name of any broker, dealer or bank with whom the Covered Person maintains an account in which any Securities are held for the direct or indirect benefit of the Covered Person; and 3. The date that the report is submitted. Page 9 of 19 The form of such certification and report is attached as Exhibit F. (F) At least annually (or quarterly in the case of Items 4 and 5 below), each of the Companies that has a Fund Client or that provides principal underwriting services for a Fund Client shall, together with each Fund Client, furnish a written report tot ht Board of Directors of the Fund Client that: 1. Describes any issues arising under the Code since the last report. 2. Certifies that Companies have developed procedures concerning Covered Persons' personal trading activities and reporting requirements relevant to such Fund Clients that are reasonably necessary to prevent violations of the Code; 3. Recommends changes, if any, to the Fund Clients' or the Companies' Codes of Ethics or procedures; 4. Provided a summary of any material or substantive violations of this Code by Covered Persons with respect to such Fund Clients which occurred during the past quarter and the nature of any remedial action taken; and 5. Describes any material or significant exceptions to any provisions of this code of Ethics as determined under Article VI below. (G) The Compliance Officer shall notify each employee of any of the Companies or Affiliates as to whether such person is considered to be an Access Person or Covered Person and shall notify each other that is considered to be an Access Person or Covered Person. V. Sanctions Upon discovering that a Covered Person has not complied with the requirements of this Code, the Board of Directors of the relevant Company or of the relevant Fund Client, whichever is most appropriate under the circumstances, may impose on that person whatever sanctions the Board deems appropriate, including, among other things, disgorgement of profit, censure, suspension or termination of employment. Material violations of requirements of this Code by employees of Covered Persons and any sanctions imposed in connection therewith shall be reported not less frequently than quarterly to the Board of Directors of any relevant Company or Fund Client, as applicable. VI. Exceptions Page 10 of 19 The Compliance Committee of the Companies reserves the right to decide, on a case-by-case basis, exceptions to any provisions under this Code. Any exceptions made hereunder will be maintained in writing by the Compliance Committee and presented to the Board of Directors of any relevant Fund Client at its next scheduled meeting. VII. Preservation of Documents This Code, a copy of each report by a Covered Person, any written report made hereunder by the Companies or the Compliance Officer, lists of all persons required to make reports, a list of any exceptions, and the reasons therefore, with respect to Article II.B, and any records under Article II.G with respect to purchases pursuant to Article II.H above, shall be preserved with the records of the relevant Company and any relevant Fund Client for the period required by Rule 17j-1. VIII. Other Laws, Rules and Statements of Policy Nothing contained in this Code shall be interpreted as relieving any Covered Person from acting in accordance with the provision of any applicable law, rule or regulation or any other statement of policy or procedure governing the conduct of such person adopted by the Companies, the Affiliates or the Fund Clients. IX. Future Information If any person has any question with regard to the applicability of the provisions of this Code generally or with regard to any Securities transaction or transactions, he should consult the Compliance Officer. Page 11 of 19 Exhibit A LIST OF AFFILIATES OF THE COMPANIES Southwest Securities, Inc. Mydiscountbroker.com, Inc. SW Capital Corporation SWS Financial Services, Inc. SWS Technologies Corporation Westwood Trust Gabelli Westwood Equity Fund Gabelli Westwood Balanced Fund Gabelli Westwood Cash Management Fund Gabelli Westwood SmallCap Fund Gabelli Westwood Realty Fund Page 12 of 19 Exhibit B PRE-CLEARANCE TRADING APPROVAL FORM I, __________________________________________________(name), am an Access Person and seek pre-clearance to engage in the transaction described below: Acquisition or Disposition (circle one) Name of Account: ______________________________________________ Account Number: ______________________________________________ Date of Request: ______________________________________________ Security: ______________________________________________ Amount or # of Shares: ______________________________________________ Broker: ______________________________________________ If the transaction involves a Security that is not publicly traded, a description of proposed transaction, source of investment opportunity and any potential conflicts of interest: I hereby certify that, to the best of my knowledge, the transaction described herein is not prohibited by the Code of Ethics and that the opportunity to engage in the transaction did not arise by virtue of my activities on behalf of any Client. Signature: _________________________ Print Name: ________________________ Approved or Disapproved (circle one) Date of Approval _____________________________ Signature:_________________________ Print Name:_________________________ Compliance Officer Approval:______________________________ If approval is granted, please forward this form to the trading desk (or if a third party broker is permitted, to the Compliance Officer) for immediate execution. Page 13 of 19 Exhibit C TRANSACTION REPORT Report Submitted by: ________________________________________________ Print Your Name This transaction report (the "Report") is submitted pursuant to Section IV(B) of the Code of Ethics of the Companies and supplies information with respect to transactions in any Security in which you may be deemed to have, or by reason of such transaction acquire, any direct or indirect beneficial ownership interest, and with respect to accounts established by you in which any Securities were held for your direct or indirect benefit, for the period specified below. If you were not employed by or affiliated with us during this entire period, amend the dates specified below to cover your period of employment. Unless the context otherwise requires, all terms used in the Report shall have the same meaning as set forth in the Code of Ethics. If you have no reportable transactions or new accounts, sign and return this page only. If you have reportable transactions or new accounts, complete, sign and return page 2 and any attachments. I HAD NO REPORTABLE SECURITIES TRANSACTIONS DURING THE PERIOD _____________________ THROUGH ______________________. I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT TO THE BEST OF MY KNOWLEDGE THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT. Signature: ___________________________________ Position: ___________________________________ Date: ___________________________________ Page 14 of 19 Page 2 TRANSACTION REPORT Report Submitted by: __________________________________________________ Print Your Name The following tables supply the information required by Section IV(B) of the Code of Ethics for the period specified below. Transactions reported on brokerage statements or duplicate confirmations actually received by the Compliance Officer do not have to be listed although it is your responsibility to make sure that such statements or confirmations are complete and have been received in a timely fashion. TRANSACTIONS - --------------------------------------------------------------------------------
Whether Name of the Purchase, Sale, Broker/Dealer Short Sale, or with or through Securities Other Type of Price Per whom the Nature of (Name and Date of Disposition or Quantity of Share or Transaction Ownership of Symbol) Transaction Acquisition Securities Other Unit was Effected Securities ------- ----------- ----------- ---------- ---------- ------------ ----------
NEW ACCOUNTS ESTABLISHED - --------------------------------------------------------------------------------
Name of Broker, Dealer or Bank Account Number Date Account Established - ------------------------------ -------------- ------------------------
To the extent specified above, I hereby disclaim beneficial ownership of any security listed in this Report or in brokerage statements or transaction confirmations provided by me. I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT TO THE BEST OF MY KNOWLEDGE THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT FOR THE PERIOD OF __________________________ THROUGH __________________________. Signature: __________________________ Date: ____________________ Position: __________________________ Page 15 of 19 Exhibit D BENEFICIAL OWNERSHIP For purposes of the attached Code of Ethics, "beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except the determination of direct or indirect beneficial ownership shall apply to all securities that a Covered Person has or acquires. The term "beneficial ownership" of securities would include not only ownership of securities held by a Covered Person for his own benefit, whether in bearer form or registered in his name or otherwise, but also ownership of securities held for his benefit by other (regardless of whether or how they are registered) such as custodians, brokers, executors, administrators, or trustees (including trusts in which he has only a remainder interest), and securities held for his account by pledges, securities owned by a partnership in which he is a member if he may exercise a controlling influence over the purchase, sale or voting of such securities, and securities owned by any corporation or similar entity in which he owns securities if the shareholder is a controlling shareholder of the entity and has or shares investment control over the entity's portfolio. Ordinarily, this term would not include securities held by executors or administrators of estates in which a Covered Person is a legatee or beneficiary unless there is a specified legacy to such person of such securities or such person is the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such legacy, or the securities are held in the estate more than a year after the decedent's death. Securities held in the name of another should be considered as "beneficially" owned by a Covered Person where such person enjoys "financial benefits substantially equivalent to ownership." The Securities and Exchange Commission has said that although the final determination of beneficial ownership is a question to be determined in the light of the facts of the particular case, generally a person is regarded as the beneficial owner of securities held in the name of his or her spouse and their minor children. Absent special circumstances such relationship ordinarily results in such person obtaining financial benefits substantially equivalent to ownership, e.q., application of the income derived from such securities to maintain a common home, or to meet expenses that such person otherwise would meet from other sources, or the ability to exercises a controlling influence over the purchase, sale or voting of such securities. A Covered Person also may be regarded as the beneficial owner of securities held in the name of another person, if by reason of any contract, understanding, relationship, agreement, or other agreement, he obtains therefrom financial benefits substantially equivalent to those of ownership. A Covered Person also may be regarded as the beneficial owner of securities held in the name of a spouse, minor children or other person, even though he does not obtain therefrom the aforementioned benefits of ownership, if he can vest or revest title in himself at once or at some future time. Page 16 of 19 Exhibit E INITIAL HOLDINGS REPORT Report submitted by:____________________________________________________________ Print Name This initial holdings report (the "Report") is submitted pursuant to Section IV (D) of the Code of Ethics of the Companies and supplies information with respect to any Security in which you may be deemed to have any direct or indirect beneficial ownership interest and any accounts established by you in which any Securities were held for your direct or indirect benefit, as of the date you became subject to the Code of Ethics. Unless the context otherwise requires, all terms used in the Report shall have the same meaning as set forth in the Code of Ethics. If you have no reportable Securities or accounts, sign and return this page only. If you have reportable Securities or accounts, complete, sign and return Page 2 and any attachments. I HAVE NO REPORTABLE SECURITIES OR ACCOUNTS AS OF ____________________. I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT. Signature:______________________________ Position:_______________________________ Date: __________________________________ Page 17 of 19 Page 2 INITIAL HOLDINGS REPORT Report submitted by:____________________________________________________________ Print Name The Following tables supply the information required by Section IV (D) of the Code of Ethics as of the date you became subject to the Code. SECURITIES HOLDINGS - --------------------------------------------------------------------------------
Name of Broker/Dealer Nature of Ownership of Securities (Name and Symbol) Quantity of Securities Where Securities Are Held Securities - ---------------------------- ---------------------- ------------------------- ----------
ACCOUNTS - --------------------------------------------------------------------------------
Name of Broker, Dealer or Bank Account Number - ------------------------------ --------------
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT AS OF __________________________________________. Signature:______________________________ Position:_______________________________ Date: __________________________________ Page 18 of 19 Exhibit F ANNUAL CERTIFICATION OF CODE OF ETHICS A. I (a Covered Person) hereby certify that I have read and understand the Code of Ethics dated February 15, 2000, and recognize that I am subject to its provisions. In addition, I hereby certify that I have disclosed or reported all personal Securities transactions required to be disclosed or reported under the Code of Ethics; B. Within the last ten years there have been no complaints or disciplinary actions filed against me by any regulated securities or commodities exchange, any self-regulatory securities or commodities organization, any attorney general, or any governmental office or agency regulating insurance securities, commodities or financial transactions in the United States, in any state of the United States, or in any other country; C. I have not within the last ten years been convicted of or acknowledged commission of any felony or misdemeanor arising out of my conduct as an employee, salesperson, officer, director, insurance agent, broker, dealer, underwriter, investment manager or investment advisor; and D. I have not been denied permission or otherwise enjoined by order, judgment or decree of any court of competent jurisdiction, regulated securities or commodities exchange, self-regulatory securities or commodities organization or other federal or state regulatory authority from acting as an investment advisor, securities or commodities broker or dealer, commodity pool operator or trading advisor, or as an affiliated person or employee of any investment company, bank, insurance company or commodity broker, dealer, pool operator or trading advisor, or from engaging in or continuing any conduct or practice in connection with any such activity or the purchase or sale of any security. E. Unless I am exempt from filing an Annual Holdings Report (as a "disinterested" director of a Fund Client or an independent director of an Affiliate. I have attached a completed Annual Holdings Report which is accurate as of a date no more than 30 days ago. Signature: ___________________________ Print Name: ___________________________ Date: ___________________________ Page 19 of 19 -----END PRIVACY-ENHANCED MESSAGE-----