As filed with the Securities and Exchange Commission on May __, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
PAINEWEBBER AMERICA FUND
(Exact Name of Registrant as Specified in Charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of Principal Executive Offices)
(212) 713-2000
(Registrant's Area Code and Telephone Number)
GREGORY K. TODD, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and Address of Agent for Service)
Copies to:
Arthur J. Brown, Esq.
Rebecca H. Laird, Esq.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as
practicable after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite
amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Accordingly, no filing fee is payable
herewith. The Registrant filed on October 28, 1994, the notice
required by Rule 24f-2 for its fiscal year ended August 31, 1994.
It is proposed that this filing will become effective on June __,
1995 pursuant to Rule 488.
PAINEWEBBER AMERICA FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and
documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Letters to Shareholders
Notices of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Pages
Exhibits
PAINEWEBBER AMERICA FUND
Form N-14 Cross Reference Sheet
Part A Item No. Prospectus/proxy
And Caption Statement Caption
--------------- -----------------
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
3. Synopsis Information and Synopsis; Comparison of
Risk Factors Principal Risk Factors
4. Information About the Synopsis; The Proposed
Transaction Transaction
5. Information About the Synopsis; Comparison of
Principal Risk Factors;
See also, the Prospectus
of PaineWebber Growth
and Income Fund previously
filed on EDGAR, Accession
Number: 0000950109-95-001701
6. Information About the Synopsis; Comparison of
Company Being Acquired Principal Risk Factors;
See also, the Prospectus
of PaineWebber Global
Energy Fund previously
filed on EDGAR, Accession
Number: 0000950109-95-000498
and Prospectus of Mitchell
Hutchins/Kidder, Peabody Equity
Income Fund Inc. previously filed
on EDGAR, Accession
Number: 0000950117-95-000173
7. Voting Information Voting Information
8. Interest of Certain Persons Not Applicable
and Experts
9. Additional Information Not Applicable
Required for Reoffering by
Persons Deemed to be
Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
-------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About Statement of Additional
the Registrant Information of PaineWebber
America Fund, previously
filed on EDGAR, Accession
Number: 0000950109-95-001701
13. Additional Information About Statements of Additional
the Company Being Acquired Information of PaineWebber
Global Energy Fund, previously
filed on EDGAR, Accession
Number: 0000950109-95-000498,
and Mitchell Hutchins/Kidder,
Peabody Equity Income Fund,
Inc., previously filed on
EDGAR, Accession
Number: 0000950117-95-000173
14. Financial Statements Annual Reports of
PaineWebber Growth and
Income Fund for Fiscal Year
Ended August 31, 1994;
PaineWebber Global Energy
Fund for Fiscal Year Ended
October 31, 1994; and
Mitchell Hutchins/Kidder,
Peabody Equity Income Fund,
Inc. for Fiscal Year Ended
January 31, 1995
Semi-Annual Report of
PaineWebber Growth and
Income Fund for Six Months
Ended February 28, 1995
Pro Forma Financial
Statements for the Twelve Months
Ended February 28, 1995
PART C
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C of this
Registration Statement.
PAINEWEBBER GLOBAL ENERGY FUND
(a series of Painewebber Investment Series)
June , 1995
Dear Shareholder:
The attached proxy materials describe a proposal that PaineWebber Global
Energy Fund ("Global Energy Fund") reorganize and become part of PaineWebber
Growth and Income Fund ("Growth and Income Fund"). If the proposal is
approved and implemented, each shareholder of Global Energy Fund automatically
would become a shareholder of Growth and Income Fund. Global Energy Fund is a
series of PaineWebber Investment Series. Growth and Income Fund is a series of
PaineWebber America Fund, a professionally managed, open-end investment
company organized as a Massachusetts business trust.
Your board of trustees recommends a vote FOR the Reorganization Proposal.
The board believes that combining the Funds will benefit Global Energy Fund's
shareholders by providing them with a portfolio that has an investment objective
similar to the investment objective of Global Energy Fund and will have lower
operating expenses as a percentage of net assets. The attached materials
provide more information about the proposed reorganization and the Funds
involved.
Your vote is important no matter how many shares you own. Voting your
shares early will permit the Global Energy Fund to avoid costly follow-up mail
and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very Truly Yours,
MARGO N. ALEXANDER
President, PaineWebber Investment Series
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
June , 1995
Dear Shareholder:
The attached proxy materials describe a proposal that Mitchell
Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund")
reorganize and become part of PaineWebber Growth and Income Fund ("Growth and
Income Fund"). If the proposal is approved and implemented, each shareholder
of Equity Income Fund automatically would become a shareholder of Growth and
Income Fund. Equity Income Fund is an open-end investment company organized
as a Maryland corporation. Growth and Income Fund is a series of PaineWebber
America Fund, a professionally managed, open-end investment company organized
as a Massachusetts business trust.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE REORGANIZATION
PROPOSAL. The board believes that combining the Funds will benefit Equity
Income Fund's shareholders by providing them with a portfolio that has an
investment objective similar to the investment objective of Equity Income Fund
and that will have lower operating expenses as a percentage of net
assets for Class A and Class B shares. The attached materials provide more
information about the proposed reorganization and the Funds involved.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit Equity Income Fund to avoid costly follow-up mail
and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very Truly Yours,
MARGO N. ALEXANDER
President, Mitchell Hutchins/Kidder, Peabody
Equity Income Fund, Inc.
PAINEWEBBER GLOBAL ENERGY FUND
(A SERIES OF PAINEWEBBER INVESTMENT SERIES)
----------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
August 4, 1995
----------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of PaineWebber Global Energy
Fund ("Global Energy Fund"), a series of PaineWebber Investment Series, will
be held on August 4, 1995, at 10:00 a.m. eastern time, at 1285 Avenue of the
Americas, 38th Floor, Room [ ], New York, New York 10019, for the
following purposes:
(1) To approve an Agreement and Plan of Reorganization and Termination
under which PaineWebber Growth and Income Fund ("Growth and Income Fund"),
a series of PaineWebber America Fund, would acquire the assets of Global
Energy Fund in exchange solely for shares of beneficial interest in Growth and
Income Fund and the assumption by Growth and Income Fund of Global Energy
Fund's liabilities followed by the distribution of those shares to the
shareholders of Global Energy Fund as described in the accompanying
prospectus/proxy statement; and
(2) To transact such other business as may properly come before the Meeting
or any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of Global Energy Fund at the close of business on June 19, 1995.
If you attend the Meeting, you may vote your shares in person. If you do not
expect to attend the Meeting, please complete, date, sign and return the
enclosed proxy card in the enclosed postage paid envelope.
By order of the
board of trustees,
DIANNE E. O'DONNELL
Secretary
June , 1995
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, date
and sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expenses to
Global Energy Fund of further soliciation, we ask your cooperation in mailing in
your proxy card promptly. Unless proxy cards submitted by corporations and
partnerships are signed by the appropriate persons as indicated in the voting
instructions on the proxy card, they will not be voted.
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
----------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
August 4, 1995
----------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of Mitchell Hutchins/Kidder,
Peabody Equity Income Fund, Inc. ("Equity Income Fund") will be held on
August 4, 1995, at 10:00 a.m. eastern time, at 1285 Avenue of the Americas,
38th Floor, Room [ ], New York, New York 10019, for the following purposes:
(1) To approve an Agreement and Plan of Reorganization and Liquidation
under which Paine Webber Growth and Income Fund ("Growth and Income Fund"),
a series of PaineWebber America Fund, would acquire the assets of Equity
Income Fund in exchange solely for shares of beneficial interest in Growth
and Income Fund and the assumption by Growth and Income Fund of Equity Income
Fund's liabilities followed by the distribution of those shares to the
shareholders of Equity Income Fund as described in the accompanying
prospectus/proxy statement; and
(2) To transact such other business as may properly come before the Meeting
or any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of Equity Income Fund at the close of business on June 19, 1995.
If you attend the Meeting, you may vote your shares in person. If you do not
expect to attend the Meeting, please complete, date, sign and return the
enclosed proxy card in the enclosed postage paid envelope.
By order of the
board of directors,
DIANNE E. O'DONNELL
Secretary
June , 1995
1285 Avenue of the Americas
New York, New York 10019
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, date
and sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expenses to
Global Energy Fund of further soliciation, we ask your cooperation in mailing in
your proxy card promptly. Unless proxy cards submitted by corporations and
partnerships are signed by the appropriate persons as indicated in the voting
instructions on the proxy card, they will not be voted.
PAINEWEBBER GROWTH AND INCOME FUND
(a series of Painewebber America Fund)
PAINEWEBBER GLOBAL ENERGY FUND
(a series of Painewebber Investment Series)
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY
INCOME FUND, INC.
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
Prospectus/Proxy Statement
June , 1995
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of PaineWebber Global Energy Fund ("Global Energy Fund"), a
series of PaineWebber Investment Series ("Investment Series"), and Mitchell
Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") (each
an "Acquired Fund" and collectively, the "Acquired Funds"), in connection with
the solicitation of proxies by Investment Series's board of trustees and Equity
Income Fund's board of directors for use at a combined special meeting of
shareholders of the Acquired Funds, to be held on August 4, 1995, at 10:00
a.m., eastern time, and at any adjournment thereof ("Meeting").
As more fully described in this Proxy Statement, the purpose of the
Meeting is to vote on two proposed reorganizations (each a "Reorganization").
In each Reorganization, PaineWebber Growth and Income Fund ("Growth and
Income Fund"), a series of PaineWebber America Fund, would acquire the assets
of an Acquired Fund in exchange solely for shares of beneficial interest in
Growth and Income Fund and the assumption by Growth and Income Fund of that
Acquired Fund's liabilities. Growth and Income Fund shares then would be
distributed to that Acquired Fund's shareholders, by class, so that each such
shareholder would receive a number of full and fractional shares of the
applicable class of Growth and Income Fund having an aggregate value that, on
the effective date of the Reorganization, is equal to the aggregate net asset
value of the shareholder's shares of the corresponding class in the Acquired
Fund. As soon as practicable following these distributions, Global Energy
Fund will be terminated and Equity Income Fund will be liquidated.
Growth and Income Fund is a diversified series of the PaineWebber America
Fund, which is an open-end management investment company. Growth and Income
Fund's investment objective is to achieve current income and capital
growth. It seeks to achieve its investment objective by investing primarily
in dividend-paying equity securities believed by Mitchell Hutchins Asset
Management Inc. to have the potential for rapid earnings growth; stocks are
selected through a disciplined methodology that utilizes quantitative measures
of value, earnings and price momentum, as well as fundamental analysis.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about each Reorganization and Growth and
Income Fund that a shareholder should know before voting. This Proxy
Statement is accompanied by the Prospectus of Growth and Income Fund dated
May 12, 1995, and by its Annual Report to Shareholders for the fiscal year
ended August 31, 1994, which are incorporated by reference into this Proxy
Statement. A Statement of Additional Information dated May 12, 1995,
including historical financial statements, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by this reference.
Prospectuses of Global Energy Fund, dated March 1, 1995, and Equity Income
Fund, dated [June 1, 1995], and Statements of Additional Information also
dated March 1, 1995 and [June 1, 1995], respectively, have been filed with the
SEC and are incorporated herein by this reference. Copies of these documents
as well as each Fund's annual report or semi-annual report, if applicable,
may be obtained free of charge by contacting your PaineWebber Incorporated
("PaineWebber") investmentexecutive or PaineWebber's correspondent firms or by
calling toll-free 1-800-647-1568.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 1
APPROVAL OF THE REORGANIZATIONS. . . . . . . . . . . . . . . . . 3
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
COMPARISON OF PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . 17
THE PROPOSED TRANSACTIONS . . . . . . . . . . . . . . . . . . . 19
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix A - Agreement and Plan of Reorganization
and Termination Involving Global Energy Fund . . . 28
Appendix B - Agreement and Plan of Reorganization
and Liquidation Involving Equity Income Fund . . . 49
PAINEWEBBER GLOBAL ENERGY FUND
(a series Of Painewebber Investment Series)
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
----------------------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
to be held on
August 4, 1995
----------------------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of PaineWebber Global Energy Fund ("Global Energy Fund"), a
series of PaineWebber Investment Series ("Investment Series"), and Mitchell
Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") (each
an "Acquired Fund" and collectively, the "Acquired Funds"), in connection with
the solicitation of proxies by the board of trustees of Investment Series and
board of directors of Equity Income Fund for use at a combined special meeting
of shareholders of the Acquired Funds to be held on August 4, 1995, at 10:00
a.m. eastern time, and at any adjournment thereof ("Meeting"). This Proxy
Statement will first be mailed to shareholders on or about June , 1995.
At least one-third of the shares of Equity Income Fund and a majority of
shares of Global Energy Fund outstanding on June 19, 1995, represented in
person or by proxy, must be present for the transaction of business by that
Acquired Fund at the Meeting. If, with respect to either Acquired Fund, a
quorum is not present at the Meeting or a quorum is present but sufficient
votes to approve the proposal are not received, the persons named as proxies
may propose one or more adjournments of the Meeting with respect to that
Acquired Fund to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of those shares of the
Acquired Fund represented at the Meeting in person or by proxy. The persons
named as proxies will vote those proxies that they are entitled to vote FOR
any such proposal in favor of such an adjournment and will vote those proxies
required to be voted AGAINST any such proposal against such adjournment. A
shareholder vote may be taken on one or more of the proposals in this Proxy
Statement prior to any such adjournment if sufficient votes have been received
and it is otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners
or other persons entitled to vote and the broker does not have discretionary
voting authority. Abstentions and broker non-votes will be counted as shares
present for purposes of determining whether a quorum is present but will not
be voted for or against any adjournment or proposal. Accordingly, abstentions
and broker non-votes effectively will be a vote against adjournment or against
any proposal where the required vote is a percentage of the shares present or
outstanding. Abstentions and broker non-votes will not be counted, however,
as votes cast for purposes of determining whether sufficient votes have been
received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your direction as indicated thereon if your proxy card is
received properly executed by you or your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval
of the Agreement and Plan of Reorganization and Termination/Liquidation dated
as of May 30, 1995 (each a "Reorganization Plan") that involves your Acquired
Fund, attached to this Proxy Statement as Appendices A and B. Under each
Reorganization Plan, PaineWebber Growth and Income Fund ("Growth and Income
Fund"), a series of PaineWebber America Fund ("America Fund"), would acquire
the assets of an Acquired Fund in exchange solely for shares of beneficial
interest in Growth and Income Fund and the assumption by Growth and Income
Fund of that Acquired Fund's liabilities; those shares then would be
distributed to that Acquired Fund's shareholders. (Each of these transactions
is referred to herein as a "Reorganization.") After completion of a
Reorganization, the participating Acquired Fund will be terminated (in the
case of Global Energy Fund) or liquidated (in the case of Equity Income Fund).
In addition, if you sign, date and return the enclosed voting card, but
give no voting instructions, the duly appointed proxies may, in their
discretion, vote upon such other matters as may come before the Meeting. The
proxy card may be revoked by giving another proxy or by letter or telegram
revoking such proxy. To be effective, such revocation must be received by
Investment Series or Equity Income Fund, as applicable, prior to the Meeting
and must indicate your name and account number. In addition, if you attend
the Meeting in person you may, if you wish, vote by ballot at the Meeting
thereby canceling any proxy previously given.
As of the record date, June 19, 1995 ("Record Date"), Global Energy Fund
had ____________ shares of beneficial interest outstanding, consisting of
_____ Class A shares, _____ Class B shares and _____ Class D shares. As of
the Record Date, Equity Income Fund had ___________ shares outstanding,
consisting of _____ Class A shares, _____ Class B shares and _____ Class C
shares. The solicitation of proxies, the cost of which will be borne by
Growth and Income Fund, Global Energy Fund and Equity Income Fund (each a
"Fund" and collectively, the "Funds") in proportion to their respective net
assets, will be made primarily by mail but also may include telephone or oral
communications by representatives of Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins") who will not receive any compensation therefor from the
Funds, or by Shareholder Communications Corporation, professional proxy
solicitors retained by the Acquired Funds, who will be paid fees and expenses
of up to approximately $10,000 for soliciting services. Management does not
know of any person who owns beneficially 5% or more of the shares of Global
Energy Fund or Equity Income Fund. Trustees and officers of Investment Series
and directors and officers of Equity Income Fund own in the aggregate less
than 1% of the shares of their respective Funds.
Summarized below are the proposals the shareholders of each Acquired Fund
are being asked to consider:
FUND PROPOSAL
---- --------
Global Energy 1. To approve a Reorganization Plan.
Equity Income 2. To approve a Reorganization Plan.
For voting purposes, the shareholders of each Acquired Fund will vote only
on the Reorganization Plan applicable to it. Approval of a Reorganization
Plan and consummation of the transactions contemplated thereby for one
Acquired Fund do not depend on the approval of the other Reorganization Plan
by the other Acquired Fund's shareholders and consummation of the transactions
contemplated thereby. With respect to Global Energy Fund, approval of the
Reorganization Plan requires the affirmative vote of a "majority of the
outstanding voting securities" thereof. As defined in the Investment Company
Act of 1940 ("1940 Act"), "majority of the outstanding voting securities"
means the lesser of (1) 67% of Global Energy Fund's shares present at a
meeting of shareholders if the owners of more than 50% of that Acquired Fund's
shares then outstanding are present in person or by proxy, or (2) more than
50% of that Acquired Fund's outstanding shares. Under Maryland law and Equity
Income Fund's Amended and Restated Articles of Incorporation, the affirmative
vote of a majority of the outstanding shares of Equity Income Fund entitled to
vote at the Meeting is required to approve the Reorganization. If a
Reorganization Plan is not approved by the requisite vote of the shareholders
of the involved Acquired Fund, such Acquired Fund will continue to operate as
a separate entity. Each full outstanding share of each Acquired Fund is
entitled to one vote, and each oustanding fractional share of each Acquired
Fund is entitled to a proportionate share of one vote. Although the
shareholders of the Acquired Funds may exchange or redeem out of the Fund,
they do not have appraisal rights which may be accorded to shareholders of
corporations that propose similar types of reorganizations under the laws of
some states.
2
APPROVAL OF THE REORGANIZATIONS
SYNOPSIS
The following is a summary of certain information contained elsewhere in this
Proxy Statement, the prospectuses of each Fund, which are incorporated herein by
reference, and the Reorganization Plans. Shareholders should read the entire
Proxy Statement and the Prospectus of Growth and Income Fund carefully. As
discussed more fully below, Investment Series's board of trustees and Equity
Income Fund's board of directors believe that the Reorganizations will benefit
their respective Acquired Funds' shareholders. Growth and Income Fund has an
investment objective similar to the investment objective of each Acquired Fund,
although its investment strategy may differ from the Acquired Funds' investment
strategies in some respects. It is anticipated that, following the
Reorganizations, the Acquired Funds' shareholders will, as shareholders of
Growth and Income Fund, be subject to lower total operating expenses as a
percentage of net assets.
The Reorganizations
Investment Series's board of trustees and Equity Income Fund's board of
directors each has approved a Reorganization Plan with respect to its Acquired
Fund at meetings helds on April 28, 1995 and April 26, 1995, respectively. Each
Reorganization Plan provides for the acquisition by Growth and Income Fund of
the assets of an Acquired Fund in exchange solely for Class A, Class B and Class
D shares of Growth and Income Fund and the assumption by Growth and Income Fund
of the liabilities of the Acquired Fund. Each Acquired Fund then will
distribute the Growth and Income Fund shares to its shareholders, by class, so
that each shareholder will receive the number of full and fractional shares of
the class of Growth and Income Fund that corresponds most closely in terms of
fees and other characteristics ("Corresponding Class") and that is equal in
value to such shareholder's holdings in the Acquired Fund as of the Closing Date
(defined below). Global Energy Fund then will be terminated, and Equity Income
Fund then will be liquidated, as soon as practicable thereafter.
The exchange of each Acquired Fund's assets for Growth and Income Fund
shares and Growth and Income Fund's assumption of each Acquired Fund's
liabilities will occur at or as of 4:00 p.m., eastern time, on August 11,
1995, or such later date as the conditions to any such closing are satisfied
("Closing Date").
Growth and Income Fund currently offers for sale four classes of shares (each
a "Class" and collectively, "Classes"), designated as Class A, Class B, Class C
and Class D shares. Growth and Income Fund will issue only Class A, Class B and
Class D shares in exchange for an Acquired Fund's assets, and Class C shares
will not be issued.
Global Energy Fund has three classes of shares, designated as Class A, Class B
and Class D shares; Equity Income Fund has three classes of shares, designated
as Class A, Class B and Class C shares. In connection with the Reorganizations,
(1) shareholders of Class A, Class B and Class D shares of Global Energy Fund
will receive Class A, Class B and Class D shares, respectively, of Growth and
Income Fund, and (2) shareholders of Class A, Class B and Class C shares of
Equity Income Fund will receive Class A, Class D and Class A shares,
respectively, of Growth and Income Fund. Former Class C shareholders of Equity
Income Fund will, as a result of the conversion of their shares into Class A
shares of Growth and Income Fund, pay the service fees of 0.25% of average net
assets paid by such Class A shares. In addition, the average expense ratio
for Class C will increase slightly. See "Comparative Fee Tables -- Example of
Effect of Fund Expenses, page 8."
3
The following table shows which class of shares of Growth and Income Fund
will be received by each class of an Acquired Fund:
Global Energy Fund Growth and Income Fund
------------------ ----------------------
Class A Class A
Class B Class B
Class D Class D
Equity Income Fund Growth and Income Fund
------------------ ----------------------
Class A Class A
Class B Class D
Class C Class A
For the reasons set forth below under "The Proposed Transactions -- Reasons
for the Reorganizations," Investment Series's board of trustees (with respect to
Global Energy Fund) and Equity Income Fund's board of directors, including the
trustees or directors who are not "interested persons," as that term is defined
in the 1940 Act, of America Fund, or Investment Series or Equity Income Fund, as
applicable ("Independent Persons"), have concluded, in each instance, that the
Reorganization is in the best interests of the participating Acquired Fund, that
the terms of the Reorganization are fair and reasonable and that the interests
of such Acquired Fund's shareholders will not be diluted as a result of the
Reorganization. Accordingly, each board recommends approval of the
Reorganizations. In addition, the board of trustees of America Fund, including
its Independent Persons, has concluded that the Reorganizations are in the best
interests of Growth and Income Fund, that the terms of the Reorganizations are
fair and reasonable and that the interests of Growth and Income Fund's
shareholders will not be diluted as a result of the Reorganizations.
COMPARATIVE FEE TABLES
Reorganization of Global Energy Fund into Growth and Income Fund
The following table shows (i) the shareholder transaction expenses currently
incurred by the Class A, Class B and Class D shares of Global Energy Fund and
Growth and Income Fund and the shareholder transaction expenses that each such
Class will incur after giving effect to the Reorganization and (ii) the current
fees and expenses incurred by the Class A, Class B and Class D shares of Global
Energy Fund and Growth and Income Fund for the fiscal years ended October 31,
1994 and August 31, 1994, respectively, and pro forma fees for Growth and Income
Fund's Class A, Class B and Class D shares after giving effect to the
Reorganization.
4
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Global Energy Fund Growth and Income Fund Combined Fund
Class A Class B Class D Class A Class B Class D Class A Class B Class D
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales
Charge (as a
percentage of
public offering
price) 4.5% None None 4.5% None None 4.5% None None
Exchange fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Maximum contin-
gent deferred
sales charge
(as a percen-
tage of
redemption
proceeds None 5% None None 5% None None 5% None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Global Energy Fund Growth and Income Fund Combined Fund
For Fiscal Year Ended 10/31/94 For Fiscal Ended 8/31/94 Estimated
Class A Class B Class D Class A Class B Class D Class A Class B Class D
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fees 0.85% 0.85% 0.85% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
12b-1
Expenses1/ 0.25% 1.00% 1.00% 0.23%2/ 1.00% 1.00% 0.23% 1.00% 1.00%
Other
Expenses 0.89% 0.97% 0.89% 0.27% 0.27% 0.24% 0.27% 0.28% 0.29%
Total Fund
Operating
Expenses3/ 1.99% 2.82% 2.74% 1.20% 1.97% 1.94% 1.20% 1.98% 1.99%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
5
1/ 12b-1 fees for Global Energy Fund have two components, as follows:
Class A Class B Class D
------- ------- -------
12b-1 service fee.............. 0.25% 0.25% 0.25%
12b-1 distribution fee......... 0.00% 0.75% 0.75%
12b-1 fees for Growth and Income Fund have two components, as follows:
Class A Class B Class D
------- ------- -------
12b-1 service fee............... 0.23% 0.25% 0.25%
12b-1 distribution fee.......... 0.00% 0.75% 0.75%
2/ The 12b-1 service fees for Class A shares reflect a blended annual rate
of the Fund's average daily net assets of 0.25% with respect to shares sold
on or after December 2, 1988 and 0.15% with respect to shares sold prior to
that date.
3/ For the twelve months ended February 28, 1995 (the period used for
the Combined Fund Estimated), the ratios of total operating expenses as a
percentage of average net assets for Global Energy Fund were 2.11%, 2.87% and
2.89% for Class A, Class B and Class D, respectively, and for Growth and
Income Fund were 1.20%, 1.98% and 1.99% for Class A, Class B and Class D
shares, respectively.
Example of Effect of Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and expenses stated above, assuming a 5% annual
return. The fees shown below reflect an initial sales charge of up to 4.5% of
the public offering price that normally is charged in connection with the sale
of each Fund's Class A shares. No initial sales charge will be charged in
connection with Class A shares distributed to Class A shareholders of Global
Energy Fund as part of the Reorganization.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Global Energy Fund
Class A shares.............. $64 $105 $147 $266
Class B shares:
Assuming complete
redemption at end
of period................ $79 $117 $169 $277
Assuming no redemption... $29 $87 $149 $277
Class D shares.............. $28 $85 $145 $307
6
Growth and Income Fund
Class A shares.............. $57 $81 $108 $184
Class B shares:
Assuming complete
redemption at end
of period................. $70 $92 $126 $191
Assuming no redemption.... $20 $62 $106 $191
Class D shares............... $20 $61 $105 $226
Combined Fund
Class A shares............... $57 $81 $108 $184
Class B shares:
Assuming complete
redemption at end
of period................. $70 $92 $127 $192
Assuming no redemption.... $20 $62 $107 $192
Class D shares............... $20 $62 $107 $232
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the Securities and Exchange Commission ("SEC"); the assumed 5% annual return is
not a prediction of, and does not represent, the projected or actual performance
of any class of the Funds' shares.
The Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses attributable to each class of a Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
Reorganization of Equity Income Fund into Growth and Income Fund
The following table shows (i) the shareholder transaction expenses
currently incurred by Class A, Class B and Class C shares of Equity Income Fund
and the shareholder transaction expenses that the Corresponding Class of Growth
and Income Fund will incur after giving effect to the Reorganization, and (ii)
the current fees and expenses incurred by the Class A, Class B and Class C
shares of Equity Income Fund and the Class A and Class D shares of Growth and
Income Fund for the fiscal years ended January 31, 1995 and August 31, 1994,
respectively, and pro forma fees for Growth and Income Fund's Class A and Class
D shares after giving effect to the Reorganization.
7
Shareholder Transaction Expenses
Equity Income Fund Combined Fund 1/
Class A Class B Class C Class A Class D
Maximum Sales
Charge (as a
percentage of
public offering
price) 5.75% None None 4.50% None
Exchange fee None None None $5.00 $5.00
Maximum con-
tingent deferred
sales charge
(as a percentage
of redemption
proceeds None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Equity Income Fund Growth and Income Fund 1/ Combined Fund 1/
For Fiscal Year Ended 1/31/95 For Fiscal Year Ended 8/31/94 Estimated
Class A Class B Class C Class A Class D Class A Class D
<S> <C> <C> <C> <C> <C> <C> <C>
Management
Fees 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
12b-1
Expenses 2/ 0.50% 1.00% 0.00% 0.23% 3/ 1.00% 0.23% 1.00%
Other
Expenses 0.43% 0.43% 0.43% 0.27% 0.24% 0.25% 0.27%
Total Fund
Operating
Expenses 4/ 1.63% 2.13% 1.13% 1.20% 1.94% 1.18% 1.97%
===== ===== ===== ===== ===== ===== =====
</TABLE>
8
- --------------
1/ Shareholders of Class A and Class C shares of Equity Income Fund will
receive Class A shares of Growth and Income Fund, and shareholders of
Class B of Equity Income Fund will receive Class D shares of Growth
and Income Fund. As only Class A and Class D shares of Growth and Income
Fund will be issued to Equity Income Fund shareholders in the
Reorganization, only those classes are shown.
2/ 12b-1 fees for Equity Income Fund fees have two components, as follows:
Class A Class B Class C
------- ------- -------
12b-1 service fee...... 0.25% 0.25% 0.00%
12b-1 distribution fee.....0.25% 0.75% 0.00%
12b-1 fees for Growth and Income Fund have two components, as follows:
Class A Class D
------- -------
12b-1 service fee..........0.23% 0.25%
12b-1 distribution fee.....0.00% 0.75%
3/ The 12b-1 service fees for Class A shares reflect a blended annual rate
of the Fund's average daily net assets of 0.25% and 0.15% representing
shares sold on or after December 2, 1988 and shares sold prior to that
date, respectively.
4/ For the twelve months ended February 28, 1995, the ratios of total
operating expenses as a percentage of average net assets for Equity\
Income Fund were 1.63%, 2.16%, and 1.05% for Class A, Class B and Class C,
respectively, and for Growth and Income Fund were 1.20% and 1.99%
for Class A and Class D shares, respectively.
Example of Effect of Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and expenses stated above, assuming a 5% annual
return. The fees shown below reflect an initial sales charge of up to 4.5% of
the public offering price that normally is charged in connection with the sale
of Growth and Income Class A shares and an initial sales charge of up to
5.75% of the public offering price that is normally charged in connection
with the sale of Equity Income Fund Class A shares. No initial sales charge
will be charged in connection with Class A shares distributed to Class A or
Class C shareholders of Equity Income Fund as part of the Reorganization.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Equity Income Fund
Class A shares................$73 $106 $141 $240
Class B shares:
Assuming complete
redemption at end
of period................ $22 $67 $114 $246
Assuming no redemption.....$22 $67 $114 $246
9
Class C shares................$12 $36 $62 $137
Growth and Income Fund
Class A shares................$57 $81 $108 $184
Class D shares................$20 $61 $105 $226
Combined Fund
Class A shares................$56 $81 $107 $182
Class D shares................$20 $62 $106 $230
This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same in the years shown. The above tables and the assumption in the
Example of a 5% annual return are required by regulations of the SEC; the
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of any Class of the Funds' shares.
The Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses attributable to each Class of a Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
10
Reorganizations of Global Energy Fund and Equity Income Fund into Growth and
Income Fund
The following table shows the current fees and expenses incurred by the
Classes of shares of each Fund for the fiscal years ended October 31, 1994,
January 31, 1995 and August 31, 1994, respectively, and pro forma fees for
Growth and Income Fund's Class A, Class B and Class D shares after giving
effect to the Reorganizations.
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Global Energy Fund Equity Income Fund Growth and Income Fund Combined Fund (Estimated)
For FY Ended 10/31/94 For FY Ended 1/31/95 For FY Ended 8/31/95
Class A Class B Class D Class A Class B Class C Class A Class B Class D Class A Class B Class D
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fees 0.85% 0.85% 0.85% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
12b-1
Expenses 1/ 0.25% 1.00% 1.00% 0.50% 1.00% 0.00% 0.23% 2/ 1.00% 1.00% 0.23% 1.00% 1.00%
Other
Expenses 0.89% 0.97% 0.89% 0.43% 0.43% 0.43% 0.27% 0.27% 0.24% 0.26% 0.28% 0.28%
Total Fund
Operating
Expenses 3/ 1.99% 2.82% 2.74% 1.63% 2.13% 1.13% 1.20% 1.97% 1.94% 1.19% 1.98% 1.98%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
11
- ------------
1/ 12b-1 fees for Global Energy Fund have two components, as follows:
Class A Class B Class D
12b-1 service fee........... 0.25% 0.25% 0.25%
12b-1 distribution fee...... 0.00% 0.75% 0.75%
12b-1 fees for Equity Income Fund have two components as follows:
Class A Class B Class C
12b-1 service fee........... 0.25% 0.25% 0.00%
12b-1 distribution fee...... 0.25% 0.75% 0.00%
12b-1 fees for Growth and Income Fund have two components, as follows:
Class A Class B Class D
12b-1 service fee........... 0.23% 0.25% 0.25%
12b-1 distribution fee...... 0.00% 0.75% 0.75%
2/ The 12b-1 service fees for Class A shares reflect a blended annual rate of
the Fund's average daily net assets of 0.25% and 0.15% representing shares
sold on or after December 2, 1988 and shares sold prior to that date,
respectively.
3/ For the twelve months ended February 28, 1995, the ratios of total
operating expenses as a percentage of average net assets for Global Energy
Fund were 2.11%, 2.87% and 2.89% for Class A, Class B and Class D,
respectively, for Equity Income Fund were 1.63%, 2.16%, and 1.05% for
Class A, Class B and Class C, respectively, and for Growth and Income
Fund were 1.20%, 1.98% and 1.99% for Class A, Class B and Class D,
respectively.
Example of Effect of Fund Expenses
The following illustrates the expenses on a $1,000 investment under the
existing and estimated fees and expenses stated above, assuming a 5% annual
return. The fees shown below reflect an initial sales charge of up to 4.5%
of the public offering price that normally is charged in connection with the
sale of Global Energy Fund's and Growth and Income Fund's Class A shares and
of up to 5.75% of the public offering price that is normally charged in
connection with the sale of Equity Income Fund's Class A shares. No initial
sales charge will be charged in connection with Class A Shares distributed to
Class A shareholders of Global Energy Fund and to Class A and Class C
shareholders of Equity Income Fund as part of the Reorganizations.
12
1 year 3 years 5 years 10 years
------ ------- ------- --------
Global Energy Fund
Class A shares.................. $64 $105 $147 $266
Class B shares:
Assuming complete
redemption at end
of period.................... $79 $117 $169 $277
Assuming no redemption... $29 $87 $149 $277
Class D shares.................. $28 $85 $145 $307
Equity Income Fund
Class A shares................... $73 $106 $141 $240
Class B shares:
Assuming complete
redemption at end
of period..................... $22 $67 $114 $246
Assuming no redemption... $22 $67 $114 $246
Class C shares................... $12 $36 $ 62 $137
Growth and Income Fund
Class A shares................... $57 $81 $108 $184
Class B shares:
Assuming complete
redemption at end
of period......................$70 $92 $126 $191
Assuming no redemption........ $20 $62 $106 $191
Class D shares................... $20 $61 $105 $226
Combined Fund
Class A shares................... $57 $81 $107 $183
Class B shares:
Assuming complete
redemption at end
of period......................$70 $92 $127 $191
Assuming no redemption........ $20 $62 $107 $191
Class D shares................... $20 $62 $107 $231
13
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations
of the SEC; the assumed 5% annual return is not a prediction of, and does
not represent, the projected or actual performance of any Class of the Funds'
shares.
The Example should not be considered a representation of past or future
expenses, and a Fund's actual expenses may be more or less than those shown.
The actual expenses attributable to each Class of a Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which a Fund incurs variable expenses, such as transfer agency costs.
The above Example assumes that both of the Acquired Funds will participate
in the Reorganizations. If one but not both of the Reorganizations are
consummated, the estimated annual fund expense for such combination will
not differ significantly from those set forth in the above Example.
Forms of Organization
Equity Income Fund is organized as a Maryland corporation. It commenced
operations on November 22, 1985. It is authorized to issue 500 million shares
of common stock of par value $.01 per share. It does not currently issue share
certificates. Equity Income Fund is not required to (and does not) hold annual
meetings.
Investment Series and America Fund are each organized as Massachusetts
business trusts. Growth and Income Fund commenced operations on December 20,
1983. Global Energy Fund commenced operations on September 18, 1987. Each
trust's Declaration of Trust authorizes the trustees of the trust to create
separate series, and within each series separate Classes, of an unlimited
number of shares of beneficial interest, par value $.001 per share. The trusts
are not required to (and do not) hold annual shareholder meetings.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust of each trust expressly disclaims, and provides
indemnification against, such liability. Accordingly, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which Global Energy Fund or Growth and Income Fund
itself would be unable to meet its obligations, a possibility that Mitchell
Hutchins believes is remote and, thus, does not pose a material risk.
Investment Objectives and Policies
The investment objective and policies of each Fund are set forth below.
There can be no assurance that any Fund will achieve its investment objective,
and each Fund's net asset value fluctuates based upon changes in the value of
its portfolio securities.
Growth and Income Fund. The investment objective of Growth and Income Fund
is to provide current income and capital growth. The Fund seeks to achieve its
objective by investing primarily in dividend-paying equity securities (common
and preferred stocks) believed by Mitchell Hutchins to have the potential for
rapid earnings growth. Under normal circumstances, the Fund invests at least
65% of its total assets in such securities. In managing the Fund, Mitchell
Hutchins follows a disciplined methodology under which stocks from a universe of
approximately 2,000 medium to large capitalization companies are ranked
utilizing quantitative measures of value, earnings and price momentum in the
context of Mitchell Hutchins' economic forecast. Stocks are selected for the
Fund based on fundamental analysis of the highest ranking stock. The Fund may
invest up to 35% of its total assets in equity securities not meeting all the
above criteria,
14
as well as convertible securities (which may be rated below investment grade),
U.S. government securities, investment grade corporate debt securities
and money market instruments.
Equity Income Fund. The investment objective of Equity Income Fund is to
provide current income and capital growth. Under normal market conditions, the
Fund invests not less than 65% of its net assets in equity securities, limited
to dividend-paying common stock, preferred stock, warrants, rights and
securities convertible into common stock. The Fund's equity investments have
tended to be in issuers with large market capitalizations, although the Fund is
not limited by issuer size in selecting equity securities for investment. The
Fund may also invest a lesser portion of its assets in fixed- income securities
and, as needed to provide liquidity in order to meet redemptions, money market
instruments. The Fund's investments in fixed-income securities are limited to
direct obligations of the U.S. government (such as bills, notes or bonds) and
corporate debt securities rated Aa or better by Moody's Investors Service, Inc.
or AA or better by Standard & Poor's Ratings Group. For temporary defensive
purposes, the Fund may invest its assets in all classes of securities, including
equity and fixed-income, in any proportions deemed prudent under existing market
and economic conditions. It is the Fund's policy not to purchase and sell
securities with a view toward obtaining short-term (less than six months)
profits.
Global Energy Fund. The investment objective of Global Energy Fund is to
achieve high total return by investing principally in securities of foreign and
domestic energy and energy service companies. Under normal market conditions,
at least 65% of the Fund's net assets are invested in equity and debt securities
of foreign and domestic energy and energy service companies based in at least
three countries, including the United States. Energy companies are the primary
producers of raw energy materials such as oil and gas. Energy service companies
are companies that provide services, supplies and equipment to energy companies.
The Fund may invest up to 35% of its assets in equity and debt securities of
issuers in any industry, including the utility sector, although no more than 25%
of the Fund's assets may be invested in any industry other than the energy or
energy service industries. The Fund may invest up to 35% of its assets in non-
investment grade securities. The policy of concentrating investments in the
energy and energy service industries may cause the value of its shares to
fluctuate more than if it invested in a broader number of industries.
Other Policies of the Funds
Additional Investment Techniques
The Funds engage in certain options and futures contracts to attempt to
hedge against the overall level of risk associated with their respective
investments.
Investment Restrictions
Global Energy Fund and Growth and Income Fund are permitted to invest in
securities rated below investment grade level. None of the Funds may invest
more than 15% of its total assets in illiquid securities. While Global Energy
Fund concentrates its investments in one industry, neither Growth and Income
Fund nor Equity Income Fund may invest more than 25% of its total assets in any
one industry. For additional discussion of these investment restrictions, see
"Comparison of Risk Factors."
Operations of Growth and Income Fund Following the Reorganizations
There are differences in the Funds' investment policies. It is not expected,
however, that Growth and Income Fund will revise its investment policies
following the Reorganizations to reflect those of either Acquired Fund. Since
the Acquired Funds are permitted to invest in securities having characteristics
different from those permitted for Growth and Income Fund, certain of the
securities currently held in the Acquired Funds' portfolios would need to be
sold, rather than transferred to Growth and Income Fund. If the Reorganizations
are approved, the Acquired Funds will sell any assets that are inconsistent with
the investment policies of Growth and Income Fund prior to the effective time of
the Reorganization,
15
and the proceeds thereof will be held in temporary investments or reinvested
in assets that qualify to be held by Growth and Income Fund. The necessity
for the Acquired Funds to dispose of assets prior to the effective time
of the Reorganization may result in selling securities at a disadvantageous
time and could result in the Acquired Funds realizing losses that would
not otherwise have been realized.
Following the Reorganizations, Mark A. Tincher, who currently is the
portfolio manager for Growth and Income Fund and who has been primarily
responsible for the day-to-day portfolio management of that Fund, will continue
as its portfolio manager. Mr. Tincher joined Mitchell Hutchins in March 1995.
Prior to joining Mitchell Hutchins, Mr. Tincher worked for Chase Manhattan
Private Bank, where he was Vice President and directed the U.S. Funds Management
and Equity Research Area. At Chase since 1988, Mr. Tincher oversaw the
management of all Chase Equity Funds (the Vista Funds and Trust Investment
Funds).
Purchases and Redemptions
Shares of each Fund are available through PaineWebber Incorporated
("PaineWebber") and its correspondent firms or, for investors who are not
clients of PaineWebber, through each Fund's transfer agent, PFPC Inc. ("Transfer
Agent"). The minimum initial investment in Growth and Income Fund is $1,000;
each additional investment must be $100. The minimums may be waived or reduced
for investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan.
The Class A shares of each Fund are all sold subject to a maximum initial
sales charge, but the amount of the charge varies. The maximum initial sales
charge for Class A shares of Equity Income Fund is up to 5.75% of the public
offering price, while the maximum initial sales charges for Class A shares of
Growth and Income Fund and Global Energy Fund is up to 4.5% of the public
offering price. The Class A shares of Growth and Income Fund that would be
distributed to Class A shareholders of the Acquired Funds (and to Class C
shareholders of Equity Income Fund) in connection with the Reorganizations would
not be subject to any initial sales charge.
The Class B shares of Growth and Income Fund and Global Energy Fund are sold
subject to a maximum contingent deferred sales charge ("CDSC") of 5% of
redemption proceeds, which declines to zero after six years, when such Class B
shares automatically convert into Class A shares of those respective Funds.
Following the Reorganizations, the Class B shareholders of Global Energy Fund
would remain subject to the maximum 5% CDSC and six-year schedule of reduced
CDSCs in effect prior to the Reorganizations. All Class B shareholders of
Global Energy Fund will be credited for the period of time from the original
date of purchase of their shares for purposes of determining the amount of their
CDSC, if any. As is currently the case for Growth and Income Fund and Global
Energy Fund, no CDSC will be applied to redemptions of Class B shares that
represent reinvested dividends or capital gain distributions. The Class B and
Class C shares of Equity Income Fund and the Class D shares of Growth and Income
Fund and Global Energy Fund are sold without initial sales charges or CDSCs.
Shares of each Class of each Fund may be redeemed at their particular net
asset value (subject to any applicable CDSC), and redemption proceeds will be
paid within seven days of the receipt of a redemption request. Clients of
PaineWebber or its correspondent firms may redeem shares held in non-certificate
form through PaineWebber or its correspondent firms; all other shareholders must
redeem through the Transfer Agent.
If a Reorganization isapproved with respect to an Acquired Fund, purchases of
all classes of its shares will cease on _________ __, 1995, so that its shares
will no longer be available for purchase or exchange starting on that date. If
the Meeting with respect to an Acquired Fund is adjourned and the Reorganization
involving it is approved on a later date, its shares will no longer be available
for purchase or exchange on the business day following the date on which the
Reorganization is approved and all contingencies have been met. Redemptions of
the Acquired Fund's shares and exchanges of such shares for shares of any other
PaineWebber fund or Mitchell Hutchins/Kidder, Peabody fund ("MH/KP fund") may be
effected through the Closing Date.
16
Exchanges
Except for the $5.00 exchange fee, which does not apply to exchanges of
Equity Income Fund shares, the exchange policies of the Funds are identical.
Shares of each Fund may be exchanged for shares of the Corresponding Class of
other PaineWebber and MH/KP funds, and shares of each Fund may be acquired
through an exchange of shares of the Corresponding Class of other PaineWebber
and MH/KP funds, as provided in the prospectus of each Fund. No initial sales
charge is imposed on the shares being acquired, and no CDSC is imposed on the
shares being disposed of, through an exchange. However, a CDSC may apply to
redemptions of a PaineWebber fund's Class B shares acquired through an
exchange. Exchanges may be subject to minimum investment and other
requirements of the fund into which exchanges are made. As noted above, the
$5.00 service fee currently imposed on each exchange of shares of Growth
and Income Fund for shares of any other PaineWebber or MH/KP fund will
continue to be imposed following the Reorganizations.
Dividends and Other Distributions
Growth and Income Fund distributes dividends from net investment income
semi-annually, whereas Equity Income Fund distributes such dividends quarterly
and Global Energy Fund declares and pays such dividends annually. Each Fund
distributes substantially all of its net capital gain (the excess of net
long-term capital gain over net short-term capital loss) and net short-term
gain, and Global Energy Fund also distributes any net realized gain from foreign
currency transactions, at least annually. Shareholders of each Fund may
reinvest dividends and other distributions in additional shares on the payment
date at those shares' net asset value that day or receive them in cash. Each
Fund may make additional distributions if necessary to avoid a 4% excise tax on
certain undistributed ordinary income and capital gain.
On or before the Closing Date, each Acquired Fund will declare as a dividend
substantially all of its net investment income, net capital gain, net short-term
capital gain and (in the case of Global Energy Fund) net realized foreign
currency gains in order to maintain its tax status as a regulated investment
company. Each Acquired Fund will pay these distributions only in cash.
Growth and Income Fund also may declare and distribute as a dividend to its
shareholders on or before the Closing Date substantially all of any previously
undistributed net investment income.
Federal Income Tax Consequences of the Reorganizations
America Fundhas received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, with respect to each Reorganization, Investment Series has received an
opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to the
Reorganization involving Global Energy Fund, and Equity Income Fund has received
an opinion of Sullivan & Cromwell, its counsel, with respect to the
Reorganization involving that Fund, each to the effect that the Reorganization
will constitute a tax-free reorganization within the meaning of section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code").
Accordingly, no gain or loss will be recognized by any of the Funds or their
shareholders as a result of the Reorganizations. See "The Proposed
Transactions--Federal Income Tax Considerations," page 22.
COMPARISON OF PRINCIPAL RISK FACTORS
The facts that the investment objectives and policies of the Funds are
similar and that they are managed by the same investment adviser should minimize
the risks that might otherwise be associated with the Reorganizations. In
general, Growth and Income Fund's investment policies do not present investment
risks that are not also presented by the investment policies of each Acquired
Fund.
There are, however, the following primary differences in the investment
policies of Growth and Income Fund and the Acquired Funds.
17
Industry Concentration
Global Energy Fund concentrates its investments in the energy and energy
service industries. Under normal circumstances, at least 65% of Global Energy
Fund's net assets are invested in equity and debt securities of foreign and
domestic energy and energy service companies. In contrast, Growth and Income
Fund and Equity Income Fund do not concentrate investments in one industry and
have more diversified portfolios. The policy of concentrating investments in
energy and energy service industries may cause the value of Global Energy Fund's
shares to fluctuate more than if it invested in a greater number of industries.
Lower-Rated Debt Securities
Global Energy Fund and Growth and Income Fund may invest in lower-rated
securities than Equity Income Fund. The assets of those Funds may be invested in
debt securities or convertible securities rated below investment grade. Such
securities are commonly referred to as "junk bonds." While credit ratings are
general and are not absolute standards of quality, lower-rated securities
generally involve higher risks.
Lower-rated securitiesgenerally offer a higher current yield than that
available from higher-grade issues, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuation in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of principal and interest (or, in the case
of convertible preferred stock, dividends) and increase the possibility of
default. In addition, such issuers may not have more traditional methods of
financing available to them and may be unable to repay debt at maturity by
refinancing. The risk of loss due to default by such issuers is significantly
greater because such securities are frequently unsecured and subordinated to the
prior payment of senior indebtedness.
The market for lower-rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower-rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on such securities rose dramatically.
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 issuer's
financial restructuring or default. There can be no assurance that such
declines will not recur. The market for lower-rated debt securities generally
is thinner and less active than that for higher quality securities, which may
limit a Fund's ability to sell such securities at their fair value in response
to changes in the economy or the financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the value and liquidity of lower rated securities, especially in a
thinly traded market.
Although the riskspresented by each Fund's policies are substantially the
same, the following risks and special considerations should be taken into
account by the Acquired Funds' shareholders in evaluating the Reorganizations.
Foreign Securities
Investments in each Fund involve the special risks of investing in foreign
securities although Global Energy Fund may invest without limit in foreign
securities denominated in foreign currencies, while both Equity Income Fund and
Growth and Income Fund are limited in their investments in foreign securities.
Growth and Income Fund is limited to investing up to 25% of its total assets in
U.S. Dollar denominated securities of foreign issuers that are traded or
recognized U.S. exchanges or in the U.S. over-the-counter market. The risks of
investment in foreign securities include possible adverse political and economic
developments abroad and differing regulatory systems and differing
characteristics of foreign economies and markets, as well as the fact that there
is often less information publicly available about foreign issuers. Many of the
securities held by Global Energy Fund may be denominated in foreign currencies,
and the value of each
18
Fund's investments can be adversely affected by fluctuations in foreign
currency values. Some foreign currencies can be volatile and may be subject
to government controls or intervention.
Hedging Strategies
Each Fund, including Growth and Income Fund, may use options, futures
contracts, and options on futures contracts. There can be no assurance,
however, that any strategy utilizing these instruments will succeed. If
Mitchell Hutchins incorrectly forecasts interest rates, market values or other
economic factors utilizing a strategy for a Fund, the Fund might have been in a
better position had the Fund not hedged at all. The use of these instruments
involve certain special risks, including (1) the fact that skills needed to use
hedging instruments are different from those needed to select the Funds'
securities, (2) possible imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the investments
being hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments and (4) the
possible inability of a Fund to purchase or sell a portfolio security at a time
that otherwise would be favorable for it to do so, or the possible need for a
Fund to sell a portfolio security at a disadvantageous time, due to the need for
the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions and the possible inability of the Fund to close out or to
liquidate its hedged position.
THE PROPOSED TRANSACTIONS
Reorganization Plans
The terms and conditions under which the proposed transactions may be
consummated are set forth in the Reorganization Plans. Significant provisions
of the Reorganization Plans are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Plans, which are
attached as Appendices A and B to this Proxy Statement.
Each ReorganizationPlan contemplates (a) Growth and Income Fund acquiring on
the Closing Date the assets of an Acquired Fund in exchange solely for shares of
Growth and Income Fund and the assumption by Growth and Income Fund of the
Acquired Fund's liabilities and (b) the constructive distribution of such shares
of Growth and Income Fund to the shareholders of the Acquired Fund.
The assets ofeach Acquired Fund to be acquired by Growth and Income Fund
shall include all cash, cash equivalents, securities, receivables and other
property owned by the Acquired Fund. Growth and Income Fund will assume from
each Acquired Fund all debts, liabilities, obligations and duties of such Fund
of whatever kind or nature; provided, however, that each Acquired Fund will use
its best efforts, to the extent practicable, to discharge all of its known
debts, liabilities, obligations and duties prior to the Closing Date, Growth
and Income Fund also will deliver to each Acquired Fund shares of Growth and
Income Fund which then will be constructively distributed to the Acquired Fund's
shareholders.
The value of an Acquired Fund's assets to be acquired, and the amount of its
liabilities to be assumed, by Growth and Income Fund and the net asset value of
a Class A and a Class D share of Growth and Income Fund will be determined as of
the close of regular trading on the New York Stock Exchange ("NYSE") on the
Closing Date. Where market quotations are readily available, portfolio
securities will be valued based upon such market quotations, provided such
quotations adequately reflect, in Mitchell Hutchins' judgment, fair value of the
security. Where such market quotations are not readily available, such
securities will be valued based upon appraisals received from a pricing service
using a computerized matrix system or based upon appraisals derived from
information concerning the security or similar securities received from
recognized dealers in those securities. The amortized cost method of valuation
generally will be used to value debt instruments with 60 days or less remaining
to maturity, unless Equity Income Fund's board of directors (with respect to
Equity Income Fund) or Investment Series's or America Fund's board of trustees
(with respect to Global Energy
19
Fund and Growth and Income Fund, respectively) determines that this does not
represent fair value. All other securities and assets will be valued
at fair value as determined in good faith by or under the
direction of Equity Income Fund's board of directors or Investment Series's or
America Fund's board of trustees, as applicable. All investments quoted in
foreign currencies will be valued in U.S. dollars on the basis of the foreign
currency exchange rates prevailing at the time such valuation is determined by
each Fund's custodian.
On or as soon as practicable after the Closing Date, each Acquired Fund will
distribute to its shareholders of record the shares of Growth and Income Fund it
received so that each shareholder of the Acquired Fund will receive a number of
full and fractional shares of the Corresponding Class or Classes of Growth and
Income Fund shares equal in value to the shareholder's holdings in the Acquired
Fund; each Acquired Fund will be terminated (in the case of Global Energy Fund)
or liquidated (in the case of Equity Income Fund) as soon as practicable
thereafter. Such distribution will be accomplished by opening accounts on the
books of Growth and Income Fund in the names of the Acquired Fund's shareholders
and by transferring thereto the shares of each Class previously credited to the
account of each Acquired Fund on those books. Each shareholder account shall
represent the respective corresponding value of Growth and Income Fund shares in
each Class due to each Acquired Fund shareholder. Fractional shares in each
Class of Growth and Income Fund will be rounded to the third decimal place.
Accordingly, immediately after the Reorganizations, each former shareholder
of an Acquired Fund will own shares of the Class of Growth and Income Fund that
will equal the value of that shareholder's shares of the Corresponding Class of
the Acquired Fund immediately prior to the Reorganization. Moreover, because
shares of each Class of Growth and Income Fund will be issued at net asset value
in exchange for the net assets applicable to the Corresponding Class of each
Acquired Fund, the aggregate value of shares of each Class of Growth and Income
Fund so issued will equal the aggregate value of shares of the Corresponding
Class of the Acquired Funds. The net asset value per share of Growth and Income
Fund will be unchanged by the transaction. Thus, the Reorganizations will not
result in a dilution of any shareholder interest.
Any transfer taxes payable upon issuance of any shares of Growth and Income
Fund in a name other than that of the registered holder of the shares on the
books of an Acquired Fund shall be paid by the person to whom such shares are to
be issued as a condition of such transfer. Any reporting responsibility of an
Acquired Fund will continue to be its responsibility up to and including the
Closing Date and such later date on which such Fund is terminated.
The cost of the Reorganizations, including professional fees and the cost of
soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation, will
be borne by all three Funds in proportion to their respective net assets.
Mitchell Hutchins recommended this method of expense allocation to the
directors/trustees. Mitchell Hutchins based its recommendations on its belief
that the method is fair because, for the reasons discussed under "Reasons for
the Reorganizations," the Reorganizations have the potential to benefit all
Funds. The directors of Equity Income Fund and the trustees of Investment
Series considered the expense allocation method in approving the
Reorganizations, finding that the Reorganizations are in the best interests of
their respective Funds.
The consummation ofeach Reorganization is subject to a number of conditions
set forth in the Reorganization Plans, some of which may be waived by an
Acquired Fund. In addition, the Plans may be amended in any mutually agreeable
manner, except that no amendment may be made subsequent to the Meeting that
would have a material adverse effect on the shareholders' interests.
Reasons for the Reorganizations
The board of directors of Equity Income Fund, including a majority of its
Independent Persons, has determined that the Reorganization involving that Fund
is in the best interests of that Fund, that the terms of the Reorganization are
fair and reasonable and that the interests of Equity Income Fund's shareholders
will not be diluted as a result of the Reorganization. Investment Series's board
of trustees, including a majority of its Independent Persons, has determined
20
that the Reorganization is in the best interests of Global Energy Fund, that the
terms of the Reorganization are fair and reasonable and that the interests of
Global Energy Fund's shareholders will not be diluted as a result of the
Reorganization. The board of trustees of America Fund including a majority of
its Independent Persons, has determined that the Reorgani-zations are in the
best interests of Growth and Income Fund, that the terms of the Roerganizations
are fair and reasonable, and that the interests of Growth and Income Fund's
shareholders will not be diluted as a result of the Reorganizations.
In considering the Reorganizations, the boards of directors/trustees
made an extensive inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the effect of the Reorganizations on expected investment performance;
(3) the effect of the Reorganizations on the expense ratio of Growth and
Income Fund relative to its current expense ratio;
(4) the expense ratio of Growth and Income Fund after the Reorganization
relative to the current expense ratio of each of the Acquired Funds;
(5) the costs to be incurred by each Fund as a result of the
Reorganizations;
(6) the tax consequences of the Reorganizations;
(7) possible alternatives to the Reorganizations, including continuing
to operate on a stand-alone basis or liquidation;
and
(8) the potential benefits of the Reorganizations to other persons,
especially Mitchell Hutchins and PaineWebber.
At meetings of the Acquired Funds' board of directors/trustees on April 26
and 28, 1995, Mitchell Hutchins recommended, and the boards approved, the
Reorganizations. On April 28, 1995, the Reorganization was recommended to, and
approved by, the board of trustees of America Fund. Mitchell Hutchins advised
the directors/trustees that each Reorganization provided a sound alternative
investment option, given the Funds' similar investment objectives and generally
similar investment policies, with the material differences noted. Mitchell
Hutchins and each Acquired Fund's board believe that the Reorganizations offer
the Acquired Fund shareholders the benefits of investing in a larger,
diversified open-end fund with an investment objective and investment policies
substantially similar to those of the Acquired Funds.
In recommending the Reorganizations, Mitchell Hutchins indicated to the
boards that the investment advisory and administration fee schedule applicable
to Growth and Income Fund would be equal to or lower than that currently in
effect for each of the Acquired Funds. The boards were informed that
shareholders of Class C shares of Equity Income Fund, who would receive Class A
shares of Growth and Income Fund, would pay a service fee that is not presently
paid by such shareholders. However, this amount would increase only slightly
the overall fees to be paid by such shareholders. The boards also were advised
that the expense ratio for Growth and Income Fund's Class A, Class B and Class D
shares would likely decrease over time as a result of the Reorganizations due to
the increased size of the combined Fund. In approving the Reorganizations, the
boards noted that the overall investment objective of current income and capital
growth remains an appropriate one to offer investors as part of an overall
investment strategy.
Mitchell Hutchins further advised the boards that, while past performance of
Growth and Income Fund has not been as positive as that of the Acquired Funds,
the investment policies of Growth and Income Fund have recently been revised.
The new policies are intended to improve the Fund's performance. In addition,
Mitchell Hutchins has recently appointed Mark A. Tincher as portfolio manager
with day-to-day responsibility for Growth and Income Fund. Mr. Tincher is
experienced in managing growth and income funds. Mitchell Hutchins also advised
the boards that it did not expect to receive any immediate direct benefits from
the Reorganizations, because the compensation that would be received by it as
21
investment adviser to the combined Fund would be the same or less than the
aggregate compensation it received from the Funds prior to the Reorganizations,
assuming no change in aggregate net assets. However, Mitchell Hutchins noted
that it could benefit in the future if the combined Fund's assets grow faster
than would be the case for the three separate Funds in the absence of the
Reorganizations.
Description of Securities to be Issued
America Fund is registered with the SEC as an open-end management investment
company. Its trustees are authorized to issue an unlimited number of shares of
beneficial interest of separate series (par value $.001 per share). The
trustees have established Growth and Income Fund as one of America Fund's series
and have divided its shares into four Classes. Each share in a Class represents
an equal proportionate interest in Growth and Income Fund with each other share
in that Class. Shares of Growth and Income Fund entitle their holders to one
vote per full share and fractional votes for fractional shares held, except that
each Class of shares has exclusive voting rights on matters pertaining to its
plan of distribution.
On the Closing Date, Growth and Income Fund will have outstanding four
Classes of shares, designated Class A, Class B, Class C and Class D shares.
Only Class A, Class B and Class D shares will be issued as part of the
Reorganizations. Each Class represents interests in the same assets of the
Fund. The Classes differ as follows: (1) each Class has exclusive voting
rights on matters pertaining to its plan of distribution; (2) Class A shares are
subject to an initial sales charge; (3) Class B shares bear ongoing distribution
expenses, are subject to a CDSC upon certain redemptions and automatically
convert to Class A shares approximately six years after issuance; (4) Class C
shares have no initial sales charge, bear no distribution fees and may only be
purchased by certain categories of purchasers; (5) Class D shares are subject to
neither an initial nor a CDSC, bear ongoing distribution fees and do not convert
to another Class; and (6) each Class may bear differing amounts of certain
Class-specific expenses. Each share of each Class of Growth and Income Fund
will be entitled to participate equally in dividends and other distributions and
the proceeds of any liquidation, except that because of the higher expenses
resulting from the distribution fees borne by the Class B and D shares,
dividends on those shares are expected to be lower than those for Class A
shares. Dividends on each Class also might be affected differently by the
allocation of other Class-specific expenses.
America Fund does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing trustees
unless fewer than a majority of the trustees holding office has been elected by
shareholders, at which time the trustees then in office will call a
shareholders' meeting for the election of trustees. Under the 1940 Act,
shareholders of record of at least two-thirds of the outstanding shares of an
investment company may remove a trustee by votes cast in person or by proxy at a
meeting called for that purpose. The trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the shareholders of record holding
at least 10% of America Fund's outstanding shares.
Federal Income Tax Considerations
The exchange of an Acquired Fund's assets for shares of Growth and Income
Fund and Growth and Income Fund's assumption of liabilities of that Acquired
Fund is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a)(1)(C) of the Code. America Fund has
received an opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to
each Reorganization, Investment Series has received an opinion of Kirkpatrick &
Lockhart LLP, its counsel, with respect to the Reorganization involving Global
Energy Fund, and Equity Income Fund has received an opinion of Sullivan &
Cromwell, its counsel, with respect to the Reorganization involving Equity
Income Fund, each substantially to the effect that --
(i) Growth and Income Fund's acquisition of the Acquired Fund's assets in
exchange solely for Growth and Income Fund shares and Growth and Income Fund's
assumption of the Acquired Fund's liabilities, followed by the Acquired Fund's
distribution of those shares to its shareholders constructively in exchange for
their Acquired Fund shares, will constitute a "reorganization" within the
meaning of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized to the Acquired Fund on the transfer
to Growth and Income Fund of its assets in exchange solely for Growth and Income
Fund shares and Growth and Income Fund's assumption of the Acquired Fund's
liabilities or on the subsequent distribution of those shares to the Acquired
Fund's shareholders in constructive exchange for their Acquired Fund shares;
(iii) No gain or loss will be recognized to Growth and Income Fund on its
receipt of the transferred assets in exchange solely for Growth and Income Fund
shares and its assumption of the Acquired Fund's liabilities;
(iv) Growth and Income Fund's basis for the transferred assets will be the
same as the basis thereof in the Acquired Fund's hands immediately prior to the
Reorganization, and Growth and Income Fund's holding period for those assets
will include the Acquired Fund's holding period therefor;
(v) An Acquired Fund shareholder will recognize no gain or loss on the
constructive exchange of all its Acquired Fund shares solely for Growth and
Income Fund shares pursuant to the Reorganization; and
(vi) An Acquired Fund shareholder's basis for the Growth and Income Fund
shares to be received by it in the Reorganization will be the same as the basis
for its Acquired Fund shares to be constructively surrendered in exchange for
those Growth and Income Fund shares, and its holding period for those Growth and
Income Fund shares will include its holding period for those Acquired Fund
shares, provided they are held as capital assets by the shareholder on the
Closing Date.
Each opinion may state that no opinion is expressed as to the effect of the
Reorganization on the Funds or any shareholder with respect to any asset
(including certain options, futures and forward contracts) as to which
unrealized gain or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a market-to-market system of accounting.
Utilization by Growth and Income Fund after the Reorganizations of
pre-Reorganization capital losses realized by Global Energy Fund could be
subject to limitation in future years under the Code.
Shareholders of an Acquired Fund should consult their tax advisers regarding
the effect, if any, of the proposed Reorganizations in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganizations, those shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganizations.
PRO FORMA FINANCIAL INFORMATION AND RATIOS
The followingtables show the capitalization of each Fund as of February 28,
1995 and on a pro forma combined basis (unaudited) as of that date, giving
effect to the Reorganizations and assuming that the Acquired Funds indicated
participate in the Reorganization.
23
If only Global Energy Fund participates in a Reorganization:
Global Growth and
Energy Fund Income Fund Combined
----------- ----------- --------
Net Assets
Class A $8,951,715 $180,816,735 $189,768,450
Class B $12,442,509 $239,383,165 $251,825,674
Class C ----- $14,543,879 $14,543,879
Class D $635,332 $29,927,874 $30,563,206
NAV Per Share
Class A $9.92 $19.15 $19.15
Class B $9.92 $19.10 $19.10
Class C ----- $19.14 $19.14
Class D $9.80 $19.15 $19.15
Shares Outstanding
Class A 902,281 9,441,600 9,908,996
Class B 1,254,095 12,533,576 13,184,917
Class C ------ 759,803 759,803
Class D 64,846 1,562,497 1,595,682
24
If only Equity Income Fund participates in a Reorganization:
Equity Growth and
Income Fund Income Fund Combined
----------- ----------- --------
Net Assets
Class A $58,224,548 $180,816,735 $242,588,560
[Class B1/ $1,612,995 $239,383,165 $239,383,165
Class C2/ $3,547,267 $14,543,879 $14,543,879]
Class D ----- $29,927,874 $31,540,869
NAV Per Share
Class A $19.57 $19.15 $19.15
[Class B $19.45 $19.10 $19.10
Class C $19.56 $19.14 $19.14]
Class D ----- $19.15 $19.15
Shares Outstanding
Class A 2,975,547 9,441,600 12,667,649
[Class B 82,939 12,533,576 12,533,576
Class C 181,359 759,803 759,803]
Class D ----- 1,562,497 1,646,735
- --------------
1/ Class B shares of Equity Income Fund will be exchanged for Class D
shares of Growth and Income Fund.
2/ Class C shares of Equity Income Fund will be exchanged for Class A
shares of Growth and Income Fund.
25
If both Acquired Funds participate in the Reorganizations:
Equity Global Growth and
Income Fund Energy Fund Income Fund Combined
----------- ----------- ----------- --------
Net Assets
Class A $58,224,548 $8,951,715 $180,816,735 $251,540,265
Class B1/ $1,612,995 $12,442,509 239,383,165 $251,825,674
Class C2/ $3,547,267 ----- $14,543,879 $14,543,879
Class D ----- $635,332 $29,927,874 $32,176,201
NAV Per Share
Class A $19.57 $9.92 $19.15 $19.15
Class B $19.45 $9.92 $19.10 $19.10
Class C $19.56 ----- $19.14 $19.14
Class D ----- $9.80 $19.15 $19.15
Shares Outstanding
Class A 2,975,547 902,281 9,441,600 13,135,045
Class B 82,939 1,254,095 12,533,576 13,184,917
Class C 181,359 ----- 759,803 759,803
Class D ----- 64,846 1,562,497 1,679,920
- --------------
1/ Class B shares of Equity Income Fund will be exchanged for Class D
shares of Growth and Income Fund.
2/ Class C shares of Equity Income Fund will be exchanged for Class A
shares of Growth and Income Fund.
26
MISCELLANEOUS
Available Information
Investment Series, Equity Income Fund and America Fund are each subject to
the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act and in accordance therewith file reports, proxy material and other
information with the SEC. Such reports, proxy material and other information
can be inspected and copied at the Public Reference Room maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20549 at prescribed rates.
Legal Matters
Certain legal matters in connection with the issuance of Growth and
Income Fund shares will be passed upon by Kirkpatrick & Lockhart LLP,
counsel to America Fund.
Experts
The audited financial statements of Growth and Income Fund, Global Energy
Fund and Equity Income Fund, incorporated by reference herein and in each Fund's
respective Statements of Additional Information, have been audited by Ernst &
Young LLP, independent auditors, Price Waterhouse LLP, independent accountants,
and Deloitte & Touche LLP, independent auditors, respectively, whose reports
thereon are included in the Funds' Annual Reports to Shareholders for the
fiscal years ended August 31, 1994, October 31, 1994 and January 31, 1995,
respectively. In addition, there are unaudited financial statements of Growth
and Income Fund in its semi-annual report to shareholders for the six-month
period ended February 28, 1995. The financial statements audited by Ernst &
Young LLP, Price Waterhouse LLP and Deloitte & Touche have been incorporated
herein by reference in reliance on their reports given on their authority as
experts in auditing and accounting.
27
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of May 30, 1995, between PaineWebber
America Fund, a Massachusetts business trust ("America Trust"), on
behalf of PaineWebber Growth and Income Fund, a segregated port-
folio of assets ("series") thereof ("Acquiring Fund"), and Paine-
Webber Investment Series, a Massachusetts business trust ("In-
vestment Series"), on behalf of its PaineWebber Global Energy Fund
series ("Target"). (Acquiring Fund and Target are sometimes re-
ferred to herein individually as a "Fund" and collectively as the
"Funds," and America Trust and Investment Series are sometimes
referred to herein collectively as the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of
a reorganization described in section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). The reorganization will
involve the transfer to Acquiring Fund of Target's assets solely in
exchange for voting shares of beneficial interest in Acquiring Fund
("Acquiring Fund Shares") and the assumption by Acquiring Fund of
Target's liabilities, followed by the constructive distribution of
the Acquiring Fund Shares to the holders of shares of beneficial
interest in Target ("Target Shares") in exchange therefor, all upon
the terms and conditions set forth herein. The foregoing transac-
tions are referred to herein as the "Reorganization." All agree-
ments, representations, actions, and obligations described herein
made or to be taken or undertaken by either Fund are made and shall
be taken or undertaken by America Trust on behalf of Acquiring Fund
and by Investment Series on behalf of Target.
Acquiring Fund's shares are divided into four classes, desig-
nated Class A, Class B, Class C, and Class D shares ("Class A
Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C
Acquiring Fund Shares," and "Class D Acquiring Fund Target Shares,"
respectively). Except as noted in the following sentence, these
classes differ only with respect to the sales charges imposed on
the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under
the Investment Company Act of 1940 ("1940 Act"), as follows:
(1) Class A Acquiring Fund Shares are offered at net asset value
("NAV") plus a sales charge, if applicable, and are subject to a
12b-1 service fee at the annual rate of 0.25% of the average daily
net assets attributable to the class ("class assets"); (2) Class B
Acquiring Fund Shares are offered at NAV without imposition of any
sales charge and are subject to a contingent deferred sales charge
and 12b-1 service and distribution fees at the respective annual
rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring
Fund Shares are offered, currently only to the trustee of the
PaineWebber Savings Investment Plan on behalf of that plan, at NAV
without imposition of any sales charge and are not subject to any
12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV
without imposition of any sales charge and are subject to 12b-1
service and distribution fees at the respective annual rates of
0.25% and 0.50% of class assets. These classes also may differ
from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees. Only Classes A, B, and D
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated
Class A, Class B, and Class D shares ("Class A Target Shares,"
"Class B Target Shares," and "Class D Target Shares," respec-
tively). These classes are identical to the correspondingly let-
tered classes of Acquiring Fund Shares, except that the Class A
Target Shares are subject to a 12b-1 service fee at the annual rate
of 0.25%, rather than 0.23%, of class assets.
In consideration of the mutual promises herein, the parties
covenant and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets") to
Acquiring Fund. Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional (i) Class A Acquiring Fund Shares determined by
dividing the net value of Target (computed as set forth in
paragraph 2.1) ("Target Value") attributable to the Class A
Target Shares by the NAV (computed as set forth in paragraph
2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring
Fund Shares determined by dividing the Target Value attribut-
able to the Class B Target Shares by the NAV (as so computed)
of a Class B Acquiring Fund Share, and (iii) Class D Acquiring
Fund Shares determined by dividing the Target Value attribut-
able to the Class D Target Shares by the NAV (as so computed)
of a Class D Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in
paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and rec-
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ords, deferred and prepaid expenses shown as assets on Target's
books, and other property owned by Target at the Effective Time (as
defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise pro-
vided herein) all of Target's liabilities, debts, obligations, and
duties of whatever kind or nature, whether absolute, accrued, con-
tingent, or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the Effective
Time, and whether or not specifically referred to in this Agree-
ment, including without limitation Target's share of the expenses
described in paragraph 7.2. Notwithstanding the foregoing, Target
agrees to use its best efforts to discharge all of its known Lia-
bilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target
shall declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have distri-
buted substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is rea-
sonably practicable), Target shall constructively distribute the
Acquiring Fund Shares received by it pursuant to paragraph 1.1 to
Target's shareholders of record, determined as of the Effective
Time (collectively "Shareholders" and individually a "Share-
holder"), in exchange for their Target Shares. Such distribution
shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books
in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with
the respective pro rata number of full and fractional (rounded to
the third decimal place) Acquiring Fund Shares due that Share-
holder, by class (i.e., the account for a Shareholder of Class A
Target Shares shall be credited with the respective pro rata number
of Class A Acquiring Fund Shares due that Shareholder, the account
for a Shareholder of Class B Target Shares shall be credited with
the respective pro rata number of Class B Acquiring Fund Shares due
that Shareholder, and the account for a Shareholder of Class D
Target Shares shall be credited with the respective pro rata number
of Class D Acquiring Fund Shares due that Shareholder). All out-
standing Target Shares, including any represented by certificates,
shall simultaneously be canceled on Target's share transfer re-
cords. Acquiring Fund shall not issue certificates representing
the Acquiring Fund Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of
the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall
be terminated as a series of Investment Series and any further ac-
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tions shall be taken in connection therewith as required by appli-
cable law.
1.7. Any reporting responsibility of Target to a public
authority is and shall remain its responsibility up to and includ-
ing the date on which it is terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than that of the registered holder on
Target's books of the Target Shares constructively exchanged there-
for shall be paid by the person to whom such Acquiring Fund Shares
are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value
shall be (a) the value of the Assets computed as of the close of
regular trading on the New York Stock Exchange, Inc. ("NYSE") on
the date of the Closing ("Valuation Time"), using the valuation
procedures set forth in Target's then-current prospectus and state-
ment of additional information less (b) the amount of the Liabili-
ties as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A
Acquiring Fund Share, a Class B Acquiring Fund Share, and a Class
D Acquiring Fund Share shall be computed as of the Valuation Time,
using the valuation procedures set forth in Acquiring Fund's then-
current prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2
shall be made by or under the direction of Mitchell Hutchins Asset
Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary
to consummate the same ("Closing"), shall occur at the Funds' prin-
cipal office on August 11, 1995, or at such other place and/or on
such other date as the parties may agree. All acts taking place at
the Closing shall be deemed to take place simultaneously as of the
close of business on the date thereof or at such other time as the
parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on
the NYSE or elsewhere is disrupted, so that accurate appraisal of
the net value of Target and the NAV per Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
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3.2. Investment Series shall deliver to America Trust at the
Closing a schedule of the Assets as of the Effective Time, which
shall set forth for all portfolio securities included therein their
adjusted tax basis and holding period by lot. Target's custodian
shall deliver at the Closing a certificate of an authorized officer
stating that (a) the Assets held by the custodian will be trans-
ferred to Acquiring Fund at the Effective Time and (b) all neces-
sary taxes in conjunction with the delivery of the Assets, includ-
ing all applicable federal and state stock transfer stamps, if any,
have been paid or provision for payment has been made.
3.3. Investment Series shall deliver to America Trust at the
Closing a list of the names and addresses of the Shareholders and
the number (by class) of outstanding Target Shares owned by each
Shareholder, all as of the Effective Time, certified by the Secre-
tary or Assistant Secretary of Target. The Transfer Agent shall
deliver at the Closing a certificate as to the opening on Acquiring
Fund's share transfer books of accounts in the Shareholders' names.
America Trust shall issue and deliver a confirmation to Investment
Series evidencing the Acquiring Fund Shares (by class) to be cre-
dited to Target at the Effective Time or provide evidence satisfac-
tory to Investment Series that such Acquiring Fund Shares have been
credited to Target's account on Acquiring Fund's books. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other docu-
ments as the other party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at
the Closing a certificate executed in its name by its President or
a Vice President in form and substance satisfactory to the recipi-
ent and dated the Effective Time, to the effect that the represen-
tations and warranties it made in this Agreement are true and cor-
rect at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Investment Series is an unincorporated voluntary
association with transferable shares organized as a business
trust under a written instrument ("Business Trust"); it is
duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts; and a copy of
its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. Investment Series is duly registered as an open-
end management investment company under the 1940 Act, and such
registration will be in full force and effect at the Effective
Time;
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4.1.3. Target is a duly established and designated
series of Investment Series;
4.1.4. At the Closing, Target will have good and market-
able title to the Assets and full right, power, and authority
to sell, assign, transfer, and deliver the Assets free of any
liens or other encumbrances; and upon delivery and payment for
the Assets, Acquiring Fund will acquire good and marketable
title thereto;
4.1.5. Target's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the Securities Act of 1933 ("1933
Act") and the 1940 Act and the rules and regulations there-
under and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing;
4.1.6. Target is not in violation of, and the execution
and delivery of this Agreement and consummation of the trans-
actions contemplated hereby will not conflict with or violate,
Massachusetts law or any provision of Investment Series's Dec-
laration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obli-
gation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it
is bound, except as previously disclosed in writing to and
accepted by America Trust;
4.1.7. Except as disclosed in writing to and accepted by
America Trust, all material contracts and other commitments of
or applicable to Target (other than this Agreement and invest-
ment contracts, including options, futures, and forward con-
tracts) will be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior to
the Effective Time, without either Fund's incurring any lia-
bility or penalty with respect thereto and without diminishing
or releasing any rights Target may have had with respect to
actions taken or omitted to be taken by any other party
thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and
accepted by America Trust, no litigation, administrative pro-
ceeding, or investigation of or before any court or govern-
mental body is presently pending or (to Target's knowledge)
threatened against Investment Series with respect to Target or
any of its properties or assets that, if adversely determined,
would materially and adversely affect Target's financial con-
dition or the conduct of its business; Target knows of no
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facts that might form the basis for the institution of any
such litigation, proceeding, or investigation and is not a
party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially or
adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of Investment Series's board
of trustees, which has made the determinations required by
Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive
relief or no-action assurances requested from the Securities
and Exchange Commission ("SEC") or its staff with respect to
sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of
equity;
4.1.10. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.11. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the Secu-
rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for
the execution or performance of this Agreement by Investment
Series, except for (a) the filing with the SEC of a registra-
tion statement by America Trust on Form N-14 relating to the
Acquiring Fund Shares issuable hereunder, and any supplement
or amendment thereto ("Registration Statement"), including
therein a prospectus/proxy statement ("Proxy Statement"),
(b) receipt of the exemptive relief referenced in subparagraph
4.1.9, and (c) such consents, approvals, authorizations, and
filings as have been made or received or as may be required
subsequent to the Effective Time;
4.1.12. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
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Proxy Statement made in reliance on and in conformity with
information furnished by America Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.14. Target is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a regu-
lated investment company ("RIC") under Subchapter M of the
Code for each past taxable year since it commenced operations
and will continue to meet all the requirements for such quali-
fication for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it. The Assets shall
be invested at all times through the Effective Time in a man-
ner that ensures compliance with the foregoing;
4.1.15. Target is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or
similar case within the meaning of section 368(a)(3)(A) of the
Code;
4.1.16. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government secu-
rities) is invested in the stock or securities of any one
issuer, and not more than 50% of the value of such assets is
invested in the stock or securities of five or fewer issuers;
and
4.1.17. Target will be terminated as soon as reasonably
practicable after the Reorganization, but in all events within
six months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. America Trust is a Business Trust; it is duly
organized, validly existing, and in good standing under the
laws of the Commonwealth of Massachusetts; and a copy of its
Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.2.2. America Trust is duly registered as an open-end
management investment company under the 1940 Act, and such
registration will be in full force and effect at the Effective
Time;
4.2.3. Acquiring Fund is a duly established and desig-
nated series of America Trust;
4.2.4. No consideration other than Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the Assets in the Reorganization;
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4.2.5. The Acquiring Fund Shares to be issued and deli-
vered to Target hereunder will, at the Effective Time, have
been duly authorized and, when issued and delivered as pro-
vided herein, will be duly and validly issued and outstanding
shares of Acquiring Fund, fully paid and non-assessable, ex-
cept to the extent that under Massachusetts law shareholders
of a Business Trust may, under certain circumstances, be held
personally liable for its obligations. Except as contemplated
by this Agreement, Acquiring Fund does not have outstanding
any options, warrants, or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any secu-
rity convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement
of additional information conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations thereunder and do not include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with or
violate, Massachusetts law or any provision of America Trust's
Declaration of Trust or By-Laws or of any provision of any
agreement, instrument, lease, or other undertaking to which
Acquiring Fund is a party or by which it is bound or result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Investment
Series;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Investment Series, no litigation, administrative
proceeding, or investigation of or before any court or govern-
mental body is presently pending or (to Acquiring Fund's
knowledge) threatened against America Trust with respect to
Acquiring Fund or any of its properties or assets that, if
adversely determined, would materially and adversely affect
Acquiring Fund's financial condition or the conduct of its
business; Acquiring Fund knows of no facts that might form the
basis for the institution of any such litigation, proceeding,
or investigation and is not a party to or subject to the pro-
visions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its
business or its ability to consummate the transactions contem-
plated hereby;
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4.2.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of America Trust's board of
trustees, which has made the determinations required by Rule
17a-8(a) under the 1940 Act; and, subject to receipt of any
necessary exemptive relief or no-action assurances requested
from the SEC or its staff with respect to sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid
and legally binding obligation of Acquiring Fund, enforceable
in accordance with its terms, except as the same may be lim-
ited by bankruptcy, insolvency, fraudulent transfer, reorgan-
ization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the 1934
Act, or the 1940 Act for the execution or performance of this
Agreement by America Trust, except for (a) the filing with the
SEC of the Registration Statement, (b) receipt of the exemp-
tive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been
made or received or as may be required subsequent to the
Effective Time;
4.2.11. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by Investment Series for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a RIC
under Subchapter M of the Code for each past taxable year
since it commenced operations and will continue to meet all
the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings
and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its busi-
ness as a series of an open-end investment company; nor does
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Acquiring Fund have any plan or intention to redeem or other-
wise reacquire any Acquiring Fund Shares issued to the Share-
holders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Tar-
get's business in substantially the same manner that Target
conducted that business immediately before the Reorganization,
(b) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordi-
nary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M of the Code,
and (c) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless
and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make dispo-
sitions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund
to be dissolved or merged into another corporation or business
trust or any "fund" thereof (within the meaning of section
851(h)(2) of the Code) following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not
more than 25% of the value of Acquiring Fund's total assets
(excluding cash, cash items, and U.S. government securities)
will be invested in the stock or securities of any one issuer
and (b) not more than 50% of the value of such assets will be
invested in the stock or securities of five or fewer issuers;
and
4.2.17. Acquiring fund does not own, directly or indi-
rectly, nor at the Effective Time will it own, directly or
indirectly, nor has it owned, directly or indirectly, at any
time during the past five years, any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund
Shares, when received by the Shareholders, will be approxi-
mately equal to the fair market value of their Target Shares
constructively surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or
intention of Shareholders to redeem or otherwise dispose of
any portion of the Acquiring Fund Shares to be received by
them in the Reorganization and (b) does not anticipate dis-
positions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of
an open-end investment company. Consequently, its management
expects that the percentage of Shareholder interests, if any,
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that will be disposed of as a result of or at the time of the
Reorganization will be de minimis. Nor does its management
anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganiza-
tion;
4.3.3. The Shareholders will pay their own expenses, if
any, incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reor-
ganization, Acquiring Fund will hold substantially the same
assets and be subject to substantially the same liabilities
that Target held or was subject to immediately prior thereto,
plus any liabilities and expenses of the parties incurred in
connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of
the Assets will equal or exceed the Liabilities to be assumed
by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the
Funds that was issued or acquired, or will be settled, at a
discount;
4.3.7. Pursuant to the Reorganization, Target will
transfer to Acquiring Fund, and Acquiring Fund will acquire,
at least 90% of the fair market value of the net assets, and
at least 70% of the fair market value of the gross assets,
held by Target immediately before the Reorganization. For the
purposes of this representation, any amounts used by Target to
pay its Reorganization expenses and redemptions and distribu-
tions made by it immediately before the Reorganization (except
for (a) distributions made to conform to its policy of distri-
buting all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions
not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Share-
holder who is an employee of Target will be separate consider-
ation for, or allocable to, any of the Target Shares held by
such Shareholder-employee; none of the Acquiring Fund Shares
received by any such Shareholder-employee will be separate
consideration for, or allocable to, any employment agreement;
and the consideration paid to any such Shareholder-employee
will be for services actually rendered and will be commensur-
ate with amounts paid to third parties bargaining at arm's-
length for similar services; and
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4.3.9. Immediately after the Reorganization, the Share-
holders will not own shares constituting "control" of Acquir-
ing Fund within the meaning of section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business
in the ordinary course between the date hereof and the Closing, it
being understood that (a) such ordinary course will include declar-
ing and paying customary dividends and other distributions and such
changes in operations as are contemplated by each Fund's normal
business activities and (b) each Fund will retain exclusive control
of the composition of its portfolio until the Closing; provided
that Target shall not dispose of more than an insignificant portion
of its historic business assets during such period without Acquir-
ing Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated
hereby.
5.3. Target covenants that the Acquiring Fund Shares to be
delivered hereunder are not being acquired for the purpose of mak-
ing any distribution thereof, other than in accordance with the
terms hereof.
5.4. Target covenants that it will assist America Trust in
obtaining such information as America Trust reasonably requests
concerning the beneficial ownership of Target Shares.
5.5. Target covenants that Target's books and records (in-
cluding all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder) will be turned
over to America Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy
Statement in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as
and when requested by the other Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instru-
ments, and will take or cause to be taken such further action, as
the other Fund may deem necessary or desirable in order to vest in,
and confirm to, (a) Acquiring Fund, title to and possession of all
the Assets, and (b) Target, title to and possession of the Acquir-
ing Fund Shares to be delivered hereunder, and otherwise to carry
out the intent and purpose hereof.
5.8. America Trust covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act,
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the 1940 Act, and such state securities laws it may deem appropri-
ate in order to continue its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take
or cause to be taken all actions, and to do or cause to be done all
things, reasonably necessary, proper, or advisable to consummate
and effectuate the transactions contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) per-
formance by the other Fund of all the obligations to be performed
hereunder at or before the Effective Time, (b) all representations
and warranties of the other Fund contained herein being true and
correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated hereby, as
of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further condi-
tions that, at or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby
shall have been duly adopted and approved by Investment Series's
board of trustees and shall have been approved by Target's share-
holders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC
and state securities authorities, and no order or directive shall
have been received that any other or further action is required to
permit the parties to carry out the transactions contemplated
hereby. The Registration Statement shall have become effective
under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued
an unfavorable report with respect to the Reorganization under sec-
tion 25(b) of the 1940 Act nor instituted any proceedings seeking
to enjoin consummation of the transactions contemplated hereby
under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities (in-
cluding the SEC and state securities authorities) deemed necessary
by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a
material adverse effect on the assets or properties of either Fund,
provided that either Fund may for itself waive any of such condi-
tions.
6.3. At the Effective Time, no action, suit, or other pro-
ceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit, or to obtain damages or
other relief in connection with, the transactions contemplated
hereby.
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6.4. Investment Series shall have received an opinion of
Kirkpatrick & Lockhart LLP, counsel to America Trust, substantially
to the effect that:
6.4.1. Acquiring Fund is a duly established series of
America Trust, a Business Trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts
with power under its Declaration of Trust to own all of its
properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by America Trust on behalf of Acquiring
Fund and (b) assuming due authorization, execution, and deli-
very of this Agreement by Investment Series on behalf of Tar-
get, is a valid and legally binding obligation of America
Trust with respect to Acquiring Fund, enforceable in accor-
dance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting cre-
ditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and dis-
tributed to the Shareholders under this Agreement, assuming
their due delivery as contemplated by this Agreement, will be
duly authorized and validly issued and outstanding and fully
paid and non-assessable, except to the extent that under
Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obli-
gations, and no shareholder of Acquiring Fund has any preemp-
tive right to subscribe for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate America Trust's Declara-
tion of Trust or By-Laws or any provision of any agreement
(known to such counsel) to which America Trust (with respect
to Acquiring Fund) is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which America Trust (with
respect to Acquiring Fund) is a party or by which it is bound,
except as set forth in such opinion or as previously disclosed
in writing to and accepted by Investment Series;
6.4.5. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by America Trust on
behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
A-15
6.4.6. America Trust is registered with the SEC as an
investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.4.7. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
America Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring
Fund and (b) America Trust (with respect to Acquiring Fund) is
not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects Acquiring Fund's business,
except as set forth in such opinion or as otherwise disclosed
in writing to and accepted by Investment Series.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an
opinion of competent Massachusetts counsel.
6.5. America Trust shall have received an opinion of Kirk-
patrick & Lockhart LLP, counsel to Investment Series, substantially
to the effect that:
6.5.1. Target is a duly established series of Investment
Series, a Business Trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power
under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on
its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by Investment Series on behalf of Target
and (b) assuming due authorization, execution, and delivery of
this Agreement by America Trust on behalf of Acquiring Fund,
is a valid and legally binding obligation of Investment Series
with respect to Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insol-
vency, fraudulent transfer, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and by
general principles of equity;
6.5.3. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate Investment Series's Decla-
ration of Trust or By-Laws or any provision of any agreement
(known to such counsel) to which Investment Series (with
respect to Target) is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Investment Series
A-16
(with respect to Target) is a party or by which it is bound,
except as set forth in such opinion or as previously disclosed
in writing to and accepted by America Trust;
6.5.4. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by Investment
Series on behalf of Target of the transactions contemplated
herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.5.5. Investment Series is registered with the SEC as
an investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
Investment Series (with respect to Target) or any of its
properties or assets attributable or allocable to Target and
(b) Investment Series (with respect to Target) is not a party
to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and
adversely affects its business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted
by America Trust.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an
opinion of competent Massachusetts counsel.
6.6. Each Investment Company shall have received an opinion
of Kirkpatrick & Lockhart LLP, its counsel, addressed to and in
form and substance satisfactory to it, as to the federal income tax
consequences mentioned below ("Tax Opinion"). In rendering the Tax
Opinion, such counsel may rely as to factual matters, exclusively
and without independent verification, on the representations made
in this Agreement (or in separate letters addressed to such coun-
sel) and the certificates delivered pursuant to paragraph 3.4. The
Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein, for federal income tax pur-
poses:
6.6.1. Acquiring Fund's acquisition of the Assets in
exchange solely for Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribu-
tion of those shares to the Shareholders constructively in
exchange for the Shareholders' Target Shares, will constitute
a reorganization within the meaning of section 368(a)(1)(C) of
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the Code, and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on
the transfer to Acquiring Fund of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assump-
tion of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for
their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring
Fund on its receipt of the Assets in exchange solely for
Acquiring Fund Shares and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization, and Acquiring Fund's holding period for
the Assets will include Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on
the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and
its holding period for those Acquiring Fund Shares will in-
clude its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, the Tax Opinion may
state that no opinion is expressed as to the effect of the Reorgan-
ization on the Funds or any Shareholder (regarding the recognition
of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, fu-
tures, and forward contracts included in the Assets) as to which
any unrealized gain or loss is required to be recognized for fed-
eral income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting.
At any time before the Closing, (a) Acquiring Fund may waive
any of the foregoing conditions if, in the judgment of America
Trust's board of trustees, such waiver will not have a material
adverse effect on its shareholders' interests, and (b) Target may
waive any of the foregoing conditions if, in the judgment of
Investment Series's board of trustees, such waiver will not have a
material adverse effect on the Shareholders' interests.
A-18
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the
other that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses
incurred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by
the Funds proportionately, as follows: each such expense will be
borne by the Funds in proportion to their respective net assets as
of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) ex-
penses incurred in connection with entering into and carrying out
the provisions of this Agreement; (b) expenses associated with the
preparation and filing of the Registration Statement; (c) registra-
tion or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws
to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident
as of the date of the mailing of the Proxy Statement to such share-
holders; (d) printing and postage expenses; (e) legal and account-
ing fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or cove-
nant not set forth herein, and this Agreement constitutes the
entire agreement between the parties. The representations, warran-
ties, and covenants contained herein or in any document delivered
pursuant hereto or in connection herewith shall survive the Clos-
ing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by Target's
shareholders:
9.1. By either Fund (a) in the event of the other Fund's
material breach of any representation, warranty, or covenant con-
tained herein to be performed at or prior to the Effective Time,
(b) if a condition to its obligations has not been met and it
reasonably appears that such condition will not or cannot be met,
or (c) if the Closing has not occurred on or before December 31,
1995; or
9.2. By the parties' mutual agreement.
A-19
In the event of termination under paragraphs 9.1.(c) or 9.2, there
shall be no liability for damages on the part of either Fund, or
the trustees or officers of either Investment Company, to the other
Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at
any time, notwithstanding approval thereof by Target's sharehold-
ers, in such manner as may be mutually agreed upon in writing by
the parties; provided that following such approval no such amend-
ment shall have a material adverse effect on the Shareholders' in-
terests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachu-
setts; provided that, in the case of any conflict between such laws
and the federal securities laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or
shall be construed to confer upon or give any person, firm, trust,
or corporation other than the parties and their respective succes-
sors and assigns any rights or remedies under or by reason of this
Agreement.
11.3. The parties acknowledge that each Investment Company is
a Business Trust. Notice is hereby given that this instrument is
executed on behalf of each Investment Company's trustees solely in
their capacity as trustees, and not individually, and that each In-
vestment Company's obligations under this instrument are not bind-
ing on or enforceable against any of its trustees, officers, or
shareholders, but are only binding on and enforceable against the
respective Funds' assets and property. Each Fund agrees that, in
asserting any rights or claims under this Agreement, it shall look
only to the other Fund's assets and property in settlement of such
rights or claims and not to such trustees or shareholders.
A-20
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER AMERICA FUND,
on behalf of its series,
PAINEWEBBER GROWTH AND INCOME
FUND
By: /s/ /s/
------------------------ --------------------------
Assistant Secretary Vice President
ATTEST: PAINEWEBBER INVESTMENT SERIES,
on behalf of its series,
PAINEWEBBER GLOBAL ENERGY FUND
By: /s/ /s/
----------------------- --------------------------
Assistant Secretary Vice President
A-21
Appendix B
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
("Agreement") is made as of May 30, 1995, between PaineWebber
America Fund, a Massachusetts business trust ("PW Trust"), on
behalf of PaineWebber Growth and Income Fund, a segregated port-
folio of assets ("series") thereof ("Acquiring Fund"), and Mitchell
Hutchins/Kidder, Peabody Equity Income Fund, Inc., a Maryland cor-
poration ("Target"). (Acquiring Fund and Target are sometimes
referred to herein individually as a "Fund" and collectively as the
"Funds," and PW Trust and Target are sometimes referred to herein
collectively as the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of
a reorganization described in section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). The reorganization will
involve the transfer to Acquiring Fund of Target's assets solely in
exchange for voting shares of beneficial interest in Acquiring Fund
("Acquiring Fund Shares") and the assumption by Acquiring Fund of
Target's liabilities, followed by the constructive distribution of
the Acquiring Fund Shares to the holders of shares of common stock
in Target ("Target Shares") in exchange therefor, all upon the
terms and conditions set forth herein. The foregoing transactions
are referred to herein as the "Reorganization." All agreements,
representations, actions, and obligations described herein made or
to be taken or undertaken by Acquiring Fund are made and shall be
taken or undertaken by PW Trust on its behalf.
Acquiring Fund's shares are divided into four classes, desig-
nated Class A, Class B, Class C, and Class D shares ("Class A
Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C
Acquiring Fund Shares," and "Class D Acquiring Fund Shares," re-
spectively). Except as noted in the following sentence, these
classes differ only with respect to the sales charges imposed on
the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under
the Investment Company Act of 1940 ("1940 Act"), as follows:
(1) Class A Acquiring Fund Shares are offered at net asset value
("NAV") plus a sales charge, if applicable, and are subject to a
12b-1 service fee at the annual rate of 0.23% of the average daily
net assets attributable to the class ("class assets"); (2) Class B
Acquiring Fund Shares are offered at NAV without imposition of any
sales charge and are subject to a contingent deferred sales charge
and 12b-1 service and distribution fees at the respective annual
rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring
Fund Shares are offered, currently only to the trustee of the
PaineWebber Savings Investment Plan on behalf of that plan, at NAV
without imposition of any sales charge and are not subject to any
12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV
without imposition of any sales charge and are subject to 12b-1
service and distribution fees at the respective annual rates of
0.25% and 0.75% of class assets. These classes also may differ
from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees. Only Classes A and D
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated
Class A, Class B, and Class C shares ("Class A Target Shares,"
"Class B Target Shares," and "Class C Target Shares," respec-
tively). Apart from differences in certain ancillary class-speci-
fic expenses, these classes differ only with respect to the sales
charges imposed on the purchase of shares and the 12b-1 fees, as
follows: (1) Class A Target Shares are offered at NAV plus a sales
charge, if applicable, and are subject to 12b-1 service and distri-
bution fees at the annual rate for each of 0.25% of class assets;
(2) Class B Target Shares are offered at NAV without imposition of
any sales charge and are subject to 12b-1 service and distribution
fees at the respective annual rates of 0.25% and 0.75% of class as-
sets; and (3) Class C Target Shares are offered, currently to a
limited group of investors (consisting of former employees of Kid-
der, Peabody & Co. Incorporated ("Kidder") and their associated ac-
counts, directors and trustees of mutual funds formerly distributed
by Kidder (now known as Mitchell Hutchins/Kidder, Peabody Funds and
PaineWebber/Kidder, Peabody Funds), Kidder's employee benefit
plans, and participants in a certain portfolio asset allocation
program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee.
In consideration of the mutual promises herein, the parties
covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets") to
Acquiring Fund. Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional (i) Class A Acquiring Fund Shares determined by
dividing the net value of Target (computed as set forth in
paragraph 2.1) ("Target Value") attributable to the Class A
Target Shares by the NAV (computed as set forth in paragraph
2.2) of a Class A Acquiring Fund Share, (ii) Class D Acquiring
Fund Shares determined by dividing the Target Value attribut-
able to the Class B Target Shares by the NAV (as so computed)
of a Class D Acquiring Fund Share, and (iii) Class A Acquiring
Fund Shares determined by dividing the Target Value attribut-
B-2
able to the Class C Target Shares by the NAV (as so computed)
of a Class A Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in
paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and rec-
ords, deferred and prepaid expenses shown as assets on Target's
books, and other property owned by Target at the Effective Time (as
defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise pro-
vided herein) all of Target's liabilities, debts, obligations, and
duties of whatever kind or nature, whether absolute, accrued, con-
tingent, or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the Effective
Time, and whether or not specifically referred to in this Agree-
ment, including without limitation Target's share of the expenses
described in paragraph 7.2. Notwithstanding the foregoing, Target
agrees to use its best efforts to discharge all of its known Lia-
bilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target
shall declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have distri-
buted substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is rea-
sonably practicable), Target shall constructively distribute the
Acquiring Fund Shares received by it pursuant to paragraph 1.1 to
Target's shareholders of record, determined as of the Effective
Time (collectively "Shareholders" and individually a "Share-
holder"), in exchange for their Target Shares. Such distribution
shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books
in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with
the respective pro rata number of full and fractional (rounded to
the third decimal place) Acquiring Fund Shares due that Share-
holder, by class (i.e., the account for a Shareholder of Class A
Target Shares shall be credited with the respective pro rata number
of Class A Acquiring Fund Shares due that Shareholder, the account
for a Shareholder of Class B Target Shares shall be credited with
B-3
the respective pro rata number of Class D Acquiring Fund Shares due
that Shareholder, and the account for a Shareholder of Class C Tar-
get Shares shall be credited with the respective pro rata number of
Class A Acquiring Fund Shares due that Shareholder). All outstand-
ing Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Ac-
quiring Fund shall not issue certificates representing the Acquir-
ing Fund Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of
the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall
be liquidated and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public
authority is and shall remain its responsibility up to and includ-
ing the date on which it is liquidated.
1.8. Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than that of the registered holder on
Target's books of the Target Shares constructively exchanged there-
for shall be paid by the person to whom such Acquiring Fund Shares
are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value
shall be (a) the value of the Assets computed as of the close of
regular trading on the New York Stock Exchange, Inc. ("NYSE") on
the date of the Closing ("Valuation Time"), using the valuation
procedures set forth in Target's then-current prospectus and state-
ment of additional information less (b) the amount of the Liabili-
ties as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A
Acquiring Fund Share and a Class D Acquiring Fund Share shall be
computed as of the Valuation Time, using the valuation procedures
set forth in Acquiring Fund's then-current prospectus and statement
of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2
shall be made by or under the direction of Mitchell Hutchins Asset
Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary
to consummate the same ("Closing"), shall occur at the Funds' prin-
cipal office on August 11, 1995, or at such other place and/or on
such other date as the parties may agree. All acts taking place at
B-4
the Closing shall be deemed to take place simultaneously as of the
close of business on the date thereof or at such other time as the
parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on
the NYSE or elsewhere is disrupted, so that accurate appraisal of
the net value of Target and the NAV per Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
3.2. Target shall deliver to PW Trust at the Closing a sched-
ule of the Assets as of the Effective Time, which shall set forth
for all portfolio securities included therein their adjusted tax
basis and holding period by lot. Target's custodian shall deliver
at the Closing a certificate of an authorized officer stating that
(a) the Assets held by the custodian will be transferred to Acquir-
ing Fund at the Effective Time and (b) all necessary taxes in con-
junction with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or
provision for payment has been made.
3.3. Target shall deliver to PW Trust at the Closing a list of
the names and addresses of the Shareholders and the number (by
class) of outstanding Target Shares owned by each Shareholder, all
as of the Effective Time, certified by the Secretary or Assistant
Secretary of Target. The Transfer Agent shall deliver at the
Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. PW Trust
shall issue and deliver a confirmation to Target evidencing the
Acquiring Fund Shares (by class) to be credited to Target at the
Effective Time or provide evidence satisfactory to Target that such
Acquiring Fund Shares have been credited to Target's account on
Acquiring Fund's books. At the Closing, each party shall deliver
to the other such bills of sale, checks, assignments, stock certi-
ficates, receipts, or other documents as the other party or its
counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at
the Closing a certificate executed in its name by its President or
a Vice President in form and substance satisfactory to the recipi-
ent and dated the Effective Time, to the effect that the represen-
tations and warranties it made in this Agreement are true and cor-
rect at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
B-5
4.1.1. Target is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Maryland, and a copy of its Articles of Incorporation is on
file with the Department of Assessments and Taxation of
Maryland;
4.1.2. Target is duly registered as an open-end manage-
ment investment company under the 1940 Act, and such registra-
tion will be in full force and effect at the Effective Time;
4.1.3. At the Closing, Target will have good and market-
able title to the Assets and full right, power, and authority
to sell, assign, transfer, and deliver the Assets free of any
liens or other encumbrances; and upon delivery and payment for
the Assets, Acquiring Fund will acquire good and marketable
title thereto;
4.1.4. Target's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the Securities Act of 1933 ("1933
Act") and the 1940 Act and the rules and regulations there-
under and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing;
4.1.5. Target is not in violation of, and the execution
and delivery of this Agreement and consummation of the trans-
actions contemplated hereby will not conflict with or violate,
Maryland law or any provision of Target's Articles of Incorpo-
ration or By-Laws or of any agreement, instrument, lease, or
other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or
decree to which Target is a party or by which it is bound,
except as previously disclosed in writing to and accepted by
PW Trust;
4.1.6. Except as disclosed in writing to and accepted by
PW Trust, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment
contracts, including options, futures, and forward contracts)
will be terminated, or provision for discharge of any liabili-
ties of Target thereunder will be made, at or prior to the
Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or re-
leasing any rights Target may have had with respect to actions
taken or omitted to be taken by any other party thereto prior
to the Closing;
B-6
4.1.7. Except as otherwise disclosed in writing to and
accepted by PW Trust, no litigation, administrative proceed-
ing, or investigation of or before any court or governmental
body is presently pending or (to Target's knowledge) threat-
ened against Target or any of its properties or assets that,
if adversely determined, would materially and adversely affect
its financial condition or the conduct of its business; Target
knows of no facts that might form the basis for the institu-
tion of any such litigation, proceeding, or investigation and
is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.1.8. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of Target's board of direc-
tors, which has made the determinations required by Rule 17a-
8(a) under the 1940 Act; and, subject to approval by Target's
shareholders and receipt of any necessary exemptive relief or
no-action assurances requested from the Securities and Ex-
change Commission ("SEC") or its staff with respect to sec-
tions 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of
equity;
4.1.9. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.10. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the Secu-
rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for
the execution or performance of this Agreement by Target,
except for (a) the filing with the SEC of a registration
statement by PW Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amend-
ment thereto ("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt of
the exemptive relief referenced in subparagraph 4.1.8, and
(c) such consents, approvals, authorizations, and filings as
have been made or received or as may be required subsequent to
the Effective Time;
4.1.11. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
B-7
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by PW Trust for use therein;
4.1.12. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.13. Target qualified for treatment as a regulated
investment company ("RIC") under Subchapter M of the Code for
each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification
for its current taxable year; and it has no earnings and prof-
its accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be in-
vested at all times through the Effective Time in a manner
that ensures compliance with the foregoing;
4.1.14. Target is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or
similar case within the meaning of section 368(a)(3)(A) of the
Code;
4.1.15. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government secu-
rities) is invested in the stock or securities of any one
issuer, and not more than 50% of the value of such assets is
invested in the stock or securities of five or fewer issuers;
and
4.1.16. Target will be liquidated as soon as reasonably
practicable after the Reorganization, but in all events within
six months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Trust is an unincorporated voluntary associa-
tion with transferable shares organized a as a business trust
under a written instrument ("Business Trust"); it is duly
organized, validly existing, and in good standing under the
laws of the Commonwealth of Massachusetts; and a copy of its
Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.2.2. PW Trust is duly registered as an open-end man-
agement investment company under the 1940 Act, and such reg-
B-8
istration will be in full force and effect at the Effective
Time;
4.2.3. Acquiring Fund is a duly established and desig-
nated series of PW Trust;
4.2.4. No consideration other than Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and deli-
vered to Target hereunder will, at the Effective Time, have
been duly authorized and, when issued and delivered as pro-
vided herein, will be duly and validly issued and outstanding
shares of Acquiring Fund, fully paid and non-assessable, ex-
cept to the extent that under Massachusetts law shareholders
of a Business Trust may, under certain circumstances, be held
personally liable for its obligations. Except as contemplated
by this Agreement, Acquiring Fund does not have outstanding
any options, warrants, or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any secu-
rity convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement
of additional information conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations thereunder and do not include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with or
violate, Massachusetts law or any provision of PW Trust's
Declaration of Trust or By-Laws or of any provision of any
agreement, instrument, lease, or other undertaking to which
Acquiring Fund is a party or by which it is bound or result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Target;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Target, no litigation, administrative proceeding,
or investigation of or before any court or governmental body
is presently pending or (to Acquiring Fund's knowledge)
threatened against PW Trust with respect to Acquiring Fund or
any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's finan-
cial condition or the conduct of its business; Acquiring Fund
B-9
knows of no facts that might form the basis for the institu-
tion of any such litigation, proceeding, or investigation and
is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of PW Trust's board of trus-
tees, which has made the determinations required by Rule 17a-
8(a) under the 1940 Act; and, subject to receipt of any neces-
sary exemptive relief or no-action assurances requested from
the SEC or its staff with respect to sections 17(a) and 17(d)
of the 1940 Act, this Agreement will constitute a valid and
legally binding obligation of Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganiza-
tion, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the 1934
Act, or the 1940 Act for the execution or performance of this
Agreement by PW Trust, except for (a) the filing with the SEC
of the Registration Statement, (b) receipt of the exemptive
relief referenced in subparagraph 4.2.9, and (c) such con-
sents, approvals, authorizations, and filings as have been
made or received or as may be required subsequent to the
Effective Time;
4.2.11. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by Target for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a RIC
under Subchapter M of the Code for each past taxable year
since it commenced operations and will continue to meet all
the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings
B-10
and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its busi-
ness as a series of an open-end investment company; nor does
Acquiring Fund have any plan or intention to redeem or other-
wise reacquire any Acquiring Fund Shares issued to the Share-
holders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Tar-
get's business in substantially the same manner that Target
conducted that business immediately before the Reorganization,
(b) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordi-
nary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M of the Code,
and (c) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless
and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make dispo-
sitions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund
to be dissolved or merged into another corporation or business
trust or any "fund" thereof (within the meaning of section
851(h)(2) of the Code) following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not
more than 25% of the value of Acquiring Fund's total assets
(excluding cash, cash items, and U.S. government securities)
will be invested in the stock or securities of any one issuer
and (b) not more than 50% of the value of such assets will be
invested in the stock or securities of five or fewer issuers;
and
4.2.17. Acquiring fund does not own, directly or indi-
rectly, nor at the Effective Time will it own, directly or
indirectly, nor has it owned, directly or indirectly, at any
time during the past five years, any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund
Shares, when received by the Shareholders, will be approxi-
mately equal to the fair market value of their Target Shares
constructively surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or
intention of Shareholders to redeem or otherwise dispose of
B-11
any portion of the Acquiring Fund Shares to be received by
them in the Reorganization and (b) does not anticipate dis-
positions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that
the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganiza-
tion will be de minimis. Nor does its management anticipate
that there will be extraordinary redemptions of Acquiring Fund
Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if
any, incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reor-
ganization, Acquiring Fund will hold substantially the same
assets and be subject to substantially the same liabilities
that Target held or was subject to immediately prior thereto,
plus any liabilities and expenses of the parties incurred in
connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of
the Assets will equal or exceed the Liabilities to be assumed
by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the
Funds that was issued or acquired, or will be settled, at a
discount;
4.3.7. Pursuant to the Reorganization, Target will
transfer to Acquiring Fund, and Acquiring Fund will acquire,
at least 90% of the fair market value of the net assets, and
at least 70% of the fair market value of the gross assets,
held by Target immediately before the Reorganization. For the
purposes of this representation, any amounts used by Target to
pay its Reorganization expenses and redemptions and distribu-
tions made by it immediately before the Reorganization (except
for (a) distributions made to conform to its policy of distri-
buting all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions
not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Share-
holder who is an employee of Target will be separate consider-
ation for, or allocable to, any of the Target Shares held by
such Shareholder-employee; none of the Acquiring Fund Shares
received by any such Shareholder-employee will be separate
consideration for, or allocable to, any employment agreement;
and the consideration paid to any such Shareholder-employee
B-12
will be for services actually rendered and will be commensur-
ate with amounts paid to third parties bargaining at arm's-
length for similar services; and
4.3.9. Immediately after the Reorganization, the Share-
holders will not own shares constituting "control" of Acquir-
ing Fund within the meaning of section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business
in the ordinary course between the date hereof and the Closing, it
being understood that (a) such ordinary course will include declar-
ing and paying customary dividends and other distributions and such
changes in operations as are contemplated by each Fund's normal
business activities and (b) each Fund will retain exclusive control
of the composition of its portfolio until the Closing; provided
that Target shall not dispose of more than an insignificant portion
of its historic business assets during such period without Acquir-
ing Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated
hereby.
5.3. Target covenants that the Acquiring Fund Shares to be
delivered hereunder are not being acquired for the purpose of mak-
ing any distribution thereof, other than in accordance with the
terms hereof.
5.4. Target covenants that it will assist PW Trust in obtain-
ing such information as PW Trust reasonably requests concerning the
beneficial ownership of Target Shares.
5.5. Target covenants that Target's books and records (in-
cluding all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder) will be turned
over to PW Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy
Statement in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as
and when requested by the other Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instru-
ments, and will take or cause to be taken such further action, as
the other Fund may deem necessary or desirable in order to vest in,
and confirm to, (a) Acquiring Fund, title to and possession of all
the Assets, and (b) Target, title to and possession of the Acquir-
B-13
ing Fund Shares to be delivered hereunder, and otherwise to carry
out the intent and purpose hereof.
5.8. PW Trust covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act,
the 1940 Act, and such state securities laws it may deem appropri-
ate in order to continue its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take
or cause to be taken all actions, and to do or cause to be done all
things, reasonably necessary, proper, or advisable to consummate
and effectuate the transactions contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) per-
formance by the other Fund of all the obligations to be performed
hereunder at or before the Effective Time, (b) all representations
and warranties of the other Fund contained herein being true and
correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated hereby, as
of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further condi-
tions that, at or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby
shall have been duly adopted and approved by Target's board of
directors and shall have been approved by Target's shareholders in
accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC
and state securities authorities, and no order or directive shall
have been received that any other or further action is required to
permit the parties to carry out the transactions contemplated
hereby. The Registration Statement shall have become effective
under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued
an unfavorable report with respect to the Reorganization under sec-
tion 25(b) of the 1940 Act nor instituted any proceedings seeking
to enjoin consummation of the transactions contemplated hereby
under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities (in-
cluding the SEC and state securities authorities) deemed necessary
by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a
material adverse effect on the assets or properties of either Fund,
provided that either Fund may for itself waive any of such condi-
tions.
B-14
6.3. At the Effective Time, no action, suit, or other pro-
ceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit, or to obtain damages or
other relief in connection with, the transactions contemplated
hereby.
6.4. Target shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to PW Trust, substantially to the effect
that:
6.4.1. Acquiring Fund is a duly established series of PW
Trust, a Business Trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power
under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on
its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by PW Trust on behalf of Acquiring Fund
and (b) assuming due authorization, execution, and delivery of
this Agreement by Target, is a valid and legally binding obli-
gation of PW Trust with respect to Acquiring Fund, enforceable
in accordance with its terms, except as the same may be lim-
ited by bankruptcy, insolvency, fraudulent transfer, reorgani-
zation, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and dis-
tributed to the Shareholders under this Agreement, assuming
their due delivery as contemplated by this Agreement, will be
duly authorized and validly issued and outstanding and fully
paid and non-assessable, except to the extent that under
Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obli-
gations, and no shareholder of Acquiring Fund has any preemp-
tive right to subscribe for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate PW Trust's Declaration of
Trust or By-Laws or any provision of any agreement (known to
such counsel) to which PW Trust (with respect to Acquiring
Fund) is a party or by which it is bound or, to the knowledge
of such counsel, result in the acceleration of any obligation,
or the imposition of any penalty, under any agreement, judg-
ment, or decree to which PW Trust (with respect to Acquiring
Fund) is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and
accepted by Target;
6.4.5. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
B-15
authority is required for the consummation by PW Trust on
behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.4.6. PW Trust is registered with the SEC as an invest-
ment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such reg-
istration; and
6.4.7. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
PW Trust (with respect to Acquiring Fund) or any of its prop-
erties or assets attributable or allocable to Acquiring Fund
and (b) PW Trust (with respect to Acquiring Fund) is not a
party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and
adversely affects Acquiring Fund's business, except as set
forth in such opinion or as otherwise disclosed in writing to
and accepted by Target.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an
opinion of competent Massachusetts counsel.
6.5. PW Trust shall have received an opinion of Sullivan &
Cromwell, counsel to Target, substantially to the effect that:
6.5.1. Target is a corporation duly organized and
validly existing under the laws of the State of Maryland with
power under its Articles of Incorporation to own all of its
properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by Target and (b) assuming due authoriza-
tion, execution, and delivery of this Agreement by PW Trust on
behalf of Acquiring Fund, is a valid and legally binding obli-
gation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general
principles of equity;
6.5.3. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate Target's Articles of
Incorporation or By-Laws or any provision of any agreement
(known to such counsel) to which Target is a party or by which
it is bound or, to the knowledge of such counsel, result in
B-16
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Target is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and
accepted by PW Trust;
6.5.4. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by Target of the
transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and such as may be required under state securities laws;
6.5.5. Target is registered with the SEC as an invest-
ment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
Target or any of its properties or assets and (b) Target is
not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to
and accepted by PW Trust.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of
competent Maryland counsel.
6.6. PW Trust shall have received an opinion of Kirkpatrick
& Lockhart LLP, its counsel, addressed to and in form and substance
satisfactory to PW Trust, and Target shall have received an opinion
of Sullivan & Cromwell, its counsel, addressed to and in form and
substance satisfactory to Target, each as to the federal income tax
consequences mentioned below (each a "Tax Opinion"). In rendering
its Tax Opinion, each such counsel may rely as to factual matters,
exclusively and without independent verification, on the represen-
tations made in this Agreement (or in separate letters addressed to
such counsel) and the certificates delivered pursuant to paragraph
3.4. Each Tax Opinion shall be substantially to the effect that,
based on the facts and assumptions stated therein, for federal
income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in
exchange solely for Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribu-
tion of those shares to the Shareholders constructively in
exchange for the Shareholders' Target Shares, will constitute
a reorganization within the meaning of section 368(a)(1)(C) of
B-17
the Code, and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on
the transfer to Acquiring Fund of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assump-
tion of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for
their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring
Fund on its receipt of the Assets in exchange solely for
Acquiring Fund Shares and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization, and Acquiring Fund's holding period for
the Assets will include Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on
the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and
its holding period for those Acquiring Fund Shares will in-
clude its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may
state that no opinion is expressed as to the effect of the Reorgan-
ization on the Funds or any Shareholder (regarding the recognition
of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, fu-
tures, and forward contracts included in the Assets) as to which
any unrealized gain or loss is required to be recognized for fed-
eral income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting.
At any time before the Closing, (a) Acquiring Fund may waive
any of the foregoing conditions if, in the judgment of PW Trust's
board of trustees, such waiver will not have a material adverse
effect on its shareholders' interests, and (b) Target may waive any
of the foregoing conditions if, in the judgment of its board of
directors, such waiver will not have a material adverse effect on
the Shareholders' interests.
B-18
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the
other that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses in-
curred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by
the Funds proportionately, as follows: each such expense will be
borne by the Funds in proportion to their respective net assets as
of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) ex-
penses incurred in connection with entering into and carrying out
the provisions of this Agreement; (b) expenses associated with the
preparation and filing of the Registration Statement; (c) registra-
tion or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws
to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident
as of the date of the mailing of the Proxy Statement to such share-
holders; (d) printing and postage expenses; (e) legal and account-
ing fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or cove-
nant not set forth herein, and this Agreement constitutes the
entire agreement between the parties. The representations, warran-
ties, and covenants contained herein or in any document delivered
pursuant hereto or in connection herewith shall survive the Clos-
ing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by Target's
shareholders:
9.1. By either Fund (a) in the event of the other Fund's
material breach of any representation, warranty, or covenant con-
tained herein to be performed at or prior to the Effective Time,
(b) if a condition to its obligations has not been met and it
reasonably appears that such condition will not or cannot be met,
or (c) if the Closing has not occurred on or before December 31,
1995; or
9.2. By the parties' mutual agreement.
B-19
In the event of termination under paragraphs 9.1.(c) or 9.2, there
shall be no liability for damages on the part of either Fund, or
the trustees, directors, or officers of either Investment Company,
to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at
any time, notwithstanding approval thereof by Target's sharehold-
ers, in such manner as may be mutually agreed upon in writing by
the parties; provided that following such approval no such amend-
ment shall have a material adverse effect on the Shareholders' in-
terests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachu-
setts; provided that, in the case of any conflict between such laws
and the federal securities laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or
shall be construed to confer upon or give any person, firm, trust,
or corporation other than the parties and their respective succes-
sors and assigns any rights or remedies under or by reason of this
Agreement.
11.3. The parties acknowledge that PW Trust is a Business
Trust. Notice is hereby given that this instrument is executed on
behalf of PW Trust's trustees solely in their capacity as trustees,
and not individually, and that PW Trust's obligations under this
instrument are not binding on or enforceable against any of its
trustees, officers, or shareholders, but are only binding on and
enforceable against Acquiring Fund's assets and property. Target
agrees that, in asserting any rights or claims under this Agree-
ment, it shall look only to Acquiring Fund's assets and property in
settlement of such rights or claims and not to such trustees or
shareholders.
B-20
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER AMERICA FUND,
on behalf of its series,
PAINEWEBBER GROWTH AND INCOME
FUND
By: /s/ /s/
------------------------- ---------------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY
EQUITY INCOME FUND, INC.
By: /s/ /s/
------------------------- ---------------------------
Assistant Secretary Vice President
B-21
PAINEWEBBER GROWTH AND INCOME FUND
(a series of PaineWebber America Fund)
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
PAINEWEBBER GLOBAL ENERGY FUND
(a series of PaineWebber Investment Series)
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to two proposed
reorganizations whereby PaineWebber Growth and Income Fund ("Growth and Income
Fund"), a series of PaineWebber America Fund ("America Fund") would acquire the
assets of each of PaineWebber Global Energy Fund ("Global Energy Fund"), a
series of PaineWebber Investment Series ("Investment Series") and Mitchell
Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") in
exchange solely for shares of beneficial interest in Growth and Income Fund and
the assumption by Growth and Income Fund of Global Energy Fund's and Equity
Income Fund's and liabilities. This Statement of Additional Information is not
a prospectus and should be read only in conjunction with the prospectus\proxy\
statement dated June __, 1995 relating to the above described transactions. A
copy of the prospectus\proxy statement may be obtained by calling any
PaineWebber Incorporated ("PaineWebber") investment executive or correspondent
firm or by calling toll-free 1-800-647-1568. This Statement of Additional
Information is dated June __, 1995.
This Statement of Additional Information consists of this cover page and
the following described documents each of which is incorporated by reference
herein:
(1) The Statement of Additional Information of Growth and Income Fund
dated May 12, 1995 previously filed on EDGAR, under Accession
Number: 0000950109-95-001701
(2) The Statement of Additional Information of Equity Income Fund
dated [June 1, 1995] previously filed on EDGAR, Accession
Number: 0000950117-95-000173
(3) The Statement of Additional Information of Global Energy Fund
dated March 1, 1995 previously filed on EDGAR, Accession
Number: 0000950109-95-000498
(4) The Annual Reports to Shareholders of Growth and Income Fund,
for fiscal year ended August 31, 1995 incorporated by reference
from File No. 811-3502, Global Energy Fund for fiscal year ended
October 31, 1994 incorporated by reference from File No. 811-5259
and Equity Income Fund for fiscal year ended January 31, 1995
incorporated by reference from File No. 811-4332
(5) The Semi-Annual Report to Shareholders of Growth and Income Fund
for the six months ended February 28, 1995 previously filed on
EDGAR, Accession Number: 0000703877-95-000001
The following pro forma financial information relates to Growth and
Income Fund, Global Energy Fund and Equity Income Fund.
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS - 97.22%
UNITED STATES - 97.11%
Aerospace - 4.52%
1,200 Boeing Co. $55,350 $55,350
90,900 General Dynamics Corporation $4,283,663 4,283,663
1,800 Lockheed Corp. 139,725 139,725
134,100 Loral Corporation 5,481,337 5,481,337
169,500 Martin Marieta Corporation New 8,093,625 8,093,625
3,800 Northrop Grumman Corp. 168,625 168,625
84,300 Raytheon Company 5,943,150 5,943,150
4,600 Rockwell International Corp. 177,100 177,100
2,400 TRW Inc. 157,800 157,800
5,200 United Technologies Corp. 345,150 345,150
----------- ----------- ----------- ------------
23,801,775 1,043,750 24,845,525
----------- ----------- ----------- ------------
Airlines - 0.95%
63,900 AMR Corporation Delaware 3,905,888 3,905,888
23,000 Delta Airlines Incorporated 1,334,000 1,334,000
----------- ----------- ----------- ------------
5,239,888 5,239,888
----------- ----------- ----------- ------------
Apparel - 1.06%
80,000 Nike Incorporated 5,627,813 122,188 5,750,001
5,400 Stride Rite Corp. 69,525 69,525
----------- ----------- ----------- ------------
5,627,813 191,713 5,819,526
----------- ----------- ----------- ------------
Automobiles - 1.70%
145,000 Donaldson Incorporated 3,643,125 3,643,125
6,600 Chrysler Corp. 287,100 287,100
173,600 Fleetwood Enterprises Incorporated 3,797,500 3,797,500
20,400 Ford Motor Company 532,950 532,950
7,900 General Motors Corp. 336,738 336,738
17,700 Paccar Inc. 778,800 778,800
----------- ----------- ----------- ------------
7,440,625 1,935,588 9,376,213
----------- ----------- ----------- ------------
Banking - 4.17%
4,800 Amsouth Bancorporation 139,800 139,800
8,800 Banc One Corp. 258,500 258,500
5,200 BankAmerica Corp. 250,250 250,250
11,100 Bankers Trust New York Corp. 700,688 700,688
3,500 Chase Manhattan Corp. 125,563 125,563
4,100 Chemical Corp. 164,513 164,513
1,900 CitiCorp 85,500 85,500
4,500 Corestates Financial Corp. 135,563 135,563
26,100 First Empire State Corporation 4,319,550 4,319,550
1,800 First Chicago Corp. 91,125 91,125
1,100 First Interstate Bancorp 89,513 89,513
5,500 Fleet Financial Group Inc. 171,188 171,188
4,700 KeyCorp New 136,300 136,300
348,900 Marshall and Ilsley Corporation 7,239,685 7,239,685
3,400 MBNA Corp. 89,675 89,675
5,800 Mellon Bank Corp. 221,125 221,125
5,800 Morgan (J.P.) & Co., Inc. 374,100 374,100
4,300 National City Corp. 119,325 119,325
156,100 NationsBank Corporation 7,660,800 124,688 7,785,488
14,500 PNC Bank Corp. 369,750 369,750
3,100 Shawnut National Corp. 79,438 79,438
----------- ----------- ----------- ------------
19,220,035 3,726,600 22,946,635
----------- ----------- ----------- ------------
Broadcasting - 0.03%
3,800 Viacom Inc. 170,050 170,050
----------- ----------- ----------- ------------
Business Services - 1.54%
47,900 Computer Associates International
Incorporated 2,730,300 2,730,300
22,100 De Luxe Corp. 618,800 618,800
185,900 Reynolds & Reynolds Company, Class A 5,135,488 5,135,488
----------- ----------- ----------- ------------
7,865,788 618,800 8,484,588
----------- ----------- ----------- ------------
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS -
(continued)
Chemicals - 2.11%
15,800 Anco Chemical Co. $671,500 $671,500
19,400 Bordon Chemicals & Plastics Limited $339,500 339,500
2,800 Dexter Corp. 59,850 59,850
10,450 Dow Chemical Co. 700,150 700,150
15,800 Du Pont (E.I.) De Nemours 886,775 886,775
21,400 Ethyl Corp. 219,350 219,350
166,700 Lubrizol Corporation 5,584,450 5,584,450
1,900 Monsanto 150,575 150,575
5,100 Olin Corp. 259,463 259,463
4,100 PPG Industries, Inc. 150,675 150,675
132,900 R.P.M. Incorporated Ohio 2,442,037 2,442,037
4,600 Union Carbide Corp. 131,675 131,675
----------- ----------- ----------- ------------
8,365,987 3,230,013 11,596,000
----------- ----------- ----------- ------------
Computers & Software - 5.82%
2,500 Apple Computer 98,750 98,750
177,100 Bay Networks Incorporated 5,556,512 5,556,512
55,700 BMC Software Incorporated 3,578,725 3,578,725
140,000 Cisco Systems Incorporated 4,637,250 87,750 4,725,000
1,700 Compaq Computer Corp.* 58,650 58,650
1,700 Computer Associates International Inc. 96,900 96,900
59,300 Concord Efs Incorporated 2,468,650 2,468,650
1,500 Dell Computers Corp. 62,250 62,250
26,950 Hewlett-Packard Co. 2,829,000 270,250 3,099,250
1,500 Informix Corp. 56,625 56,625
5,700 Intel Corp. 454,575 454,575
96,000 International Business Machines
Corporation 6,426,350 797,650 7,224,000
116,900 Legent Corporation 3,390,100 3,390,100
5,800 Microsoft Corp. 365,400 365,400
4,000 Oracle Systems Corp. 125,500 125,500
1,900 Pitney Bowes Inc. 67,450 67,450
2,500 Shared Medical Systems 86,094 86,094
1,750 Texas Instruments Inc. 137,813 137,813
3,300 Xerox Corp. 365,888 365,888
----------- ----------- ----------- ------------
28,886,587 3,131,544 32,018,131
----------- ----------- ----------- ------------
Conglomerates - 0.98%
80,200 General Electric Company 2,326,700 2,074,275 4,400,975
9,700 ITT Corporation 945,750 945,750
5,000 Terra Industries Inc. 55,000 55,000
----------- ----------- ----------- ------------
3,272,450 2,129,275 5,401,725
----------- ----------- ----------- ------------
Consumer Durables - 0.11%
2,000 Clorox Co. 120,750 120,750
2,900 Colgate-Palmolive Co. 187,050 187,050
3,800 Dana Corp. 93,575 93,575
1,400 Gillette Co. 110,775 110,775
2,600 Stanley Works 104,975 104,975
----------- ----------- ----------- ------------
617,125 617,125
----------- ----------- ----------- ------------
Cosmetics & Soaps - 1.63%
6,000 Avon Products Inc. 337,500 337,500
79,800 International Flavours 3,744,125 96,250 3,840,375
71,600 Procter & Gamble Company 3,990,000 771,400 4,761,400
----------- ----------- ----------- ------------
7,734,125 1,205,150 8,939,275
----------- ----------- ----------- ------------
Drugs & Medical Products - 12.64%
122,500 Abbott Laboratories 3,865,950 482,800 4,348,750
44,000 Allergan Incorporated 1,270,500 1,270,500
85,500 American Home Products Corporation 5,362,500 750,750 6,113,250
75,200 Amgen Inc. 5,188,800 5,188,800
15,450 Baxter International Inc. 480,881 480,881
96,500 Becton Dickinson & Company 5,066,250 5,066,250
88,200 Bristol Myers Squibb Company 4,172,600 1,295,800 5,468,400
213,100 Johnson & Johnson 11,350,000 743,425 12,093,425
58,800 Lilly Eli & Company 3,939,600 3,939,600
8,300 Marion Merrell Dow Inc. 206,463 206,463
60,300 Medtronics, Incorporated 3,618,000 3,618,000
145,500 Merck & Company 5,190,937 974,625 6,165,562
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS -
(continued)
Drugs & Medical Products
(concluded)
196,000 Mylan Labs Incorporated $6,125,000 $6,125,000
296,800 National Medical Enterprises
Incorporated 4,600,400 4,600,400
6,100 Pfizer Inc. $504,775 504,775
2,900 Shering-Plough Corp. 227,288 227,288
8,500 Tambrands Inc. 367,625 367,625
11,200 Upjohn & Co. 394,800 394,800
136,600 Ventritex Incorporated 2,868,600 2,868,600
6,200 Warner-Lambert Co. 473,525 473,525
----------- ----------- ----------- ------------
62,619,137 6,902,756 69,521,893
----------- ----------- ----------- ------------
Electronics
& Electrical Products - 9.35%
1,300 Altera Corp. 73,938 73,938
33,900 AMP Incorporated 2,145,000 397,500 2,542,500
900 Andrew Corp. 52,200 52,200
148,200 Cadence Design Systems Incorporated 3,797,625 3,797,625
6,400 Cooper Industries, Inc. 251,200 251,200
58,100 Diebold, Incorporated 2,055,288 2,055,288
80,800 Dover Corporation 4,807,600 4,807,600
91,800 DSC Communications Corporation 3,247,200 57,600 3,304,800
51,200 Eastman Kodak Company 2,386,800 224,400 2,611,200
262,900 EMC Corporation Massachusetts 4,502,162 4,502,162
91,400 Emerson Electric Company 5,587,563 456,263 6,043,826
79,700 General Instruments Corporation* 2,530,475 2,530,475
8,400 Honeywell Inc. 305,550 305,550
2,100 Integrated Device Technology 80,063 80,063
146,400 Lam Research Corporation 5,856,000 5,856,000
3,700 LSI Logic Corp. 201,650 201,650
4,900 Micron Technology Inc. 303,800 303,800
10,600 Motorola Inc. 609,500 609,500
6,100 National Services Industries Inc. 163,938 163,938
70,900 Network Equipment Technologies 1,799,088 1,799,088
78,300 Newbridge Networks Corporation 2,652,413 2,652,413
3,100 Scientific Atlanta Inc. 72,463 72,463
2,400 Tecktronix Inc. 82,200 82,200
58,700 Tellabs Incorporated 2,953,600 98,800 3,052,400
68,045 United States Robotics Incorporated 3,674,430 3,674,430
105 Vishay Intertechnology Inc. 5,670 5,670
----------- ----------- ----------- ------------
47,995,244 3,436,733 51,431,977
----------- ----------- ----------- ------------
Energy & Utilities - 3.47%
6,000 American Electric Power Inc. 203,250 203,250
3,500 Boston Edison Co. 85,750 85,750
5,500 Brooklyn Union Gas Co. 134,750 134,750
2,300 Central & Southwest Corp. 56,638 56,638
2,700 Cilcorp Inc. 95,513 95,513
81,300 Consolidated Edison Company New
York Inc. 1,947,563 298,350 2,245,913
3,400 Consolidated Natural Gas Co. 125,800 125,800
69,900 DPL Incorporated 1,459,163 1,459,163
9,300 Dresser Industries Inc. 191,813 191,813
151,300 Duke Power Company 5,938,525 5,938,525
8,800 Eastern Enterprises 232,100 232,100
19,600 Entergy Corp. 438,550 438,550
4,400 Halliburton Co. 163,900 163,900
3,600 Ies Industries Inc. 98,550 98,550
9,100 Iowa Ill Gas & Electric Co. 197,925 197,925
16,000 Minnesota Power & Light Co. 414,000 414,000
6,100 Montana Power Co. 144,875 144,875
4,300 National Fuel Gas Co. NJ 117,175 117,175
2,700 Ohio Edison Co. 56,700 56,700
5,700 Oklahoma Gas & Electric Co. 201,638 201,638
60,000 KN Energy Inc. $1,290,000 1,290,000
6,100 Pacific Enterprises 149,450 149,450
27,600 Pacific Gas & Electric Co. 707,250 707,250
10,800 Potomac Electric Power Co. 209,250 209,250
11,400 Public Service Enterprise Group 332,025 332,025
214,400 SCE Corporation 3,510,800 3,510,800
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS -
(continued)
Energy & Utilities
(concluded)
1,900 Washington Gas & Light Co. $72,438 $72,438
13,100 Washington Water Power Co. 196,500 196,500
----------- ----------- ----------- ------------
$12,856,051 $1,290,000 4,924,188 19,070,239
----------- ----------- ----------- ------------
Environmental Services - 2.13%
6,000 Browning Ferris Industries Inc. 186,750 186,750
35,000 Ogden Corp. 748,125 748,125
408,400 WMX Technologies, Inc. 10,399,662 371,888 10,771,550
----------- ----------- ----------- ------------
10,399,662 1,306,763 11,706,425
----------- ----------- ----------- ------------
Exploration & Production - 2.05%
20,000 British Petroleum Plc Spons ADR 1,530,000 1,530,000
75,000 Cross Timbers Oil Co. 1,050,000 1,050,000
100,000 Louis Dreyfus Natural Gas Corp. 1,187,500 1,187,500
75,000 Newfield Exploration Co. 1,462,500 1,462,500
55,555 Norsk Hydro AS Sponsored ADR 2,097,201 2,097,201
50,000 Repsol Sponsored ADR 1,431,250 1,431,250
50,000 Total SA ADR 1,387,500 1,387,500
60,000 YPF SA Spon ADR Repr Cl D 1,140,000 1,140,000
----------- ----------- ----------- ------------
11,285,951 11,285,951
----------- ----------- ----------- ------------
Financial Services - 0.32%
5,100 Beneficial Corp. 189,338 189,338
5,200 Block (H&R), Inc. 195,650 195,650
1,400 Federal Home Loan Mortgage Corp. 81,200 81,200
4,800 Federal National Mortgage Association 370,200 370,200
4,000 Household International Inc. 175,000 175,000
14,600 Paychex 598,600 598,600
3,700 Student Loan Marketing Association 136,438 136,438
----------- ----------- ----------- ------------
598,600 1,147,825 1,746,425
----------- ----------- ----------- ------------
Food & Agriculture - 5.02%
2,100 Anheuser Busch Companies Inc. 118,388 118,388
283,600 Archer Daniels Midland Company 5,388,400 5,388,400
89,900 Campbell Soup Company 4,079,212 4,079,212
21,700 Coca - Cola Company 1,193,500 1,193,500
149,600 Con Agra, Inc. 4,899,400 4,899,400
3,300 General Mills Inc. 200,063 200,063
7,100 Heinz (H.J.) Co. 279,563 279,563
103,800 Pepsico, Incorporated 3,756,000 305,175 4,061,175
124,400 Potash Corporation of Saskatchewan Inc. 4,447,300 4,447,300
4,300 Quaker Oats Co. 140,288 140,288
103,000 Sara Lee Corporation 2,703,750 2,703,750
700 Unilever N.V. 85,050 85,050
----------- ----------- ----------- ------------
25,274,062 2,322,025 27,596,087
----------- ----------- ----------- ------------
Forest Products - 0.06%
1,800 Georgia Pacific Corp. 134,775 134,775
4,300 Weyerhaeuser Co. 175,225 175,225
----------- ----------- ----------- ------------
310,000 310,000
----------- ----------- ----------- ------------
Gold - 0.46%
49,700 Barrick Gold Corporation 1,080,975 1,080,975
155,000 Battle Mountain Gold Company 1,472,500 1,472,500
----------- ----------- ----------- ------------
2,553,475 2,553,475
----------- ----------- ----------- ------------
Healthcare - 2.65%
101,200 Healthcare Compare Corporation 3,213,100 3,213,100
171,100 U.S. Healthcare, Inc. 7,150,900 206,400 7,357,300
102,800 Smithkline Beecham, PLC 3,996,350 3,996,350
----------- ----------- ----------- ------------
14,360,350 206,400 14,566,750
----------- ----------- ----------- ------------
Hotels & Casinos - 0.01%
1,100 Hilton Hotels Corp. 77,275 77,275
----------- ----------- ----------- ------------
Insurance - 4.44%
8,000 Aetna Life and Casualty Co. 430,000 430,000
112,600 AFLAC Incorporated 4,250,650 4,250,000
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS -
(continued)
Insurance (concluded)
6,900 American General Corp. $218,213 $218,213
56,800 American International Group Inc. $5,893,000 5,893,000
700 Cigna Corp. 53,025 53,025
100,600 Equitable of Iowa Companies 3,344,950 3,344,950
8,500 Hartford Steam Boiler Inspection
Insurance 361,250 361,250
2,400 Marsh & McLennan 196,800 196,800
47,000 Reliance Group Holdings Inc. 258,500 258,500
115,700 St. Paul Companies, Inc. 5,625,912 5,625,912
97,000 The Progressive Corporation 3,770,875 3,770,875
----------- ----------- ----------- ------------
22,885,387 1,517,788 24,403,175
----------- ----------- ----------- ------------
Materials-Construction - 0.01%
2,500 Masco Corp. 62,813 62,813
----------- ----------- ----------- ------------
Machinery - Machine Tolls - 0.82%
2,750 Deere & Co. 210,719 210,719
2,600 Goulds Pumps Inc. 55,900 55,900
5,100 Keystone International Inc. 94,988 94,988
3,700 Pall Corp. 74,463 74,463
67,100 W.W. Grainger, Incorporated 4,101,488 4,101,488
----------- ----------- ----------- ------------
4,101,488 436,069 4,537,557
----------- ----------- ----------- ------------
Mining - 0.19%
4,000 Cyprus Anax Minerals Co. 108,000 108,000
15,300 Minnesota Mining & Manufacturing Co. 837,675 837,675
1,900 Phelps Dodge Corp. 103,550 103,550
----------- ----------- ----------- ------------
1,049,225 1,049,225
----------- ----------- ----------- ------------
Oil & Gas - 5.55%
9,700 Amoco Corp. 574,725 574,725
7,200 Atlantic Richfield Co. 789,300 789,300
50,000 Camco International Inc. $925,000 925,000
137,500 Chevron Corporation 6,265,250 266,000 6,531,250
26,600 Exxon Corp. 1,702,400 1,702,400
66,200 Mobil Corporation 5,263,500 495,900 5,759,400
30,000 Numar Corp. 277,500 277,500
50,000 Occidental Petroleum Corp. 993,750 993,750
59,500 Placer Dome Incorporated 1,212,313 1,212,313
3,600 Phillips Petroleum Co. 120,150 120,150
27,900 Royal Dutch Petroleum Co. 1,681,875 1,446,413 3,128,288
20,000 Shell Trans & Trading New ADR 1,340,000 1,340,000
70,200 Texaco Incorporated 4,060,875 414,375 4,475,250
48,500 Unocal Corporation 1,376,188 1,376,188
75,000 Vintage Petroleum Inc. 1,303,125 1,303,125
----------- ----------- ----------- ------------
18,178,126 6,521,250 5,809,263 30,508,639
----------- ----------- ----------- ------------
Paper & Forest Products - 3.72%
83,700 Champion International Corporation 3,442,163 3,442,163
7,800 Federal Paper Brands Inc. 232,050 232,050
4,200 Kimberly Clark Corp. 218,400 218,400
208,600 Louisiana Pacific Corporation 5,892,950 5,892,950
139,400 Pentair Incorporated 5,985,488 5,985,488
2,800 Potlatch Corp. 120,750 120,750
234,200 Repap Enterprises Incorporated 1,646,719 1,646,719
29,200 Scott Paper Company 2,314,100 2,314,100
27,000 Stone Container Corporation 631,125 631,125
----------- ----------- ----------- ------------
19,912,545 571,200 20,483,745
----------- ----------- ----------- ------------
Printing & Publishing - 1.49%
2,500 Banta Corporation 80,625 80,625
17,600 Dun & Bradstreet Corp. 908,600 908,600
116,300 Gannett Company, Incorporated 6,314,000 82,500 6,396,500
14,600 Harland (John H.) Co. 330,325 330,325
3,000 McGraw Hill Inc. 211,500 211,500
6,200 Readers Digest Association Inc. 285,200 285,200
----------- ----------- ----------- ------------
6,394,625 1,818,125 8,212,750
----------- ----------- ----------- ------------
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS -
(continued)
Producer Goods - 1.77%
102,700 Caterpillar Incorporated 5,162,500 $139,388 $5,301,888
153,300 Federal Signal Corporation 3,142,650 3,142,650
73,500 Moltel Metal Technologies Inc. 1,304,625 1,304,625
----------- ----------- ----------- ------------
9,609,775 139,388 9,749,163
----------- ----------- ----------- ------------
Railroads - 0.15%
1,200 Conrail Inc. 66,300 66,300
1,700 Illinois Central Corp. 57,588 57,588
4,700 Norfolk Southern Corp. 310,788 310,788
10,000 Railtex Inc. $235,000 235,000
3,400 Union Pacific Corp. 177,650 177,650
----------- ----------- ----------- ------------
235,000 612,325 847,325
----------- ----------- ----------- ------------
Retail - 3.46%
123,100 American Stores Company 3,015,950 3,015,950
347,600 Bruno's Incorporated 3,541,175 3,541,175
1,500 Dayton Hudson Corp. 105,750 105,750
2,200 Home Depot Inc. 98,725 98,725
5,000 Limited Inc. 87,500 87,500
7,000 May Department Stores Co. 255,500 255,500
15,200 Melville Corporation 494,000 494,000
11,900 Penny (J.C.), Inc. 510,213 510,213
209,000 Rite Aid Corporation 5,172,750 5,172,750
96,200 Sears Roebuck and Company 4,166,550 571,300 4,737,850
13,900 TJX Companies Inc. 187,650 187,650
6,300 United States Shoe Corp. 119,700 119,700
27,300 Wal-Mart Stores Inc. 648,375 648,375
1,300 Winn Dixie Stores Inc. 72,800 72,800
----------- ----------- ----------- ------------
15,896,425 3,151,513 19,047,938
----------- ----------- ----------- ------------
Retail Food Chains - 0.99%
176,300 Albertson's, Inc. 5,421,225 5,421,225
----------- ----------- ----------- ------------
Specialty Chemicals - 0.58%
305,000 Methanex Corporation 3,202,500 3,202,500
----------- ----------- ----------- ------------
Specialty Retail - 3.78%
63,200 Dayton Hudson Corporation 4,455,600 4,455,600
18,300 Leggett & Platt Inc. 748,013 748,013
80,400 Loctite Corporation 3,698,400 3,698,400
133,500 Nordstrom Inc. 5,640,375 5,640,375
85,100 The Home Depot, Inc. 3,818,863 3,818,863
72,800 The Sherwin-Williams Company 2,447,900 2,447,900
----------- ----------- ----------- ------------
20,809,151 20,809,151
----------- ----------- ----------- ------------
Steel - 2.29%
2,700 Carpentar Technology Corp. 146,475 146,475
69,700 Inland Steel Industry Inc. 1,863,000 1,863,000
91,800 Nucor Corporation 5,152,275 5,152,275
269,450 Worthington Industries, Inc. 5,422,667 5,422,667
----------- ----------- ----------- ------------
12,437,942 146,475 12,584,417
----------- ----------- ----------- ------------
Telecommunications - 1.93%
15,500 American Telephone & Telegraph Corp. 802,125 802,125
12,500 Ameritech Corp. 535,938 535,938
15,800 Bell Atlantic Corp. 847,275 847,275
8,000 Bellsouth Corp. 472,000 472,000
8,000 Comcast Corp. 142,000 142,000
37,400 GTE Corp. 1,248,225 1,248,225
4,100 Northern Telecom Ltd. 139,913 139,913
31,400 Pacific Telesis Group 942,000 942,000
1,500 Southwestern Bell Corp. 62,438 62,438
99,300 Telephone & Data Systems Incorporated 4,530,562 4,530,562
22,800 U.S. West Inc. 883,500 883,500
----------- ----------- ----------- ------------
4,530,562 6,075,413 10,605,975
----------- ----------- ----------- ------------
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS -
(concluded)
Tobacco - 2.81%
136,200 American Brands Incorporated $4,470,050 $620,424 $5,090,474
170,400 Philip Morris Companies Inc. 8,796,600 1,555,200 10,351,800
----------- ----------- ----------- ------------
13,266,650 2,175,624 15,442,274
----------- ----------- ----------- ------------
Travel & Recreation - 0.35%
43,800 American Express Company 1,147,500 330,750 1,478,250
9,400 Callaway Golf Company 317,250 317,250
2,300 Disney (Walt) Co. 122,763 122,763
----------- ----------- ----------- ------------
1,464,750 453,513 1,918,263
----------- ----------- ----------- ------------
Total United States Common Stock 452,222,805 $19,332,201 62,652,301 534,207,307
----------- ----------- ----------- ------------
HONG KONG - 0.03%
Refining & Marketing - 0.03%
700,000 Zhenhai Refining & Chemical Corp. 162,970 162,970
----------- ----------- ----------- ------------
ITALY - 0.08%
Natural Gas Transmission - 0.08%
180,000 Italgas 435,572 435,572
----------- ----------- ----------- ------------
Total Common Stocks (cost -
$437,679,045, $21,156,575,
$62,029,886 and $520,865,506,
respectively) 452,222,805 19,930,743 62,652,301 534,805,849
----------- ----------- ----------- ------------
PREFERRED STOCK - 0.22%
UNITED STATES - 0.22%
Retail - 0.22%
19,600 Sears Roebuck and
Company (cost - $1,152,676) 1,210,300 1,210,300
----------- ----------- ----------- ------------
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates
- ------------------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT SECURITIES - 0.51%
UNITED STATES - 0.51%
$750 Cross Timbers Oil Co.
Convertible 11/01/03 5.250% 585,000 585,000
2,400 Developers
Diversified
Realty Corp. 08/15/99 7.000 2,232,000 2,232,000
----------- ----------- ----------- ------------
Total Long-Term Debt Securities (cost
- $2,400,000, $750,000, $0 and
$3,150,000, respectively 2,232,000 585,000 2,817,000
----------- ----------- ----------- ------------
SHORT-TERM DEBT SECURITIES - 3.81%
UNITED STATES - 3.81% United States
Treasury Bills 3/9- 5.3- 998,820 8,752,920 9,751,740
4/6/95 5.350
Repurchase Agreements - 2.03%
7,444 Repurchase Agreement
dated 2/28/95 with
State Steet Bank,
collateralized by
$7,917,000 U.S.
Treasury Notes,
7.250% due 08/15/22;
proceeds:
$7,445,247 03/01/95 6.030 7,444,000 7,444,000
985 Repurchase Agreement
dated 2/28/95 with
Brown Brothers
Harriman & Co.,
collateralized by
$1,001,650 U.S.
Treasury Notes,
8.500% due 08/15/95;
proceeds: $985,150 03/01/95 5.500 985,000 985,000
2,728 Repurchase Agreement
dated 2/28/95 with
CitiBank
collateralized by
$2,120,000 U.S.
Treasury Bond,
13.375% due 8/15/01;
proceeds:
$2,728,461 03/01/95 6.080 2,728,000 2,728,000
----------- ----------- ----------- ------------
Total Repurchase Agreements 7,444,000 985,000 2,728,000 11,157,000
----------- ----------- ----------- ------------
Total Short-term Debt Securities (cost
- $7,444,000, $1,983,820, $11,480,920
and $20,908,740 respectively) 7,444,000 1,983,820 11,480,920 20,908,740
----------- ----------- ----------- ------------
<CAPTION>
Portfolio of Investments
February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity Pro forma
Number of Income Fund Energy Fund Income Fund Combined
Shares Value Value Value Value
- ----------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total Investments 101.76%
(cost - $448,675,721, $23,890,395,
$73,510,807 and $546,076,923
respectively) $463,109,105 $22,499,563 $74,133,221 $559,741,888
Other liabilities in excess of
other assets -1.76% 1,562,548 (470,007) (10,748,411) (9,655,869)
------------ ----------- ----------- ------------
Net Assets - 100.00% $464,671,653 $22,029,556 $63,384,810 $550,086,019
============ =========== =========== ============
</TABLE>
- -------------------------
* Non-income producing security
ADR - American Depository Receipts
+ Security restricted as to resale.
See accompanying notes to pro forma combined financial statements.
Pro forma Combined
Statement of Assets and Liabilities
February 28, 1995
(unaudited)
<TABLE>
<CAPTION>
PaineWebber PaineWebber MH/KP
Growth and Global Equity
Income Energy Income Pro forma
Fund Fund Fund Combined
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Investments in securities, at value (cost-$448,675,721,
$23,890,395, $73,510,807, and $546,076,923 respectively) $463,109,105 $22,499,563 $74,133,221 $559,741,889
Other assets 23,431,965 238,166 44,463,760 68,133,891
------------ ----------- ----------- ------------
Total assets 486,541,070 22,737,729 118,596,981 627,875,780
------------ ----------- ----------- ------------
Liabilities
Total liabilities 21,869,417 708,173 55,212,171 77,789,761
------------ ----------- ----------- ------------
Net Assets
Beneficial interest, $0.001, $0.001, $0.01 and $0.001 par
value respectively (unlimited amount authorized) 448,788,925 25,841,790 59,490,330 534,121,045
Undistributed net investment income (loss) 326,098 (93,710) 284,913 517,301
Accumulated net realized gains (losses) from investments,
forward contracts, other assets and liabilities denominated
in foreign currencies 1,123,246 (2,328,311) 2,987,153 1,782,088
Net unrealized appreciation/depreciation of investments,
other assets, liabilities and forward contracts denominated
in foreign currencies 14,433,384 (1,390,213) 622,414 13,665,585
------------ ----------- ----------- ------------
Net assets $464,671,653 $22,029,556 $63,384,810 $550,086,019
============ =========== =========== ============
Class A:
Net assets $180,816,735 $ 8,951,715 $58,224,548 $251,540,265
------------ ----------- ----------- ------------
Shares outstanding 9,441,600 902,281 2,975,547 13,135,045
------------ ----------- ----------- ------------
Net asset value and redemption value per share $19.15 $9.92 $19.57 $19.15
============ =========== =========== ============
Maximum offering price per share (net asset value plus sales
charges of 4.50%, 4.50%, 5.75%, and 4.50%, respectively) $20.05 $10.39 $20.76 $20.05
============ =========== =========== ============
Class B:
Net assets $239,383,165 $12,442,509 $ 1,612,995 $251,825,674
------------ ----------- ----------- ------------
Shares outstanding 12,533,576 1,254,095 82,939 13,184,917
------------ ----------- ----------- ------------
Net asset value and offering price per share $19.10 $9.92 $19.45 $19.10
============ =========== =========== ============
Class C:
Net assets $ 14,543,879 $0 $ 3,547,267 $ 14,543,879
------------ ----------- ----------- ------------
Shares outstanding 759,803 0 181,359 759,803
------------ ----------- ----------- ------------
Net asset value, offering price and redemption value per share $19.14 $0.00 $19.56 $19.14
============ =========== =========== ============
Class D:
Net assets $ 29,927,874 $ 635,332 $0 $ 32,176,201
------------ ----------- ----------- ------------
Shares outstanding 1,562,497 64,846 0 1,679,920
------------ ----------- ----------- ------------
Net asset value, offering price and redemption value per share $19.15 $9.80 $0.00 $19.15
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Pro forma Combined
Statement of Assets and Liabilities
February 28, 1995
(unaudited)
PaineWebber PaineWebber
Growth and Global
Income Energy Pro forma
Fund Fund Combined
------------- ------ ---------
<S> <C> <C> <C>
Assets
Investments in securities, at value (cost -$448,675,721, $23,890,395, $463,109,105 $22,499,563 $485,608,668
and $472,566,116 respectively)
Other assets 23,431,965 238,166 23,670,131
------------ ----------- ------------
Total assets 486,541,070 22,737,729 509,278,799
------------ ------------ ------------
Liabilities
Total liabilities 21,869,417 708,173 22,577,590
------------ ----------- ------------
Net Assets
Beneficial interest, $0.001, $0.001, and $0.001 par value respectively
(unlimited amount authorized) 448,788,925 25,841,790 474,630,715
Undistributed (distribution in excess of) net investment income (loss) 326,098 (93,710) 232,388
Accumulated net realized gains (losses) from investments, forward contracts,
other assets and liabilities denominated in foreign currencies 1,123,246 (2,328,311) (1,205,065)
Net unrealized appreciation/depreciation of investments, other assets, liabilities
and forward contracts denominated in foreign currencies 14,433,384 (1,390,213) 13,043,171
------------ ----------- -----------
Net assets $464,671,653 $22,029,556 $486,701,209
============ =========== ============
Class A:
Net assets $180,816,735 $ 8,951,715 $189,768,450
------------ ----------- ------------
Shares outstanding 9,441,600 902,281 9,908,996
------------ ----------- ------------
Net asset value and redemption value per share $19.15 $9.92 $19.15
============ =========== ============
Maximum offering price per share (net asset value plus sales charges of 4.50%, 4.50%,
and 4.50%, respectively) $20.05 $10.39 $20.05
============ ============ ============
Class B:
Net assets $239,383,165 $ 12,442,509 $251,825,674
------------ ------------ ------------
Shares outstanding 12,533,576 1,254,095 13,184,917
------------ ------------ ------------
Net asset value and offering price per share $19.10 $9.92 $19.10
============ ============ ============
Class C:
Net assets $ 14,543,879 $0 $ 14,543,879
------------ ------------ ------------
Shares outstanding 759,803 0 759,803
------------ ------------ ------------
Net asset value, offering price and redemption value per share $19.14 $0.00 $19.14
============ ============ ============
Class D:
Net assets $ 29,927,874 $635,332 $ 30,563,206
------------ ------------ ------------
Shares outstanding 1,562,497 64,846 1,595,682
------------ ------------ ------------
Net asset value, offering price and redemption value per share $19.15 $9.80 $19.15
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Pro forma Combined
Statement of Assets and Liabilities
February 28, 1995
(unaudited)
PaineWebber MH/KP
Growth and Equity
Income Income Pro forma
Fund Fund Combined
------------ ----------- ------------
<S> <C> <C> <C>
Assets
Investments in securities, at value (cost -$448,675,721, $73,510,807, $463,109,105 $74,133,221 $537,242,326
and $522,186,528 respectively)
Other assets 23,431,965 44,463,760 67,895,725
------------ ----------- ------------
Total assets 486,541,070 118,596,981 605,138,051
------------ ----------- ------------
Liabilities
Total liabilities 21,869,417 55,212,171 77,081,588
------------ ----------- ------------
Net Assets
Beneficial interest, $0.001, $0.01 and $0.001 par value respectively 448,788,925 59,490,330 508,279,255
(unlimited amount authorized)
Undistributed net investment income 326,098 284,913 611,011
Accumulated net realized gains from investments, forward contracts,
other assets and liabilities denominated in foreign currencies 1,123,246 2,987,153 4,110,399
Net unrealized appreciation/depreciation of investments, other assets, liabilities
and forward contracts denominated in foreign currencies 14,433,384 622,414 15,055,798
------------ ----------- ------------
Net assets $464,671,653 $63,384,810 $528,056,463
============ =========== ============
Class A:
Net assets $180,816,735 $58,224,548 $242,588,550
------------ ----------- ------------
Shares outstanding 9,441,600 2,975,547 12,667,649
------------ ----------- ------------
Net asset value and redemption value per share $19.15 $19.57 $19.15
============ =========== ============
Maximum offering price per share (net asset value plus sales charges of 4.50%, 5.75%,
and 4.50%, respectively) $20.05 $20.76 $20.05
============ =========== ============
Class B:
Net assets $239,383,165 $1,612,995 $239,383,165
------------ ----------- ------------
Shares outstanding 12,533,576 82,939 12,533,576
------------ ----------- ------------
Net asset value and offering price per share $19.10 $19.45 $19.10
============ ========== =============
Class C:
Net assets $14,543,879 $3,547,267 $14,543,879
------------ ----------- ------------
Shares outstanding 759,803 181,359 759,803
------------ ----------- ------------
Net asset value, offering price and redemption value per share $19.14 $19.56 $19.14
============ ========= ============
Class D:
Net assets $29,927,874 $0 $31,540,869
------------ ----------- ------------
Shares outstanding 1,562,497 0 1,646,735
------------ ----------- ------------
Net asset value, offering price and redemption value per share $19.15 $0.00 $19.15
============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combined
Statement of Operations
(Unaudited)
For the Twelve Months Ended February 28, 1995
---------------------------------------------------------------
PaineWebber PaineWebber MH/KP
Growth and Global Equity
Income Energy Income Pro Forma
Fund Fund Fund Adjustments Combined
------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investment Income
Interest and dividends (net of foreign withholding taxes)... $12,758,061 $ 536,409 $2,673,782 $0 $15,968,252
----------- ---------- ---------- -------- -----------
Expenses
Investment advisory and administration fees................. 3,831,591 255,911 560,997 (45,161) 4,603,338
Distribution fees........................................... 3,673,902 215,614 389,377 (192,621) 4,086,272
Transfer agency and service fees............................ 697,288 49,414 95,858 (15,580) 826,980
Custody fees................................................ 163,433 90,392 46,944 (113,813) 186,956
Other....................................................... 651,663 166,373 198,741 (267,022) 749,755
----------- ---------- ---------- -------- -----------
9,017,877 777,704 1,291,917 (634,197) 10,453,301
----------- ---------- ---------- -------- -----------
Net Investment Income (Loss)................................... 3,740,184 (241,295) 1,381,865 634,197 5,514,951
----------- ---------- ---------- -------- -----------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains (losses) from:
Investment transactions................................... 25,410,528 (1,430,466) (1,332,388) 0 22,647,674
Forward contracts, other assets and liabilities denominated
in foreign currencies................................... 0 (3,011) 0 0 (3,011)
Net change in unrealized appreciation/depreciation on:
Investments............................................... (47,463,990) (2,779,876) 299,183 0 (49,944,683)
Forward contracts, other assets and liabilities
denominated in foreign currencies....................... 0 9,858 0 0 9,858
----------- ---------- ---------- -------- -----------
Net realized and unrealized losses from investment activities.. (22,053,462) (4,203,495) (1,033,205) 0 (27,290,162)
----------- ---------- ---------- -------- -----------
Net increase (decrease) in net assets resulting from operations ($18,313,278) ($4,444,790) $348,660 $634,197 ($21,775,211)
============ ========== ========== ======== ===========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
<TABLE>
<CAPTION>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 1995
(UNAUDITED)
PAINEWEBBER PAINEWEBBER
GROWTH AND GLOBAL
INCOME ENERGY PRO FORMA
FUND FUND ADJUSTMENT COMBINED
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest and dividends (net of foreign withholding taxes) $12,758,061 $ 536,409 $ 0 $13,294,470
EXPENSES
Investment advisory and administration fees 3,831,591 255,911 (45,160) 4,042,342
Distribution fees 3,673,902 215,614 0 3,889,516
Transfer agency and service fees 697,288 49,414 (5,884) 740,818
Custody fees 163,433 90,392 (88,621) 165,204
Other 651,663 166,373 (134,437) 683,599
----------- ---------- -------- -----------
9,017,877 777,704 (274,102) 9,521,479
----------- ---------- -------- -----------
NET INVESTMENT INCOME (LOSS) 3,740,184 (241,295) 274,102 3,772,991
----------- ---------- -------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investment transactions 25,410,528 (1,430,466) 0 23,980,062
Forward contracts, other assets and liabilities denominated
in foreign currencies 0 (3,011) 0 (3,011)
Net change in unrealized appreciation/depreciation on:
Investments (47,463,990) (2,779,876) 0 (50,243,866)
Forward contracts, other assets and liabilities denominated
in foreign currencies 0 9,858 0 9,858
----------- ---------- -------- -----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES (22,053,462) (4,203,495) 0 (26,256,957)
----------- ---------- -------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($18,313,278) ($4,444,790) $274,102 ($22,483,966)
----------- ---------- -------- -----------
----------- ---------- -------- -----------
</TABLE>
See Notes to Pro Forma Combined Financial Statements
<TABLE>
<CAPTION>
Pro Forma Combined
Statement of Operations
(Unaudited)
For the Twelve Months Ended February 28, 1995
PaineWebber MH/KP
Growth and Equity
Income Income Pro Forma
Fund Fund Adjustments Combined
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Investment Income
Interest and dividends (net of foreign withholding taxes) $12,758,061 $2,673,782 $0 $15,431,843
------------ ----------- --------- ------------
Expenses
Investment advisory and administration fees 3,831,591 560,997 (120,214) 4,272,374
Distribution fees 3,673,902 389,377 (190,333) 3,872,946
Transfer agency and service fees 697,288 95,858 (4,336) 788,810
Custody fees 163,433 46,944 (24,335) 186,042
Other 651,663 198,741 (138,709) 711,695
------------ ----------- --------- ------------
9,017,877 1,291,917 (477,927) 9,831,867
------------ ----------- --------- ------------
Net Investment Income (Loss) 3,740,184 1,381,865 477,927 5,599,976
------------ ----------- --------- ------------
Realized and unrealized gains (losses) from
investment activities:
Net realized gains (losses) from:
Investment transactions 25,410,528 (1,332,388) 0 24,078,140
Forward contracts, other assets and liabilities denominated
in foreign currencies 0 0 0 0
Net change in unrealized appreciation/depreciation on:
Investments (47,463,990) 299,183 0 (47,164,807)
Forward contracts, other assets and liabilities denominated
in foreign currencies 0 0 0 0
------------ ----------- --------- ------------
Net realized and unrealized losses from investment activities (22,053,462) (1,033,205) 0 (23,086,667)
------------ ----------- --------- ------------
Net increase (decrease) in net assets resulting from operations ($18,313,278) $348,660 $477,927 ($17,486,691)
============ =========== ========= ============
</TABLE>
See Notes to Pro Forma Combined Financial Statements
<TABLE>
<CAPTION>
Pro Forma Capitalization
as of February 28, 1995
(Unaudited)
PaineWebber PaineWebber MH/KP
Growth and Global Equity PW Growth and
Income Energy Income Income Fund
Fund Fund Fund (As Adjusted) (1)
------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Shareholders' Equity:
Beneficial interest shares of $0.001 par value per share
(unlimited amount authorized):
24,297,476 shares outstanding for PW Growth and
Income Fund (Actual) 2,221,222 shares outstanding
for PW Global Energy Fund (Actual) 3,239,845 shares
outstanding for MH/KP Equity Income Fund (Actual)
28,759,685 shares outstanding for PW Growth and
Income Fund (As Adjusted) 448,788,925 25,841,790 59,490,330 534,121,045(2)(3)
Undistributed net investment income (loss) 326,098 (93,710) 284,913 517,301
Accumulated net realized gains (losses) from investments,
forward contracts, other assets and liabilities denominated
in foreign currencies 1,123,246 (2,328,311) 2,987,153 1,782,088(4)
Net unrealized appreciation/depreciation of investments,
other assets, liabilities and forward contracts denominated
in foreign currencies 14,433,384 (1,390,213) 622,414 13,665,585
------------ ----------- ---------- ------------
Net Assets $464,671,653 $22,029,556 $63,384,810 $550,086,019
============ =========== =========== ============
</TABLE>
(1) The adjusted balances are presented as if the Reorganization involving all
Funds was effective as of February 28, 1995 for information purposes
only. The actual effective time of the Reorganization is expected to be
August __, 1995, at which time the results would be reflective of the
actual composition of shareholders' equity at that date.
(2) Assumes the issuance of 1,151,922 shares in exchange for the net assets
applicable to beneficial interest holders of Global Energy. Assumes the
issuance of 3,310,287 shares in exchange for the net assets applicable to
beneficial interest holders of Equity Income. The exchange is based on the
net asset values for Growth and Income Class A,B, C and D, and the net
assets applicable to beneficial interest holders of Global Energy and
Equity Income as of February 28, 1995.
(3) Does not include the impact of estimated Reorganization costs of $250,000.
(4) Assumes Global Energy's and Equity Income's net realized gains(losses)
from investment transactions carry forward into Growth and Income.
<TABLE>
<CAPTION>
Pro Forma Capitalization
as of February 28, 1995
(Unaudited)
PaineWebber PaineWebber
Growth and Global PW Growth and
Income Energy Income Fund
Fund Fund (As Adjusted)(1)
----------- ----------- ---------------
<S> <C> <C> <C>
Shareholders' Equity:
Beneficial interest shares of $0.001 par value
per share (unlimited amount authorized):
24,297,476 shares outstanding for PW Growth and
Income Fund (Actual) ................................................
2,221,222 shares outstanding for PW Global Energy Fund (Actual)........
25,449,398 shares outstanding for PW Growth and Income Fund
(As Adjusted)........................................................ $448,788,925 $25,841,790 $474,630,715 (2)(3)
Undistributed net investment income (loss)............................. 326,098 (93,710) 232,388
Accumulated net realized gains (losses) from investments, forward
contracts, other assets and liabilities denominated in
foreign currencies................................................... 1,123,246 (2,328,311) (1,205,065)(4)
Net unrealized appreciation/depreciation of investments, other assets,
liabilities and forward contracts denominated in foreign currencies.. 14,433,384 (1,390,213) 13,043,171
----------- ----------- ------------
Net Assets......................................................... $464,671,653 $22,029,556 $486,701,209
============ =========== ============
</TABLE>
(1) The adjusted balances are presented as if the Reorganization involving
all Funds was effective as of February 28, 1995 for information purposes
only. The actual effective time of the Reorganization is expected to be
August, 1995, at which time the results would be reflective of the
actual composition of shareholders' equity at that date.
(2) Assumes the issuance of 1,151,922 shares in exchange for the net assets
applicable to beneficial interest holders of Global Energy. The exchange
is based on the net asset values for Growth and Income Class A, B, C and
D, and the net assets applicable to beneficial interest holders of Global
Energy as of February 28, 1995.
(3) Does not include the impact of estimated Reorganization costs of $250,000
(4) Assumes Global Energy's net realized gains(losses) from investment
transactions carry forward into Growth and Income.
<TABLE>
<CAPTION>
Pro Forma Capitalization
as of February 28, 1995
(Unaudited)
PaineWebber MH/KP
Growth and Equity PW Growth and
Income Income Income Fund
Fund Fund (As Adjusted) (1)
----------- ---------- -----------------
<S> <C> <C> <C>
Shareholders' Equity:
Beneficial interest shares of $0.001 par value per share
(unlimited amount authorized) :
24,297,476 shares outstanding for PW Growth and Income Fund (Actual)
3,239,845 shares outstanding for MH/KP Equity Income Fund (Actual)
27,607,763 shares outstanding for PW Growth and Income Fund (As Adjusted) 448,788,925 59,490,330 508,279,255(2)(3)
Undistributed net investment income (loss) 326,098 284,913 611,011
Accumulated net realized gains (losses) from investments, forward contracts,
other assets and liabilities denominated in foreign currencies 1,123,246 2,987,153 4,110,399(4)
Net unrealized appreciation/depreciation of investments, other assets,
liabilities and forward contracts denominated in foreign currencies 14,433,384 622,414 15,055,798
------------ ----------- ------------
Net Assets $464,671,653 $63,384,810 $528,056,463
============ =========== ============
</TABLE>
(1) The adjusted balances are presented as if the Reorganization involving
all Funds was effective as of February 28, 1995 for information purposes
only. The actual effective time of the Reorganization is expected to be
August, 1995, at which time the results would be reflective of the
actual composition of shareholders' equity at that date.
(2) Assumes the issuance of 3,310,287 shares in exchange for the net
assets applicable to beneficial interest holders of Equity Income. The
exchange is based on the net asset values for Growth and Income Class
A,B, C and D, and the net assets applicable to beneficial interest
holders of Equity Income as of February 28, 1995.
(3) Does not include the impact of estimated Reorganization costs of
$250,000
(4) Assumes Equity Income's net realized gains(losses) from investment
transactions carry forward into Growth and Income.
Notes To Pro Forma Combined Financial Statements
(unaudited)
Basis of Presentation:
Subject to approval of the Plan of Reorganization by the shareholders of
PaineWebber Global Energy Fund ("Global Energy") and Mitchell
Hutchins/Kidder, Peabody Equity Income Fund ("Equity Income"),
PaineWebber Growth and Income Fund ("Growth and Income") would acquire
the assets of Global Energy and Equity Income in exchange solely for the
assumption by Growth and Income of Global Energy and Equity Income's
liabilities and Class A, Class B, Class D (for Global Energy only) and
Class C (for Equity Income Fund only) shares of Growth and Income that
correspond, in aggregate net asset value per class, to the outstanding
Class A, Class B, Class C and Class D shares of Global Energy and Equity
Income. Shares of Growth and Income will be distributed to Global Energy
and Equity Income's shareholders, at the net asset value per share of
Growth and Income for the value acquired, and Global Energy and Equity
Income will be terminated as soon as practicable thereafter. Each Global
Energy and Equity Income shareholder will receive the number of full and
fractional shares of each Class of shares of Growth and Income equal in
value to such shareholder's holdings in the corresponding Class of shares
of Global Energy and Equity Income as of the closing date of the merger.
The pro forma combined financial statements reflect the financial
position of Growth and Income, Global Energy and Equity Income at
February 28, 1995 and the combined results of operations of Growth and
Income, Global Energy and Equity income for the twelve months ended
February 28, 1995. Certain expenses have been adjusted to reflect the
expected expenses of the combined entity. Pro forma operating expenses
include the actual expenses of the funds and the combined fund adjusted
for certain items. Due to differences in class structure, the Equity
Income Class B is considered Class D and Class C is considered Class A
for combined pro forma results.
As a result of the Reorganization, the investment advisory and
administration fee will decrease due to the lower fee schedule
applicable to Growth and Income. Other fixed expenses will be reduced
due to duplication of expenses. In addition, the pro forma combined
statement of assets and liabilities has not been adjusted as a result of
the proposed transaction because such adjustment would not be material.
It is estimated that costs of approximately $250,000 associated with the
merger will be charged to each fund proportionately to its net assets at
the date of merger.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of
what the actual combined financial statements would have been had the
Reorganization occurred at February 28, 1995. The pro forma combined
financial statements should be read in conjunction with the historical
financial statements of the constituent Funds included in the statement
of additional information.
PAINEWEBBER AMERICA FUND
PART C
OTHER INFORMATION
Item 15. Indemnification
Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article X, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office or
did not act in good faith in the reasonable belief that his action was in the
best interest of the Registrant. Section 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 Registrant or a particular series; and that, provided 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,
for any act or omission in accordance with advice of counsel or other experts,
or for failing to follow such advice, with respect to the meaning and operation
of the Declaration of Trust.
Article IX of the By-Laws provides that the Registrant may purchase and
maintain insurance on behalf of any person who is or was a trustee, officer or
employee of the Registrant, or is or was serving at the request of the
Registrant as a trustee, officers or employee of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the Registrant would have the power to indemnify him
against such liability to the Registrant or its shareholders, provided that the
Registrant may not purchase or maintain insurance that protects any such person
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Section 9 of the Investment Advisory and Administration Contract
("Contract") provides that Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") shall not be liable for any error of judgement or mistake of law or
for any loss suffered by any series of the Registrant in connection with the
matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 10 of the Contract provides that the
trustees shall not be liable for any obligations of any series or the Registrant
under the Contract and that Mitchell Hutchins shall look only to the assets and
property of the Registrant or appropriate series in settlement of such right or
claim and not to the assets and property of the trustees.
Section 9 of each Distribution Contract provides that the Registrant 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 Registrant for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Registrant, 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 each Distribution Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions similar
to Section 9 of the relevant Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Section 6 of the Service Contract provides that PaineWebber shall be
indemnified and held harmless by the Registrant against all liabilities, except
those arising out of bad faith, gross negligence, willful misfeasance or
reckless disregard of its duties under the Service Contract.
Section 10 of each Distribution Contract and Section 7 of the Service
Contract contain provisions similar to Section 10 of the Investment Advisory and
Administration Contract, applicable to Mitchell Hutchins and PaineWebber,
respectively.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. Exhibits
(1) (a) Declaration of Trust 1/
(b) Amendment effective January 28, 1988 4/
(c) Amendment effective January 23, 1990 6/
(d) Amendment effective December 21, 1990 8/
(e) Amendment effective May 17, 1991 9/
(f) Amendment effective July 1, 1991 9/
(g) Amendment effective August 31, 1991 9/
(h) Amendment effective July 1, 1992 10/
(2) (a) By-laws 1/
(b) Amendment to By-Laws dated March 19, 1991 8/
(c) Amendment to By-Laws dated September 28, 1994 13/
(3) Voting trust agreement - none
(4) (a) Agreement and Plan of Reorganization and Termination
(with respect to Global Energy Fund) - filed
herewith
(b) Agreement and Plan of Reorganization and Liquidation
(with respect to Equity Income Fund) - fiiled
herewith
(5) All instruments defining the rights of holders - none
(6) (a) Investment Advisory and
Administration Contract 5/
(b) Sub-Advisory Contract 12/
(7) (a) Distribution Contract with respect to
Class A shares 11/
(b) Distribution Contract with respect to
Class B shares 11/
(c) Distribution Contract with respect to
Class C shares 9/
(d) Distribution Contract with respect to
Class D shares 11/
(e) Exclusive Dealer Agreement with respect to
Class A shares 11/
(f) Exclusive Dealer Agreement with respect to
Class B shares 11/
(g) Exclusive Dealer Agreement with respect to
Class C shares 9/
(h) Exclusive Dealer Agreement with respect to
Class D shares 11/
(8) Bonus, profit sharing or pension plans - none
(9) Custodian Agreement 2/
(10) (a) Plan of Distribution pursuant to Rule 12b-1
with respect to Class A shares 9/
(b) Plan of Distribution pursuant to Rule 12b-1
with respect to Class B shares 9/
(c) Plan of Distribution pursuant to Rule 12b-1
with respect to Class D shares 10/
(11) (a) Opinion and consent of Kirkpatrick & Lockhart LLP
regarding the legality of securities being
registered - filed herewith
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters - filed herewith
(b) Opinion and consent of Sullivan & Cromwell
regarding certain tax matters - filed herewith
(c) Opinion of Kirkpatrick & Lockhart LLP regarding
certain tax matters - filed herewith
(13) (a) Transfer Agency and Service Contract 7/
(b) Service Contract 5/
(14) (a) Consent of Price Waterhouse LLP - filed herewith
(b) Consent of Deloitte & Touche LLP - filed herewith
(c) Consent of Ernst & Young LLP - filed herewith
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Powers of Attorney - none
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 - filed herewith
(b) Proxy cards - filed herewith
1/ Incorporated by reference from Post-Effective Amendment No.
10 to the registration statement, SEC File No. 2-78626,
filed February 25, 1987.
2/ Incorporated by reference from Post-Effective Amendment No.
11 to the registration statement, SEC File No. 2-78626,
filed December 22, 1987.
3/ Incorporated by reference from Pre-Effective Amendment No.
2 to the registration statement, SEC File No. 2-78626,
filed September 26, 1983.
4/ Incorporated by reference from Post-Effective Amendment No.
12 to the registration statement, SEC File No. 2-78626,
filed November 3, 1988.
5/ Incorporated by reference from Post-Effective Amendment No.
16 to the registration statement, SEC File No. 2-78626,
filed December 29, 1989.
6/ Incorporated by reference from Post-Effective Amendment No.
18 to the registration statement, SEC File No. 2-78626,
filed August 30, 1990.
7/ Incorporated by reference from Post-Effective Amendment No.
19 to the registration statement, SEC File No. 2-78626,
filed November 2, 1990.
8/ Incorporated by reference from Post-Effective Amendment No.
21 to the registration statement, SEC File No. 2-78626,
filed May 3, 1991.
9/ Incorporated by reference from Post-Effective Amendment No.
23 to the registration statement, SEC File No. 2-78626,
filed December 24, 1991.
10/ Incorporated by reference from Post-Effective Amendment No.
27 to the registration statement, SEC File No. 2-78626,
filed December 21, 1992.
11/ Incorporated by reference from Post-Effective Amendment No.
28 to the registration statement, SEC File No. 2-78626,
filed December 29, 1993.
12/ Incorporated by reference from Post-Effective Amendment No.
29 to the registration statement, SEC File No. 2-78626,
filed November 2, 1994.
13/ Incorporated by reference from Post-Effective Amendment No.
31 to the registration statement, SEC File No. 2-78626,
filed December 28, 1994.
Item 17.Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for
by the applicable registration form for reoffering by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of
an amendment to the Registration Statement and will not be
used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of New York
and the State of New York, on the 30th day of May, 1995.
PAINEWEBBER AMERICA FUND
By: /s/
-----------------------------------
Dianne E. O'Donnell
Vice President, Secretary
Each of the undersigned trustees and officers of PaineWebber America Fund
("Fund") hereby severally constitutes and appoints Victoria E. Schonfeld, Dianne
E. O'Donnell, Gregory K. Todd, Elinor W. Gammon and Robert A. Wittie, and each
of them singly, our true and lawful attorneys, with full power to them to sign
for each of us, and in each of our names and in the capacities indicated below,
any and all amendments to the Registration Statement of the Fund, and all
instruments necessary or desirable in connection therewith, filed with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by said attorney to any and all amendments to
said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacity and on the date indicated:
Signature Title Date
/s/ President May 30, 1995
- ------------------------
Margo N. Alexander
/s/ Trustee and Chairman May 30, 1995
- ------------------------ of the Board of Trustees
E. Garrett Bewkes, Jr.
/s/ Trustee May 30, 1995
- ------------------------
Meyer Feldberg
/s/ Trustee May 30, 1995
- ------------------------
George W. Gowen
/s/ Trustee May 30, 1995
- ------------------------
Frederic V. Malek
Trustee May 30, 1995
- ------------------------
Frank P.L. Minard
/s/ Trustee May 30, 1995
- ------------------------
Judith Davidson Moyers
/s/ Trustee May 30, 1995
- ------------------------
Thomas F. Murray
/s/ Vice President and May 30, 1995
- ------------------------ Treasurer (Principal
Julian F. Sluyters Financial and
Accounting Officer)
EXHIBIT INDEX
(1) (a) Declaration of Trust 1/
(b) Amendment effective January 28, 1988 4/
(c) Amendment effective January 23, 1990 6/
(d) Amendment effective December 21, 1990 8/
(e) Amendment effective May 17, 1991 9/
(f) Amendment effective July 1, 1991 9/
(g) Amendment effective August 31, 1991 9/
(h) Amendment effective July 1, 1992 10/
(2) (a) By-laws 1/
(b) Amendment to By-Laws dated March 19, 1991 8/
(c) Amendment to By-Laws dated September 28, 1994 13/
(3) Voting trust agreement - none
(4) (a) Agreement and Plan of Reorganization and Termination
(with respect to Global Energy Fund) - filed
herewith
(b) Agreement and Plan of Reorganization and Liquidation
(with respect to Equity Income Fund) - fiiled
herewith
(5) All instruments defining the rights of holders - none
(6) (a) Investment Advisory and
Administration Contract 5/
(b) Sub-Advisory Contract 12/
(7) (a) Distribution Contract with respect to
Class A shares 11/
(b) Distribution Contract with respect to
Class B shares 11/
(c) Distribution Contract with respect to
Class C shares 9/
(d) Distribution Contract with respect to
Class D shares 11/
(e) Exclusive Dealer Agreement with respect to
Class A shares 11/
(f) Exclusive Dealer Agreement with respect to
Class B shares 11/
(g) Exclusive Dealer Agreement with respect to
Class C shares 9/
(h) Exclusive Dealer Agreement with respect to
Class D shares 11/
(8) Bonus, profit sharing or pension plans - none
(9) Custodian Agreement 2/
(10) (a) Plan of Distribution pursuant to Rule 12b-1
with respect to Class A shares 9/
(b) Plan of Distribution pursuant to Rule 12b-1
with respect to Class B shares 9/
(c) Plan of Distribution pursuant to Rule 12b-1
with respect to Class D shares 10/
(11) (a) Opinion and consent of Kirkpatrick & Lockhart LLP
regarding the legality of securities being
registered - filed herewith
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters - filed herewith
(b) Opinion and consent of Sullivan & Cromwell
regarding certain tax matters - filed herewith
(c) Opinion of Kirkpatrick & Lockhart LLP regarding
certain tax matters - filed herewith
(13) (a) Transfer Agency and Service Contract 7/
(b) Service Contract 5/
(14) (a) Consent of Price Waterhouse LLP - filed herewith
(b) Consent of Deloitte & Touche LLP - filed herewith
(c) Consent of Ernst & Young LLP - filed herewith
(15) Financial statements omitted from Part B - none
(16) Copies of manually signed Powers of Attorney - none
(17) Additional Exhibits
(a) Declaration of Rule 24f-2 - filed herewith
(b) Proxy cards - filed herewith
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of May 30, 1995, between PaineWebber
America Fund, a Massachusetts business trust ("America Trust"), on
behalf of PaineWebber Growth and Income Fund, a segregated port-
folio of assets ("series") thereof ("Acquiring Fund"), and Paine-
Webber Investment Series, a Massachusetts business trust ("In-
vestment Series"), on behalf of its PaineWebber Global Energy Fund
series ("Target"). (Acquiring Fund and Target are sometimes re-
ferred to herein individually as a "Fund" and collectively as the
"Funds," and America Trust and Investment Series are sometimes
referred to herein collectively as the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of
a reorganization described in section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). The reorganization will
involve the transfer to Acquiring Fund of Target's assets solely in
exchange for voting shares of beneficial interest in Acquiring Fund
("Acquiring Fund Shares") and the assumption by Acquiring Fund of
Target's liabilities, followed by the constructive distribution of
the Acquiring Fund Shares to the holders of shares of beneficial
interest in Target ("Target Shares") in exchange therefor, all upon
the terms and conditions set forth herein. The foregoing transac-
tions are referred to herein as the "Reorganization." All agree-
ments, representations, actions, and obligations described herein
made or to be taken or undertaken by either Fund are made and shall
be taken or undertaken by America Trust on behalf of Acquiring Fund
and by Investment Series on behalf of Target.
Acquiring Fund's shares are divided into four classes, desig-
nated Class A, Class B, Class C, and Class D shares ("Class A
Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C
Acquiring Fund Shares," and "Class D Acquiring Fund Target Shares,"
respectively). Except as noted in the following sentence, these
classes differ only with respect to the sales charges imposed on
the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under
the Investment Company Act of 1940 ("1940 Act"), as follows:
(1) Class A Acquiring Fund Shares are offered at net asset value
("NAV") plus a sales charge, if applicable, and are subject to a
12b-1 service fee at the annual rate of 0.25% of the average daily
net assets attributable to the class ("class assets"); (2) Class B
Acquiring Fund Shares are offered at NAV without imposition of any
sales charge and are subject to a contingent deferred sales charge
and 12b-1 service and distribution fees at the respective annual
rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring
Fund Shares are offered, currently only to the trustee of the
PaineWebber Savings Investment Plan on behalf of that plan, at NAV
without imposition of any sales charge and are not subject to any
12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV
without imposition of any sales charge and are subject to 12b-1
service and distribution fees at the respective annual rates of
0.25% and 0.50% of class assets. These classes also may differ
from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees. Only Classes A, B, and D
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated
Class A, Class B, and Class D shares ("Class A Target Shares,"
"Class B Target Shares," and "Class D Target Shares," respec-
tively). These classes are identical to the correspondingly let-
tered classes of Acquiring Fund Shares, except that the Class A
Target Shares are subject to a 12b-1 service fee at the annual rate
of 0.25%, rather than 0.23%, of class assets.
In consideration of the mutual promises herein, the parties
covenant and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets") to
Acquiring Fund. Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional (i) Class A Acquiring Fund Shares determined by
dividing the net value of Target (computed as set forth in
paragraph 2.1) ("Target Value") attributable to the Class A
Target Shares by the NAV (computed as set forth in paragraph
2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring
Fund Shares determined by dividing the Target Value attribut-
able to the Class B Target Shares by the NAV (as so computed)
of a Class B Acquiring Fund Share, and (iii) Class D Acquiring
Fund Shares determined by dividing the Target Value attribut-
able to the Class D Target Shares by the NAV (as so computed)
of a Class D Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in
paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and rec-
A-2
ords, deferred and prepaid expenses shown as assets on Target's
books, and other property owned by Target at the Effective Time (as
defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise pro-
vided herein) all of Target's liabilities, debts, obligations, and
duties of whatever kind or nature, whether absolute, accrued, con-
tingent, or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the Effective
Time, and whether or not specifically referred to in this Agree-
ment, including without limitation Target's share of the expenses
described in paragraph 7.2. Notwithstanding the foregoing, Target
agrees to use its best efforts to discharge all of its known Lia-
bilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target
shall declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have distri-
buted substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is rea-
sonably practicable), Target shall constructively distribute the
Acquiring Fund Shares received by it pursuant to paragraph 1.1 to
Target's shareholders of record, determined as of the Effective
Time (collectively "Shareholders" and individually a "Share-
holder"), in exchange for their Target Shares. Such distribution
shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books
in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with
the respective pro rata number of full and fractional (rounded to
the third decimal place) Acquiring Fund Shares due that Share-
holder, by class (i.e., the account for a Shareholder of Class A
Target Shares shall be credited with the respective pro rata number
of Class A Acquiring Fund Shares due that Shareholder, the account
for a Shareholder of Class B Target Shares shall be credited with
the respective pro rata number of Class B Acquiring Fund Shares due
that Shareholder, and the account for a Shareholder of Class D
Target Shares shall be credited with the respective pro rata number
of Class D Acquiring Fund Shares due that Shareholder). All out-
standing Target Shares, including any represented by certificates,
shall simultaneously be canceled on Target's share transfer re-
cords. Acquiring Fund shall not issue certificates representing
the Acquiring Fund Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of
the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall
be terminated as a series of Investment Series and any further ac-
A-3
tions shall be taken in connection therewith as required by appli-
cable law.
1.7. Any reporting responsibility of Target to a public
authority is and shall remain its responsibility up to and includ-
ing the date on which it is terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than that of the registered holder on
Target's books of the Target Shares constructively exchanged there-
for shall be paid by the person to whom such Acquiring Fund Shares
are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value
shall be (a) the value of the Assets computed as of the close of
regular trading on the New York Stock Exchange, Inc. ("NYSE") on
the date of the Closing ("Valuation Time"), using the valuation
procedures set forth in Target's then-current prospectus and state-
ment of additional information less (b) the amount of the Liabili-
ties as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A
Acquiring Fund Share, a Class B Acquiring Fund Share, and a Class
D Acquiring Fund Share shall be computed as of the Valuation Time,
using the valuation procedures set forth in Acquiring Fund's then-
current prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2
shall be made by or under the direction of Mitchell Hutchins Asset
Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary
to consummate the same ("Closing"), shall occur at the Funds' prin-
cipal office on August 11, 1995, or at such other place and/or on
such other date as the parties may agree. All acts taking place at
the Closing shall be deemed to take place simultaneously as of the
close of business on the date thereof or at such other time as the
parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on
the NYSE or elsewhere is disrupted, so that accurate appraisal of
the net value of Target and the NAV per Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
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3.2. Investment Series shall deliver to America Trust at the
Closing a schedule of the Assets as of the Effective Time, which
shall set forth for all portfolio securities included therein their
adjusted tax basis and holding period by lot. Target's custodian
shall deliver at the Closing a certificate of an authorized officer
stating that (a) the Assets held by the custodian will be trans-
ferred to Acquiring Fund at the Effective Time and (b) all neces-
sary taxes in conjunction with the delivery of the Assets, includ-
ing all applicable federal and state stock transfer stamps, if any,
have been paid or provision for payment has been made.
3.3. Investment Series shall deliver to America Trust at the
Closing a list of the names and addresses of the Shareholders and
the number (by class) of outstanding Target Shares owned by each
Shareholder, all as of the Effective Time, certified by the Secre-
tary or Assistant Secretary of Target. The Transfer Agent shall
deliver at the Closing a certificate as to the opening on Acquiring
Fund's share transfer books of accounts in the Shareholders' names.
America Trust shall issue and deliver a confirmation to Investment
Series evidencing the Acquiring Fund Shares (by class) to be cre-
dited to Target at the Effective Time or provide evidence satisfac-
tory to Investment Series that such Acquiring Fund Shares have been
credited to Target's account on Acquiring Fund's books. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other docu-
ments as the other party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at
the Closing a certificate executed in its name by its President or
a Vice President in form and substance satisfactory to the recipi-
ent and dated the Effective Time, to the effect that the represen-
tations and warranties it made in this Agreement are true and cor-
rect at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Investment Series is an unincorporated voluntary
association with transferable shares organized as a business
trust under a written instrument ("Business Trust"); it is
duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts; and a copy of
its Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.1.2. Investment Series is duly registered as an open-
end management investment company under the 1940 Act, and such
registration will be in full force and effect at the Effective
Time;
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4.1.3. Target is a duly established and designated
series of Investment Series;
4.1.4. At the Closing, Target will have good and market-
able title to the Assets and full right, power, and authority
to sell, assign, transfer, and deliver the Assets free of any
liens or other encumbrances; and upon delivery and payment for
the Assets, Acquiring Fund will acquire good and marketable
title thereto;
4.1.5. Target's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the Securities Act of 1933 ("1933
Act") and the 1940 Act and the rules and regulations there-
under and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing;
4.1.6. Target is not in violation of, and the execution
and delivery of this Agreement and consummation of the trans-
actions contemplated hereby will not conflict with or violate,
Massachusetts law or any provision of Investment Series's Dec-
laration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obli-
gation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which it
is bound, except as previously disclosed in writing to and
accepted by America Trust;
4.1.7. Except as disclosed in writing to and accepted by
America Trust, all material contracts and other commitments of
or applicable to Target (other than this Agreement and invest-
ment contracts, including options, futures, and forward con-
tracts) will be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior to
the Effective Time, without either Fund's incurring any lia-
bility or penalty with respect thereto and without diminishing
or releasing any rights Target may have had with respect to
actions taken or omitted to be taken by any other party
thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and
accepted by America Trust, no litigation, administrative pro-
ceeding, or investigation of or before any court or govern-
mental body is presently pending or (to Target's knowledge)
threatened against Investment Series with respect to Target or
any of its properties or assets that, if adversely determined,
would materially and adversely affect Target's financial con-
dition or the conduct of its business; Target knows of no
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facts that might form the basis for the institution of any
such litigation, proceeding, or investigation and is not a
party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially or
adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of Investment Series's board
of trustees, which has made the determinations required by
Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary exemptive
relief or no-action assurances requested from the Securities
and Exchange Commission ("SEC") or its staff with respect to
sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of
equity;
4.1.10. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.11. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the Secu-
rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for
the execution or performance of this Agreement by Investment
Series, except for (a) the filing with the SEC of a registra-
tion statement by America Trust on Form N-14 relating to the
Acquiring Fund Shares issuable hereunder, and any supplement
or amendment thereto ("Registration Statement"), including
therein a prospectus/proxy statement ("Proxy Statement"),
(b) receipt of the exemptive relief referenced in subparagraph
4.1.9, and (c) such consents, approvals, authorizations, and
filings as have been made or received or as may be required
subsequent to the Effective Time;
4.1.12. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
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Proxy Statement made in reliance on and in conformity with
information furnished by America Trust for use therein;
4.1.13. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.14. Target is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a regu-
lated investment company ("RIC") under Subchapter M of the
Code for each past taxable year since it commenced operations
and will continue to meet all the requirements for such quali-
fication for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it. The Assets shall
be invested at all times through the Effective Time in a man-
ner that ensures compliance with the foregoing;
4.1.15. Target is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or
similar case within the meaning of section 368(a)(3)(A) of the
Code;
4.1.16. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government secu-
rities) is invested in the stock or securities of any one
issuer, and not more than 50% of the value of such assets is
invested in the stock or securities of five or fewer issuers;
and
4.1.17. Target will be terminated as soon as reasonably
practicable after the Reorganization, but in all events within
six months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. America Trust is a Business Trust; it is duly
organized, validly existing, and in good standing under the
laws of the Commonwealth of Massachusetts; and a copy of its
Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.2.2. America Trust is duly registered as an open-end
management investment company under the 1940 Act, and such
registration will be in full force and effect at the Effective
Time;
4.2.3. Acquiring Fund is a duly established and desig-
nated series of America Trust;
4.2.4. No consideration other than Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the Assets in the Reorganization;
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4.2.5. The Acquiring Fund Shares to be issued and deli-
vered to Target hereunder will, at the Effective Time, have
been duly authorized and, when issued and delivered as pro-
vided herein, will be duly and validly issued and outstanding
shares of Acquiring Fund, fully paid and non-assessable, ex-
cept to the extent that under Massachusetts law shareholders
of a Business Trust may, under certain circumstances, be held
personally liable for its obligations. Except as contemplated
by this Agreement, Acquiring Fund does not have outstanding
any options, warrants, or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any secu-
rity convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement
of additional information conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations thereunder and do not include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with or
violate, Massachusetts law or any provision of America Trust's
Declaration of Trust or By-Laws or of any provision of any
agreement, instrument, lease, or other undertaking to which
Acquiring Fund is a party or by which it is bound or result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Investment
Series;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Investment Series, no litigation, administrative
proceeding, or investigation of or before any court or govern-
mental body is presently pending or (to Acquiring Fund's
knowledge) threatened against America Trust with respect to
Acquiring Fund or any of its properties or assets that, if
adversely determined, would materially and adversely affect
Acquiring Fund's financial condition or the conduct of its
business; Acquiring Fund knows of no facts that might form the
basis for the institution of any such litigation, proceeding,
or investigation and is not a party to or subject to the pro-
visions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its
business or its ability to consummate the transactions contem-
plated hereby;
A-9
4.2.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of America Trust's board of
trustees, which has made the determinations required by Rule
17a-8(a) under the 1940 Act; and, subject to receipt of any
necessary exemptive relief or no-action assurances requested
from the SEC or its staff with respect to sections 17(a) and
17(d) of the 1940 Act, this Agreement will constitute a valid
and legally binding obligation of Acquiring Fund, enforceable
in accordance with its terms, except as the same may be lim-
ited by bankruptcy, insolvency, fraudulent transfer, reorgan-
ization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the 1934
Act, or the 1940 Act for the execution or performance of this
Agreement by America Trust, except for (a) the filing with the
SEC of the Registration Statement, (b) receipt of the exemp-
tive relief referenced in subparagraph 4.2.9, and (c) such
consents, approvals, authorizations, and filings as have been
made or received or as may be required subsequent to the
Effective Time;
4.2.11. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by Investment Series for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a RIC
under Subchapter M of the Code for each past taxable year
since it commenced operations and will continue to meet all
the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings
and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its busi-
ness as a series of an open-end investment company; nor does
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Acquiring Fund have any plan or intention to redeem or other-
wise reacquire any Acquiring Fund Shares issued to the Share-
holders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Tar-
get's business in substantially the same manner that Target
conducted that business immediately before the Reorganization,
(b) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordi-
nary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M of the Code,
and (c) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless
and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make dispo-
sitions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund
to be dissolved or merged into another corporation or business
trust or any "fund" thereof (within the meaning of section
851(h)(2) of the Code) following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not
more than 25% of the value of Acquiring Fund's total assets
(excluding cash, cash items, and U.S. government securities)
will be invested in the stock or securities of any one issuer
and (b) not more than 50% of the value of such assets will be
invested in the stock or securities of five or fewer issuers;
and
4.2.17. Acquiring fund does not own, directly or indi-
rectly, nor at the Effective Time will it own, directly or
indirectly, nor has it owned, directly or indirectly, at any
time during the past five years, any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund
Shares, when received by the Shareholders, will be approxi-
mately equal to the fair market value of their Target Shares
constructively surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or
intention of Shareholders to redeem or otherwise dispose of
any portion of the Acquiring Fund Shares to be received by
them in the Reorganization and (b) does not anticipate dis-
positions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of
an open-end investment company. Consequently, its management
expects that the percentage of Shareholder interests, if any,
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that will be disposed of as a result of or at the time of the
Reorganization will be de minimis. Nor does its management
anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganiza-
tion;
4.3.3. The Shareholders will pay their own expenses, if
any, incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reor-
ganization, Acquiring Fund will hold substantially the same
assets and be subject to substantially the same liabilities
that Target held or was subject to immediately prior thereto,
plus any liabilities and expenses of the parties incurred in
connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of
the Assets will equal or exceed the Liabilities to be assumed
by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the
Funds that was issued or acquired, or will be settled, at a
discount;
4.3.7. Pursuant to the Reorganization, Target will
transfer to Acquiring Fund, and Acquiring Fund will acquire,
at least 90% of the fair market value of the net assets, and
at least 70% of the fair market value of the gross assets,
held by Target immediately before the Reorganization. For the
purposes of this representation, any amounts used by Target to
pay its Reorganization expenses and redemptions and distribu-
tions made by it immediately before the Reorganization (except
for (a) distributions made to conform to its policy of distri-
buting all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions
not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Share-
holder who is an employee of Target will be separate consider-
ation for, or allocable to, any of the Target Shares held by
such Shareholder-employee; none of the Acquiring Fund Shares
received by any such Shareholder-employee will be separate
consideration for, or allocable to, any employment agreement;
and the consideration paid to any such Shareholder-employee
will be for services actually rendered and will be commensur-
ate with amounts paid to third parties bargaining at arm's-
length for similar services; and
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4.3.9. Immediately after the Reorganization, the Share-
holders will not own shares constituting "control" of Acquir-
ing Fund within the meaning of section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business
in the ordinary course between the date hereof and the Closing, it
being understood that (a) such ordinary course will include declar-
ing and paying customary dividends and other distributions and such
changes in operations as are contemplated by each Fund's normal
business activities and (b) each Fund will retain exclusive control
of the composition of its portfolio until the Closing; provided
that Target shall not dispose of more than an insignificant portion
of its historic business assets during such period without Acquir-
ing Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated
hereby.
5.3. Target covenants that the Acquiring Fund Shares to be
delivered hereunder are not being acquired for the purpose of mak-
ing any distribution thereof, other than in accordance with the
terms hereof.
5.4. Target covenants that it will assist America Trust in
obtaining such information as America Trust reasonably requests
concerning the beneficial ownership of Target Shares.
5.5. Target covenants that Target's books and records (in-
cluding all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder) will be turned
over to America Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy
Statement in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as
and when requested by the other Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instru-
ments, and will take or cause to be taken such further action, as
the other Fund may deem necessary or desirable in order to vest in,
and confirm to, (a) Acquiring Fund, title to and possession of all
the Assets, and (b) Target, title to and possession of the Acquir-
ing Fund Shares to be delivered hereunder, and otherwise to carry
out the intent and purpose hereof.
5.8. America Trust covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act,
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the 1940 Act, and such state securities laws it may deem appropri-
ate in order to continue its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take
or cause to be taken all actions, and to do or cause to be done all
things, reasonably necessary, proper, or advisable to consummate
and effectuate the transactions contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) per-
formance by the other Fund of all the obligations to be performed
hereunder at or before the Effective Time, (b) all representations
and warranties of the other Fund contained herein being true and
correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated hereby, as
of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further condi-
tions that, at or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby
shall have been duly adopted and approved by Investment Series's
board of trustees and shall have been approved by Target's share-
holders in accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC
and state securities authorities, and no order or directive shall
have been received that any other or further action is required to
permit the parties to carry out the transactions contemplated
hereby. The Registration Statement shall have become effective
under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued
an unfavorable report with respect to the Reorganization under sec-
tion 25(b) of the 1940 Act nor instituted any proceedings seeking
to enjoin consummation of the transactions contemplated hereby
under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities (in-
cluding the SEC and state securities authorities) deemed necessary
by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a
material adverse effect on the assets or properties of either Fund,
provided that either Fund may for itself waive any of such condi-
tions.
6.3. At the Effective Time, no action, suit, or other pro-
ceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit, or to obtain damages or
other relief in connection with, the transactions contemplated
hereby.
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6.4. Investment Series shall have received an opinion of
Kirkpatrick & Lockhart LLP, counsel to America Trust, substantially
to the effect that:
6.4.1. Acquiring Fund is a duly established series of
America Trust, a Business Trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts
with power under its Declaration of Trust to own all of its
properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by America Trust on behalf of Acquiring
Fund and (b) assuming due authorization, execution, and deli-
very of this Agreement by Investment Series on behalf of Tar-
get, is a valid and legally binding obligation of America
Trust with respect to Acquiring Fund, enforceable in accor-
dance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting cre-
ditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and dis-
tributed to the Shareholders under this Agreement, assuming
their due delivery as contemplated by this Agreement, will be
duly authorized and validly issued and outstanding and fully
paid and non-assessable, except to the extent that under
Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obli-
gations, and no shareholder of Acquiring Fund has any preemp-
tive right to subscribe for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate America Trust's Declara-
tion of Trust or By-Laws or any provision of any agreement
(known to such counsel) to which America Trust (with respect
to Acquiring Fund) is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which America Trust (with
respect to Acquiring Fund) is a party or by which it is bound,
except as set forth in such opinion or as previously disclosed
in writing to and accepted by Investment Series;
6.4.5. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by America Trust on
behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
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6.4.6. America Trust is registered with the SEC as an
investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.4.7. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
America Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring
Fund and (b) America Trust (with respect to Acquiring Fund) is
not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects Acquiring Fund's business,
except as set forth in such opinion or as otherwise disclosed
in writing to and accepted by Investment Series.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an
opinion of competent Massachusetts counsel.
6.5. America Trust shall have received an opinion of Kirk-
patrick & Lockhart LLP, counsel to Investment Series, substantially
to the effect that:
6.5.1. Target is a duly established series of Investment
Series, a Business Trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power
under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on
its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by Investment Series on behalf of Target
and (b) assuming due authorization, execution, and delivery of
this Agreement by America Trust on behalf of Acquiring Fund,
is a valid and legally binding obligation of Investment Series
with respect to Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insol-
vency, fraudulent transfer, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and by
general principles of equity;
6.5.3. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate Investment Series's Decla-
ration of Trust or By-Laws or any provision of any agreement
(known to such counsel) to which Investment Series (with
respect to Target) is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Investment Series
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(with respect to Target) is a party or by which it is bound,
except as set forth in such opinion or as previously disclosed
in writing to and accepted by America Trust;
6.5.4. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by Investment
Series on behalf of Target of the transactions contemplated
herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.5.5. Investment Series is registered with the SEC as
an investment company, and to the knowledge of such counsel no
order has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
Investment Series (with respect to Target) or any of its
properties or assets attributable or allocable to Target and
(b) Investment Series (with respect to Target) is not a party
to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and
adversely affects its business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted
by America Trust.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an
opinion of competent Massachusetts counsel.
6.6. Each Investment Company shall have received an opinion
of Kirkpatrick & Lockhart LLP, its counsel, addressed to and in
form and substance satisfactory to it, as to the federal income tax
consequences mentioned below ("Tax Opinion"). In rendering the Tax
Opinion, such counsel may rely as to factual matters, exclusively
and without independent verification, on the representations made
in this Agreement (or in separate letters addressed to such coun-
sel) and the certificates delivered pursuant to paragraph 3.4. The
Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein, for federal income tax pur-
poses:
6.6.1. Acquiring Fund's acquisition of the Assets in
exchange solely for Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribu-
tion of those shares to the Shareholders constructively in
exchange for the Shareholders' Target Shares, will constitute
a reorganization within the meaning of section 368(a)(1)(C) of
A-17
the Code, and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on
the transfer to Acquiring Fund of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assump-
tion of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for
their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring
Fund on its receipt of the Assets in exchange solely for
Acquiring Fund Shares and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization, and Acquiring Fund's holding period for
the Assets will include Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on
the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and
its holding period for those Acquiring Fund Shares will in-
clude its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, the Tax Opinion may
state that no opinion is expressed as to the effect of the Reorgan-
ization on the Funds or any Shareholder (regarding the recognition
of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, fu-
tures, and forward contracts included in the Assets) as to which
any unrealized gain or loss is required to be recognized for fed-
eral income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting.
At any time before the Closing, (a) Acquiring Fund may waive
any of the foregoing conditions if, in the judgment of America
Trust's board of trustees, such waiver will not have a material
adverse effect on its shareholders' interests, and (b) Target may
waive any of the foregoing conditions if, in the judgment of
Investment Series's board of trustees, such waiver will not have a
material adverse effect on the Shareholders' interests.
A-18
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the
other that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses
incurred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by
the Funds proportionately, as follows: each such expense will be
borne by the Funds in proportion to their respective net assets as
of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) ex-
penses incurred in connection with entering into and carrying out
the provisions of this Agreement; (b) expenses associated with the
preparation and filing of the Registration Statement; (c) registra-
tion or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws
to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident
as of the date of the mailing of the Proxy Statement to such share-
holders; (d) printing and postage expenses; (e) legal and account-
ing fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or cove-
nant not set forth herein, and this Agreement constitutes the
entire agreement between the parties. The representations, warran-
ties, and covenants contained herein or in any document delivered
pursuant hereto or in connection herewith shall survive the Clos-
ing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by Target's
shareholders:
9.1. By either Fund (a) in the event of the other Fund's
material breach of any representation, warranty, or covenant con-
tained herein to be performed at or prior to the Effective Time,
(b) if a condition to its obligations has not been met and it
reasonably appears that such condition will not or cannot be met,
or (c) if the Closing has not occurred on or before December 31,
1995; or
9.2. By the parties' mutual agreement.
A-19
In the event of termination under paragraphs 9.1.(c) or 9.2, there
shall be no liability for damages on the part of either Fund, or
the trustees or officers of either Investment Company, to the other
Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at
any time, notwithstanding approval thereof by Target's sharehold-
ers, in such manner as may be mutually agreed upon in writing by
the parties; provided that following such approval no such amend-
ment shall have a material adverse effect on the Shareholders' in-
terests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachu-
setts; provided that, in the case of any conflict between such laws
and the federal securities laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or
shall be construed to confer upon or give any person, firm, trust,
or corporation other than the parties and their respective succes-
sors and assigns any rights or remedies under or by reason of this
Agreement.
11.3. The parties acknowledge that each Investment Company is
a Business Trust. Notice is hereby given that this instrument is
executed on behalf of each Investment Company's trustees solely in
their capacity as trustees, and not individually, and that each In-
vestment Company's obligations under this instrument are not bind-
ing on or enforceable against any of its trustees, officers, or
shareholders, but are only binding on and enforceable against the
respective Funds' assets and property. Each Fund agrees that, in
asserting any rights or claims under this Agreement, it shall look
only to the other Fund's assets and property in settlement of such
rights or claims and not to such trustees or shareholders.
A-20
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER AMERICA FUND,
on behalf of its series,
PAINEWEBBER GROWTH AND INCOME
FUND
By: /s/ /s/
---------------------- ---------------------
Assistant Secretary Vice President
ATTEST: PAINEWEBBER INVESTMENT SERIES,
on behalf of its series,
PAINEWEBBER GLOBAL ENERGY FUND
By: /s/ /s/
---------------------- ---------------------
Assistant Secretary Vice President
A-21
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
("Agreement") is made as of May 30, 1995, between PaineWebber
America Fund, a Massachusetts business trust ("PW Trust"), on
behalf of PaineWebber Growth and Income Fund, a segregated port-
folio of assets ("series") thereof ("Acquiring Fund"), and Mitchell
Hutchins/Kidder, Peabody Equity Income Fund, Inc., a Maryland cor-
poration ("Target"). (Acquiring Fund and Target are sometimes
referred to herein individually as a "Fund" and collectively as the
"Funds," and PW Trust and Target are sometimes referred to herein
collectively as the "Investment Companies.")
This Agreement is intended to be, and is adopted as, a plan of
a reorganization described in section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). The reorganization will
involve the transfer to Acquiring Fund of Target's assets solely in
exchange for voting shares of beneficial interest in Acquiring Fund
("Acquiring Fund Shares") and the assumption by Acquiring Fund of
Target's liabilities, followed by the constructive distribution of
the Acquiring Fund Shares to the holders of shares of common stock
in Target ("Target Shares") in exchange therefor, all upon the
terms and conditions set forth herein. The foregoing transactions
are referred to herein as the "Reorganization." All agreements,
representations, actions, and obligations described herein made or
to be taken or undertaken by Acquiring Fund are made and shall be
taken or undertaken by PW Trust on its behalf.
Acquiring Fund's shares are divided into four classes, desig-
nated Class A, Class B, Class C, and Class D shares ("Class A
Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C
Acquiring Fund Shares," and "Class D Acquiring Fund Shares," re-
spectively). Except as noted in the following sentence, these
classes differ only with respect to the sales charges imposed on
the purchase of shares and the fees ("12b-1 fees") payable by each
class pursuant to plans adopted under Rule 12b-1 promulgated under
the Investment Company Act of 1940 ("1940 Act"), as follows:
(1) Class A Acquiring Fund Shares are offered at net asset value
("NAV") plus a sales charge, if applicable, and are subject to a
12b-1 service fee at the annual rate of 0.23% of the average daily
net assets attributable to the class ("class assets"); (2) Class B
Acquiring Fund Shares are offered at NAV without imposition of any
sales charge and are subject to a contingent deferred sales charge
and 12b-1 service and distribution fees at the respective annual
rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring
Fund Shares are offered, currently only to the trustee of the
PaineWebber Savings Investment Plan on behalf of that plan, at NAV
without imposition of any sales charge and are not subject to any
12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV
without imposition of any sales charge and are subject to 12b-1
service and distribution fees at the respective annual rates of
0.25% and 0.75% of class assets. These classes also may differ
from one another with respect to the allocation of certain class-
specific expenses other than 12b-1 fees. Only Classes A and D
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated
Class A, Class B, and Class C shares ("Class A Target Shares,"
"Class B Target Shares," and "Class C Target Shares," respec-
tively). Apart from differences in certain ancillary class-speci-
fic expenses, these classes differ only with respect to the sales
charges imposed on the purchase of shares and the 12b-1 fees, as
follows: (1) Class A Target Shares are offered at NAV plus a sales
charge, if applicable, and are subject to 12b-1 service and distri-
bution fees at the annual rate for each of 0.25% of class assets;
(2) Class B Target Shares are offered at NAV without imposition of
any sales charge and are subject to 12b-1 service and distribution
fees at the respective annual rates of 0.25% and 0.75% of class as-
sets; and (3) Class C Target Shares are offered, currently to a
limited group of investors (consisting of former employees of Kid-
der, Peabody & Co. Incorporated ("Kidder") and their associated ac-
counts, directors and trustees of mutual funds formerly distributed
by Kidder (now known as Mitchell Hutchins/Kidder, Peabody Funds and
PaineWebber/Kidder, Peabody Funds), Kidder's employee benefit
plans, and participants in a certain portfolio asset allocation
program), at NAV without imposition of any sales charge and are not
subject to any 12b-1 fee.
In consideration of the mutual promises herein, the parties
covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION OF TARGET
1.1. Target agrees to assign, sell, convey, transfer, and
deliver all of its assets described in paragraph 1.2 ("Assets") to
Acquiring Fund. Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional (i) Class A Acquiring Fund Shares determined by
dividing the net value of Target (computed as set forth in
paragraph 2.1) ("Target Value") attributable to the Class A
Target Shares by the NAV (computed as set forth in paragraph
2.2) of a Class A Acquiring Fund Share, (ii) Class D Acquiring
Fund Shares determined by dividing the Target Value attribut-
able to the Class B Target Shares by the NAV (as so computed)
of a Class D Acquiring Fund Share, and (iii) Class A Acquiring
Fund Shares determined by dividing the Target Value attribut-
B-2
able to the Class C Target Shares by the NAV (as so computed)
of a Class A Acquiring Fund Share; and
(b) to assume all of Target's liabilities described in
paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
1.2. The Assets shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and rec-
ords, deferred and prepaid expenses shown as assets on Target's
books, and other property owned by Target at the Effective Time (as
defined in paragraph 3.1).
1.3. The Liabilities shall include (except as otherwise pro-
vided herein) all of Target's liabilities, debts, obligations, and
duties of whatever kind or nature, whether absolute, accrued, con-
tingent, or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the Effective
Time, and whether or not specifically referred to in this Agree-
ment, including without limitation Target's share of the expenses
described in paragraph 7.2. Notwithstanding the foregoing, Target
agrees to use its best efforts to discharge all of its known Lia-
bilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, Target
shall declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have distri-
buted substantially all (and in any event not less than 90%) of its
investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is rea-
sonably practicable), Target shall constructively distribute the
Acquiring Fund Shares received by it pursuant to paragraph 1.1 to
Target's shareholders of record, determined as of the Effective
Time (collectively "Shareholders" and individually a "Share-
holder"), in exchange for their Target Shares. Such distribution
shall be accomplished by the Funds' transfer agent ("Transfer
Agent") opening accounts on Acquiring Fund's share transfer books
in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with
the respective pro rata number of full and fractional (rounded to
the third decimal place) Acquiring Fund Shares due that Share-
holder, by class (i.e., the account for a Shareholder of Class A
Target Shares shall be credited with the respective pro rata number
of Class A Acquiring Fund Shares due that Shareholder, the account
for a Shareholder of Class B Target Shares shall be credited with
B-3
the respective pro rata number of Class D Acquiring Fund Shares due
that Shareholder, and the account for a Shareholder of Class C Tar-
get Shares shall be credited with the respective pro rata number of
Class A Acquiring Fund Shares due that Shareholder). All outstand-
ing Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Ac-
quiring Fund shall not issue certificates representing the Acquir-
ing Fund Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of
the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall
be liquidated and any further actions shall be taken in connection
therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public
authority is and shall remain its responsibility up to and includ-
ing the date on which it is liquidated.
1.8. Any transfer taxes payable upon issuance of Acquiring
Fund Shares in a name other than that of the registered holder on
Target's books of the Target Shares constructively exchanged there-
for shall be paid by the person to whom such Acquiring Fund Shares
are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value
shall be (a) the value of the Assets computed as of the close of
regular trading on the New York Stock Exchange, Inc. ("NYSE") on
the date of the Closing ("Valuation Time"), using the valuation
procedures set forth in Target's then-current prospectus and state-
ment of additional information less (b) the amount of the Liabili-
ties as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of a Class A
Acquiring Fund Share and a Class D Acquiring Fund Share shall be
computed as of the Valuation Time, using the valuation procedures
set forth in Acquiring Fund's then-current prospectus and statement
of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2
shall be made by or under the direction of Mitchell Hutchins Asset
Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary
to consummate the same ("Closing"), shall occur at the Funds' prin-
cipal office on August 11, 1995, or at such other place and/or on
such other date as the parties may agree. All acts taking place at
B-4
the Closing shall be deemed to take place simultaneously as of the
close of business on the date thereof or at such other time as the
parties may agree ("Effective Time"). If, immediately before the
Valuation Time, (a) the NYSE is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on
the NYSE or elsewhere is disrupted, so that accurate appraisal of
the net value of Target and the NAV per Acquiring Fund Share is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored.
3.2. Target shall deliver to PW Trust at the Closing a sched-
ule of the Assets as of the Effective Time, which shall set forth
for all portfolio securities included therein their adjusted tax
basis and holding period by lot. Target's custodian shall deliver
at the Closing a certificate of an authorized officer stating that
(a) the Assets held by the custodian will be transferred to Acquir-
ing Fund at the Effective Time and (b) all necessary taxes in con-
junction with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or
provision for payment has been made.
3.3. Target shall deliver to PW Trust at the Closing a list of
the names and addresses of the Shareholders and the number (by
class) of outstanding Target Shares owned by each Shareholder, all
as of the Effective Time, certified by the Secretary or Assistant
Secretary of Target. The Transfer Agent shall deliver at the
Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. PW Trust
shall issue and deliver a confirmation to Target evidencing the
Acquiring Fund Shares (by class) to be credited to Target at the
Effective Time or provide evidence satisfactory to Target that such
Acquiring Fund Shares have been credited to Target's account on
Acquiring Fund's books. At the Closing, each party shall deliver
to the other such bills of sale, checks, assignments, stock certi-
ficates, receipts, or other documents as the other party or its
counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at
the Closing a certificate executed in its name by its President or
a Vice President in form and substance satisfactory to the recipi-
ent and dated the Effective Time, to the effect that the represen-
tations and warranties it made in this Agreement are true and cor-
rect at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
B-5
4.1.1. Target is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Maryland, and a copy of its Articles of Incorporation is on
file with the Department of Assessments and Taxation of
Maryland;
4.1.2. Target is duly registered as an open-end manage-
ment investment company under the 1940 Act, and such registra-
tion will be in full force and effect at the Effective Time;
4.1.3. At the Closing, Target will have good and market-
able title to the Assets and full right, power, and authority
to sell, assign, transfer, and deliver the Assets free of any
liens or other encumbrances; and upon delivery and payment for
the Assets, Acquiring Fund will acquire good and marketable
title thereto;
4.1.4. Target's current prospectus and statement of
additional information conform in all material respects to the
applicable requirements of the Securities Act of 1933 ("1933
Act") and the 1940 Act and the rules and regulations there-
under and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing;
4.1.5. Target is not in violation of, and the execution
and delivery of this Agreement and consummation of the trans-
actions contemplated hereby will not conflict with or violate,
Maryland law or any provision of Target's Articles of Incorpo-
ration or By-Laws or of any agreement, instrument, lease, or
other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or
decree to which Target is a party or by which it is bound,
except as previously disclosed in writing to and accepted by
PW Trust;
4.1.6. Except as disclosed in writing to and accepted by
PW Trust, all material contracts and other commitments of or
applicable to Target (other than this Agreement and investment
contracts, including options, futures, and forward contracts)
will be terminated, or provision for discharge of any liabili-
ties of Target thereunder will be made, at or prior to the
Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or re-
leasing any rights Target may have had with respect to actions
taken or omitted to be taken by any other party thereto prior
to the Closing;
B-6
4.1.7. Except as otherwise disclosed in writing to and
accepted by PW Trust, no litigation, administrative proceed-
ing, or investigation of or before any court or governmental
body is presently pending or (to Target's knowledge) threat-
ened against Target or any of its properties or assets that,
if adversely determined, would materially and adversely affect
its financial condition or the conduct of its business; Target
knows of no facts that might form the basis for the institu-
tion of any such litigation, proceeding, or investigation and
is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.1.8. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of Target's board of direc-
tors, which has made the determinations required by Rule 17a-
8(a) under the 1940 Act; and, subject to approval by Target's
shareholders and receipt of any necessary exemptive relief or
no-action assurances requested from the Securities and Ex-
change Commission ("SEC") or its staff with respect to sec-
tions 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of
equity;
4.1.9. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all necessary
action by Target's shareholders;
4.1.10. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the Secu-
rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for
the execution or performance of this Agreement by Target,
except for (a) the filing with the SEC of a registration
statement by PW Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amend-
ment thereto ("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt of
the exemptive relief referenced in subparagraph 4.1.8, and
(c) such consents, approvals, authorizations, and filings as
have been made or received or as may be required subsequent to
the Effective Time;
4.1.11. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
B-7
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by PW Trust for use therein;
4.1.12. The Liabilities were incurred by Target in the
ordinary course of its business;
4.1.13. Target qualified for treatment as a regulated
investment company ("RIC") under Subchapter M of the Code for
each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification
for its current taxable year; and it has no earnings and prof-
its accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be in-
vested at all times through the Effective Time in a manner
that ensures compliance with the foregoing;
4.1.14. Target is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or
similar case within the meaning of section 368(a)(3)(A) of the
Code;
4.1.15. Not more than 25% of the value of Target's total
assets (excluding cash, cash items, and U.S. government secu-
rities) is invested in the stock or securities of any one
issuer, and not more than 50% of the value of such assets is
invested in the stock or securities of five or fewer issuers;
and
4.1.16. Target will be liquidated as soon as reasonably
practicable after the Reorganization, but in all events within
six months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Trust is an unincorporated voluntary associa-
tion with transferable shares organized a as a business trust
under a written instrument ("Business Trust"); it is duly
organized, validly existing, and in good standing under the
laws of the Commonwealth of Massachusetts; and a copy of its
Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts;
4.2.2. PW Trust is duly registered as an open-end man-
agement investment company under the 1940 Act, and such reg-
B-8
istration will be in full force and effect at the Effective
Time;
4.2.3. Acquiring Fund is a duly established and desig-
nated series of PW Trust;
4.2.4. No consideration other than Acquiring Fund Shares
(and Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and deli-
vered to Target hereunder will, at the Effective Time, have
been duly authorized and, when issued and delivered as pro-
vided herein, will be duly and validly issued and outstanding
shares of Acquiring Fund, fully paid and non-assessable, ex-
cept to the extent that under Massachusetts law shareholders
of a Business Trust may, under certain circumstances, be held
personally liable for its obligations. Except as contemplated
by this Agreement, Acquiring Fund does not have outstanding
any options, warrants, or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any secu-
rity convertible into any of its shares;
4.2.6. Acquiring Fund's current prospectus and statement
of additional information conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations thereunder and do not include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby will not conflict with or
violate, Massachusetts law or any provision of PW Trust's
Declaration of Trust or By-Laws or of any provision of any
agreement, instrument, lease, or other undertaking to which
Acquiring Fund is a party or by which it is bound or result in
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Target;
4.2.8. Except as otherwise disclosed in writing to and
accepted by Target, no litigation, administrative proceeding,
or investigation of or before any court or governmental body
is presently pending or (to Acquiring Fund's knowledge)
threatened against PW Trust with respect to Acquiring Fund or
any of its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's finan-
cial condition or the conduct of its business; Acquiring Fund
B-9
knows of no facts that might form the basis for the institu-
tion of any such litigation, proceeding, or investigation and
is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by
all necessary action on the part of PW Trust's board of trus-
tees, which has made the determinations required by Rule 17a-
8(a) under the 1940 Act; and, subject to receipt of any neces-
sary exemptive relief or no-action assurances requested from
the SEC or its staff with respect to sections 17(a) and 17(d)
of the 1940 Act, this Agreement will constitute a valid and
legally binding obligation of Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganiza-
tion, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authoriza-
tions, or filings are required under the 1933 Act, the 1934
Act, or the 1940 Act for the execution or performance of this
Agreement by PW Trust, except for (a) the filing with the SEC
of the Registration Statement, (b) receipt of the exemptive
relief referenced in subparagraph 4.2.9, and (c) such con-
sents, approvals, authorizations, and filings as have been
made or received or as may be required subsequent to the
Effective Time;
4.2.11. On the effective date of the Registration State-
ment, at the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy Statement
will (a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act and
the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the state-
ments therein, in light of the circumstances under which such
statements were made, not misleading; provided that the fore-
going shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by Target for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section
851(h)(2) of the Code; it qualified for treatment as a RIC
under Subchapter M of the Code for each past taxable year
since it commenced operations and will continue to meet all
the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings
B-10
and profits accumulated in any taxable year in which the pro-
visions of Subchapter M did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization
except for shares issued in the ordinary course of its busi-
ness as a series of an open-end investment company; nor does
Acquiring Fund have any plan or intention to redeem or other-
wise reacquire any Acquiring Fund Shares issued to the Share-
holders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
4.2.14. Acquiring Fund (a) will actively continue Tar-
get's business in substantially the same manner that Target
conducted that business immediately before the Reorganization,
(b) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordi-
nary course of that business and dispositions necessary to
maintain its status as a RIC under Subchapter M of the Code,
and (c) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless
and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make dispo-
sitions thereof to maintain such status;
4.2.15. There is no plan or intention for Acquiring Fund
to be dissolved or merged into another corporation or business
trust or any "fund" thereof (within the meaning of section
851(h)(2) of the Code) following the Reorganization;
4.2.16. Immediately after the Reorganization, (a) not
more than 25% of the value of Acquiring Fund's total assets
(excluding cash, cash items, and U.S. government securities)
will be invested in the stock or securities of any one issuer
and (b) not more than 50% of the value of such assets will be
invested in the stock or securities of five or fewer issuers;
and
4.2.17. Acquiring fund does not own, directly or indi-
rectly, nor at the Effective Time will it own, directly or
indirectly, nor has it owned, directly or indirectly, at any
time during the past five years, any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund
Shares, when received by the Shareholders, will be approxi-
mately equal to the fair market value of their Target Shares
constructively surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or
intention of Shareholders to redeem or otherwise dispose of
B-11
any portion of the Acquiring Fund Shares to be received by
them in the Reorganization and (b) does not anticipate dis-
positions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as an open-end
investment company. Consequently, its management expects that
the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganiza-
tion will be de minimis. Nor does its management anticipate
that there will be extraordinary redemptions of Acquiring Fund
Shares immediately following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if
any, incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reor-
ganization, Acquiring Fund will hold substantially the same
assets and be subject to substantially the same liabilities
that Target held or was subject to immediately prior thereto,
plus any liabilities and expenses of the parties incurred in
connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of
the Assets will equal or exceed the Liabilities to be assumed
by Acquiring Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the
Funds that was issued or acquired, or will be settled, at a
discount;
4.3.7. Pursuant to the Reorganization, Target will
transfer to Acquiring Fund, and Acquiring Fund will acquire,
at least 90% of the fair market value of the net assets, and
at least 70% of the fair market value of the gross assets,
held by Target immediately before the Reorganization. For the
purposes of this representation, any amounts used by Target to
pay its Reorganization expenses and redemptions and distribu-
tions made by it immediately before the Reorganization (except
for (a) distributions made to conform to its policy of distri-
buting all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions
not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
4.3.8. None of the compensation received by any Share-
holder who is an employee of Target will be separate consider-
ation for, or allocable to, any of the Target Shares held by
such Shareholder-employee; none of the Acquiring Fund Shares
received by any such Shareholder-employee will be separate
consideration for, or allocable to, any employment agreement;
and the consideration paid to any such Shareholder-employee
B-12
will be for services actually rendered and will be commensur-
ate with amounts paid to third parties bargaining at arm's-
length for similar services; and
4.3.9. Immediately after the Reorganization, the Share-
holders will not own shares constituting "control" of Acquir-
ing Fund within the meaning of section 304(c) of the Code.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business
in the ordinary course between the date hereof and the Closing, it
being understood that (a) such ordinary course will include declar-
ing and paying customary dividends and other distributions and such
changes in operations as are contemplated by each Fund's normal
business activities and (b) each Fund will retain exclusive control
of the composition of its portfolio until the Closing; provided
that Target shall not dispose of more than an insignificant portion
of its historic business assets during such period without Acquir-
ing Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated
hereby.
5.3. Target covenants that the Acquiring Fund Shares to be
delivered hereunder are not being acquired for the purpose of mak-
ing any distribution thereof, other than in accordance with the
terms hereof.
5.4. Target covenants that it will assist PW Trust in obtain-
ing such information as PW Trust reasonably requests concerning the
beneficial ownership of Target Shares.
5.5. Target covenants that Target's books and records (in-
cluding all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder) will be turned
over to PW Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy
Statement in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as
and when requested by the other Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instru-
ments, and will take or cause to be taken such further action, as
the other Fund may deem necessary or desirable in order to vest in,
and confirm to, (a) Acquiring Fund, title to and possession of all
the Assets, and (b) Target, title to and possession of the Acquir-
B-13
ing Fund Shares to be delivered hereunder, and otherwise to carry
out the intent and purpose hereof.
5.8. PW Trust covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act,
the 1940 Act, and such state securities laws it may deem appropri-
ate in order to continue its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take
or cause to be taken all actions, and to do or cause to be done all
things, reasonably necessary, proper, or advisable to consummate
and effectuate the transactions contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) per-
formance by the other Fund of all the obligations to be performed
hereunder at or before the Effective Time, (b) all representations
and warranties of the other Fund contained herein being true and
correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated hereby, as
of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further condi-
tions that, at or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby
shall have been duly adopted and approved by Target's board of
directors and shall have been approved by Target's shareholders in
accordance with applicable law.
6.2. All necessary filings shall have been made with the SEC
and state securities authorities, and no order or directive shall
have been received that any other or further action is required to
permit the parties to carry out the transactions contemplated
hereby. The Registration Statement shall have become effective
under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued
an unfavorable report with respect to the Reorganization under sec-
tion 25(b) of the 1940 Act nor instituted any proceedings seeking
to enjoin consummation of the transactions contemplated hereby
under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities (in-
cluding the SEC and state securities authorities) deemed necessary
by either Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a
material adverse effect on the assets or properties of either Fund,
provided that either Fund may for itself waive any of such condi-
tions.
B-14
6.3. At the Effective Time, no action, suit, or other pro-
ceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit, or to obtain damages or
other relief in connection with, the transactions contemplated
hereby.
6.4. Target shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to PW Trust, substantially to the effect
that:
6.4.1. Acquiring Fund is a duly established series of PW
Trust, a Business Trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts with power
under its Declaration of Trust to own all of its properties
and assets and, to the knowledge of such counsel, to carry on
its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by PW Trust on behalf of Acquiring Fund
and (b) assuming due authorization, execution, and delivery of
this Agreement by Target, is a valid and legally binding obli-
gation of PW Trust with respect to Acquiring Fund, enforceable
in accordance with its terms, except as the same may be lim-
ited by bankruptcy, insolvency, fraudulent transfer, reorgani-
zation, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and dis-
tributed to the Shareholders under this Agreement, assuming
their due delivery as contemplated by this Agreement, will be
duly authorized and validly issued and outstanding and fully
paid and non-assessable, except to the extent that under
Massachusetts law shareholders of a Business Trust may, under
certain circumstances, be held personally liable for its obli-
gations, and no shareholder of Acquiring Fund has any preemp-
tive right to subscribe for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate PW Trust's Declaration of
Trust or By-Laws or any provision of any agreement (known to
such counsel) to which PW Trust (with respect to Acquiring
Fund) is a party or by which it is bound or, to the knowledge
of such counsel, result in the acceleration of any obligation,
or the imposition of any penalty, under any agreement, judg-
ment, or decree to which PW Trust (with respect to Acquiring
Fund) is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and
accepted by Target;
6.4.5. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
B-15
authority is required for the consummation by PW Trust on
behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required
under state securities laws;
6.4.6. PW Trust is registered with the SEC as an invest-
ment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such reg-
istration; and
6.4.7. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
PW Trust (with respect to Acquiring Fund) or any of its prop-
erties or assets attributable or allocable to Acquiring Fund
and (b) PW Trust (with respect to Acquiring Fund) is not a
party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and
adversely affects Acquiring Fund's business, except as set
forth in such opinion or as otherwise disclosed in writing to
and accepted by Target.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an
opinion of competent Massachusetts counsel.
6.5. PW Trust shall have received an opinion of Sullivan &
Cromwell, counsel to Target, substantially to the effect that:
6.5.1. Target is a corporation duly organized and
validly existing under the laws of the State of Maryland with
power under its Articles of Incorporation to own all of its
properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, exe-
cuted, and delivered by Target and (b) assuming due authoriza-
tion, execution, and delivery of this Agreement by PW Trust on
behalf of Acquiring Fund, is a valid and legally binding obli-
gation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general
principles of equity;
6.5.3. The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated
hereby will not, materially violate Target's Articles of
Incorporation or By-Laws or any provision of any agreement
(known to such counsel) to which Target is a party or by which
it is bound or, to the knowledge of such counsel, result in
B-16
the acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to which
Target is a party or by which it is bound, except as set forth
in such opinion or as previously disclosed in writing to and
accepted by PW Trust;
6.5.4. To the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental
authority is required for the consummation by Target of the
transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and such as may be required under state securities laws;
6.5.5. Target is registered with the SEC as an invest-
ment company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such
registration; and
6.5.6. To the knowledge of such counsel, (a) no litiga-
tion, administrative proceeding, or investigation of or before
any court or governmental body is pending or threatened as to
Target or any of its properties or assets and (b) Target is
not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects its business, except as set
forth in such opinion or as otherwise disclosed in writing to
and accepted by PW Trust.
In rendering such opinion, such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of
competent Maryland counsel.
6.6. PW Trust shall have received an opinion of Kirkpatrick
& Lockhart LLP, its counsel, addressed to and in form and substance
satisfactory to PW Trust, and Target shall have received an opinion
of Sullivan & Cromwell, its counsel, addressed to and in form and
substance satisfactory to Target, each as to the federal income tax
consequences mentioned below (each a "Tax Opinion"). In rendering
its Tax Opinion, each such counsel may rely as to factual matters,
exclusively and without independent verification, on the represen-
tations made in this Agreement (or in separate letters addressed to
such counsel) and the certificates delivered pursuant to paragraph
3.4. Each Tax Opinion shall be substantially to the effect that,
based on the facts and assumptions stated therein, for federal
income tax purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in
exchange solely for Acquiring Fund Shares and Acquiring Fund's
assumption of the Liabilities, followed by Target's distribu-
tion of those shares to the Shareholders constructively in
exchange for the Shareholders' Target Shares, will constitute
a reorganization within the meaning of section 368(a)(1)(C) of
B-17
the Code, and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
6.6.2. No gain or loss will be recognized to Target on
the transfer to Acquiring Fund of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assump-
tion of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for
their Target Shares;
6.6.3. No gain or loss will be recognized to Acquiring
Fund on its receipt of the Assets in exchange solely for
Acquiring Fund Shares and its assumption of the Liabilities;
6.6.4. Acquiring Fund's basis for the Assets will be the
same as the basis thereof in Target's hands immediately before
the Reorganization, and Acquiring Fund's holding period for
the Assets will include Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on
the constructive exchange of all its Target Shares solely for
Acquiring Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and
its holding period for those Acquiring Fund Shares will in-
clude its holding period for those Target Shares, provided
they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may
state that no opinion is expressed as to the effect of the Reorgan-
ization on the Funds or any Shareholder (regarding the recognition
of gain or loss and/or the determination of the basis or holding
period) with respect to any asset (including certain options, fu-
tures, and forward contracts included in the Assets) as to which
any unrealized gain or loss is required to be recognized for fed-
eral income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting.
At any time before the Closing, (a) Acquiring Fund may waive
any of the foregoing conditions if, in the judgment of PW Trust's
board of trustees, such waiver will not have a material adverse
effect on its shareholders' interests, and (b) Target may waive any
of the foregoing conditions if, in the judgment of its board of
directors, such waiver will not have a material adverse effect on
the Shareholders' interests.
B-18
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the
other that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses in-
curred in connection with the transactions contemplated by this
Agreement (whether or not they are consummated) will be borne by
the Funds proportionately, as follows: each such expense will be
borne by the Funds in proportion to their respective net assets as
of the close of business on the last business day of the month in
which such expense was incurred. Such expenses include: (a) ex-
penses incurred in connection with entering into and carrying out
the provisions of this Agreement; (b) expenses associated with the
preparation and filing of the Registration Statement; (c) registra-
tion or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws
to qualify the Acquiring Fund Shares to be issued in connection
herewith in each state in which Target's shareholders are resident
as of the date of the mailing of the Proxy Statement to such share-
holders; (d) printing and postage expenses; (e) legal and account-
ing fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or cove-
nant not set forth herein, and this Agreement constitutes the
entire agreement between the parties. The representations, warran-
ties, and covenants contained herein or in any document delivered
pursuant hereto or in connection herewith shall survive the Clos-
ing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by Target's
shareholders:
9.1. By either Fund (a) in the event of the other Fund's
material breach of any representation, warranty, or covenant con-
tained herein to be performed at or prior to the Effective Time,
(b) if a condition to its obligations has not been met and it
reasonably appears that such condition will not or cannot be met,
or (c) if the Closing has not occurred on or before December 31,
1995; or
9.2. By the parties' mutual agreement.
B-19
In the event of termination under paragraphs 9.1.(c) or 9.2, there
shall be no liability for damages on the part of either Fund, or
the trustees, directors, or officers of either Investment Company,
to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at
any time, notwithstanding approval thereof by Target's sharehold-
ers, in such manner as may be mutually agreed upon in writing by
the parties; provided that following such approval no such amend-
ment shall have a material adverse effect on the Shareholders' in-
terests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachu-
setts; provided that, in the case of any conflict between such laws
and the federal securities laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or
shall be construed to confer upon or give any person, firm, trust,
or corporation other than the parties and their respective succes-
sors and assigns any rights or remedies under or by reason of this
Agreement.
11.3. The parties acknowledge that PW Trust is a Business
Trust. Notice is hereby given that this instrument is executed on
behalf of PW Trust's trustees solely in their capacity as trustees,
and not individually, and that PW Trust's obligations under this
instrument are not binding on or enforceable against any of its
trustees, officers, or shareholders, but are only binding on and
enforceable against Acquiring Fund's assets and property. Target
agrees that, in asserting any rights or claims under this Agree-
ment, it shall look only to Acquiring Fund's assets and property in
settlement of such rights or claims and not to such trustees or
shareholders.
B-20
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER AMERICA FUND,
on behalf of its series,
PAINEWEBBER GROWTH AND INCOME
FUND
By: /s/ /s/
-------------------- ----------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY
EQUITY INCOME FUND, INC.
By: /s/ /s/
-------------------- ----------------------
Assistant Secretary Vice President
B-21
May 30, 1995
PaineWebber America Fund
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding
the issuance by PaineWebber America Fund ("Trust") of Class A,
Class B and Class D shares of beneficial interest (the "Shares") of
PaineWebber Growth and Income Fund ("Growth and Income Fund"), a
series of the Trust, pursuant to (i) an Agreement and Plan of
Reorganization and Termination between the Trust, on behalf of
Growth and Income Fund, and PaineWebber Investment Series, on
behalf of its series PaineWebber Global Energy Fund ("Global Energy
Fund"), and (ii) an Agreement and Plan of Reorganization and
Liquidation between the Trust, on behalf of Growth and Income Fund,
and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc.
("MH/KP Fund") (referred to collectively as "Plans"). Under the
Plans, Growth and Income Fund would acquire the assets of MH/KP
Fund and Global Energy Fund in exchange for the Shares and the
assumption by Growth and Income Fund of MH/KP Fund's and Global
Energy Fund's liabilities. In connection with the Plans, the Trust
is about to file a Registration Statement on Form N-14 (the "N-14")
for the purpose of registering the Shares under the Securities Act
of 1933, as amended ("1933 Act") to be issued pursuant to the Plan.
We have examined originals or copies believed by us to be
genuine of the Trust's Declaration of Trust and By-Laws, minutes of
meetings of the Trust's board of trustees, each Plan, and such
other documents relating to the authorization and issuance of the
Shares as we have deemed relevant. Based upon that examination, we
are of the opinion that the Shares being registered by the N-14 may
be issued in accordance with the Plans and the Trust's Declaration
of Trust and By-Laws, subject to compliance with the 1933 Act, the
Investment Company Act of 1940, as amended, and applicable state
laws regulating the distribution of securities, and when so issued,
those Shares will be legally issued, fully paid and non-assessable.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, Trust
shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust or a series of the Trust,
including Growth and Income Fund (each, a "Series"). The
Declaration of Trust states that the creditors of, contractors
with, and claimants against, the Trust or a Series shall look only
to the assets of the Trust or such Series for payment. It also
requires that notice of such disclaimer be given in each note,
bond, contract, certificate, undertaking or instrument made or
issued by the officers or the trustees of the Trust on behalf of
the Trust or a Series. The Declaration of Trust further provides:
(i) for indemnification from Trust or Series assets, as
appropriate, for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust or Series solely
by virtue of ownership of Shares of a Series; and (ii) for a Series
to assume the defense of any claim against the shareholder for any
act or obligation of the Series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust or a Series would be
unable to meet its obligations.
We hereby consent to this opinion accompanying the Form N-14
that the Trust plans to file with the Securities and Exchange
Commission and to the reference to our firm under the caption
"Miscellaneous -- Legal Matters" in the Prospectus/Proxy Statement
filed as part of the Form N-14.
Sincerely yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Elinor W. Gammon
Elinor W. Gammon
May 30, 1995
PaineWebber America Fund
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber America Fund ("PW Trust"), on behalf of PaineWebber Growth and
Income Fund, a segregated portfolio of assets ("series") of PW Trust ("Acquiring
Fund"), has requested our opinion as to certain federal income tax consequences
of the proposed acquisition of Mitchell Hutchins/Kidder, Peabody Equity Income
Fund, Inc. ("Target")1/ by Acquiring Fund, pursuant to an Agreement and Plan of
Reorganization and Liquidation between them dated as of May 30, 1995 ("Plan"),
attached as an exhibit to the prospectus/proxy statement to be furnished in
connection with the solicitation of proxies by Target's board of directors for
use at a special meeting of Target shareholders ("Special Meeting") to be held
on August 4, 1995 ("Proxy"), included in the registration statement on Form N-14
to be filed with the Securities and Exchange Commission ("SEC") on the date
hereof ("Registration Statement"). Specifically, PW Trust has requested our
opinion:
(1) that the acquisition by Acquiring Fund of Target's assets in
exchange solely for voting shares of beneficial interest in Acquiring Fund
and the assumption by Acquiring Fund of Target's liabilities, followed by
the distribution of those shares by Target pro rata to its shareholders of
record as of the close of regular trading on the New York Stock Exchange,
Inc. on the date of the Closing (as hereinafter defined) ("Shareholders")
constructively in exchange for their shares of common stock in Target
("Target Shares") (such transaction sometimes being referred to herein as
the "Reorganization"), will constitute a "reorganization" within the
meaning of section 368(a)(1)(C)2/ and that each Fund will be a "party to a
reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will recognize
no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reorganization
of the transferred assets and the shares of Acquiring Fund issued pursuant
thereto.
- ---------------------
1/ Target and Acquiring Fund are referred to herein individually either by such
names or as a "Fund" and collectively as the "Funds," and Target and
PW Trust are referred to herein individually either by such names or as
an "Investment Company" and collectively as the "Investment Companies".
2/ All section references are to the Internal Revenue Code of 1986, as amended
("Code"), and all "Treas. Reg. Section" References are to the regulations under
the Code ("Regulations").
PaineWebber America Fund
May 30, 1995
Page 2
In rendering this opinion, we have examined (1) Target's prospectus and
statement of additional information recently filed with the SEC (both expected
to be effective June 1, 1995), and the currently effective prospectus and
statement of additional information of Acquiring Fund, both dated May 12, 1995,
(2) the Proxy, (3) the Plan, and (4) such other documents as we have deemed
necessary or appropriate for the purposes hereof. As to various matters of fact
material to this opinion, we have relied, exclusively and without independent
verification, on statements of responsible officers of each Investment Company
and the representations described below and made in the Plan (as contemplated in
paragraph 6.6 thereof) (collectively "Representations").
FACTS
PW Trust is as an unincorporated voluntary association with transferable
shares formed as a business trust under the laws of the Commonwealth of
Massachusetts (commonly referred to as a "Massachusetts business trust")
pursuant to a Declaration of Trust dated October 31, 1986, and is the successor
to PaineWebber America Fund, Inc., a Maryland corporation; Acquiring Fund
commenced operations as a series thereof on December 20, 1983. Target was
formed as a Maryland corporation pursuant to Articles of Incorporation dated
June 20, 1985. Each Investment Company is registered with the SEC as an
open-end management investment company under the Investment Company Act of 1940
("1940 Act"). Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"), serves as
administrator to each Fund, investment manager to Target, and investment adviser
to Acquiring Fund and is the distributor of each Fund's shares.
Target currently offers for sale three classes of shares, designated Class
A, Class B, and Class C shares ("Class A Target Shares," "Class B Target
Shares," and "Class C Target Shares," respectively). Apart from differences in
certain ancillary class-specific expenses, these classes differ only with
respect to the sales charges imposed on the purchase of shares and the fees
("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the 1940 Act.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring
Fund Shares," respectively). Except for possible differences with respect to
the allocation of class-specific expenses other than 12b-1 fees, these classes
differ only with respect to the sales charges imposed on the purchase of shares
and the 12b-1 fees payable by each class. Only Classes A and D Acquiring Fund
Shares are involved in the Reorganization.
At or immediately before the close of business on the date on which the
Reorganization, together with all related acts necessary to consummate the same
("Closing") occurs, scheduled for August 11, 1995 (or on such other date or at
such other time as the parties may agree) ("Effective Time"), Target shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
Acquiring Fund's investment objective is to provide current income and
capital growth. Acquiring Fund seeks to achieve its objective by investing
primarily in dividend-paying equity securities (common and preferred stocks)
believed by Mitchell Hutchins to have the potential for rapid earnings growth.
Under normal circumstances, Acquiring Fund invests at least 65% of its total
assets in such securities. In managing Acquiring Fund, Mitchell Hutchins
follows a disciplined methodology under which stocks from a universe of
PaineWebber America Fund
May 30, 1995
Page 3
approximately 2,000 medium to large capitalization companies are ranked
utilizing quantitative measures of value, earnings, and price momentum in the
context of Mitchell Hutchins's economic forecast. Stocks are selected for
Acquiring Fund based on fundamental analysis of the highest ranking stock.
Acquiring Fund may invest up to 35% of its total assets in equity securities not
meeting all the above criteria, as well as convertible securities (which may be
rated below investment grade), U.S. government securities, investment grade
corporate debt securities and money market instruments.
Target's investment objective is to provide current income and capital
growth. Under normal market conditions, Target invests not less than 65% of its
net assets in equity securities, limited to dividend-paying common stock,
preferred stock, warrants, rights, and securities convertible into common
stock. Target's equity investments have tended to be in issuers with large
market capitalizations, although the Fund is not limited by issuer size in
selecting equity securities for investment. Target may also invest a lesser
portion of its assets in fixed-income securities and, as needed to provide
liquidity in order to meet redemptions, money market instruments. Target's
investments in fixed-income securities are limited to direct obligations of the
U.S. government (such as bills, notes, or bonds) and corporate debt securities
rated Aa or better by Moody's Investors Service, Inc. or AA or better by
Standard & Poor's Ratings Group. For temporary defensive purposes, Target may
invest its assets in all classes of securities, including equity and
fixed-income, in any proportions deemed prudent under existing market and
economic conditions. It is Target's policy not to purchase and sell securities
with a view toward obtaining short-term (less than six months) profits.
Although there are differences in the Funds' investment policies, it is
not expected that Acquiring Fund will revise its investment policies following
the Reorganization to reflect Target's. Since Target is permitted to invest in
securities having characteristics different from those permitted for Acquiring
Fund, certain of the securities currently held in Target's portfolio would need
to be sold, rather than transferred to Acquiring Fund. If the Reorganization is
approved, Target will sell any assets that are inconsistent with Acquiring
Fund's investment policies prior to the Effective Time, and the proceeds thereof
will be held in temporary investments or reinvested in assets that qualify to be
held by Acquiring Fund.
Target's board of directors, including a majority of the members thereof
who are not "interested persons" (as that term is defined in the 1940 Act) of
Target, has concluded that the Reorganization is in Target's best interests,
that the terms of the Reorganization are fair and reasonable, and that Target's
shareholders' interests will not be diluted as a result of the Reorganization.
Similarly, PW Trust's board of trustees, including a majority of its members
who are not "interested persons" (as so defined) of PW Trust, has concluded that
the Reorganization is in Acquiring Fund's best interests, that the terms of the
Reorganization are fair and reasonable, and that the interests of Acquiring
Fund's shareholders will not be diluted as a result of the Reorganization.
In considering the Reorganization, each Investment Company's board of
directors/trustees (each a "board") made an extensive inquiry into a number of
factors, including the following:
(1) the compatibility of the Funds' investment objectives, policies, and
restrictions;
(2) the effect of the Reorganization on expected investment performance;
(3) the effect of the Reorganization on Acquiring Fund's expense ratio
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing
to operate on a stand-alone basis or liquidation; and
PaineWebber America Fund
May 30, 1995
Page 4
(7) the potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
The Reorganization was recommended by Mitchell Hutchins to, and approved
by, Target's board and PW Trust's board at meetings thereof held on April 26 and
April 28, 1995, respectively. Mitchell Hutchins advised the boards that each
Reorganization provided a sound alternative investment option, given the Funds'
identical investment objectives and generally similar investment policies, with
the material differences noted. Mitchell Hutchins and Target's board believe
that the Reorganization offers the Target shareholders the benefits of investing
in a larger, diversified open-end fund with an investment objective and
investment policies substantially similar to Target's.
In recommending the Reorganizations, Mitchell Hutchins indicated to the
boards that the investment advisory and administration fee schedule applicable
to Acquiring Fund would be equal to or lower than that currently in effect for
Target. The boards were informed that shareholders of Class C Target Shares,
who would receive Class A Acquiring Fund Shares, would pay a service fee that is
not presently paid by such shareholders. However, this amount would increase
only slightly the overall fees to be paid by such shareholders. The boards also
were advised that the expense ratio for Class A, Class B, and Class D Acquiring
Fund Shares would likely decrease over time as a result of the Reorganization
due to the increased size of the combined Fund. In approving the
Reorganization, the boards noted that the overall investment objective of
current income and capital growth remains an appropriate one to offer investors
as part of an overall investment strategy.
Mitchell Hutchins further advised the boards that, while Acquiring Fund's
past performance has not been as positive as Target's, Acquiring Fund's
investment policies recently have been revised. The new policies are intended
to improve Acquiring Fund's performance. In addition, Mitchell Hutchins has
recently appointed Mark A. Tincher as portfolio manager with day-to-day
responsibility for Acquiring Fund; Mr. Tincher is experienced in managing growth
and income funds. Mitchell Hutchins also advised the boards that it did not
expect to receive any immediate direct benefits from the Reorganization, because
the compensation that would be received by it as investment adviser to the
combined Fund would be the same or less than the aggregate compensation it
received from the Funds prior to the Reorganization, assuming no change in
aggregate net assets. However, Mitchell Hutchins noted that it could benefit in
the future if the combined Fund's assets grow faster than would be the case for
the separate Funds in the absence of the Reorganization.
Pursuant to all the foregoing, each Investment Company's board approved
the Plan, subject to approval of Target's shareholders. The Plan, which
specifies that it is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C), provides in relevant part for
the following:
PaineWebber America Fund
May 30, 1995
Page 5
(1) The acquisition by Acquiring Fund of all the Assets (as
defined below) in exchange solely for
(a) the number of full and fractional (i) Class A Acquiring
Fund Shares determined by dividing the net value of Target ("Target
Value") attributable to the Class A Target Shares by the net asset
value ("NAV") of a Class A Acquiring Fund Share, (ii) Class D
Acquiring Fund Shares determined by dividing the Target Value
attributable to the Class B Target Shares by the NAV of a Class D
Acquiring Fund Share, and (iii) Class A Acquiring Fund Shares
determined by dividing the Target Value attributable to the Class C
Target Shares by the NAV of a Class A Acquiring Fund Share, and
(b) Acquiring Fund's assumption of the Liabilities (as defined
below),
(2) The constructive distribution of such Acquiring Fund Shares to
the Shareholders, and
(3) The subsequent liquidation of Target.
The distribution described in (2) will be accomplished by transferring the
Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records established in the
Shareholders' names, with each Shareholder's account being credited with the
respective pro rata number of full and fractional (rounded to three decimal
places) Acquiring Fund Shares due such Shareholder, by class (i.e., the account
for a Shareholder of Class A Target Shares shall be credited with the respective
pro rata number of Class A Acquiring Fund Shares due that Shareholder, the
account for a Shareholder of Class B Target Shares shall be credited with the
respective pro rata number of Class D Acquiring Fund Shares due that
Shareholder, and the account for a Shareholder of Class C Target Shares shall be
credited with the respective pro rata number of Class A Acquiring Fund Shares
due that Shareholder). All outstanding Target Shares, including any represented
by certificates, simultaneously will be canceled on Target's share transfer
records.
The Target assets to be acquired by Acquiring Fund include all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (collectively "Assets").
Acquiring Fund will assume all of Target's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in the Plan, including without limitation Target's
share of the expenses incurred in connection with the Reorganization
(collectively "Liabilities"). Target agreed in the Plan to use its best efforts
to discharge all of its known liabilities and obligations prior to the Effective
Time.
PaineWebber America Fund
May 30, 1995
Page 6
REPRESENTATIONS
The representations enumerated below have been made to us by appropriate
officers of each Investment Company.
Each of PW Trust, on behalf of Acquiring Fund, and Target has represented
and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and (b)
does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as an open-end investment
company. Consequently, its management expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de minimis. Nor does its
management anticipate that there will be extraordinary redemptions of
Acquiring Fund Shares immediately following the Reorganization;
3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the
parties incurred in connection with the Reorganization;
5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the
Reorganization. For the purposes of this representation, any amounts
used by Target to pay its Reorganization expenses and redemptions and
distributions made by it immediately before the Reorganization (except for
(a) distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation to pay
federal income tax and/or the excise tax under section 4982 and (b)
redemptions not made as part of the Reorganization) will be included as
assets thereof held immediately before the Reorganization;
8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to,
any of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid
PaineWebber America Fund
May 30, 1995
Page 7
to any such Shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services; and
9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
section 304(c).
Target also has represented and warranted to us as follows:
1. The Liabilities were incurred by Target in the ordinary course
of its business;
2. Target qualified for treatment as a regulated investment company
("RIC") under Subchapter M of the Code ("Subchapter M") for each past
taxable year since it commenced operations and will continue to meet all
the requirements for such qualification for its current taxable year; and
it has no earnings and profits accumulated in any taxable year in which
the provisions of Sub-chapter M did not apply to it;
3. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the
meaning of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
5. Target will be liquidated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
PW Trust also has represented and warranted to us on behalf of Acquiring
Fund as follows:
1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a RIC under Subchapter M for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, other than through
redemptions arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for dispositions
made in the ordinary course of that business and dispositions necessary
to maintain its status as a RIC under Subchapter M, and (c) expects to
retain substantially all the Assets in the same form as it receives them
in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes necessary
to make dispositions thereof to maintain such status;
PaineWebber America Fund
May 30, 1995
Page 8
4. There is no plan or intention for Acquiring Fund to be dissolved
or merged into another corporation or business trust or any "fund" thereof
(within the meaning of section 851(h)(2)) following the Reorganization;
5. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock or securities of five or fewer
issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at the
Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
OPINION
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange
for the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for their Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C),
and each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
2. No gain or loss will be recognized to Target on the transfer of
the Assets to Acquiring Fund solely in exchange for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or upon the
subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares and
its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization
(section 362(b)), and Acquiring Fund's holding period for the Assets will
include Target's holding period therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares (section 358(a)), and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder on the
Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the
PaineWebber America Fund
May 30, 1995
Page 9
Internal Revenue Service ("Service") in existence on the date hereof and (2) is
applicable only to the extent each Fund is solvent. We express no opinion about
the tax treatment of the transactions described herein if either Fund is
insolvent.
ANALYSIS
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C),
and Each Fund Will Be a Party to a Reorganization.
A. Each Fund Is a Separate Corporation.
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). PW Trust, however, is a Massachusetts business trust, not a
corporation, and Acquiring Fund is a separate series of PW Trust.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
(1942).
Based on these criteria, PW Trust does not qualify as a trust for federal
income tax purposes. While PW Trust is an "investment trust," it does not have
a fixed pool of assets -- Acquiring Fund has been a managed portfolio of
securities, and its investment adviser has had the authority to buy and sell
securities for it. PW Trust is not simply an arrangement to protect or conserve
property for the beneficiaries, but is designed to carry on a profit-making
business. In addition, the word "association" has long been held to include
"Massachusetts business trusts," such as PW Trust. See Hecht v. Malley, 265
U.S. 144 (1924). Accordingly, we believe that PW Trust will be treated as a
corporation for federal income tax purposes.
PW Trust as such, however, is not participating in the Reorganization, but
rather a series thereof is the participant. Ordinarily, a transaction involving
a segregated pool of assets (such as Acquiring Fund) could not qualify as a
reorganization, because the pool would not be a corporation. Under section
851(h), however, Acquiring Fund is treated as a separate corporation for all
purposes of the Code save the definitional requirement of section 851(a)
(which is satisfied by PW Trust). Thus, we believe that Acquiring Fund will be
a separate corporation, and its shares will be treated as shares of corporate
stock, for purposes of section 368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorgan-
ization with respect to any such investment company or its shareholders unless,
among other things, the investment company is a RIC or --
PaineWebber America Fund
May 30, 1995
Page 10
(1) not more than 25% of the value of its total assets is invested in
the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested in
the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a RIC
for its respective current taxable year, and the foregoing percentage tests will
be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F)
will not cause the Reorganization to fail to qualify as a C reorganization with
respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers
the transfer of at least 70% of the transferor's gross assets, and at least 90%
of its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
D. Qualifying Consideration.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
E. Requirements of Continuity.
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
The continuity of business enterprise test as set forth in Treas. Reg.
Section 1.368-1(d)(2) requires that the acquiring corporation must either (i)
continue the acquired corporation's historic business ("business continuity") or
(ii) use a significant portion of the acquired corporation's historic business
assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired
PaineWebber America Fund
May 30, 1995
Page 11
the assets of T in exchange for P common stock in a transaction that was
intended to qualify as a C reorganization. Prior to the exchange, T sold its
entire portfolio of corporate securities and purchased a portfolio of municipal
bonds. The Service held that this transaction did not qualify as a
reorganization for the following reasons: (1) because T had sold its historic
assets prior to the exchange, there was no asset continuity; and (2) the failure
of P to engage in the business of investing in corporate securities after the
exchange caused the transaction to lack business continuity as well.
The Funds' investment objectives are identical and their investment
policies are similar. Furthermore, Acquiring Fund will actively continue
Target's business in the same manner that Target conducted it immediately before
the Reorganization. Accordingly, there will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
expects to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status. Accordingly, there will be asset
continuity as well.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement of Treas. Reg. Section 1.368-1(b) satisfied
if ownership in an acquiring corporation on the part of a transferor
corporation's former shareholders is equal in value to at least 50% of the value
of all the formerly outstanding shares of the transferor corporation. Rev.
Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of
interest was held to exist in a reorganization of two RICs where immediately
after the reorganization 26% of the shares were redeemed in order to allow
investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125
(5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a
transferor corporation's stock was not a sufficient shift in proprietary
interest to disqualify a transaction as a reorganization under section
368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's
shareholders would hold all the transferee's stock); Aetna Casualty and Surety
Co. v. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39%
minority interest did not prevent a transaction from qualifying as an F
Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an
F Reorganization even though the transferor's shareholders acquired only 45% of
the transferee's stock, while the remaining 55% of that stock was issued to new
shareholders in a public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired corporation's
shareholders to dispose of more than 50% of an acquiring corporation's shares
could be problematic. Shareholders with no such preconceived plan or
arrangement, however, are basically free to sell any part of the shares received
by them in the reorganization without fear of breaking continuity of interest,
because the subsequent sale will be treated as an independent transaction from
the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholder interests, if
any, that will be disposed of as a result of or at the time of the
Reorganization will be de minimis. Accordingly, we believe that the
Reorganization will meet the continuity of interest requirement of Treas. Reg.
Section 1.368-1(b).
F. Distribution by Target.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a
C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. Section 1.368-2(g) --
Target will distribute all the Acquiring Fund Shares to its shareholders in
constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be liquidated. Accordingly, we believe that
the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
U.S. 465 (1935), and is now set forth in Treas. Reg. Section 1.368-1(b),
- -1(c), and -2(g) (the last of which provides that, to qualify as a
reorganization, a transaction must be "undertaken for reasons germane to the
continuance of the business of a corporation a party to the reorganization").
Under that doctrine, a transaction must have a bona fide business purpose (and
not a purpose to avoid federal income tax) to constitute a valid
reorganization. The substantial business purposes of the Reorganization
are outlined above. Accordingly, we believe that the Reorganization is being
undertaken for bona fide business purposes (and not a purpose to avoid federal
income tax) and therefore meets the requirements of the business purpose
doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
Section 368(b)(2) and Treas. Reg. Section 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that
was received by the distributing corporation in the exchange. (Such a
distribution is required by section 368(a)(2)(G)(i) for a reorganization to
qualify as a C reorganization.) Section 361(c)(4) provides that specified
provisions requiring recognition of gain on certain distributions shall not
apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a plan
of reorganization. Target will exchange the Assets solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities and then will
terminate pursuant to the Plan, distributing those shares to its shareholders
in constructive exchange for their Target Shares. As also noted above, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax); we also do not believe
that the principal purpose of Acquiring Fund's assumption of the Liabilities is
avoidance of federal income tax on the proposed transaction. Accordingly, we
believe that no gain or loss will be recognized to Target on the Reorganization.
- --------------------
3/ Notwithstanding anything herein to the contrary, no opinion is expressed as
to the effect of the Reorganization on the Funds or any Shareholder (regarding
the recognition of gain or loss and/or the determination of the basis or
holding period) with respect to any asset (including certain options, futures,
and forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
PaineWebber America Fund
May 30, 1995
Page 13
of Acquiring Fund's assumption of the Liabilities is avoidance of federal income
tax on the proposed transaction. Accordingly, we believe that no gain or loss
will be recognized to Target on the Reorganization.3/
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly, we
believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
PaineWebber America Fund
May 30, 1995
Page 14
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its
Holding Period Will Include Target's Holding Period.
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute
a C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange has a
carryover basis, the property will have a holding period in the hands of the
acquiror that includes the holding period of the property in the transferor's
hands. As stated above, Acquiring Fund's basis for the Assets will be a
carryover basis. Accordingly, we believe that Acquiring Fund's holding period
for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, wherethe
shares exchanged, as well as the shares received, are those of a corporation
that is a party to the reorganization. As stated above, the Reorganization will
constitute a C reorganization, the Plan constitutes a plan of reorganization,
and each Fund will be a party to a reorganization. Accordingly, we believe that
under section 354 a Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period for
its Target Shares.
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization and
under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for
the Acquiring Fund Shares to be received by it in the Reorganization will be the
same as the basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring
PaineWebber America Fund
May 30, 1995
Page 15
Fund Shares it receives in the Reorganization; accordingly, provided that the
Shareholder held its Target Shares as capital assets on the Closing Date, we
believe its holding period for those Acquiring Fund Shares will include its
holding period for those Target Shares.
We hereby consent to this opinion accompanying the Registration Statement
and to the references to our firm under the captions "Approval of the
Reorganizations -- Synopsis -- Federal Income Tax Consequences of the
Reorganizations" and "The Proposed Transactions -- Federal Income Tax
Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/
----------------------------
Theodore L. Press
[Letterhead of Sullivan & Cromwell]
May 30, 1995
Mitchell Hutchins/Kidder, Peabody
Equity Income Fund, Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
We have acted as counsel to Mitchell Hutchins/Kidder, Peabody Equity
Income Fund, Inc., a Maryland corporation ("Target"), in connection with
the Agreement and Plan of Reorganization and Liquidation date as of May
30, 1995 (the "Agreement"), between PaineWebber America Fund, a
Massachusetts business trust ("PW Trust") on behalf of PaineWebber
Growth and Income Fund, a series thereof ("Acquiring Fund") and Target,
and we render this opinion to you pursuant to paragraph 6.6 of the
Agreement.
Capitalized terms used but not defined herein have the meanings ascribed
to them in the Agreement.
For the purposes of the opinion set forth below, we have relied in part,
with your consent, upon the representations set forth in letters dated
May 30, 1995 from each of PW Trust and Target, and upon the accuracy and
Page 2
completeness of the statements and representations contained in the
Agreement and in the Prospectus/Proxy Statement which will be
distributed to the shareholders of Target in connection with the
Reorganization. With your consent we have not attempted to verify
independently the accuracy of any information in these documents and
have assumed that the statements and representations contained therein
will be true at the Effective Time.
In connection with this opinion we have also assumed, with your
consent, that the Reorganization will be effected in accordance with
the terms of the Agreement.
On the basis of the foregoing, and our consideration of such other
matters as we have considered relevant, we advise you that, in our
opinion;
1. The Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and each Fund will be "a
party to a reorganization" within the meaning of Section 368(b) of the
Code;
2. Target will not recognize any gain or loss on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or on the
Page 3
subsequent distribution of those shares to the Shareholders in constructive
exchange for their Target Shares;
3. Acquiring Fund will not recognize any gain or loss on its receipt of
the Assets in exchange solely for Acquiring Fund Shares and its assumption of
the Liabilities;
4. Acquiring Fund's basis for the Assets will be the same as the basis
thereof to Target immediately before the Reorganization, and Acquiring
Fund's holding period for the Assets will include Target's holding
period therefor;
5. A Shareholder will not recognize any gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization; and
6. A Shareholder's basis for the Acquiring Fund Shares to be received by
it in the Reorganization will be the same as the basis for its Target
Shares to be constructively surrendered in exchange for those Acquiring
Fund Shares, and its holding period for those Acquiring Fund Shares will
include its holding period for those Target Shares, provided they are
held as capital assets by the Shareholder at the Effective Time.
We express no opinion as to the effect of the Reorganization on the
Funds or any Shareholder in respect of any asset as to which unrealized
Page 4
gain or loss is required to be recognized for U.S. Federal income tax purposes
at the end of each year under a mark-to-market system of accounting.
The tax consequences described above may not be applicable to a Target
Shareholder who acquired Target Shares pursuant to the exercise of an
employee stock option or otherwise as compensation.
We hereby consent to the reference to us under the heading "Federal
Income Tax Consequences of the Reorganizations" and "The Proposed
Transactions--Federal Income Tax Considerations" in the Prospectus/Proxy
Statement of Acquiring Fund and Target and to the filing of this opinion
as an Exhibit to the Registration Statement on Form N-14 of Target
including the Prospectus/Proxy Statement filed with the Securities and
Exchange Commission. In giving this consent we do not thereby admit that
we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules or
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ SULLIVAN & CROMWELL
May 30, 1995
PaineWebber America Fund
PaineWebber Investment Series
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber America Fund ("America Fund"), on behalf of PaineWebber Growth
and Income Fund, a segregated portfolio of assets ("series") of America Fund
("Acquiring Fund"), and PaineWebber Investment Series ("Investment Series"), on
behalf of PaineWebber Global Energy Fund, a series of Investment Series
("Target"),4/ have requested our opinion as to certain federal income tax
consequences of the proposed acquisition of Target by Acquiring Fund, pursuant
to an Agreement and Plan of Reorganization and Termination between them dated as
of May 30, 1995 ("Plan"), attached as an exhibit to the prospectus/proxy
statement to be furnished in connection with the solicitation of proxies by
Investment Series's board of trustees for use at a special meeting of Target
shareholders ("Special Meeting") to be held on August 4, 1995 ("Proxy"),
included in the registration statement on Form N-14 to be filed with the
Securities and Exchange Commission ("SEC") on the date hereof ("Registration
Statement"). Specifically, each Investment Company has requested our opinion:
(1) that the acquisition by Acquiring Fund of Target's assets in
exchange solely for voting shares of beneficial interest in Acquiring Fund
and the assumption by Acquiring Fund of Target's liabilities, followed by
the distribution of those shares by Target pro rata to its shareholders of
record as of the close of regular trading on the New York Stock Exchange,
Inc. on the date of the Closing (as hereinafter defined) ("Shareholders")
constructively in exchange for their shares of beneficial interest in
Target ("Target Shares") (such transaction sometimes being referred to
herein as the "Reorganization"), will constitute a "reorganization"
within the meaning of section 368(a)(1)(C)5/ and that each Fund will be a
"party to a reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will recognize
no gain or loss upon the Reorganization, and
- ---------------------
4/ Target and Acquiring Fund are referred to herein individually either by such
names or as a "Fund" and collectively as the "Funds," and America Fund and
Investment Series are referred to herein individually either by such names or as
an "Investment Company" and collectively as the "Investment Companies."
5/ All section references are to the Internal Revenue Code of 1986, as amended
("Code"), and all "Treas. Reg. Section" references are to the regulations under
the Code ("Regulations").
PaineWebber America Fund
PaineWebber Investment Series
May 30, 1995
Page 2
(3) regarding the basis and holding period after the Reorganization
of the transferred assets and the shares of Acquiring Fund issued pursuant
thereto.
In rendering this opinion, we have examined (1) Target's currently
effective prospectus and statement of additional information, both dated March
1, 1995, and the currently effective prospectus and statement of additional
information of Acquiring Fund, both dated May 12, 1995, (2) the Proxy, (3) the
Plan, and (4) such other documents as we have deemed necessary or appropriate
for the purposes hereof. As to various matters of fact material to this
opinion, we have relied, exclusively and without independent verification, on
statements of responsible officers of each Investment Company and the
representations described below and made in the Plan (as contemplated in
paragraph 6.6 thereof) (collectively "Representations").
FACTS
America Fund is as an unincorporated voluntary association with
transferable shares formed as a business trust under the laws of the
Commonwealth of Massachusetts (commonly referred to as a "Massachusetts
business trust") pursuant to a Declaration of Trust dated October 31, 1986, and
is the successor to PaineWebber America Fund, Inc., a Maryland corporation;
Acquiring Fund commenced operations as a series thereof on December 20, 1983.
Investment Series was formed as a Massachusetts business trust pursuant to a
Declaration of Trust dated December 22, 1986; Target commenced operations as a
series thereof on September 18, 1987. Each Investment Company is registered
with the SEC as an open-end management investment company under the Investment
Company Act of 1940 ("1940 Act"). Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"), serves as investment adviser to each Fund and is the
distributor of each Fund's shares.
Target currently offers for sale three classes of shares, designated Class
A, Class B, and Class D shares ("Class A Target Shares," "Class B Target
Shares," and "Class D Target Shares," respectively). These classes differ only
with respect to the sales charges imposed on the purchase of shares and the fees
payable by each class pursuant to plans adopted under Rule 12b-1 promulgated
under the 1940 Act ("12b-1 fees") and possible differences with respect to the
allocation of class-specific expenses other than 12b-1 fees.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B
Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring
Fund Shares," respectively). The Reorganization only involves Classes A, C, and
D Acquiring Fund Shares, which are identical to the correspondingly lettered
classes of Target Shares, except that the Class A Target Shares are subject to a
slightly higher 12b-1 service fee than the Class A Acquiring Fund Shares
(imposed at the annual rate of 0.25%, as compared to 0.23%, of the average daily
net assets attributable to the class).
At or immediately before the close of business on the date on which the
Reorganization, together with all related acts necessary to consummate the same
("Closing") occurs, scheduled for August 11, 1995 (or on such other date or at
such other time as the parties may agree) ("Effective Time"), Target shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed substantially all (and in
any event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Effective Time.
Acquiring Fund's investment objective is to provide current income and
capital growth. Acquiring Fund seeks to achieve its objective by investing
primarily in dividend-paying equity securities (common and preferred stocks)
believed by Mitchell Hutchins to have the potential for rapid earnings growth.
Under normal circumstances, Acquiring Fund invests at least 65% of its total
assets in such securities. In managing
Page 3
Acquiring Fund, Mitchell Hutchins follows a disciplined methodology under which
stocks from a universe of approximately 2,000 medium to large capitalization
companies are ranked utilizing quantitative measures of value, earnings, and
price momentum in the context of Mitchell Hutchins' economic forecast. Stocks
are selected for Acquiring Fund based on fundamental analysis of the highest
ranking stock. Acquiring Fund may invest up to 35% of its total assets in
equity securities not meeting all the above criteria, as well as convertible
securities (which may be rated below investment grade), U.S. government
securities, investment grade corporate debt securities and money market
instruments.
Target's investment objective is to achieve high total return by investing
principally in securities of foreign and domestic energy and energy service
companies. Under normal market conditions, at least 65% of Target's net assets
are invested in equity and debt securities of foreign and domestic energy and
energy service companies based in at least three countries, including the United
States. Energy companies are the primary producers of raw energy materials such
as oil and gas; energy service companies provide services, supplies, and
equipment to energy companies. Target may invest up to 35% of its assets in
equity and debt securities of issuers in any industry, including the utility
sector, although no more than 25% of its assets may be invested in any industry
other than the energy or energy service industries. Target may invest up to 35%
of its assets in non-investment grade securities. The policy of concentrating
investments in the energy and energy service industries may cause the value of
its shares to fluctuate more than if it invested in a broader number of
industries.
Although there are differences in the Funds' investment policies, it is
not expected that Acquiring Fund will revise its investment policies following
the Reorganization to reflect Target's. Since Target is permitted to invest in
securities having characteristics different from those permitted for Acquiring
Fund, certain of the securities currently held in Target's portfolio would need
to be sold, rather than transferred to Acquiring Fund. If the Reorganization is
approved, Target will sell any assets that are inconsistent with Acquiring
Fund's investment policies prior to the Effective Time, and the proceeds thereof
will be held in temporary investments or reinvested in assets that qualify to be
held by Acquiring Fund.
Investment Series's board of trustees, including a majority of the members
thereof who are not "interested persons" (as that term is defined in the 1940
Act) of Investment Series, has concluded that the Reorganization is in Target's
best interests, that the terms of the Reorganization are fair and reasonable,
and that Target's shareholders' interests will not be diluted as a result of the
Reorganization. Similarly, America Fund's board of trustees, including a
majority of its members who are not "interested persons" (as so defined) of
America Fund, has concluded that the Reorganization is in Acquiring Fund's best
interests, that the terms of the Reorganization are fair and reasonable, and
that the interests of Acquiring Fund's shareholders will not be diluted as a
result of the Reorganization.
In considering the Reorganization, each Investment Company's board of
trustees (each a "board") made an extensive inquiry into a number of factors,
including the following:
(1) the compatibility of the Funds' investment objectives, policies, and
restrictions;
(2) the effect of the Reorganization on expected investment performance;
(3) the effect of the Reorganization on Acquiring Fund's expense ratio
relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
PaineWebber America Fund
PaineWebber Investment Series
May 30, 1995
Page 4
The Reorganization was recommended by Mitchell Hutchins to, and approved
by, each Fund's board at a meeting thereof held on April 28, 1995. Mitchell
Hutchins advised the boards that each Reorganization provided a sound
alternative investment option, given the Funds' similar investment objectives
and generally similar investment policies, with the material differences noted.
Mitchell Hutchins and Target's board believe that the Reorganization offers the
Target shareholders the benefits of investing in a larger, diversified open-end
fund with an investment objective and investment policies substantially similar
to Target's.
In recommending the Reorganizations, Mitchell Hutchins indicated to the
boards that the investment advisory and administration fee schedule applicable
to Acquiring Fund would be equal to or lower than that currently in effect for
Target. The boards also were advised that the expense ratio for Class A, Class
B, and Class D Acquiring Fund Shares would likely decrease over time as a result
of the Reorganization due to the increased size of the combined Fund. In
approving the Reorganization, the boards noted that the overall investment
objective of current income and capital growth remains an appropriate one to
offer investors as part of an overall investment strategy.
Mitchell Hutchins further advised the boards that, while Acquiring Fund's
past performance has not been as positive as Target's, Acquiring Fund's
investment policies recently have been revised. The new policies are intended
to improve Acquiring Fund's performance. In addition, Mitchell Hutchins has
recently appointed Mark A. Tincher as portfolio manager with day-to-day
responsibility for Acquiring Fund; Mr. Tincher is experienced in managing growth
and income funds. Mitchell Hutchins also advised the boards that it did not
expect to receive any immediate direct benefits from the Reorganization, because
the compensation that would be received by it as investment adviser to the
combined Fund would be the same or less than the aggregate compensation it
received from the Funds prior to the Reorganization, assuming no change in
aggregate net assets. However, Mitchell Hutchins noted that it could benefit in
the future if the combined Fund's assets grow faster than would be the case for
the separate Funds in the absence of the Reorganization.
Pursuant to all the foregoing, each Investment Company's board approved
the Plan, subject to approval of Target's shareholders. The Plan, which
specifies that it is intended to be, and is adopted as, a plan of a
reorganization described in section 368(a)(1)(C), provides in relevant part for
the following:
(1) The acquisition by Acquiring Fund of all the Assets (as defined
below) in exchange solely for
(a) the number of full and fractional (i) Class A Acquiring
Fund Shares determined by dividing the net value of Target ("Target
Value") attributable to the Class A Target Shares by the net asset
value ("NAV") of a Class A Acquiring Fund Share, (ii) Class B
Acquiring Fund Shares determined by dividing the Target Value
attributable to the Class B Target Shares by the NAV of a Class B
Acquiring Fund Share, and (iii) Class D Acquiring Fund Shares
determined by dividing the Target Value attributable to the Class D
Target Shares by the NAV of a Class D Acquiring Fund Share, and
(b) Acquiring Fund's assumption of the Liabilities (as defined
below),
(2) The constructive distribution of such Acquiring Fund Shares to
the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring the
Acquiring Fund Shares then credited to Target's account on Acquiring Fund's
share transfer records to open accounts on those records
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established in the Shareholders' names, with each Shareholder's account being
credited with the respective pro rata number of full and fractional (rounded to
three decimal places) Acquiring Fund Shares due such Shareholder, by class
(i.e., the account for a Shareholder of Class A Target Shares shall be credited
with the respective pro rata number of Class A Acquiring Fund Shares due that
Shareholder, the account for a Shareholder of Class B Target Shares shall be
credited with the respective pro rata number of Class B Acquiring Fund Shares
due that Shareholder, and the account for a Shareholder of Class D Target Shares
shall be credited with the respective pro rata number of Class D Acquiring Fund
Shares due that Shareholder). All outstanding Target Shares, including any
represented by certificates, simultaneously will be canceled on Target's share
transfer records.
The Target assets to be acquired by Acquiring Fund include all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (collectively "Assets").
Acquiring Fund will assume all of Target's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in the Plan, including without limitation Target's
share of the expenses incurred in connection with the Reorganization
(collectively "Liabilities"). Target agreed in the Plan to use its best efforts
to discharge all of its known liabilities and obligations prior to the Effective
Time.
REPRESENTATIONS
The representations enumerated below have been made to us by appropriate
officers of each Investment Company.
Each of America Fund, on behalf of Acquiring Fund, and Investment Series,
on behalf of Target, has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in exchange
therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and (b)
does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, its management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis. Nor
does its management anticipate that there will be extraordinary
redemptions of Acquiring Fund Shares immediately following the
Reorganization;
3. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto, plus any liabilities and expenses of the
parties incurred in connection with the Reorganization;
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5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to
pay its Reorganization expenses and redemptions and distributions made by
it immediately before the Reorganization (except for (a) distributions
made to conform to its policy of distributing all or substantially all of
its income and gains to avoid the obligation to pay federal income tax
and/or the excise tax under section 4982 and (b) redemptions not made as
part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
8. None of the compensation received by any Shareholder who is an
employee of Target will be separate consideration for, or allocable to,
any of the Target Shares held by such Shareholder-employee; none of the
Acquiring Fund Shares received by any such Shareholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
the consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services; and
9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" of Acquiring Fund within the meaning of
section 304(c).
Investment Series also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary course
of its business;
2. Target is a "fund" as defined in section 851(h)(2); it qualified
for treatment as a regulated investment company ("RIC") under Subchapter M
of the Code ("Subchapter M") for each past taxable year since it commenced
operations and will continue to meet all the requirements for such
qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
3. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the
meaning of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock or securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock or securities of five or
fewer issuers; and
5. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
America Fund also has represented and warranted to us on behalf of
Acquiring Fund as follows:
1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a RIC under Subchapter M for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring
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Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open
-end investmetn company; nor does Acquiring Fund have any plan or
intention to redeem or otherwise reacquire any Acquiring Fund
Shares issued to the Shareholders pursuant to the Reorganization, other
than through redemptions arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business in
substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for dispositions
made in the ordinary course of that business and dispositions necessary
to maintain its status as a RIC under Subchapter M, and (c) expects to
retain substantially all the Assets in the same form as it receives them
in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes necessary
to make dispositions thereof to maintain such status;
4. There is no plan or intention for Acquiring Fund to be dissolved
or merged into another corporation or business trust or any "fund" thereof
(within the meaning of section 851(h)(2)) following the Reorganization;
5. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock or
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock or securities of five or fewer
issuers; and
6. Acquiring fund does not own, directly or indirectly, nor at the
Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target.
OPINION
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange
for the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro rata to
the Shareholders constructively in exchange for their Target Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(C),
and each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
2. No gain or loss will be recognized to Target on the transfer of
the Assets to Acquiring Fund solely in exchange for the Acquiring Fund
Shares and Acquiring Fund's assumption of the Liabilities or upon the
subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares and
its assumption of the Liabilities (section 1032(a));
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4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the
Reorganization (section 362(b)), and Acquiring Fund's holding period
for the Assets will include Target's holding period
therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for those
Acquiring Fund Shares (section 358(a)), and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder on the
Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the Internal Revenue Service
("Service") in existence on the date hereof and (2) is applicable only to the
extent each Fund is solvent. We express no opinion about the tax treatment of
the transactions described herein if either Fund is insolvent.
ANALYSIS
I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C),
and Each Fund Will Be a Party to a Reorganization.
A. Each Fund Is a Separate Corporation.
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For the transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). Each Investment Company, however, is a Massachusetts business
trust, not a corporation, and each Fund is a separate series of an Investment
Company.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees for
the benefit of beneficiaries) will not be classified as trusts for purposes of
the Code because they are not simply arrangements to protect or conserve the
property for the beneficiaries. These "business or commercial trusts" are
created simply as devices to carry on profit-making businesses that normally
would have been carried on through corporations or partnerships. Treasury
Regulation section 301.7701-4(c) further provides that an "`investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders." See Commissioner v. North
American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701
(1942).
Based on these criteria, neither Investment Company qualifies as a trust
for federal income tax purposes. While each Investment Company is an
"investment trust," it does not have a fixed pool of assets -- each Fund has
been a managed portfolio of securities, and its investment adviser has had the
authority to buy and sell securities for it. Neither Investment Company is
simply an arrangement to protect or conserve property for the beneficiaries, but
each is designed to carry on a profit-making business. In addition, the word
"association" has long been held to include "Massachusetts business trusts,"
such as the Investment Companies. See Hecht v. Malley, 265 U.S. 144 (1924).
Accordingly, we believe that each Investment Company will be treated as a
corporation for federal income tax purposes.
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Neither Investment Company as such, however, is participating in the
Reorganization, but rather series of each of them are the participants.
Ordinarily, a transaction involving segregated pools of assets (such as the
Funds) could not qualify as a reorganization, because the pools would not be
corporations. Under section 851(h), however, each Fund is treated as a separate
corporation for all purposes of the Code save the definitional requirement of
section 851(a) (which is satisfied by each Investment Company). Thus, we
believe that each Fund will be a separate corporation, and each Fund's shares
will be treated as shares of corporate stock, for purposes of section
368(a)(1)(C).
B. Satisfaction of Section 368(a)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorgan-
ization with respect to any such investment company or its shareholders unless,
among other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is invested in
the stock or securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested in
the stock or securities of five or fewer issuers.
Each Fund will meet the requirements for qualification and treatment as a
RIC for its respective current taxable year, and the foregoing percentage tests
will be satisfied by each Fund. Accordingly, we believe that section
368(a)(2)(F) will not cause the Reorganization to fail to qualify as a C
reorganization with respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation solely in exchange for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers
the transfer of at least 70% of the transferor's gross assets, and at least 90%
of its net assets, held immediately before the reorganization to satisfy the
"substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The
Reorganization will involve such a transfer. Accordingly, we believe that the
Reorganization will involve the transfer to Acquiring Fund of substantially all
of Target's properties.
D. Qualifying Consideration.
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the transferor's
property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or
other property, for the Assets, we believe that the Reorganization will satisfy
the solely-for-voting-stock requirement to qualify as a C reorganization.
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E. Requirements of Continuity.
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise under the
modified corporate form ("continuity of business") and (2) a continuity of
interest therein on the part of those persons who, directly or indirectly, were
the owners of the enterprise prior to the reorganization ("continuity of
interest").
1. Continuity of Business.
The continuity of business enterprise test as set forth in Treas. Reg.
Section 1.368-1(d)(2) requires that the acquiring corporation must
either (i) continue the acquired corporation's historic business ("business
continuity") or (ii) use a significant portion of the acquired corporation's
historic business assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement of
continuity of business in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
securities. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C reorganization. Prior to the
exchange, T sold its entire portfolio of corporate securities and purchased a
portfolio of municipal bonds. The Service held that this transaction did not
qualify as a reorganization for the following reasons: (1) because T had sold
its historic assets prior to the exchange, there was no asset continuity; and
(2) the failure of P to engage in the business of investing in corporate
securities after the exchange caused the transaction to lack business continuity
as well.
The Funds' investment objectives and policies are similar. Furthermore,
Acquiring Fund will actively continue Target's business in the same manner that
Target conducted it immediately before the Reorganization. Accordingly, there
will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of its
business and dispositions necessary to maintain its status as a RIC, and (2)
expects to retain substantially all the Assets in the same form as it receives
them in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status. Accordingly, there will be asset
continuity as well.
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement of Treas. Reg. Section 1.368-1(b) satisfied
if ownership in an acquiring corporation on the part of a transferor
corporation's former shareholders is equal in value to at least 50% of the value
of all the formerly outstanding shares of the transferor corporation. Rev.
Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of
interest was held to exist in a reorganization of two RICs where immediately
after the reorganization 26% of the shares were redeemed in order to allow
investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125
(5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a
transferor corporation's stock was not a sufficient shift in proprietary
interest to disqualify a transaction as a reorganization under section
368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's
shareholders would hold all the transferee's stock); Aetna Casualty and Surety
Co. v. U.S., 568 F.2d 811, 822- 23 (2d Cir. 1976) (redemption of a 38.39%
minority interest did not prevent a transaction from
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qualifying as an F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a
transaction qualified as an F Reorganization even though the transferor's
shareholders acquired only 45% of the transferee's stock, while the remaining
55% of that stock was issued to new shareholders in a public underwriting
immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired corporation's
shareholders to dispose of more than 50% of an acquiring corporation's shares
could be problematic. Shareholders with no such preconceived plan or
arrangement, however, are basically free to sell any part of the shares received
by them in the reorganization without fear of breaking continuity of interest,
because the subsequent sale will be treated as an independent transaction from
the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization or (2) anticipates dispositions thereof at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Target as a series of an open-end investment company.
Consequently, each Fund expects that the percentage of Shareholder interests,
if any, that will be disposed of as a result of or at the time of the
Reorganization will be de minimis. Accordingly, we believe that the
Reorganization will meet the continuity of interest requirement of Treas. Reg.
Section 1.368-1(b).
F. Distribution by Target.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a
C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. Section 1.368-2(g)
- -- Target will distribute all the Acquiring Fund Shares to its shareholders in
constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be terminated. Accordingly, we believe that
the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
U.S. 465 (1935), and is now set forth in Treas. Reg. Section 1.368-1(b),
- -1(c), and -2(g) (the last of which provides that, to qualify as a
reorganization, a transaction must be "undertaken for reasons germane to the
continuance of the business of a corporation a party to the reorganization").
Under that doctrine, a transaction must have a bona fide business purpose (and
not a purpose to avoid federal income tax) to constitute a valid reorganization.
The substantial business purposes of the Reorganization are outlined above.
Accordingly, we believe that the Reorganization is being undertaken for bona
fide business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
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H. Both Funds are Parties to the Reorganization.
Section 368(b)(2) and Treas. Reg. Section 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization. Target is
transferring substantially all of its properties to Acquiring Fund in exchange
for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a
party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of property,
pursuant to the plan of reorganization, solely for stock or securities in
another corporate party to the reorganization or (2) on the distribution to its
shareholders, pursuant to that plan, of stock in such other corporation that
was received by the distributing corporation in the exchange. (Such a
distribution is required by section 368(a)(2)(G)(i) for a reorganization to
qualify as a C reorganization.) Section 361(c)(4) provides that specified
provisions requiring recognition of gain on certain distributions shall not
apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a plan
of reorganization. Target will exchange the Assets solely for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities and then will
terminate pursuant to the Plan, distributing those shares to its shareholders
in constructive exchange for their Target Shares. As also noted above, we
believe that the Reorganization is being undertaken for bona fide business
purposes (and not a purpose to avoid federal income tax); we also do not believe
that the principal purpose of Acquiring Fund's assumption of the Liabilities is
avoidance of federal income tax on the proposed transaction. Accordingly, we
believe that no gain or loss will be recognized to Target on the
Reorganization.6/
- -------------------
6/ Notwithstanding anything herein to the contrary, no opinion is expressed as
to the effect of the Reorganization on the Funds or any Shareholder (regarding
the recognition of gain or loss and/or the determination of the basis or
holding period) with respect to any asset (including certain options, futures,
and forward contracts included in the Assets) as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
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III. No Gain or Loss Will Be Recognized to Acquiring Fund.
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for its
shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in
exchange for the Assets, which consist of money and securities. Accordingly, we
believe that no gain or loss will be recognized to Acquiring Fund on the
Reorganization.
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its
Holding Period Will Include Target's Holding Period.
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that corporation's
hands as the basis of the property in the transferor corporation's hands
immediately before the exchange, increased by any gain recognized to the
transferor on the transfer. As noted above, the Reorganization will constitute
a C reorganization and Target will recognize no gain on the Reorganization under
section 361(a). Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as the basis thereof in Target's hands immediately
before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange has a
carryover basis, the property will have a holding period in the hands of the
acquiror that includes the holding period of the property in the transferor's
hands. As stated above, Acquiring Fund's basis for the Assets will be a
carryover basis. Accordingly, we believe that Acquiring Fund's holding period
for the Assets will include Target's holding period therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
Under section 354(a), no gain or loss is recognized to a shareholder who
exchanges shares for other shares pursuant to a plan of reorganization, wherethe
shares exchanged, as well as the shares received, are those of a corporation
that is a party to the reorganization. As stated above, the Reorganization will
constitute a C reorganization, the Plan constitutes a plan of reorganization,
and each Fund will be a party to a reorganization. Accordingly, we believe that
under section 354 a Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted
Basis, and its Holding Period therefor Will Include its Holding Period for
its Target Shares.
Section 358(a)(1) provides, in part, that in the case of an exchange to
which section 354 applies, the basis of any shares received in the transaction
without the recognition of gain is the same as the basis of the property
transferred in exchange therefor, decreased by, among other things, the fair
market value of any other property and the amount of any money received in the
transaction and increased by the amount of any gain recognized on the exchange
by the shareholder.
As noted above, the Reorganization will constitute a C reorganization and
under section 354 no gain or loss will be recognized to a Shareholder on the
constructive exchange of its Target Shares for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
the Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for
the Acquiring Fund Shares to be received by it in the
PaineWebber America Fund
PaineWebber Investment Series
May 30, 1995
Page 14
Reorganization will be the same as the basis for its Target Shares to be
constructively surrendered in exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if the
acquired property has, for the purpose of determining gain or loss, the same
basis in the holder's hands as the property exchanged therefor ("substituted
basis") and such property was a capital asset. As noted above, a Shareholder
will have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization; accordingly, provided that the Shareholder held its Target
Shares as capital assets on the Closing Date, we believe its holding period for
those Acquiring Fund Shares will include its holding period for those
Target Shares.
We hereby consent to this opinion accompanying the Registration Statement
and to the references to our firm under the captions "Approval of the
Reorganizations -- Synopsis -- Federal Income Tax Consequences of the
Reorganizations" and "The Proposed Transactions -- Federal Income Tax
Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/
-----------------------------
Theodore L. Press
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement constituting part of this registration statement on Form N-14 (the
"N-14 Registration Statement") of our report dated December 13, 1994, relating
to the financial statements and financial highlights of PaineWebber Global
Energy Fund appearing in the October 31, 1994 Annual Report to Shareholders,
which is incorporated by reference in the Statement of Additional Information
constituting part of Post-Effective Amendment No. 29 to the Registration
Statement on Form N-1A of such Fund, which is incorporated by reference in such
Prospectus/Proxy Statement. We also consent to the reference to us under the
heading "Miscellaneous - Experts" in such Prospectus/Proxy Statement of the
N-14 Registration Statement.
Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 25, 1995
CONSENT OF INDEPENDENT AUDITORS
Paine Webber America Fund:
We consent to the incorporation by reference in this Registration Statement on
Form N-14 of our report on the Mitchell Hutchins/Kidder, Peabody Equity Income
Fund, Inc. dated March 13, 1995 appearing in the annual report to shareholders
for the year ended January 31, 1995 and to the reference to us under the caption
"Miscellaneous-Experts" appearing in the Prospectus/Proxy Statement, which also
is part of such Registration Statement.
Deloitte & Touche LLP
DELLOITTE & TOUCHE LLP
New York, New York
May 26, 1995
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
and "Experts" and to the incorporation by reference of our report dated
October 26, 1994 on PaineWebber Growth and Income Fund (a series of
PaineWebber America Fund), in this Registration Statement (Form N-14 No.
33-2-78626) of PaineWebber America Fund.
Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
May 24, 1995
Rule 24f-2 NOTICE FOR
PAINEWEBBER AMERICA FUND
PAINEWEBBER DIVIDEND GROWTH FUND
(1933 Act File No. 2-78626)
1. The Fiscal period for which the notice is filed:
September 1, 1993 to August 31, 1994
2. The number or amount of securities of the same class or series, if any, which
had been registered under the Securities Act of 1933 other than pursuant to
this section but which remained unsold at the beginning of such fiscal
period:
None
3. The number or amount of securties, if any, registered during such fiscal
period other than pursuant to this section:
None
4. The number or amount of securities sold during such fiscal period:
$42,783,768 representing 2,083,641 shares of beneficial interest ($0.001
par value)
5. The number or amount of securities sold during such fiscal period in reliance
upon registration pursuant to this section:
$42,783,768 representing 2,083,641 shares of beneficial interest ($0.001
par value)
6. The calculation of filing fee:
(a) The total amount of registered shares of
beneficial interest ($0.001 par value) sold
including sales load: $42,783,768
(b) Less the total amount of registered shares of
beneficial interest ($0.001 par value) redeemed
or repurchased: (367,141,350)
-------------
(c) Difference (i.e., (a) less (b)): ($324,357,582)
=============
(d) Filing fee pursuant to section 6(b) of
1933 Act (Line (c) Amount x 0.00034483): $0
=============
/s/ Ann Moran
----------------
Ann Moran
Assistant Treasurer and Vice President
PaineWebber America Fund
Date: October 25, 1994
PROXY
-----
MITCHELL HUTCHINS/KIDDER PEABODY EQUITY INCOME FUND, INC.
SPECIAL MEETING OF SHAREHOLDERS -- AUGUST 4, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A.
Urena and each of them (with power of substitution) to vote for the undersigned
all shares of beneficial interest of the undersigned at the aforesaid meeting
and any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO
GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF MITCHELL HUTCHINS/KIDDER PEABODY EQUITY INCOME
FUND, INC.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer
Park, NY 11729.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan
of Reorganization and Liquidation
between PaineWebber Growth and
Income Fund and Mitchell Hutchins/
Kidder Peabody Equity Income
Fund, Inc. / / / / / /
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
This proxy will not be voted unless it is dated and signed
exactly as instructed below.
If shares are held jointly, each Shareholder named should sign. If only one
signs, his or her signature will be binding. If the Shareholder is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the Shareholder is a partnership, a partner should
sign in his or her own name, indicating that he or she is a "Partner."
Sign exactly as name appears hereon.
______________________________(L.S.)
______________________________(L.S.)
Date ________________________, 1995
PROXY
PAINEWEBBER INVESTMENT SERIES -- PAINEWEBBER GLOBAL ENERGY FUND
SPECIAL MEETING OF SHAREHOLDERS -- AUGUST 4, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A.
Urena and each of them (with power of substitution) to vote for the undersigned
shares of beneficial interest of the undersigned at the aforesaid meeting and
any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO
GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF TRUSTEES OF PAINEWEBBER INVESTMENT SERIES.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer
Park, NY 11729.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THE BOARD OF
TRUSTEES RECOMMENDS A VOTE "FOR"
FOR AGAINST ABSTAIN
1. Approval of an Agreement and Plan of
Reorganization and Termination between
PaineWebber Growth and Income Fund and
PaineWebber Global Energy Fund ("Fund"). / / / / / /
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
This proxy will not be voted unless it is dated and signed exactly as instructed
below
If shares are held jointly, each Shareholder named should sign. If only one
signs, his or her signature will be binding. If the Shareholder is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the Shareholder is a partnership, a partner should
sign in his or her own name indicating that he or she is a "Partner".
Sign exactly as name appears hereon.
------------------------------------(L.S.)
------------------------------------(L.S.)
Date -------------------------------, 1995
