<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
(A SERIES OF MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST)
SEPTEMBER 18, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that Mitchell
Hutchins/Kidder, Peabody Adjustable Rate Government Fund ('MH/KP Fund')
reorganize and become part of PaineWebber Short-Term U.S. Government Income Fund
('PW Fund'). If the proposal is approved and implemented, each shareholder of
MH/KP Fund will automatically become a shareholder of PW Fund.
YOUR BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE REORGANIZATION PROPOSAL.
The board believes that combining the two Funds will benefit MH/KP Fund's
shareholders by providing them with a portfolio that has an investment objective
that is substantially identical to that of MH/KP Fund, that has a similar
investment strategy and that, before taking into account voluntary fee waivers
and expense reimbursements, will have lower operating expenses as a percentage
of net assets. The attached proxy materials provide more information about the
proposed reorganization and the two Funds.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit MH/KP 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
Adjustable Rate Government Fund
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
(A SERIES OF MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST)
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 19, 1995
To The Shareholders:
A special meeting of shareholders ('Meeting') of Mitchell Hutchins/Kidder,
Peabody Adjustable Rate Government Fund ('MH/KP Fund'), a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust, will be held on October 19, 1995, at
10:00 a.m., Eastern time, at 1285 Avenue of the Americas, 38th Floor, New York,
New York 10019, for the following purposes:
(1) To consider an Agreement and Plan of Reorganization and
Termination under which PaineWebber Short-Term U.S. Government Income Fund
('PW Fund'), a series of PaineWebber Managed Investments Trust, would
acquire the assets of MH/KP Fund in exchange solely for shares of
beneficial interest in PW Fund and the assumption by PW Fund of MH/KP
Fund's liabilities, followed by the distribution of those shares to the
shareholders of MH/KP Fund, all 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 MH/KP Fund at the close of business on September 5, 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
September 18, 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 PROPOSAL NOTICED ABOVE. In order to avoid the additional
expense of further solicitation, 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.
<PAGE>
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT INCOME FUND
(A SERIES OF PAINEWEBBER MANAGED INVESTMENTS TRUST)
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
(A SERIES OF MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST)
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(TOLL FREE) 1-800-647-1568
PROSPECTUS/PROXY STATEMENT
SEPTEMBER 18, 1995
This Prospectus/Proxy Statement ('Proxy Statement') is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government
Fund ('MH/KP Fund'), a series of Mitchell Hutchins/Kidder, Peabody Investment
Trust ('MH/KP Trust'), in connection with the solicitation of proxies by MH/KP
Trust's board of trustees for use at a special meeting of MH/KP Fund
shareholders to be held on October 19, 1995, at 10:00 a.m., Eastern time, and at
any adjournment thereof ('Meeting').
As more fully described in this Proxy Statement, the primary purpose of the
Meeting is to vote on a proposed reorganization ('Reorganization'). Under the
Reorganization, PaineWebber Short-Term U.S. Government Income Fund ('PW Fund'),
a series of PaineWebber Managed Investments Trust ('PW Trust'), would acquire
the assets of MH/KP Fund in exchange solely for shares of beneficial interest in
PW Fund and the assumption by PW Fund of MH/KP Fund's liabilities. Those PW Fund
shares then would be distributed to the shareholders of MH/KP Fund, by class, so
that each shareholder of MH/KP Fund would receive a number of full and
fractional shares of the applicable class of PW 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 MH/KP
Fund. As soon as practicable following the distribution, MH/KP Fund will be
terminated.
PW Fund is a diversified series of PW Trust, which is an open-end
management investment company. PW Fund's investment objective is to achieve the
highest level of income consistent with the preservation of capital and low
volatility of net asset value. PW Fund seeks to achieve its investment objective
by investing primarily in U.S. government securities, including mortgage-backed
securities that are issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Concurrently with the consummation of the Reorganization, PW
Fund will be renamed the 'PaineWebber Low Duration U.S. Government Income Fund.'
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
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the Reorganization and PW Fund that a
shareholder should know before voting. A Statement of Additional Information,
dated September 18, 1995, relating to the Reorganization and including
historical financial statements ('Statement of Additional Information'), has
been filed with the Securities and Exchange Commission ('SEC') and is
incorporated herein by reference. A Prospectus for PW Fund, dated April 1, 1995
(as supplemented August 17, 1995) ('PW Fund Prospectus'), a Statement of
Additional Information for PW Fund, dated April 1, 1995 ('PW Fund SAI'), PW
Fund's Annual Report to Shareholders for the fiscal year ended November 30, 1994
('PW Fund Annual Report') and PW Fund's Semi-Annual Report to Shareholders for
the six-month period ended May 31, 1995 have been filed with the SEC and are
incorporated herein by reference. A Prospectus for MH/KP Fund, dated December
29, 1994 (as supplemented June 22, 1995) ('MH/KP Fund Prospectus'), and a
Statement of Additional Information for MH/KP Fund, dated December 29, 1994
('MH/KP Fund SAI'), have been filed with the SEC and also are incorporated
herein by this reference. A copy of the PW Fund Prospectus and of the PW Fund
Annual Report accompany this Prospectus/Proxy Statement. Copies of the other
referenced documents, as well as MH/KP Fund's annual report and each Fund's
semi-annual report, may be obtained without charge, and further inquiries may be
made, by contacting your PaineWebber Incorporated ('PaineWebber') investment
executive or PaineWebber's correspondent firms or by calling toll-free
1-800-647-1568.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
VOTING INFORMATION.......................................................................................... 1
SYNOPSIS.................................................................................................... 2
COMPARISON OF PRINCIPAL RISK FACTORS........................................................................ 11
THE PROPOSED TRANSACTION.................................................................................... 12
ADDITIONAL INFORMATION ABOUT PW FUND........................................................................ 17
MISCELLANEOUS............................................................................................... 19
Appendix A-- Agreement and Plan of Reorganization and Termination........................................... A-1
Appendix B-- Beneficial Ownership of Shares of PW Fund and MH/KP Fund....................................... B-1
</TABLE>
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
(A SERIES OF MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST)
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
OCTOBER 19, 1995
VOTING INFORMATION
This Prospectus/Proxy Statement ('Proxy Statement') is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government
Fund ('MH/KP Fund'), a series of Mitchell Hutchins/Kidder, Peabody Investment
Trust ('MH/KP Trust'), in connection with the solicitation of proxies by its
board of trustees for use at a special meeting of shareholders to be held on
October 19, 1995, and at any adjournment thereof ('Meeting'). This Proxy
Statement will first be mailed to shareholders on or about September 18, 1995.
At least thirty percent of MH/KP Fund's outstanding shares on September 5,
1995, represented in person or by proxy, must be present for the transaction of
business at the Meeting. If 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 to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares 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 proposal in favor of such an adjournment and
will vote those proxies required to be voted AGAINST any proposal against such
adjournment.
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 for which 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 the 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 by 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, dated as of August 8, 1995
('Reorganization Plan'), which is attached to this Proxy Statement as Appendix
A. Under the Reorganization Plan, PaineWebber Short-Term U.S. Government Income
Fund ('PW Fund'), a series of PaineWebber Managed Investments Trust ('PW
Trust'), would acquire the assets of MH/KP Fund in exchange solely for shares of
beneficial interest in PW Fund and the assumption by PW Fund of MH/KP Fund's
liabilities; those PW Fund shares then would be constructively distributed to
MH/KP Fund's shareholders. (These transactions are collectively referred to
herein as the 'Reorganization,' and MH/KP Fund and PW Fund may be referred to
herein individually as a 'Fund' or, collectively, as 'Funds'.) After completion
of the Reorganization, MH/KP Fund will be terminated.
In addition, if you sign, date and return the proxy card, but give no
voting instructions, the duly appointed proxies may vote your shares, in their
discretion, 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
the initial proxy. To be effective, such revocation must be received by MH/KP
Trust prior to the Meeting and must indicate your name and account number. 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 September 5, 1995 ('Record Date'), MH/KP Fund had 2,255,905 shares of
beneficial interest outstanding. The solicitation of proxies, the cost of which
will be borne by Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'),
will be made primarily by mail but also may include telephone or
<PAGE>
oral communications by representatives of Mitchell Hutchins, who will not
receive any compensation therefor from the Funds, or by Shareholder
Communications Corporation, professional proxy solicitors retained by the Funds,
who will be paid fees and expenses of up to approximately $1,000 for soliciting
services by Mitchell Hutchins. Except as set forth on Appendix B, management
does not know of any single shareholder or 'group' (as that term is used in
Section 13(d) of the Securities Exchange Act of 1934) who owns beneficially 5%
or more of the shares of MH/KP Fund or PW Fund. Trustees and officers of PW
Trust own in the aggregate less than 1% of the shares of PW Fund.
Approval of the Reorganization Plan requires the affirmative vote of a
majority of the outstanding voting securities of MH/KP Fund. As defined in the
Investment Company Act of 1940 ('1940 Act'), 'majority of the outstanding voting
securities' means the lesser of (1) 67% of MH/KP Fund's shares present at a
meeting of shareholders if the owners of more than 50% of MH/KP Fund's shares
then outstanding are present in person or by proxy or (2) more than 50% of MH/KP
Fund's outstanding shares. Each outstanding full share of MH/KP Fund is entitled
to one vote, and each outstanding fractional share thereof is entitled to a
proportionate fractional share of one vote. If the Reorganization Plan is not
approved by the requisite vote of shareholders of MH/KP Fund, the persons named
as proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Although the shareholders of MH/KP Fund may exchange or
redeem out of the Fund, they do not have the appraisal rights that may be
accorded to shareholders of corporations that propose similar types of
reorganizations under the laws of some states.
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the PW Fund and MH/KP Fund Prospectuses, which are
incorporated herein by this reference, and the Reorganization Plan. Shareholders
should read this Proxy Statement and the accompanying PW Fund Prospectus
carefully. As discussed more fully below, MH/KP Trust's board of trustees
believes that the Reorganization will benefit MH/KP Fund's shareholders. PW Fund
has an investment objective that is substantially identical to the investment
objective of MH/KP Fund and has a similar investment strategy. It is anticipated
that, following the Reorganization, the total operating expenses for the
combined Fund, before taking into account voluntary fee waivers and expense
reimbursements, will be lower as a percentage of net assets than has been
experienced by MH/KP Fund.
THE REORGANIZATION
MH/KP Trust's board of trustees considered and approved the Reorganization
Plan at a meeting held on July 20, 1995. The Reorganization Plan provides for
the acquisition of the assets of MH/KP Fund by PW Fund in exchange solely for
shares of PW Fund and the assumption by PW Fund of the liabilities of MH/KP
Fund. MH/KP Fund will then distribute those shares to its shareholders, by
class, so that each MH/KP Fund shareholder will receive the number of full and
fractional shares of the PW Fund class ('Corresponding Class') that corresponds
most closely in terms of fees and other characteristics to, and that is equal in
value to the value of, such shareholder's holdings in MH/KP Fund as of the
Closing Date (defined below). MH/KP Fund will be terminated as soon as
practicable thereafter.
The exchange of MH/KP Fund's assets for PW Fund shares and PW Fund's
assumption of its liabilities will occur as of 4:00 pm., Eastern time, on
October 20, 1995, or on a later date when the conditions to the closing are
satisfied ('Closing Date').
PW Fund currently offers for sale three classes of shares (each a 'Class'
and collectively, 'Classes'), designated as Class A, Class B and Class D shares.
In connection with the Reorganization, PW Fund will issue Class C shares. Class
B shares of PW Fund will not be issued in connection with the Reorganization.
MH/KP Fund has three Classes of shares, designated as Class A, Class B and Class
C shares. In the Reorganization, holders of MH/KP Fund Class A, Class B and
Class C shares will receive Class A, Class D and Class C shares, respectively,
of PW Fund. The following table shows which Class of shares of PW Fund will be
received by shareholders of each Class of shares of MH/KP Fund:
<TABLE>
<CAPTION>
MH/KP
FUND PW FUND
------- -------
<S> <C> <C>
Class A Class A
Class B Class D
Class C Class C
</TABLE>
2
<PAGE>
For the reasons set forth below under 'The Proposed Transaction--Reasons
for the Reorganization,' MH/KP Trust's board of trustees, including the trustees
who are not 'interested persons,' as that term is defined in the 1940 Act
('Independent Trustees'), of MH/KP Trust or PW Trust (each a 'Trust' and
collectively, 'Trusts'), has determined that the Reorganization is in the best
interests of MH/KP Fund, that the terms of the Reorganization are fair and
reasonable and that the interests of MH/KP Fund's shareholders will not be
diluted as a result of the Reorganization. Accordingly, MH/KP Trust's board of
trustees recommends approval of the transaction. In addition, PW Trust's board
of trustees, including its Independent Trustees, has determined that the
Reorganization is in the best interests of PW Fund, that the terms of the
Reorganization are fair and reasonable and that the interests of PW Fund's
shareholders will not be diluted as a result of the Reorganization.
COMPARATIVE FEE TABLE
Certain fees and expenses that MH/KP Fund's shareholders pay, directly or
indirectly, are different from those incurred by PW Fund shareholders. MH/KP
Fund's Class A shares are sold with a maximum initial sales charge of 2.25% of
the public offering price. PW Fund's Class A shares normally are sold with a
maximum initial sales charge of 3% of the public offering price. However, the
Class A shares of PW Fund that will be distributed to shareholders of MH/KP Fund
as part of the Reorganization will not be subject to an initial sales charge.
Following the Reorganization, new purchases of Class A shares of PW Fund will be
subject to an initial sales charge of up to 3%.
Each Fund pays Mitchell Hutchins a monthly investment advisory and
administration fee, computed daily and paid monthly, at an annual rate of 0.50%
of the Fund's average daily net assets. The Class A and Class B shares of MH/KP
Fund pay 12b-1 fees that are identical to those paid by the Class A and Class D
shares, respectively, of PW Fund. No 12b-1 fees are paid by the Class C
shareholders of either Fund, but persons who hold Class C shares of either Fund
through the INSIGHT Investment Advisory Program(Service Mark) ('INSIGHT
program') must pay to PaineWebber Incorporated ('PaineWebber') an annual
investment advisory fee of up to 1.50% of the average daily value of the shares.
Shareholders of MH/KP Fund are not charged a fee for exchanges of the
Fund's shares for shares of a Corresponding Class of other PaineWebber or
Mitchell Hutchins/Kidder, Peabody ('MH/KP') mutual funds. PW Fund shareholders
pay a $5.00 fee for each exchange. PW Fund pays PaineWebber an annual fee of
$4.00 per active shareholder account held at PaineWebber for certain services
not provided by the Fund's transfer agent. MH/KP Fund does not pay this fee.
The following tables show (1) shareholder transaction expenses currently
incurred by Class A, Class B and Class C shares of MH/KP Fund, and shareholder
transaction expenses that each Class issued by PW Fund will incur after giving
effect to the Reorganization; (2) the fees and expenses incurred by the Class A,
Class B and Class C shares of MH/KP Fund and Class A and Class D shares of PW
Fund for the twelve months ended May 31, 1995 (unaudited); and (3) pro forma
fees for PW Fund's Class A, Class D and Class C shares after giving effect to
the Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MH/KP FUND COMBINED FUND
------------------------------ -----------------------------
CLASS A CLASS B(1) CLASS C CLASS A CLASS D CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (as a
percentage of public offering
price)........................... 2.25% None None 3.00% None None
Exchange fee....................... None None None $5.00 $5.00 N/A(2)
Maximum contingent deferred sales
charge (as a percentage of
redemption proceeds)............. None None None None3 None3 None
</TABLE>
(Footnotes on next page)
3
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
COMBINED FUND
MH/KP FUND PW FUND (PRO FORMA)
------------------------------- ------------------ -----------------------------
CLASS A CLASS B(1) CLASS C(4) CLASS A CLASS D CLASS A CLASS D CLASS C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees.......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
12b-1 Fees............... 0.25% 0.75% 0.00% 0.25% 0.75% 0.25% 0.75% 0.00%
Other Expenses........... 0.48% 0.48% 0.48% 0.26% 0.32% 0.25% 0.31% 0.29%
------- -------- -------- ------- ------- ------- ------- -------
Total Fund Operating
Expenses5.............. 1.23% 1.73% 0.98% 1.01% 1.57% 1.00% 1.56% 0.79%
------- -------- -------- ------- ------- ------- ------- -------
------- -------- -------- ------- ------- ------- ------- -------
</TABLE>
------------------
(1) Class B shares of MH/KP Fund will be exchanged for Class D shares of PW
Fund.
(2) Class C shares of the Combined Fund will not be exchangeable for shares of
other PaineWebber or MH/KP mutual funds.
(3) Under certain circumstances, Class A and Class D shares of Combined Fund
that are purchased after November 1, 1995 may be subject to a 1% contingent
deferred sales charge. See 'Operations of PW Fund Following the
Reorganization--Other Operations and Policies.' However, Class A and Class D
shares in PW Fund that are issued to MH/KP Fund shareholders as part of the
Reorganization will not be subject to that contingent deferred sales charge.
(4) A maximum annual 1.50% advisory fee, which is not reflected in the table, is
payable by shareholders holding Class C shares through the INSIGHT program.
(5) The ratios of total operating expenses as a percentage of average net assets
were 1.08%, 1.58% and 0.83% for Class A, Class B and Class C, respectively,
of MH/KP Fund for the fiscal year ended August 31, 1994, and were 0.88% and
1.39% for Class A and Class D, respectively, of PW Fund for the fiscal year
ended November 30, 1994. During those periods (and through the present in
the case of MH/KP Fund), certain fees and expenses have been waived and/or
reimbursed for each Fund. After giving effect to those waivers and
reimbursements, the total fund operating expenses were 0.88% for Class A,
1.38% for Class B and 0.63% for Class C of MH/KP Fund for the fiscal year
ended August 31, 1994, and were 0.94% for Class A, 1.44% for Class B and
0.69% for Class C for the twelve months ended May 31, 1995 (unaudited). With
respect to PW Fund, after giving effect to those waivers and reimbursements,
the Total Fund Operating Expenses were 0.84% and 1.36% for Class A and Class
D, respectively, for the fiscal year ended November 30, 1994. There were no
fee waivers or expense reimbursements for PW Fund for the twelve months
ended May 31, 1995. The fee waivers and expense reimbursements have been
voluntarily provided by Mitchell Hutchins (or by the previous adviser to
MH/KP Fund), which is under no obligation to continue to provide them.
EXAMPLE OF EFFECT ON FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated in the table above, assuming a 5% annual return. The
fees shown below reflect an initial sales charge of 2.25% of the public offering
price that normally is charged in connection with the sale of MH/KP Fund's Class
A shares and an initial sales charge of 3.0% of the public offering price that
normally is charged in connection with the sale of PW Fund's Class A shares.
Amounts shown for PW Fund and Combined Fund Class A Shares held for one year are
higher than for MH/KP Fund Class A shares held for one year due to the higher
initial sales charge normally charged on PW Fund Class A shares. However, no
initial sales charges will be charged in connection with Class A shares of PW
Fund distributed to Class A shareholders of MH/KP Fund as part of the
Reorganization.
4
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
MH/KP FUND
Class A shares1.................. $ 35 $61 $ 89 $ 168
Class B shares................... $ 18 $54 $ 94 $ 204
Class C shares2.................. $ 10 $31 $ 54 $ 120
PW FUND
Class A shares3.................. $ 40 $61 $ 84 $ 150
Class D shares................... $ 16 $50 $ 86 $ 187
COMBINED FUND
Class A shares3.................. $ 40 $61 $ 84 $ 149
Class D shares................... $ 16 $49 $ 85 $ 186
Class C shares2.................. $ 8 $25 $ 44 $ 98
</TABLE>
------------------
1 Assumes deduction at the time of purchase of the maximum 2.25% initial sales
charge.
2 Does not include advisory fees payable by shareholders holding Class C shares
through the INSIGHT program.
3 Assumes deduction at the time of purchase of the maximum 3% initial sales
charge.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. rules regarding investment companies. This Example
assumes that all dividends and other distributions are reinvested, that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in the years shown and that the shares are redeemed at the end of each time
period shown. The above tables and the assumption in this Example of a 5% annual
return are required by regulations of the Securities and Exchange Commission
('SEC') applicable to all mutual funds; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
any Class of the Funds' shares.
THIS 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 its average net assets and the extent to which
it incurs variable expenses, such as transfer agency costs.
FORMS OF ORGANIZATION
Each Trust is an open-end management investment company organized as a
Massachusetts business trust. PW Fund, a diversified series of PW Trust,
commenced operations on May 3, 1993. MH/KP Fund, a diversified series of MH/KP
Trust, commenced operations on November 10, 1992. The Trusts are not required to
(and do not) hold annual shareholder meetings. Neither Fund currently issues
share certificates.
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 a Fund itself would be unable to meet its
obligations, a possibility that Mitchell Hutchins, the investment adviser of
each Fund, believes is remote and thus does not pose a material risk.
INVESTMENT ADVISERS
Mitchell Hutchins is the investment adviser and administrator of both
Funds. In such capacities, Mitchell Hutchins supervises all aspects of each
Fund's operations and makes and implements all investment decisions for MH/KP
Fund. In the case of PW Fund, Mitchell Hutchins supervises the activities of
Pacific Investment Management Company ('PIMCO'), which acts as PW Fund's
investment sub-adviser and makes and implements all investment decisions for PW
Fund. PIMCO is one of the largest fixed income management firms in the nation.
Each Fund pays Mitchell Hutchins a monthly investment advisory and
administration fee, computed daily and paid monthly, at an annual rate of 0.50%
of the Fund's average daily net assets. Mitchell Hutchins, not PW Fund, pays
PIMCO a fee for its services as sub-adviser for that Fund in the amount of 0.25%
of that Fund's average daily net assets. Following the Reorganization, Mitchell
Hutchins will be the investment adviser and administrator, and PIMCO will be the
sub-adviser, of the combined Fund. William C. Powers, a
5
<PAGE>
managing director of PIMCO, who currently is the portfolio manager of PW Fund
and who has been primarily responsible for the day-to-day portfolio management
of PW Fund since October 1994, will continue as the portfolio manager of PW
Fund. Mr. Powers has been a senior member of the fixed income portfolio
management group at PIMCO since 1991. He was previously associated with Salomon
Brothers and Bear Stearns as a Senior Managing Director.
INVESTMENT OBJECTIVES AND POLICIES
The Funds have substantially identical investment objectives and similar
investment strategies. There can be no assurance that either Fund will achieve
its investment objective, and each Fund's net asset value fluctuates based upon
changes in the value of its portfolio securities.
The investment objective of PW Fund is to achieve the highest level of
income consistent with the preservation of capital and low volatility of net
asset value. The investment objective of MH/KP Fund is to provide high current
income while limiting the degree of fluctuation of its net asset value resulting
from movements in interest rates. Normally, each Fund invests at least 65% of
its assets in securities that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities ('Government Securities'), including, among
other things, mortgage-backed securities ('U.S. government mortgage-backed
securities') and repurchase agreements based on such securities. MH/KP Fund also
normally invests at least 65% of its net assets in adjustable rate securities
('Adjustable Rate Securities'), which may also be Government Securities and
which consist primarily of mortgage- and asset-backed securities. PW Fund also
invests in Adjustable Rate Securities, but it is not required to normally
maintain any specific portion of its assets invested in such securities.
Up to 35% of PW Fund's total assets may be invested in privately issued
mortgage- and asset-backed securities that at the time of purchase have been
rated AAA by Standard & Poor's ('S&P') or Aaa by Moody's Investors Service, Inc.
('Moody's'), have an equivalent rating from another nationally recognized
statistical rating organization ('NRSRO') or, if unrated, have been determined
by PIMCO to be of comparable quality. The Fund may also invest in money market
instruments. As a matter of fundamental policy, the Fund normally concentrates
at least 25% of its total assets in mortgage- and asset-backed securities issued
or guaranteed by private issuers or by agencies or instrumentalities of the U.S.
government.
Up to 35% of MH/KP Fund's assets may be invested in securities that are not
Government Securities or Adjustable Rate Securities. In addition to Government
Securities, the Fund's assets consist of fixed rate and adjustable rate
mortgage- and asset-backed securities that are rated AAA by S&P or Aaa by
Moody's and money market instruments, including bank obligations, of a
comparable short-term rating.
PW Fund currently seeks to limit the volatility of its net asset value per
share by maintaining a dollar-weighted average portfolio maturity not in excess
of three years. For this purpose, the maturity of a mortgage-or an asset-backed
security is deemed to be its estimated average life after anticipated
prepayments, which generally is substantially shorter than its stated maturity.
However, concurrently with the consummation of the Reorganization, PW Fund
intends to change this policy to one of maintaining an overall average portfolio
duration of from one to three years and to change its name to 'PaineWebber Low
Duration U.S. Government Income Fund.' See '-- Operations of PW Fund Following
the Reorganization--Duration.'
MH/KP Fund seeks to achieve low volatility of net asset value by investing
in a diversified portfolio of securities that Mitchell Hutchins believes, in the
aggregate, is resistant to significant fluctuations in market value. In
selecting securities for the Fund, Mitchell Hutchins takes into account various
factors that will affect the volatility of the Fund's assets, such as the time
to the next coupon reset date for the securities, the payment characteristics of
the securities and the dollar weighted average life of the securities.
Both Funds may invest in classes of mortgage-backed securities that receive
differing proportions of the interest and principal distributions on a pool of
mortgage assets than one or more other classes of securities supported by the
same mortgage pool. MH/KP Fund refers to such securities as 'stripped MBSs' or
'SMBSs'. In the most extreme case, SMBSs may be structured as interest-only
('IO') or principal-only ('PO') classes. MH/KP Fund is limited to investing only
up to 10% of its net assets in SMBSs. PW Fund has no overall limitation on the
portion of its assets that may be invested in all types of SMBSs, but PW Fund is
limited to investing no more than 5% of its net assets in any combination of
IOs, POs and inverse floating rate securities.
6
<PAGE>
Each Fund may invest up to 15% of its net assets in illiquid securities
and, subject to certain limitations, may enter into dollar roll and reverse
repurchase transactions, lend portfolio securities (up to 33 1/3% of assets in
the case of MH/KP Fund and 10% of assets in the case of PW Fund), engage in
when-issued and delayed delivery securities transactions, make short sales of
securities against-the-box (or otherwise in the case of MH/KP Fund) and engage
in interest rate swaps, caps, floors and, in the case of PW Fund, collars for
hedging purposes. PW Fund may enter into options and futures contracts that
approximate (but do not exceed) the full value of its portfolio, but under
normal circumstances, the aggregate amount of the Fund's outstanding positions
in such contracts generally will be much smaller.
OPERATIONS OF PW FUND FOLLOWING THE REORGANIZATION
DURATION. Concurrently with the consummation of the Reorganization, PW
Fund will change its name to 'PaineWebber Low Duration U.S. Government Income
Fund' and will change its investment policy of maintaining a dollar-weighted
average portfolio maturity not in excess of three years to one of maintaining an
overall average portfolio duration of from one to three years. Duration is a
measure of the expected life of a fixed income security that was developed as a
more precise alternative to the concept of 'term to maturity.' Duration
incorporates a bond's yield, coupon interest payments, final maturity and call
features into one measure and is one of the fundamental tools used by PIMCO in
portfolio selection for PW Fund.
Traditionally, a debt security's 'term to maturity' has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the 'interest rate risk' or 'volatility' of the security). However,
'term to maturity' measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the times that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time.
For any fixed income security with interest payments occurring prior to the
payment of principal, duration is always less than maturity. For example,
depending upon its coupon and the level of market yields, a treasury note with a
remaining maturity of five years might have a duration of 4.5 years. For
mortgage-backed and other securities that are subject to prepayments, put or
call features or adjustable coupons, the difference between the remaining stated
maturity and the duration is likely to be much larger.
Futures, options and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions (backed by a segregated account of
cash and cash equivalents) will lengthen PW Fund's duration by approximately the
same amount as would holding an equivalent amount of the underlying securities.
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie these positions and have the
effect of reducing portfolio duration by approximately the same amount as would
selling an equivalent amount of the underlying securities.
There are some situations in which the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by the standard duration calculation is the case of mortgage-backed
securities. The stated final maturity of such securities is generally 30 years,
but current prepayment rates are more critical in determining the securities'
interest rate exposure. In these and other similar situations, PIMCO will use
more sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its duration and, therefore, its interest
rate exposure.
Duration allows PIMCO to make certain predictions as to the effect that
changes in the level of interest rates will have on the value of the Fund's
portfolio. For example, when the level of interest rates increases by 1%, a
fixed income security having a positive duration of three years generally will
decrease in value by approximately 3%. Accordingly, if PIMCO calculates the
duration of the Fund's portfolio as being three years, it normally would expect
the portfolio to change in value by approximately 3% for every 1% change in the
level of interest rates. However, various factors, such as changes in
anticipated prepayment rates, qualitative
7
<PAGE>
considerations and market supply and demand, can cause particular securities to
respond somewhat differently to changes in interest rates than indicated in the
above example. Moreover, in the case of mortgage-backed and other complex
securities the calculation of the duration is itself a complex process. While
PIMCO utilizes sophisticated analytical techniques in order to calculate the
duration of these securities, those calculations are estimates and are not
precise. This is particularly true during periods of market volatility.
Accordingly, the net asset value of the Fund's portfolio may vary in relation to
interest rates by a greater or lesser percentage than indicated by the above
example.
OTHER OPERATIONS AND POLICIES. Following the Reorganization, the trustees
and officers of PW Trust and PW Fund's investment adviser, distributor,
exclusive dealer and other outside agents will continue to serve PW Fund in
their current capacities. Mitchell Hutchins does not expect PW Fund to revise
its investment objective or policies following the Reorganization to reflect
those of MH/KP Fund. Mitchell Hutchins believes that most, if not all, of the
assets held by MH/KP Fund will be consistent with the investment policies of PW
Fund and thus can be transferred to and held by PW Fund if the Reorganization is
approved. However, if the Reorganization is approved, MH/KP Fund will sell any
assets that are inconsistent with PW Fund's investment policies prior to the
effective time of the Reorganization. The proceeds of any such sales will be
held in temporary investments or reinvested in assets that qualify to be held by
PW Fund. The possible need for MH/KP Fund to dispose of assets prior to the
effective time of the Reorganization could result in selling securities at a
disadvantageous time and could result in MH/KP Fund realizing losses that would
not otherwise have been realized.
Effective on or about November 1, 1995, PW Fund's Class C and Class D
shares will be renamed Class Y and Class C shares, respectively. Also, a
contingent deferred sales charge ('CDSC') will apply to Class A and Class D (to
be renamed as Class C) shares of PW Fund that (1) are purchased after November
1, 1995, (2) in the case of Class A shares, are purchased without an initial
sales charge due to a sales charge waiver for purchases of $1 million or more,
and (3) are held less than one year. That CDSC will be equal to 1% of the lower
of (1) the net asset value of the shares at the time of purchase, or (2) the net
asset value of the shares at the time of redemption. Class A and D shares in PW
Fund that are issued to MH/KP Fund shareholders as part of the Reorganization
will not be subject to that CDSC.
PURCHASES
Shares of PW Fund are available through PaineWebber and its correspondent
firms or, for investors who are not clients of PaineWebber, through PFPC Inc.,
the Fund's transfer agent ('Transfer Agent'). The minimum investment for initial
and subsequent purchases of PW Fund shares is $100. Purchases through
PaineWebber investment executives or correspondent firms may be made in person
or by mail, by telephone or, for purchases of $1 million or more, by wire.
PaineWebber investment executives and correspondent firms are responsible for
transmitting purchase requests to PaineWebber's New York City offices promptly.
Investors may pay for a purchase with checks drawn on U.S. banks or with funds
held in brokerage accounts at PaineWebber or its correspondent firms. Payment is
due on the third business day after the order is received at PaineWebber's New
York City offices.
PW Fund's Class A shares normally are sold with a maximum initial sales
charge of up to 3% of the public offering price. The PW Fund Class A shares that
will be distributed to shareholders of MH/KP Fund as part of the Reorganization
will not be subject to an initial sales charge. However, following the
Reorganization, new purchases of Class A shares of PW Fund will be subject to an
initial sales charge of up to 3%, and any Class B or Class D shares of PW Fund
that are purchased by former MH/KP Fund shareholders will be subject to their
respective terms.
PW Fund's Class B shares are sold subject to a maximum CDSC of 3% of
redemption proceeds, which declines to zero after four years. Class B shares
automatically convert into Class A shares after approximately six years. Class D
shares of PW Fund currently are sold without an initial sales charge or CDSC but
are subject to higher ongoing expenses than Class A shares and do not convert
into another Class. As noted above, Class D shares purchased after November 1,
1995 (when they will have been renamed as Class C shares) will be subject to a
1% CDSC if they are held for less than one year.
Class C shares of PW Fund will be issued to holders of Class C shares in
MH/KP Fund in connection with the Reorganization. Effective November 1, 1995, PW
Fund Class C shares (which will have been
8
<PAGE>
renamed as Class Y shares) will be offered for sale to participants in certain
wrap fee investment advisory programs that are currently or in the future
sponsored by PaineWebber and that may invest in PaineWebber proprietary funds,
provided that shares are purchased through or in connection with those programs.
PW Fund is authorized to sell Class C shares to employee benefit plans and
retirement plans of Paine Webber Group Inc. and its affiliates, to certain unit
investment trusts sponsored by PaineWebber, and to certain other parties. At
present, however, only participants in the INSIGHT program would be eligible to
purchase PW Fund Class C shares. PW Fund Class C shares will be sold to eligible
investors at net asset value, without any initial sales charge or CDSC, and
without any 12b-1 distribution or service fees.
INSIGHT PROGRAM. An investor who purchases $50,000 or more of shares of
the mutual funds that are available to INSIGHT participants (which include the
PaineWebber mutual funds in the Flexible Pricing System and certain specified
other mutual funds) may take part in INSIGHT, a total portfolio asset allocation
program sponsored by PaineWebber, and thus become eligible to purchase PW Fund
Class C shares. The INSIGHT program offers comprehensive investment services,
including a personalized asset allocation investment strategy using an
appropriate combination of funds, monitoring of investment performance and
comprehensive quarterly reports that cover market trends, portfolio summaries
and personalized account information. Participation in the INSIGHT program is
subject to payment of an advisory fee to PaineWebber at the maximum annual rate
of 1.5% of assets held through the program (generally charged quarterly in
advance), which covers all INSIGHT program investment advisory services and
program administration fees. Employees of PaineWebber and its affiliates are
entitled to a 50% reduction in the fee otherwise payable for participation in
the INSIGHT program. INSIGHT program clients may elect to have their INSIGHT
program fees charged to their PaineWebber accounts (by the automatic redemption
of money market fund shares) or, if a qualified plan, invoiced.
REDEMPTIONS
Shareholders of each Fund may submit redemption requests to their
investment executives or correspondent firms in person or by telephone, mail or
wire. As each Fund's agent, PaineWebber may honor a redemption request by
repurchasing shares from a redeeming shareholder at the shares' net asset value
next determined after receipt of the request by PaineWebber's New York City
offices. Within three business days after receipt of the request, repurchase
proceeds (less any applicable CDSC) will be paid by check or credited to the
shareholder's brokerage account at the election of the shareholder. PaineWebber
investment executives and correspondent firms are responsible for promptly
forwarding redemption requests to PaineWebber's New York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
Shareholders of each Fund also may redeem shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. A redemption request will be executed at the net asset value per
share next computed after it is received in 'good order,' and redemption
proceeds will be paid within seven days of the receipt of the request.
Shareholders are responsible for ensuring that a request for redemption is
received in 'good order.' 'Good order' means that the request must be
accompanied by the following: (1) a letter of instruction or a stock assignment
specifying the number of shares or amount of investment to be redeemed (or that
all shares credited to the Fund account be redeemed), signed by all registered
owners of the shares in the exact names in which they are registered, (2) a
guarantee of the signature of each registered owner by an eligible institution
acceptable to the Transfer Agent and in accordance with SEC rules, such as a
commercial bank, trust company or member of a recognized stock exchange, (3)
other supporting legal documents for estates, trusts, guardianships,
custodianships, partnerships and corporations and (4) duly endorsed share
certificates, if any.
A shareholder may have redemption proceeds of $1 million or more wired to
the shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption
requirements generally, should be referred to the shareholder's PaineWebber
investment executive or correspondent firm. If a shareholder requests redemption
of shares which were purchased recently, the Fund may delay payment until it is
assured that good payment has been received. In the case of purchases by check,
this can take up to 15 days.
9
<PAGE>
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to redeem all Fund shares in any
shareholder account having a net asset value below the lesser of $500 or the
current minimum for initial purchasers. If the Fund elects to do so, it will
notify the shareholder and provide the shareholder the opportunity to increase
the amount invested to the minimum required level or more within 60 days of the
notice. A Fund will not redeem accounts that fall below the minimum required
level solely as a result of a reduction in net asset value per share.
If the Reorganization is approved, shares of MH/KP Fund will cease to be
offered on October 19, 1995, so that shares of MH/KP Fund will no longer be
available for purchase or exchange starting on October 20, 1995 (the next
business day). If the Meeting is adjourned and the Reorganization is approved on
a later date, MH/KP Fund 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 MH/KP Fund's shares
and exchanges of such shares for shares of any other PaineWebber or MH/KP mutual
fund may be effected through the Closing Date.
EXCHANGES
Class A, B and D shares of PW Fund and Class A and B shares of MH/KP Fund
may be exchanged for shares of the Corresponding Class of other PaineWebber and
MH/KP mutual funds and may be acquired through an exchange of shares of the
Corresponding Class of other PaineWebber and MH/KP mutual funds, as provided in
each Fund's prospectus. 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. 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 PW Fund for shares of any other
PaineWebber or MH/KP mutual funds will continue to be imposed following the
Reorganization. Class C shares of each Fund have no exchange privileges.
DIVIDENDS AND OTHER DISTRIBUTIONS
PW Fund distributes substantially all of its net investment income and
realized net gains to shareholders each year. Dividends are declared daily and
paid monthly and may be accompanied by distributions of net realized short-term
capital gains. PW Fund also distributes, at least annually, substantially all of
its net capital gain (the excess of net long-term capital gain over net
short-term capital loss) and any undistributed net short-term capital gain.
Dividends from net investment income of MH/KP Fund are declared daily and
distributed monthly, and distributions of any net realized capital gains of that
Fund are distributed annually after the close of the fiscal year in which they
are earned. Both Funds may make additional distributions if necessary to avoid a
4% excise tax on certain undistributed income and capital gain.
PW Fund's dividends and other distributions are paid in additional shares
of the applicable Class at net asset value unless the shareholder has requested
cash payments. Shareholders who wish to receive dividends and/or other
distributions in cash, either mailed to the shareholder by check or credited to
the shareholder's PaineWebber account, should contact their PaineWebber
investment executives or correspondent firms.
On or before the Closing Date, MH/KP Fund will declare as a distribution
substantially all of its net investment income, net capital gain and net
short-term capital gain in order to continue to maintain its tax status as a
regulated investment company. MH/KP Fund will pay this distribution only in
cash. On or before the Closing Date, PW Fund also may declare and distribute as
a dividend substantially all of any previously undistributed net investment
income.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
PW Trust has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and MH/KP Trust has received an opinion of Willkie Farr & Gallagher,
its counsel, 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 to either Fund or its shareholders as a result of the
Reorganization. See 'The Proposed Transaction--Federal Income Tax
Considerations.'
10
<PAGE>
COMPARISON OF PRINCIPAL RISK FACTORS
Since the investment policies of each Fund are similar, the investment
risks presented by the two Funds are also similar. Certain differences are
identified below. See the PW Fund Prospectus for a more detailed discussion of
the investment risks of PW Fund, and see the MH/KP Fund Prospectus for a more
detailed discussion of the investment risks of MH/KP Fund.
Interest Rate Sensitivity
The investment income of each Fund is based upon the income earned on the
securities it holds, less expenses incurred; thus each Fund's investment income
may be expected to fluctuate in response to changes in such expenses or income.
For example, the investment income of a Fund may be affected if it experiences a
net inflow of new money that is then invested in securities whose yield is
higher or lower than that earned on then-current investments. Generally, the
value of the securities held by a Fund, and thus the Fund's net asset value per
share, will rise when interest rates decline. Conversely, when interest rates
rise, the value of fixed income securities, and thus the Fund's net asset value
per share, may be expected to decline.
The Funds attempt to limit (but not eliminate) the sensitivity of their
portfolios to changes in market interest rates in somewhat different ways. MH/KP
Fund normally invests at least 65% of its net assets in Adjustable Rate
Securities, but it is not limited with respect to the average portfolio
maturity. PW Fund also invests in Adjustable Rate Securities, but it is not
required to normally maintain any specific portion of its assets invested in
such securities. However, PW Fund currently seeks to maintain a dollar-weighted
average portfolio maturity not in excess of three years. Concurrently with the
consummation of the Reorganization, PW Fund intends to change this policy to one
of maintaining an overall average portfolio duration of from one to three years.
There can be no assurance that either Fund will succeed in limiting its
portfolio's interest rate sensitivity.
Mortgage- and Asset-Backed Securities
Each Fund invests in mortgage- and asset-backed securities, including
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and privately issued mortgage- and asset-backed
securities rated in the highest rating category by an NRSRO (or in the case of
PW Fund, that have been determined to be of comparable quality by PIMCO).
As a matter of fundamental policy, PW Fund normally concentrates at least
25% of its total assets in mortgage- and asset-backed securities issued or
guaranteed by private issuers or by agencies or instrumentalities of the U.S.
government.
Investing in mortgage- and asset-backed securities involves special risks,
such as those relating to the prepayment of principal on the underlying
obligations, in addition to the risks present in the case of other types of debt
securities. During 1994, the value and the liquidity of many mortgage-backed
securities, including securities held by the Funds, declined sharply due
primarily to increases in short-term interest rates. There can be no assurance
that such declines will not recur. The value and the liquidity of many mortgage-
backed securities, including the IOs and POs in which both Funds may invest, can
be extremely volatile, and such securities may become illiquid.
MH/KP Fund is limited to investing only up to 10% of its net assets in
SMBSs (including IOs and POs). PW Fund has no overall limitation on the portion
of its assets that may be invested in all types of SMBSs, but PW Fund is limited
to investing no more than 5% of its net assets in any combination of IOs, POs
and inverse floating rate securities.
Adjustable Rate Securities
Each Fund may invest in Adjustable Rate Securities, but MH/KP Fund normally
must invest at least 65% of its net assets in Adjustable Rate Securities, while
PW Fund has no such policy. The interest rate reset feature of Adjustable Rate
Securities generally reduces the effect on a Fund's net asset value caused by
changes in interest rates. However, the market value of Adjustable Rate
Securities, and therefore a Fund's net asset value, may vary to the extent that
the current interest rates on those securities differs from market
11
<PAGE>
interest rates during periods between applicable interest rate reset dates. Also
a Fund and its shareholders do not benefit from increases in market interest
rates once those rates rise to the point at which they cause the rates on the
Adjustable Rate Securities to exceed their maximum adjustment rate or annual or
lifetime caps. Because of their interest rate adjustment feature, Adjustable
Rate Securities are not an effective means of 'locking-in' attractive rates for
periods in excess of the adjustment period.
Hedging Strategies
Each Fund may engage in interest rate swaps, caps and floors to attempt to
hedge its portfolio. PW Fund also may engage in interest rate collars for
hedging purposes and may enter into options (both exchange-traded and
over-the-counter) and futures contracts to attempt to enhance income and to
reduce the overall risk of its portfolio. The use of options and futures
contracts solely to enhance income may be considered a form of speculation. The
use of these instruments involves 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 a Fund to
close out or to liquidate its hedged position. There can be no assurance,
however, that any hedging strategy will succeed. If PIMCO (or Mitchell Hutchins,
with respect to MH/KP Fund) incorrectly forecasts interest rates, market values
or other economic factors in utilizing a hedging strategy for a Fund, the Fund
might have been in a better position had the Fund not hedged at all.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, which is attached as
Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) PW Fund's acquiring on the Closing
Date the assets of MH/KP Fund in exchange solely for PW Fund shares and the
assumption by PW Fund of MH/KP Fund's liabilities, and (b) the constructive
distribution of those shares to the shareholders of MH/KP Fund, by class.
The assets of MH/KP Fund to be acquired by PW Fund include all cash, cash
equivalents, securities, receivables and other property owned by MH/KP Fund. PW
Fund will assume from MH/KP Fund all debts, liabilities, obligations and duties
of MH/KP Fund of whatever kind or nature; provided, however, that MH/KP 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. PW
Fund also will deliver its shares to MH/KP Fund, which then will be
constructively distributed to MH/KP Fund's shareholders.
The value of MH/KP Fund's assets to be acquired, and the amount of its
liabilities to be assumed, by PW Fund and the net asset value of a Class A,
Class C and Class D share of PW Fund will be determined as of the close of
regular trading on the 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, the 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 MH/KP Trust's board of trustees
(with respect to MH/KP Fund) or PW Trust's board of trustees (with respect to PW
12
<PAGE>
Fund) 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 each Trust's board of trustees, as applicable.
On, or as soon as practicable after, the Closing Date, MH/KP Fund will
distribute to its shareholders of record the shares of PW Fund it received, by
Class, so that each shareholder of MH/KP Fund will receive a number of full and
fractional shares of the Corresponding Class of PW Fund equal in value to the
shareholder's holdings in MH/KP Fund; MH/KP Fund will be terminated as soon as
practicable thereafter. Such distribution will be accomplished by opening
accounts on the books of PW Fund in the names of MH/KP Fund shareholders and by
transferring thereto the shares of each Class previously credited to the account
of MH/KP Fund on those books. Fractional shares in each Class of PW Fund will be
rounded to the third decimal place.
Accordingly, immediately after the Reorganization, each former shareholder
of MH/KP Fund will own shares of the Class of PW Fund that will equal the value
of that shareholder's shares in the Corresponding Class of MH/KP Fund
immediately prior to the Reorganization. Moreover, because shares of each Class
of PW Fund will be issued at net asset value in exchange for the net assets
applicable to the Corresponding Class of MH/KP Fund, the aggregate value of
shares of each Class of PW Fund so issued will equal the aggregate value of the
shares of the Corresponding Class of MH/KP Fund. The net asset value per share
of PW Fund will be unchanged by the transaction. Thus, the Reorganization will
not result in a dilution of any shareholder interest.
Any transfer taxes payable upon issuance of shares of PW Fund in a name
other than that of the registered holder of the shares on the books of MH/KP
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 MH/KP Fund will
continue to be its responsibility up to and including the Closing Date and such
later date on which it is terminated.
The cost of the Reorganization, 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 Mitchell Hutchins.
The consummation of the Reorganization is subject to a number of conditions
set forth in the Reorganization Plan, some of which may be waived by each Trust.
In addition, the Reorganization Plan may be amended in any mutually agreeable
manner, except that no amendment may be made subsequent to the Meeting that has
a material adverse effect on the shareholders' interests.
REASONS FOR THE REORGANIZATION
MH/KP Trust's board of trustees, including a majority of its Independent
Trustees, has determined that the Reorganization is in the best interests of
MH/KP Fund, that the terms of the Reorganization are fair and reasonable and
that the interests of the shareholders of MH/KP Fund will not be diluted as a
result of the Reorganization. PW Trust's board of trustees, including a majority
of its Independent Trustees, has determined that the Reorganization is in the
best interests of PW Fund, that the terms of the Reorganization are fair and
reasonable and that the interests of the shareholders of PW Fund will not be
diluted as a result of the Reorganization.
In considering the Reorganization, the boards of 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 Reorganization on the expected investment
performance of the Funds;
(3) the effect of the Reorganization on the expense ratio of PW Fund
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;
13
<PAGE>
(6) possible alternatives to the Reorganization, including continuing
to operate on a stand-alone basis or liquidation; and
(7) potential benefits of the Reorganization to other persons,
especially Mitchell Hutchins and PaineWebber.
The Reorganization was recommended to the boards of trustees by Mitchell
Hutchins at meetings of the boards held on July 20, 1995. In approving the
Reorganization, the boards of trustees took into account the fact that the
Funds' investment objectives are substantially identical, that their investment
policies are similar, and that Mitchell Hutchins did not believe there was a
need to offer both Funds to investors. The boards recognized that, as the larger
of the two Funds, PW Fund was the logical survivor in any combination and that
PIMCO, the sub-adviser for PW Fund, is one of the largest fixed income
management firms in the nation.
The boards' approval of the Reorganization was also based on the fact that,
due to PW Fund's larger size and lower operating expenses, each Class of shares
of PW Fund that would be received by MH/KP Fund shareholders in the
Reorganization is expected to have lower operating expenses as a percentage of
net assets than that of the Corresponding Class of MH/KP Fund, standing alone.
The boards were advised by Mitchell Hutchins that combining the two Funds would
eliminate duplicative expenses and achieve other economies of scale in
connection with custody fees, state registration fees, printing expenses,
trustees fees and legal and audit expenses.
The boards recognized that the reduction in operating expenses would not be
immediately apparent to MH/KP Fund shareholders because Mitchell Hutchins (like
the previous adviser to MH/KP Fund) has been voluntarily providing MH/KP Fund
with certain fee waivers and expense reimbursements since February, 1995. The
boards also recognized, however, that Mitchell Hutchins is under no obligation
to continue to provide such waivers and reimbursements and had undertaken to
provide them due to MH/KP Fund's small size and until MH/KP Fund could be
combined with a larger fund.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS
OF MH/KP FUND VOTE 'FOR' THE REORGANIZATION.
DESCRIPTION OF SECURITIES TO BE ISSUED
PW Trust 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 PW Fund as one of PW Trust's five series and have authorized
the public offering of four Classes of shares of PW Fund. A separate filing will
be made prior to the Closing Date for the purpose of registering Class C shares
with the SEC. Each share in a Class represents an equal proportionate interest
in PW Fund with each other share in that Class. Shares of PW 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, if any.
On the Closing Date, PW Fund will have outstanding four Classes of shares,
designated as Class A, Class B, Class C and Class D shares. Only Class A, Class
C and Class D shares will be issued as part of the Reorganization. Each Class
represents interests in the same assets of the Fund. The Classes currently
differ as follows: (1) Class A, Class B and Class D shares, unlike Class C
shares, bear certain fees under plans of distribution and have exclusive voting
rights on matters pertaining to those plans; (2) Class A shares are subject to
an initial sales charge; (3) Class B shares bear ongoing distribution fees, are
subject to a CDSC upon certain redemptions and automatically convert to Class A
shares approximately six years after issuance; (4) Class D shares are subject to
neither an initial sales charge nor a CDSC, bear ongoing service and
distribution fees and do not convert into another Class; (5) Class C shares are
subject to neither an initial sales charge or a CDSC nor ongoing service or
distribution fees, but may be purchased only by certain categories of
purchasers; and (6) each Class may bear differing amounts of certain
Class-specific expenses. Each share of each Class of PW Fund is entitled to
participate equally in dividends and other distributions and the proceeds of any
liquidation, except that, due to the differing expenses borne by the four
Classes, such dividends and proceeds are likely to
14
<PAGE>
be lower for the other Classes than for the Class C shares. Dividends on each
Class also might be affected differently by the allocation of other
Class-specific expenses.
PW Trust 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 PW
Trust's outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of MH/KP Fund's assets for PW Fund shares and PW Fund's
assumption of MH/KP Fund's liabilities is intended to qualify for federal income
tax purposes as a tax-free reorganization under section 368(a)(1)(C) of the
Code. PW Trust has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and MH/KP Trust has received an opinion of Willkie Farr & Gallagher,
its counsel, each substantially to the effect that:
(1) PW Fund's acquisition of MH/KP Fund's assets in exchange solely
for PW Fund shares and PW Fund's assumption of MH/KP Fund's liabilities,
followed by MH/KP Fund's distribution of those shares to its shareholders
constructively in exchange for their MH/KP 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;
(2) No gain or loss will be recognized to MH/KP Fund on the transfer
to PW Fund of its assets in exchange solely for PW Fund shares and PW
Fund's assumption of MH/KP Fund's liabilities or on the subsequent
distribution of those shares to MH/KP Fund's shareholders in constructive
exchange for their MH/KP Fund shares;
(3) No gain or loss will be recognized to PW Fund on its receipt of
the transferred assets in exchange solely for PW Fund shares and its
assumption of MH/KP Fund's liabilities;
(4) PW Fund's basis for the transferred assets will be the same as the
basis thereof in MH/KP Fund's hands immediately prior to the
Reorganization, and PW Fund's holding period for those assets will include
MH/KP Fund's holding period therefor;
(5) An MH/KP Fund shareholder will recognize no gain or loss on the
constructive exchange of all its MH/KP Fund shares solely for PW Fund
shares pursuant to the Reorganization; and
(6) An MH/KP Fund shareholder's basis for the PW Fund shares to be
received by it in the Reorganization will be the same as the basis for its
MH/KP Fund shares to be constructively surrendered in exchange for those PW
Fund shares, and its holding period for those PW Fund shares will include
its holding period for those MH/KP Fund shares, provided they are held as
capital assets by the shareholder on the Closing Date.
Each such 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 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.
Utilization by PW Fund after the Reorganizations of pre-Reorganization
capital losses realized by MH/KP Fund could be subject to limitation in future
years under the Code.
Shareholders of MH/KP Fund should consult their tax advisers regarding the
effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, those shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
15
<PAGE>
CAPITALIZATION
The following table shows the capitalization of each Fund at May 31, 1995
(unaudited) and on a pro forma combined basis (unaudited) giving effect to the
Reorganization:
<TABLE>
<CAPTION>
PRO FORMA
PW FUND MH/KP FUND COMBINED
------------ ----------- ------------
<S> <C> <C> <C>
Net Assets
Class A..................... $132,662,498 $25,849,468 $158,511,966
Class B(1).................. 10,240,903 2,693,596 10,240,903
Class C..................... -- 626,513 626,513
Class D..................... 216,381,087 -- 219,074,683
Net Asset Value Per Share
Class A..................... $2.32 $11.61 $2.32
Class B(1).................. 2.32 11.61 2.32
Class C..................... -- 11.62 2.32
Class D..................... 2.32 -- 2.32
Shares Outstanding
Class A..................... 57,187,885 2,226,210 68,328,531
Class B(1).................. 4,415,142 231,988 4,415,142
Class C..................... -- 53,936 270,145
Class D..................... 93,328,825 -- 94,489,765
</TABLE>
------------------
(1) Class B shares of MH/KP Fund will be exchanged for Class D shares of PW
Fund.
16
<PAGE>
ADDITIONAL INFORMATION ABOUT PW FUND
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class A
share and one Class D share for the periods shown. (No Class B shares of PW Fund
will be issued in the Reorganization.) This information is supplemented by the
financial statements and accompanying notes appearing in PW Fund's Annual Report
to Shareholders for the fiscal year ended November 30, 1994, and the unaudited
financial statements and accompanying notes in PW Fund's Semi-Annual Report to
Shareholders for the six month period ended May 31, 1995, which are incorporated
herein by this reference. The financial statements and notes for the fiscal year
ended November 30, 1994 and the financial information in the table below,
insofar as it relates to the periods ended November 30, 1993 and November 30,
1994, respectively, have been audited by Ernst & Young LLP, independent
auditors, whose report thereon is included in the Annual Report to Shareholders
that accompanies this Proxy Statement.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
FOR THE PERIOD
MAY 3, 1993
FOR THE SIX MONTHS FOR THE YEAR (COMMENCEMENT OF
ENDED MAY 31, 1995 ENDED OPERATIONS) TO
(UNAUDITED) NOVEMBER 30, 1994 NOVEMBER 30, 1993
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................... $ 2.25 $ 2.48 $ 2.50
------------------ ----------------- -----------------
Net increase (decrease) from
investment operations:
Net investment income............ 0.07 0.12 0.07
Net realized and unrealized gains
(losses) from investment,
futures and options
transactions.................. 0.07 (0.29) (0.02)
------------------ ----------------- -----------------
Net increase (decrease) in net
asset value from investment
operations.................. 0.14 (0.17) 0.05
------------------ ----------------- -----------------
Less distributions:
Dividends from net investment
income........................ (0.07) (0.12) (0.07)
------------------ ----------------- -----------------
Contribution to capital from
adviser.......................... -- 0.06 --
------------------ ----------------- -----------------
Net asset value, end of period... $ 2.32 $ 2.25 $ 2.48
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Total investment return(1)......... 6.20% (4.50)%** 1.88%
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Ratios/Supplemental data:
Net assets, end of period (000's
omitted)...................... $132,662 $ 158,712 $ 551,243
Ratio of expenses to average net
assets(2)..................... 1.07%* 0.84% 0.81%*
Ratios of net investment income
to average net assets(2)...... 5.95%* 5.16% 4.85%*
Portfolio turnover rate.......... 64.81% 246.34% 96.60%
</TABLE>
------------------
* Annualized.
** During the year ended November 30, 1994, PaineWebber and Mitchell Hutchins
took actions affecting PW Fund and its shareholders. Mitchell Hutchins made
payments aggregating approximately $33 million for the benefit of
shareholders of the Fund who held Fund shares on or after April 28, 1994,
pursuant to a settlement of certain class action lawsuits filed against the
Fund, PaineWebber, Mitchell Hutchins and related parties. The payments
equated to $0.06 per share for each Fund share outstanding on May 6, 1994 or
issued from that date through June 7, 1994, plus certain additional amounts.
If such payments had not been made, the total investment return would have
been (7.02)% for Class A.
(Footnotes continued on next page)
17
<PAGE>
(Footnotes continued from previous page)
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. The figures do not include sales charges;
results for Class A would be lower if sales charges were included. Total
investment returns for periods less than one year have not been annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made,
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 0.88% and 5.12%
for Class A.
<TABLE>
<CAPTION>
CLASS D
------------------------------------------------------------
FOR THE PERIOD
MAY 3, 1993
FOR THE SIX MONTHS FOR THE YEAR (COMMENCEMENT OF
ENDED MAY 31, 1995 ENDED OPERATIONS) TO
(UNAUDITED) NOVEMBER 30, 1994 NOVEMBER 30, 1993
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................... $ 2.25 $ 2.47 $ 2.50
------------------ ----------------- -----------------
Net increase (decrease) from
investment operations:
Net investment income............ 0.06 0.11 0.06
Net realized and unrealized gains
(losses) from investment,
futures and options
transactions.................. 0.07 (0.28) (0.03)
------------------ ----------------- -----------------
Net increase (decrease) in net
asset value from investment
operations.................. 0.13 (0.17) 0.03
------------------ ----------------- -----------------
Less distributions:
Dividends from net investment
income........................ (0.06) (0.11) (0.06)
------------------ ----------------- -----------------
Contribution to capital from
adviser.......................... -- 0.06 --
------------------ ----------------- -----------------
Net asset value, end of period... $ 2.32 $ 2.25 $ 2.47
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Total investment return(1)......... 5.90% (4.99)%** 1.20%
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Ratios/Supplemental data:
Net assets, end of period (000's
omitted)...................... $216,381 $ 296,182 $ 1,186,181
Ratio of expenses to average net
assets(2)..................... 1.67%* 1.36% 1.35%*
Ratios of net investment income
to average net assets(2)...... 5.38%* 4.65% 4.52%*
Portfolio turnover rate.......... 64.81% 246.34% 96.60%
</TABLE>
------------------
* Annualized.
** During the year ended November 30, 1994, PaineWebber and Mitchell Hutchins
took actions affecting PW Fund and its shareholders. Mitchell Hutchins made
payments aggregating approximately $33 million for the benefit of
shareholders of the Fund who held Fund shares on or after April 28, 1994,
pursuant to a settlement of certain class action lawsuits filed against the
Fund, PaineWebber, Mitchell Hutchins and related parties. The payments
equated to $0.06 per share for each Fund share outstanding on May 6, 1994 or
issued from that date through June 7, 1994, plus certain additional amounts.
If such payments had not been made, the total investment return would have
been (7.50)% for Class D.
(Footnotes continued on next page)
18
<PAGE>
(Footnotes continued from previous page)
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net
asset value on the payable dates, and a sale at net asset value on the last
day of each period reported. Total investment returns for periods less than
one year have not been annualized.
(2) During the year ended November 30, 1994 Mitchell Hutchins waived a portion
of its advisory and administration fees. If such waivers had not been made,
the annualized ratios of expenses to average net assets, and net investment
income to average net assets, respectively, would have been 1.39% and 4.61%
for Class D.
MISCELLANEOUS
AVAILABLE INFORMATION
Each Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files 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. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of PW Fund shares as
part of the Reorganization will be passed upon by Kirkpatrick & Lockhart LLP,
counsel to PW Trust.
EXPERTS
The audited financial statements of PW Fund and MH/KP Fund, incorporated by
reference herein or in the Statement of Additional Information, have been
audited by Ernst & Young LLP and Deloitte & Touche LLP, independent auditors,
whose reports thereon are included in the Funds' Annual Report to Shareholders
for the fiscal years ended November 30, 1994 and August 31, 1994, respectively,
and in MH/KP Fund's semi-annual report to shareholders for the six-month period
ended February 28, 1995. The financial statements audited by Ernst & Young LLP
and Deloitte & Touche LLP have been incorporated by reference herein or in the
Statement of Additional Information in reliance on their reports given on their
authority as experts in auditing and accounting.
19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ('Agreement') is
made as of August 8, 1995, between PaineWebber Managed Investments Trust, a
Massachusetts business trust ('PW Trust'), on behalf of PaineWebber Short-Term
U.S. Government Income Fund, a segregated portfolio of assets ('series') thereof
('Acquiring Fund'), and Mitchell Hutchins/Kidder, Peabody Investment Trust, a
Massachusetts business trust ('MH/KP Trust'), on behalf of its Mitchell
Hutchins/Kidder, Peabody Adjustable Rate Government Fund series ('Target').
(Acquiring Fund and Target are sometimes referred to herein individually as a
'Fund' and collectively as the 'Funds,' and PW Trust and MH/KP Trust are
sometimes referred to herein individually as an 'Investment Company' and
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 transactions are
referred to herein as the 'Reorganization.' All agreements, 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 PW Trust on behalf of
Acquiring Fund and by MH/KP Trust on behalf of Target.
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). (Acquiring Fund is establishing Class C expressly
for the purpose of facilitating the Reorganization--Class C Acquiring Fund
Shares are to be exchanged, in effect, for Class C Target Shares (defined below)
as part of the Reorganization.) 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 will be offered to a limited class of offerees at NAV
without imposition of any sales charge and will not be 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, C, 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,' respectively). These classes are substantially similar
to the Class A, Class D, and Class C Acquiring Fund Shares, respectively (though
Class A Target Shares and Class A Acquiring Fund Shares are subject to different
maximum initial sales charges).
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')
A-1
<PAGE>
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 attributable to the
Class B Target Shares by the NAV (as so computed) of a Class D Acquiring
Fund Share, and (iii) Class C Acquiring Fund Shares determined by dividing
the Target Value attributable to the Class C Target Shares by the NAV (as
so computed) of a Class C 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 records, 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 provided herein)
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 this Agreement,
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 Liabilities 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 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.
1.5. At the Effective Time (or as soon thereafter as is reasonably
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 'Shareholder'), 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 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 C Acquiring Fund Shares due that Shareholder). All
outstanding Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. 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
MH/KP Trust 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 including 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 therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
A-2
<PAGE>
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
statement of additional information less (b) the amount of the Liabilities 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 C 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' principal office on October 20,
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.
3.2. MH/KP Trust shall deliver to PW 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 transferred to
Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction
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. MH/KP Trust 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 MH/KP Trust. 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 MH/KP Trust evidencing the Acquiring Fund Shares (by
class) to be credited to Target at the Effective Time or provide evidence
satisfactory to MH/KP Trust 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 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 recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct 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. MH/KP Trust 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;
A-3
<PAGE>
4.1.2. MH/KP 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;
4.1.3. Target is a duly established and designated series of MH/KP
Trust;
4.1.4. At the Closing, Target will have good and marketable 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 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;
4.1.6. Target 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
MH/KP Trust's Declaration 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 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;
4.1.7. 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 liabilities 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 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 PW
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Target's
knowledge) threatened against MH/KP Trust with respect to Target or any of
its properties or assets that, if adversely determined, would materially
and adversely affect Target's financial condition or the conduct of its
business; Target 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 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 MH/KP Trust'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, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 ('1934 Act'), or the 1940 Act for the execution or performance of this
Agreement by MH/KP Trust, 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 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
A-4
<PAGE>
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 Statement, 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 statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing 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;
4.1.13. 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 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
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all times
through the Effective Time in a manner 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 securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and 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. PW 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. PW 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 designated 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. Acquiring Fund is establishing Class C (which was authorized
previously) expressly for the purpose of facilitating the Reorganization,
and only one Class C Acquiring Fund Share will be outstanding immediately
before the Effective Time. The Acquiring Fund Shares to be issued and
delivered to Target hereunder will, at the Effective Time, have been duly
authorized and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding shares of Acquiring Fund, 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 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 security 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
A-5
<PAGE>
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 MH/KP Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by
MH/KP Trust, 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
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 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 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 limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.10. No governmental consents, approvals, authorizations, 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 and a post-effective
amendment to PW Trust's registration statement, (b) receipt of the
exemptive 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 Statement, 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 statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by MH/KP Trust 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 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;
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 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;
A-6
<PAGE>
4.2.14. 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 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
dispositions 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 and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers; and
4.2.17. 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.
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 approximately 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 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;
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 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;
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 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 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
A-7
<PAGE>
4.3.8. 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
4.3.9. Immediately after the Reorganization, the Shareholders will not
own shares constituting 'control' of Acquiring 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 declaring 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 Acquiring 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 making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist PW Trust in obtaining such
information as PW Trust reasonably requests concerning the beneficial ownership
of Target Shares.
5.5. Target covenants that Target's books and records (including 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 instruments, 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 Acquiring 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 appropriate 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) performance 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 conditions that, at
or before the Effective Time:
A-8
<PAGE>
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by MH/KP Trust's board of trustees 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 section 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 (including 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 conditions.
6.3. At the Effective Time, no action, suit, or other proceeding 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. MH/KP Trust 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, executed, and
delivered by PW Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by MH/KP Trust on
behalf of Target, is a valid and legally binding obligation of PW Trust
with respect to Acquiring Fund, 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;
6.4.3. The Acquiring Fund Shares to be issued and distributed 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 obligations, and
no shareholder of Acquiring Fund has any preemptive 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, without any independent inquiry or
investigation) 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, without
any independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, 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 MH/KP Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental 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;
A-9
<PAGE>
6.4.6. PW 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 (without any independent
inquiry or investigation), (a) no litigation, 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
properties 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 MH/KP Trust.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an opinion of
competent Massachusetts counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (iii) limit such opinion to applicable
federal and state law, and (iv) define the word 'knowledge' and related terms to
mean the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.5. PW Trust shall have received an opinion of Willkie Farr & Gallagher,
counsel to MH/KP Trust, substantially to the effect that:
6.5.1. Target is a duly established series of MH/KP 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;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by MH/KP Trust on behalf of Target and (b) assuming due
authorization, execution, and delivery of this Agreement by PW Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of
MH/KP Trust with respect to 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 MH/KP Trust's Declaration of Trust or By-Laws or any provision of
any agreement (known to such counsel, without any independent inquiry or
investigation) to which MH/KP Trust (with respect to Target) is a party or
by which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which MH/KP Trust (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 PW Trust;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order of
any court or governmental authority is required for the consummation by
MH/KP Trust 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. MH/KP 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
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending or
threatened as to MH/KP Trust (with respect to Target) or any of its
properties or assets attributable or allocable to Target and (b) MH/KP
Trust (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 PW Trust.
A-10
<PAGE>
In rendering such opinion, such counsel may (i) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (ii) make assumptions regarding the authenticity,
genuineness, and /or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable federal
and state law, and (iv) define the word 'knowledge' and related terms to mean
the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart LLP,
its counsel, addressed to and in form and substance satisfactory to it, and
MH/KP Trust shall have received an opinion of Willkie Farr & Gallagher, its
counsel, addressed to and in form and substance satisfactory to it, 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 representations 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 distribution 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 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 assumption 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 include 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 Reorganization on the Funds or any
Shareholder 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.
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
MH/KP Trust's board of trustees, such waiver will not have a material adverse
effect on the Shareholders' interests.
A-11
<PAGE>
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 Mitchell Hutchins Asset Management Inc.
Such expenses include: (a) expenses 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) registration 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 shareholders; (d) printing and postage expenses; (e) legal and
accounting fees; and (f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall survive
the Closing.
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 contained 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 March 31, 1996; or
9.2. By the parties' mutual agreement.
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 shareholders, in such manner as may
be mutually agreed upon in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts; 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 successors 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 Investment Company'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 the
respective Funds' assets and property. Each Fund agrees that, in asserting any
rights
A-12
<PAGE>
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.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
<TABLE>
<C> <S>
ATTEST: PAINEWEBBER MANAGED INVESTMENTS TRUST,
on behalf of its series,
PAINEWEBBER SHORT-TERM U.S. GOVERNMENT
INCOME FUND
By: /s/ ILENE SHORE By: /s/ DIANNE E. O'DONNELL
-------------------------------------- --------------------------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
By: /s/ S.H. JOHNSON By: /s/ SCOTT GRIFF
-------------------------------------- --------------------------------------
Assistant Secretary Vice President
</TABLE>
A-13
<PAGE>
APPENDIX B
BENEFICIAL OWNERSHIP OF SHARES OF PW FUND AND MH/KP FUND
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NAME ADDRESS BENEFICIALLY OWNED
------------------------------------- ------------------------------------- --------------------
<S> <C> <C>
PW FUND:
Hilton Hotels Corporation c/o Mitchell Hutchins 6.49%
Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Kern County Treasurer c/o Mitchell Hutchins 6.86%
Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
MH/KP FUND:
Wilmington Savings Fd. Society c/o Mitchell Hutchins 20.58%
Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
First FSB Lacrosse/Madison c/o Mitchell Hutchins 18.42%
Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
GUPTA Corporation c/o Mitchell Hutchins 13.32%
Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
</TABLE>
B-1
<PAGE>
-----------------------------------
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
-----------------------------------
-----------------------------------
MITCHELL HUTCHINS/KIDDER, PEABODY
ADJUSTABLE RATE GOVERNMENT FUND
-----------------------------------
------------------------
NOTICE OF
SPECIAL MEETING
TO BE HELD ON
OCTOBER 19, 1995
AND
PROXY STATEMENT
---------------------------------
PROXY
-----
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY ADJUSTABLE RATE GOVERNMENT FUND
Special Meeting of Shareholders - October 19, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Jennifer
Farrell 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 indicate authority to vote "FOR" all proposals. This
proxy is solicited on behalf of the Board of Trustees of Mitchell
Hutchins/Kidder Peabody Investment Trust.
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.
This proxy will not be voted unless it is dated and signed exactly as
instructed below.
Sign exactly as name appears hereon.
___________________(L.S.) If the shares are held jointly,
each Shareholder named should
___________________(L.S.) Date ________, 1995 sign. If only one signs, his or
her signature will be binding.
If the Shareholder is a
corporation, the President or
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."
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The board of trustees recommends a vote "FOR"
1. Approval of an Agreement and Plan of Reorganization and Termination
between PaineWebber Short-Term U.S. Government Income Fund and Mitchell
Hutchins/Kidder Peabody Adjustable Rate Government Fund.
FOR _______ AGAINST _______ ABSTAIN ______
Please sign and date the reverse side of this card
