<PAGE>
Filed Pursuant to Rule 497(b)
Registration File No.: 33-61819
MITCHELL HUTCHINS/KIDDER, PEABODY
INTERMEDIATE FIXED INCOME FUND
(a series of Mitchell Hutchins/Kidder, Peabody Investment Trust)
September 20, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that Mitchell
Hutchins/Kidder, Peabody Intermediate Fixed Income Fund ("MH/KP Intermediate
Income Fund") reorganize and become part of PaineWebber U.S. Government
Income Fund ("PW U.S. Government Income Fund") (each a "Fund"). If the
proposal is approved and implemented, each shareholder of MH/KP Intermediate
Income Fund automatically would become a shareholder of PW U.S. Government
Income Fund.
YOUR BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE REORGANIZATION PROPOSAL.
The Board believes that combining the two Funds will benefit MH/KP
Intermediate Income Fund's shareholders by providing them with a portfolio
that has an investment objective similar to that of MH/KP Intermediate Income
Fund, is managed in a similar manner and will have lower operating expenses
as a percentage of net assets. The attached 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 Intermediate Income Fund to avoid costly
follow-up mail and telephone solicitation. After reviewing the attached
materials, please complete, date and sign your proxy card and mail it in the
enclosed return envelope today.
Very truly yours,
/s/ MARGO N. ALEXANDER
-----------------------------
MARGO N. ALEXANDER
President, Mitchell
Hutchins/Kidder, Peabody
Investment Trust
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
GOVERNMENT INCOME FUND, INC.
September 20, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that Mitchell
Hutchins/Kidder, Peabody Government Income Fund, Inc. ("MH/KP Government
Income Fund") reorganize and become part of PaineWebber U.S. Government
Income Fund ("PW U.S. Government Income Fund") (each a "Fund"). If the
proposal is approved and implemented, each shareholder of MH/KP Government
Income Fund automatically would become a shareholder of PW U.S. Government
Income Fund.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE REORGANIZATION PROPOSAL.
The Board believes that combining the two Funds will benefit MH/KP Government
Income Fund's shareholders by providing them with a portfolio that has an
investment objective similar to that of MH/KP Government Income Fund, is
managed in a similar manner and will have lower operating expenses as a
percentage of net assets. The attached 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 Government Income Fund to avoid costly
follow-up mail and telephone solicitation. After reviewing the attached
materials, please complete, date and sign your proxy card and mail it in the
enclosed return envelope today.
Very truly yours,
MARGO N. ALEXANDER
----------------------------
MARGO N. ALEXANDER
President, Mitchell
Hutchins/Kidder, Peabody
Government Income Fund, Inc.
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
INTERMEDIATE FIXED INCOME 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 Intermediate Fixed Income Fund ("MH/KP Intermediate Income Fund"), a
series of Mitchell Hutchins/Kidder, Peabody Investment Trust, will be held on
October 19, 1995 at 11:00 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 U.S. Government Income Fund ("PW U.S. Government
Income Fund"), a series of PaineWebber Managed Investments Trust, would
acquire the assets of MH/KP Intermediate Income Fund in exchange solely for
shares of beneficial interest in PW U.S. Government Income Fund and the
assumption by PW U.S. Government Income Fund of MH/KP Intermediate Income
Fund's liabilities, followed by the distribution of those shares to the
shareholders of MH/KP Intermediate Income Fund, all as described in the
accompanying prospectus/proxy statement; and
(2) To transact such other business as may properly come before the
Meeting.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of MH/KP Intermediate Income 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 20, 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>
MITCHELL HUTCHINS/KIDDER, PEABODY
GOVERNMENT INCOME FUND, INC.
----------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
----------------
October 19, 1995
To The Shareholders:
A special meeting of shareholders ("Meeting") of Mitchell Hutchins/Kidder,
Peabody Government Income Fund, Inc. ("MH/KP Government Income Fund") will be
held on October 19, 1995 at 11:00 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 Dissolution
under which PaineWebber U.S. Government Income Fund ("PW U.S. Government
Income Fund"), a series of PaineWebber Managed Investments Trust, would
acquire the assets of MH/KP Government Income Fund in exchange solely for
shares of beneficial interest in PW U.S. Government Income Fund and the
assumption by PW U.S. Government Income Fund of MH/KP Government Income
Fund's liabilities, followed by the distribution of those shares to the
shareholders of MH/KP Government Income Fund, all as described in the
accompanying prospectus/proxy statement; and
(2) To transact such other business as may properly come before the
Meeting.
You are entitled to vote at the Meeting and any adjournment thereof if you
owned shares of MH/KP Government Income 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 directors,
DIANNE E. O'DONNELL
Secretary
September 20, 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 U.S. GOVERNMENT INCOME FUND
(A SERIES OF PAINEWEBBER MANAGED INVESTMENTS TRUST)
MITCHELL HUTCHINS/KIDDER, PEABODY
INTERMEDIATE FIXED INCOME FUND
(A SERIES OF MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST)
MITCHELL HUTCHINS/KIDDER, PEABODY
GOVERNMENT INCOME FUND, INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(TOLL FREE) 1-800-647-1568
----------------
PROSPECTUS/PROXY STATEMENT
SEPTEMBER 20, 1995
----------------
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Intermediate Fixed Income
Fund ("MH/KP Intermediate Income Fund"), a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust ("MH/KP Trust"), and Mitchell
Hutchins/Kidder, Peabody Government Income Fund, Inc. ("MH/KP Government
Income Fund") (each an "Acquired Fund" and collectively, the "Acquired
Funds"), in connection with the solicitation of proxies by MH/KP Trust's
board of trustees and MH/KP Government Income Fund's board of directors for
use at a combined special meeting of shareholders of the Acquired Funds, to
be held on October 19, 1995, at 11:00 a.m., Eastern time ("Meeting").
As more fully described in this Proxy Statement, the primary purpose of
the Meeting is to vote on two proposed reorganizations (each a
"Reorganization" and collectively, the "Reorganizations"). In each
Reorganization, PaineWebber U.S. Government Income Fund ("PW U.S. Government
Income Fund"), a series of PaineWebber Managed Investments Trust ("PW
Trust"), would acquire the assets of an Acquired Fund, in exchange solely for
shares of beneficial interest in PW U.S. Government Income Fund and the
assumption by PW U.S. Government Income Fund of that Acquired Fund's
liabilities. Those PW U.S. Government Income Fund shares then would be
distributed to that Acquired Fund's shareholders, by class, so that each such
shareholder would receive a number of full and fractional shares of the
applicable class of PW U.S. Government Income Fund having an aggregate value
that, on the effective date of the Reorganization, is equal to the aggregate
net asset value of the shareholder's shares of the corresponding class in the
Acquired Fund. As soon as practicable following these distributions, each
Acquired Fund will be terminated or dissolved, as applicable.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PW U.S. Government Income Fund is a diversified series of PW Trust, which
is an open-end management investment company. PW U.S. Government Income
Fund's investment objective is to provide high current income consistent with
the preservation of capital and liquidity. PW U.S. Government Income Fund
seeks to achieve its investment objective by investing primarily in U.S.
government securities.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about each Reorganization and PW U.S.
Government Income Fund that a shareholder should know before voting.
This Proxy Statement is accompanied by the Prospectus of PW U.S.
Government Income Fund dated April 1, 1995, and by its Annual Report to
Shareholders for the fiscal year ended November 30, 1994, which are
incorporated by this reference into this Proxy Statement. A Statement of
Additional Information, dated September 20, 1995 relating to the
Reorganization and including historical financial statements, has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated
herein by this reference. Prospectuses of MH/KP Intermediate Income Fund,
dated December 29, 1994 (as supplemented June 22, 1995 and August 24, 1995),
and MH/KP Government Income Fund, dated June 1, 1995 (as supplemented August
25, 1995), and Statements of Additional Information of PW U.S. Government
Income Fund, dated April 1, 1995, MH/KP Intermediate Income Fund, dated
December 29, 1994, and MH/KP Government Income Fund, dated June 1, 1995, have
been filed with the SEC and also are incorporated herein by this reference.
Copies of these documents, as well as each Acquired Fund's most recent annual
report, or semi-annual report, if applicable, may be obtained without charge
and further inquiries may be made by contacting your investment executive at
PaineWebber Incorporated ("PaineWebber") or its correspondent firms or by
calling toll-free 1-800-647-1568.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
VOTING INFORMATION ............................................ 1
SYNOPSIS ...................................................... 3
COMPARATIVE FEE TABLES ........................................ 4
COMPARISON OF PRINCIPAL RISK FACTORS .......................... 20
THE PROPOSED TRANSACTIONS ..................................... 23
ADDITIONAL INFORMATION ABOUT PW U.S. GOVERNMENT INCOME FUND .. 30
MISCELLANEOUS ................................................. 33
APPENDIX A -- AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION WITH RESPECT TO MH/KP INTERMEDIATE INCOME FUND . A-1
APPENDIX B -- AGREEMENT AND PLAN OF REORGANIZATION AND
DISSOLUTION WITH RESPECT TO MH/KP GOVERNMENT INCOME FUND ... B-1
</TABLE>
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
INTERMEDIATE FIXED INCOME FUND
(A SERIES OF MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST)
MITCHELL HUTCHINS/KIDDER, PEABODY
GOVERNMENT INCOME FUND, INC.
----------------
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 Intermediate Fixed Income
Fund ("MH/KP Intermediate Income Fund"), a series of Mitchell
Hutchins/Kidder, Peabody Investment Trust ("MH/KP Trust"), and Mitchell
Hutchins/Kidder, Peabody Government Income Fund, Inc. ("MH/KP Government
Income Fund") (each an "Acquired Fund" and collectively, the "Acquired
Funds"), in connection with the solicitation of proxies by MH/KP Trust's
board of trustees and MH/KP Government Income Fund's board of directors (each
a "Board"), for use at a combined special meeting of shareholders of the
Acquired Funds, to be held on October 19, 1995, at 11:00 a.m., Eastern time
("Meeting"). This Proxy Statement will first be mailed to shareholders on or
about September 20, 1995.
At least thirty percent of MH/KP Intermediate Income Fund's and one-third
of MH/KP Government Income Fund's shares outstanding on September 5, 1995,
represented in person or by proxy, must be present for the transaction of
business by that Acquired Fund at the Meeting. If, with respect to either
Acquired Fund, a quorum is not present at the Meeting or a quorum is present
but sufficient votes to approve the proposal are not received, the persons
named as proxies may propose one or more adjournments of the Meeting with
respect to that Acquired Fund to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares of the Acquired Fund represented at the Meeting in person or by proxy.
The persons named as proxies will vote those proxies that they are entitled
to vote FOR the proposal in favor of such an adjournment and will vote those
proxies required to be voted AGAINST the proposal against such adjournment. A
shareholder vote may be taken on the proposal in this Proxy Statement prior
to any such adjournment if sufficient votes have been received and it is
otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners
or other persons entitled to vote and 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 the 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.
<PAGE>
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, with respect to MH/KP
Intermediate Income Fund, and the Agreement and Plan of Reorganization and
Dissolution, with respect to MH/KP Government Income Fund, each dated as of
August 8, 1995 (each a "Reorganization Plan" and collectively, the
"Reorganization Plans"), which are attached to this Proxy Statement as
Appendices A and B, respectively. Under each Reorganization Plan, PaineWebber
U.S. Government Income Fund ("PW U.S. Government Income Fund"), a series of
PaineWebber Managed Investments Trust ("PW Trust"), would acquire the assets
of an Acquired Fund in exchange solely for shares of beneficial interest in
PW U.S. Government Income Fund and the assumption by PW U.S. Government
Income Fund of that Acquired Fund's liabilities. Those PW U.S. Government
Income Fund shares then would be distributed to that Acquired Fund's
shareholders, by class, so that each such shareholder would receive a number
of full and fractional shares of the applicable class of PW U.S. Government
Income Fund having an aggregate value that, on the effective date of the
Reorganization, is equal to the aggregate net asset value of the
shareholder's shares of the corresponding class in the Acquired Fund. (Each
of these transactions is referred to herein as a "Reorganization.") After
completion of a Reorganization, the participating Acquired Fund will be
terminated or dissolved, as applicable.
In addition, if you sign, date and return the enclosed 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 or MH/KP Government Income Fund, as applicable, prior
to the Meeting and must indicate your name and account number. In addition,
if you attend the Meeting in person you may, if you wish, vote by ballot at
the Meeting, thereby canceling any proxy previously given.
As of the record date, September 5, 1995 ("Record Date"), MH/KP
Intermediate Income Fund had 1,519,694 shares of beneficial interest
outstanding and MH/KP Government Income Fund had 3,128,137 shares of common
stock outstanding. The solicitation of proxies, the cost of which will be
borne by PW U.S. Government Income Fund, MH/KP Intermediate Income Fund and
MH/KP Government Income Fund (each a "Fund" and collectively, the "Funds") in
proportion to their respective net assets, will be made primarily by mail but
also may include telephone or oral communications by representatives of
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), who will not
receive any compensation therefor from the Funds, or by Shareholder
Communications Corporation, professional proxy solicitors retained by the
Acquired Funds, who will be paid fees and expenses of up to approximately
$2,500 for soliciting services. Management does not know of any person who
owns beneficially 5% or more of the shares of any Fund. Trustees and officers
of PW Trust own in the aggregate less than 1% of the shares of PW U.S.
Government Income Fund.
Summarized below are the proposals the shareholders of each Acquired Fund
are being asked to consider:
<TABLE>
<CAPTION>
FUND PROPOSAL
---------------------------------- -------------------------------------
<S> <C>
MH/KP Intermediate Income Fund To approve a Reorganization Plan.
MH/KP Government Income Fund To approve a Reorganization Plan.
</TABLE>
2
<PAGE>
For voting purposes, the shareholders of each Acquired Fund will vote only
on the Reorganization Plan applicable to their Acquired Fund. Approval of a
Reorganization Plan and consummation of the transactions contemplated thereby
for one Acquired Fund does not depend on the approval of the other
Reorganization Plan by the other Acquired Fund's shareholders and
consummation of the transactions contemplated thereby.
Approval of the Reorganization Plan with respect to MH/KP Intermediate
Income Fund requires the affirmative vote of a majority of the outstanding
voting securities of that Fund. As defined in the Investment Company Act of
1940, as amended ("1940 Act"), "majority of the outstanding voting
securities" means the lesser of (1) 67% of MH/KP Intermediate Income Fund's
shares present at a meeting of shareholders if the owners of more than 50% of
its shares then outstanding are present in person or by proxy, or (2) more
than 50% of its outstanding shares. Approval of the Reorganization Plan with
respect to MH/KP Government Income Fund requires the affirmative vote of a
majority of its outstanding shares entitled to vote at the Meeting in
accordance with Maryland law and MH/KP Government Income Fund's Amended and
Restated Articles of Incorporation. Each outstanding full share of each
Acquired Fund is entitled to one vote, and each outstanding fractional share
of each Acquired Fund is entitled to a proportionate fractional share of one
vote. If a Reorganization Plan is not approved by the requisite vote of the
shareholders of the involved Acquired 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 the Acquired Funds may
exchange or redeem out of a 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 Prospectus of each Fund (which is incorporated
herein by reference) and the Reorganization Plans. Shareholders should read
this Proxy Statement and the Prospectus of PW U.S. Government Income Fund
carefully. As discussed more fully below, the Boards believe that the
proposed Reorganizations will benefit their respective Acquired Fund's
shareholders. PW U.S. Government Income Fund has an investment objective
generally similar to that of each Acquired Fund, although its investment
strategy may differ from the Acquired Funds' investment strategies in some
material respects. It is anticipated that, following the Reorganizations,
each Acquired Fund's shareholders, as shareholders of PW U.S. Government
Income Fund, will be subject to lower operating expenses as a percentage of
average net assets.
THE REORGANIZATIONS
Each Board considered and approved the Reorganization Plan with respect to
its Acquired Fund at meetings of the Boards held on July 20, 1995. Each
Reorganization Plan provides for the acquisition by PW U.S. Government Income
Fund of the assets of an Acquired Fund in exchange solely for Class A, Class
C and Class D shares of PW U.S. Government Income Fund and the assumption by
PW U.S. Government Income Fund of the liabilities of the Acquired Fund. Each
Acquired Fund then will distribute the PW U.S. Government Income Fund shares
to its shareholders, by class, so that each shareholder will receive the
number of full and fractional shares of the class of PW U.S. Government
Income Fund that corresponds most closely in terms of fees and other
characteristics ("Corresponding Class") and that is equal in value to the
value of such shareholder's holdings in the Acquired Fund as of the Closing
Date (defined below). Each Acquired Fund then will be terminated or
dissolved, as applicable, as soon as practicable thereafter.
The exchange of each Acquired Fund's assets for PW U.S. Government Income
Fund shares and PW U.S. Government Income Fund's assumption of the Acquired
Fund's liabilities will occur as of 4:00 p.m., Eastern time, on October 20,
1995, or on such later date as the conditions to the closing are satisfied
("Closing Date").
3
<PAGE>
PW U.S. Government Income Fund offers for sale four classes of shares
(each a "Class" and collectively, "Classes"), designated as Class A, Class B,
Class C and Class D shares. In connection with the Reorganizations, PW U.S.
Government Income Fund will issue only Class A, Class C and Class D shares in
exchange for an Acquired Fund's assets; Class B shares will not be issued.
Each Acquired Fund has three classes of shares, designated as Class A, Class
B and Class C shares. In connection with the Reorganizations, shareholders of
Class A and Class C shares of the Acquired Funds will receive Class A and
Class C shares, respectively, of PW U.S. Government Income Fund; Class B
shareholders of the Acquired Funds will receive Class D shares of PW U.S.
Government Income Fund.
The following table shows which class of shares of PW U.S. Government
Income Fund will be received by shareholders of each class of shares of an
Acquired Fund.
<TABLE>
<CAPTION>
ACQUIRED FUND PW U.S. GOVERNMENT INCOME FUND
----------------- ----------------------------------
<S> <C>
Class A Class A
Class B Class D
Class C Class C
</TABLE>
For the reasons set forth below under "The Proposed Transactions --
Reasons for the Reorganizations," MH/KP Trust's Board (with respect to MH/KP
Intermediate Income Fund) and MH/KP Government Income Fund's Board, including
the trustees and directors, respectively, who are not "interested persons,"
as that term is defined in the 1940 Act, of MH/KP Trust, MH/KP Government
Income Fund or PW Trust ("Independent Persons"), have determined, in each
instance, that its Reorganization is in the best interests of the
participating Acquired Fund, that the terms of the Reorganization are fair
and reasonable and that the interests of such Acquired Fund's shareholders
will not be diluted as a result of the Reorganization. Accordingly, each
Board recommends approval of its Reorganization. In addition, PW Trust's
board of trustees (also a "Board"), including its Independent Persons, has
determined that the Reorganizations are in the best interests of PW U.S.
Government Income Fund, that the terms of the Reorganizations are fair and
reasonable and that the interests of PW U.S. Government Income Fund's
shareholders will not be diluted as a result of the Reorganizations.
COMPARATIVE FEE TABLES
Certain fees and expenses that the Acquired Funds' shareholders pay,
directly or indirectly, are different from those incurred by PW U.S.
Government Income Fund shareholders. Each Acquired Fund's Class A shares are
sold with a maximum initial sales charge of 2.25% of the public offering
price. PW U.S. Government Income Fund's Class A shares normally are sold with
a maximum sales charge of 4% of the public offering price; however, the Class
A shares of PW U.S. Government Income Fund that will be distributed to
shareholders of each Acquired Fund as part of the Reorganizations will not be
subject to an initial sales charge. New purchases of Class A shares of PW
U.S. Government Income Fund following the Reorganizations will be subject to
an initial sales charge of up to 4%. Acquired Fund shareholders are not
charged a fee for each exchange of shares for shares of a corresponding class
of other PaineWebber or Mitchell Hutchins/Kidder, Peabody ("MH/KP") mutual
funds. PW U.S. Government Income Fund shareholders pay a $5.00 fee for each
exchange.
Mitchell Hutchins, the investment adviser and administrator of the
Acquired Funds, is currently paid an investment advisory and administration
fee at the annual rate of 0.70% of the average daily net assets with respect
to MH/KP Intermediate Income Fund and 0.63% of the average daily net assets
with respect to MH/KP Government Income Fund. PW U.S. Government Income Fund
pays Mitchell Hutchins an annual investment advisory and administration fee,
computed daily and paid monthly, at a rate of 0.50% of the average daily net
assets. This annual rate will continue following the Reorganizations.
4
<PAGE>
The Class A shares of MH/KP Intermediate Income Fund pay 12b-1 fees that
are identical to those paid by the Class A shares of PW U.S. Government
Income Fund; the Class A shares of MH/KP Government Income Fund pay 12b-1
fees that are 25 basis points (that is, 0.25%) higher. The Class B shares of
the Acquired Funds pay 12b-1 fees that are identical to those paid by the
Class D shares of PW U.S. Government Income Fund. No 12b-1 fees are paid by
the Class C shareholders of any of the Funds, but Class C shareholders of the
Acquired Funds who hold their Class C shares through the INSIGHT Investment
Advisory Program (Service Mark) ("INSIGHT Program") must pay an investment
advisory fee at the maximum annual rate of 1.50% of the assets held through
the INSIGHT Program.
REORGANIZATION OF MH/KP INTERMEDIATE INCOME FUND INTO PW U.S. GOVERNMENT
INCOME FUND
The following tables show (1) shareholder transaction expenses currently
incurred by the Class A, Class B and Class C shares of MH/KP Intermediate
Income Fund and the Class A, Class D and Class C shares of PW U.S. Government
Income Fund, and shareholder transaction expenses that each such Class will
incur after giving effect to the Reorganization, and (2) the operating fees
and expenses incurred by the Class A, Class B and Class C shares of MH/KP
Intermediate Income Fund and the Class A, Class D and Class C shares of PW
U.S. Government Income Fund for the twelve months ended May 31, 1995, and pro
forma fees for PW U.S. Government Income Fund's Class A, Class C and Class D
shares based on the same period after giving effect to the Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PW U.S. GOVERNMENT
INCOME FUND
-------------------------------------
CLASS A CLASS D CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
Maximum sales charge (as a
percentage of public
offering price) ............. 4% None None
Exchange fee ................. $5.00 $5.00 N/A(2)
Maximum contingent deferred
sales charge (as a
percentage of redemption
proceeds) ................... None None None
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MH/KP INTERMEDIATE
INCOME FUND PRO FORMA COMBINED(1)
------------------------------------- -------------------------------------
CLASS A CLASS B 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 4% 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 None None None
</TABLE>
---------------
(1) Under certain circumstances, Class A and Class D shares of the
Combined Fund that are purchased after November 1, 1995 may be
subject to a 1% contingent deferred sales charge ("CDSC"). See
"Operations of PW U.S. Government Income Fund Following the
Reorganizations." However, Class A and Class D shares of PW U.S.
Government Income Fund that are issued to MH/KP Intermediate Income
Fund shareholders as part of the Reorganization will not be subject
to that CDSC.
(2) Class C shares of PW U.S. Government Income Fund are not exchangeable
for shares of PaineWebber or MH/KP mutual funds.
5
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
PW U.S. GOVERNMENT
INCOME FUND
(TWELVE MONTHS
ENDED 5/31/95)
-------------------------------
CLASS A CLASS D CLASS C
--------- --------- ---------
<S> <C> <C> <C>
Management Fees .... 0.50% 0.50% 0.50%
12b-1 Fees(3) ....... 0.25% 0.75% 0.00%
Other Expenses. .... 0.25% 0.26% 0.20%
--------- --------- ---------
Total Fund Operating
Expenses(4) ........ 1.00% 1.51% 0.70%
========= ========= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MH/KP INTERMEDIATE
INCOME FUND
(TWELVE MONTHS
ENDED 5/31/95) PRO FORMA COMBINED
--------------------------------- -------------------------------
CLASS A CLASS B(1) CLASS C(2) CLASS A CLASS D CLASS C
--------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .... 0.70% 0.70% 0.70% 0.50% 0.50% 0.50%
12b-1 Fees(3) ....... 0.25% 0.75% 0.00% 0.25% 0.75% 0.00%
Other Expenses. .... 0.69% 0.83% 0.60% 0.24% 0.25% 0.19%
--------- ---------- ---------- --------- --------- ---------
Total Fund Operating
Expenses(4) ........ 1.64% 2.28% 1.30% 0.99% 1.50% 0.69%
========= ========== ========== ========= ========= =========
</TABLE>
---------------
(1) Class B shares of MH/KP Intermediate Income Fund will be exchanged for
Class D shares of PW U.S. Government Income Fund.
(2) A maximum annual 1.50% advisory fee is payable by shareholders holding
Class C shares of MH/KP Intermediate Income Fund through the INSIGHT Program.
This fee, which is not reflected in the Annual Fund Operating Expenses above,
will continue to be assessed at that rate subsequent to the Reorganization.
(3) 12b-1 fees for Class A and Class B shares of MH/KP Intermediate Income
Fund have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ---------
<S> <C> <C>
12b-1 service fee ...... 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50%
</TABLE>
12b-1 fees for Class A and Class D shares of PW U.S. Government Income
Fund have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS D
--------- ---------
<S> <C> <C>
12b-1 service fee ...... 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50%
</TABLE>
---------------
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales
charges (including distribution fees) than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD") rules regarding investment companies.
(4) For the fiscal year ended November 30, 1994, Annual Fund Operating
Expenses for Class A, Class D and Class C shares of PW U.S. Government
Income Fund were 0.95%, 1.45% and 0.65%, respectively. For the fiscal
year ended August 31, 1994, Annual Fund Operating Expenses for the Class
A, Class B and Class C shares of MH/KP Intermediate Income Fund were
1.46%, 1.96% and 1.21%, respectively.
6
<PAGE>
EXAMPLE OF EFFECT OF FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated above, assuming a 5% annual return. The fees shown
below reflect a maximum initial sales charge of 4% (with respect to PW U.S.
Government Income Fund) and 2.25% (with respect to MH/KP Intermediate Income
Fund) of the public offering price that is charged in connection with the
sale of Class A shares. The amounts shown for PW U.S. Government Income Fund
and Combined Fund Class A shares held for one year are higher than for MH/KP
Intermediate Income Fund Class A shares held for one year due to the higher
initial sales charge normally imposed on PW U.S. Government Income Fund Class
A shares. However, no initial sales charge will be charged in connection with
Class A Shares of PW U.S. Government Income Fund distributed to Class A
shareholders of MH/KP Intermediate Income Fund as part of the Reorganization.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
PW U.S. Government Income
Fund
Class A shares(1) ....... $50 $71 $ 93 $158
Class D shares .......... $15 $48 $ 82 $180
Class C shares .......... $ 7 $22 $ 39 $ 87
MH/KP Intermediate Income
Fund
Class A shares(2) ....... $39 $73 $110 $212
Class B shares .......... $23 $71 $122 $262
Class C shares(3) ....... $13 $41 $ 71 $157
Combined Fund
Class A shares(1) ....... $50 $70 $ 93 $156
Class D shares .......... $15 $47 $ 82 $179
Class C shares(3) ....... $ 7 $22 $ 38 $ 86
<FN>
(1) Assumes deduction at the time of purchase of the maximum 4% initial
sales charge.
(2) Assumes deduction at the time of purchase of the maximum 2.25% initial
sales charge.
(3) Does not include advisory fees payable by shareholders holding Class C
shares through the INSIGHT Program.
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in 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.
REORGANIZATION OF MH/KP GOVERNMENT INCOME FUND INTO PW U.S. GOVERNMENT INCOME
FUND
The following tables show (1) shareholder transaction expenses currently
incurred by the Class A, Class B and Class C shares of MH/KP Government
Income Fund and the Class A, Class D and Class C shares of PW
7
<PAGE>
U.S. Government Income Fund, and shareholder transaction expenses that each
such Class will incur after giving effect to the Reorganization, and (2) the
operating fees and expenses incurred by the Class A, Class B and Class C
shares of MH/KP Government Income Fund and the Class A, Class D and Class C
shares of PW U.S. Government Income Fund for the twelve months ended May 31,
1995, and pro forma fees based on the same period for PW U.S. Government
Income Fund's Class A, Class D and Class C shares after giving effect to the
Reorganization.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PW U.S. GOVERNMENT MH/KP GOVERNMENT
INCOME FUND INCOME FUND
------------------------------------- -------------------------------------
CLASS A CLASS D CLASS C CLASS A CLASS B CLASS C
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales
charge (as a
percentage of
public offering
price) ............ 4% None None 2.25% None None
Exchange fee ....... $5.00 $5.00 N/A(2) None None None
Maximum contingent
deferred sales
charge (as a
percentage of
redemption
proceeds) ......... None None None None None None
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA COMBINED(1)
-------------------------------------
CLASS A CLASS D CLASS C
----------- ----------- -----------
<S> <C> <C> <C>
Maximum sales
charge (as a
percentage of
public offering
price) ............ 4% None None
Exchange fee ....... $5.00 $5.00 N/A(2)
Maximum contingent
deferred sales
charge (as a
percentage of
redemption
proceeds) ......... None None None
<FN>
</TABLE>
---------------
(1) Under certain circumstances, Class A and Class D shares of the
Combined Fund that are purchased after November 1, 1995 may be
subject to a 1% CDSC. See "Operations of PW U.S. Government Income
Fund Following the Reorganizations." However, Class A and Class D
shares of PW U.S. Government Income Fund that are issued to MH/KP
Government Income Fund shareholders as part of the Reorganization
will not be subject to that CDSC.
(2) Class C shares of PW U.S. Government Income Fund are not exchangeable
for shares of PaineWebber or MH/KP mutual funds.
8
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
PW U.S. GOVERNMENT INCOME FUND MH/KP GOVERNMENT INCOME FUND
(TWELVE MONTHS ENDED 5/31/95) (TWELVE MONTHS ENDED 5/31/95)
------------------------------- ---------------------------------
CLASS A CLASS D CLASS C CLASS A CLASS B(1) CLASS C(2)
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.63% 0.63% 0.63%
12b-1 Fees(3) . 0.25% 0.75% 0.00% 0.50% 0.75% 0.00%
Other Expenses. 0.25% 0.26% 0.20% 0.41% 0.46% 0.32%
--------- --------- --------- --------- ---------- ----------
Total Fund
Operating
Expenses (4) . 1.00% 1.51% 0.70% 1.54% 1.84% 0.95%
========= ========= ========= ========= ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------------
CLASS A CLASS D CLASS C
--------- --------- ---------
<S> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50%
12b-1 Fees(3) . 0.25% 0.75% 0.00%
Other Expenses. 0.23% 0.25% 0.18%
--------- --------- ---------
Total Fund
Operating
Expenses (4) . 0.98% 1.50% 0.68%
========= ========= =========
<FN>
---------------
(1) Class B shares of MH/KP Government Income Fund will be exchanged for
Class D shares of PW U.S. Government Income Fund.
(2) A maximum annual 1.50% advisory fee is payable by shareholders holding
Class C shares of MH/KP Government Income Fund through the INSIGHT Program.
This fee, which is not reflected in the Annual Fund Operating Expenses above,
will continue to be assessed at that rate subsequent to the Reorganization.
(3) 12b-1 fees for Class A and Class B shares of MH/KP Government Income
Fund have two components, as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ---------
<S> <C> <C>
12b-1 service fee (maximum) ..... 0.25% 0.25%
12b-1 distribution fee (maximum) 0.25% 0.50%
</TABLE>
12b-1 fees for Class A and Class D shares of PW U.S. Government Income
Fund have two components, as follows:
[/TABLE]
<TABLE>
<CAPTION>
CLASS A CLASS D
--------- ---------
<S> <C> <C>
12b-1 service fee ..... 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50%
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by NASD rules regarding investment
companies.
(4) For the fiscal year ended November 30, 1994, Annual Fund Operating
Expenses for Class A, Class D and Class C shares of PW U.S. Government Income
Fund were 0.95%, 1.45% and 0.65%, respectively. For the fiscal year ended
January 31, 1995, Annual Fund Operating Expenses for Class A, Class B and
Class C shares of MH/KP Government Income Fund were 1.53%, 1.78% and 1.03%,
respectively.
EXAMPLE OF EFFECT OF FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated above, assuming a 5% annual return. The fees shown
below reflect a maximum initial sales charge of 4% (with respect to PW U.S.
Government Income Fund) and 2.25% (with respect to MH/KP Government Income
Fund) of the public offering price that is charged in connection with the
sale of Class A shares. The amounts shown for PW U.S. Government Income Fund
and Combined Fund Class A shares held for one year are higher than for
9
<PAGE>
MH/KP Government Income Fund Class A shares held for one year due to the
higher initial sales charge normally imposed on PW U.S. Government Income
Fund Class A shares. However, no initial sales charge will be charged in
connection with Class A shares of PW U.S. Government Income Fund distributed
to Class A shareholders of MH/KP Government Income Fund as part of the
Reorganization.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
PW U.S. Government
Income Fund
Class A shares(1) .... $50 $71 $ 93 $158
Class D shares ........ $15 $48 $ 82 $180
Class C shares ........ $ 7 $22 $ 39 $ 87
MH/KP Government Income
Fund
Class A shares(2) .... $38 $70 $105 $202
Class B shares ........ $19 $58 $100 $216
Class C shares(3) .... $10 $30 $ 53 $117
Combined Fund
Class A shares(1) .... $50 $70 $ 92 $155
Class D shares ........ $15 $47 $ 82 $179
Class C shares(3) .... $ 7 $22 $ 38 $ 85
<FN>
---------------
(1) Assumes deduction at the time of purchase of the maximum 4% initial
sales charge.
(2) Assumes deduction at the time of purchase of the maximum 2.25% initial
sales charge.
(3) Does not include advisory fees payable by shareholders holding Class C
shares through the INSIGHT Program.
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in this Example of a 5% annual return are required by regulations
of the 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.
REORGANIZATIONS OF MH/KP INTERMEDIATE INCOME FUND AND MH/KP GOVERNMENT INCOME
FUND INTO PW U.S. GOVERNMENT INCOME FUND
The following tables show (1) shareholder transaction expenses currently
incurred by the Class A, Class B and Class C shares of MH/KP Intermediate
Income Fund and MH/KP Government Income Fund, respectively, and the Class A,
Class D and Class C shares of PW U.S. Government Income Fund, and shareholder
transaction expenses that each such Class will incur after giving effect to
the Reorganizations, and (2) the operating fees and expenses incurred by the
Class A, Class B and Class C shares of MH/KP Intermediate Income Fund and
MH/KP Government Income Fund, respectively, and the Class A, Class D and
Class C shares of PW U.S. Government Income Fund for the twelve months ended
May 31, 1995, and pro forma fees based on the same period for PW U.S.
Government Income Fund's Class A, Class D and Class C shares after giving
effect to the Reorganizations.
10
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PW U.S. GOVERNMENT INCOME FUND MH/KP INTERMEDIATE INCOME FUND
------------------------------------- -------------------------------------
CLASS A CLASS D CLASS C CLASS A CLASS B CLASS C
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales
charge (as a
percentage of
public offering
price) ............ 4% None None 2.25% None None
Exchange fee ....... $5.00 $5.00 N/A(2) None None None
Maximum contingent
deferred sales
charge (as a
percentage of
redemption
proceeds) ......... None None None None None None
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MH/KP GOVERNMENT INCOME FUND PRO FORMA COMBINED(1)
------------------------------------- -------------------------------------
CLASS A CLASS B 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 4% 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 None None None
<FN>
---------------
(1) Under certain circumstances, Class A and Class D shares of the
Combined Fund that are purchased after November 1, 1995 may be
subject to a 1% CDSC. See "Operations of PW U.S. Government Income
Fund Following the Reorganizations." However, Class A and Class D
shares of PW U.S. Government Income Fund that are issued to Acquired
Fund shareholders as part of the Reorganizations will not be subject
to that CDSC.
(2) Class C shares of PW U.S. Government Income Fund are not exchangeable
for shares of PaineWebber or MH/KP mutual funds.
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
PW U.S. GOVERNMENT INCOME FUND MH/KP INTERMEDIATE INCOME FUND
(TWELVE MONTHS ENDED 5/31/95) (TWELVE MONTHS ENDED 5/31/95)
------------------------------- ---------------------------------
CLASS A CLASS D CLASS C CLASS A CLASS B(1) CLASS C(2)
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.70% 0.70% 0.70%
12b-1 Fees(3) .. 0.25% 0.75% 0.00% 0.25% 0.75% 0.00%
Other Expenses. 0.25% 0.26% 0.20% 0.69% 0.83% 0.60%
--------- --------- --------- --------- ---------- ----------
Total Fund
Operating
Expenses (4) .. 1.00% 1.51% 0.70% 1.64% 2.28% 1.30%
========= ========= ========= ========= ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MH/KP GOVERNMENT
INCOME FUND
(TWELVE MONTHS ENDED 5/31/95) PRO FORMA COMBINED
--------------------------------- -------------------------------
CLASS A CLASS B(1) CLASS C(2) CLASS A CLASS D CLASS C
--------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.63% 0.63% 0.63% 0.50% 0.50% 0.50%
12b-1 Fees(3) .. 0.50% 0.75% 0.00% 0.25% 0.75% 0.00%
Other Expenses. 0.41% 0.46% 0.32% 0.23% 0.24% 0.18%
--------- ---------- ---------- --------- --------- ---------
Total Fund
Operating
Expenses (4) .. 1.54% 1.84% 0.95% 0.98% 1.49% 0.68%
========= ========== ========== ========= ========= =========
</TABLE>
---------------
(1) Class B shares of MH/KP Intermediate Income Fund and MH/KP Government
Income Fund will be exchanged
for Class D shares of PW U.S. Government Income Fund.
(2) A maximum annual 1.50% advisory fee is payable by shareholders holding
Class C shares of MH/KP Intermediate Income Fund and MH/KP Government Income
Fund through the INSIGHT Program. This fee, which is not reflected in the
Annual Operating Expenses above, will continue to be assessed at that rate
subsequent to the Reorganizations.
11
<PAGE>
(3) 12b-1 fees for Class A and Class B shares of MH/KP Intermediate Income
Fund have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ---------
<S> <C> <C>
12b-1 service fee ..... 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50%
</TABLE>
12b-1 fees for Class A and Class B shares of MH/KP Government Income Fund
have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ---------
<S> <C> <C>
12b-1 service fee (maximum) ..... 0.25% 0.25%
12b-1 distribution fee (maximum) 0.25% 0.50%
</TABLE>
12b-1 fees for Class A and Class D shares of PW U.S. Government Income
Fund have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS D
--------- ---------
<S> <C> <C>
12b-1 service fee ..... 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50%
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by NASD rules regarding investment
companies.
(4) For the fiscal year ended November 30, 1994, Annual Fund Operating
Expenses for Class A, Class D and Class C shares of PW U.S. Government Income
Fund were 0.95%, 1.45% and 0.65%, respectively. For the fiscal year ended
August 31, 1994, Annual Fund Operating Expenses for Class A, Class B and
Class C shares of MH/KP Intermediate Income Fund were 1.46%, 1.96% and 1.21%,
respectively. For the fiscal year ended January 31, 1995, Annual Fund
Operating Expenses for Class A, Class B, and Class C shares of MH/KP
Government Income Fund were 1.53%, 1.78% and 1.03%, respectively.
12
<PAGE>
EXAMPLE OF EFFECT OF FUND EXPENSES
The following illustrates the expenses on a $1,000 investment under the
fees and expenses stated above, assuming a 5% annual return. The fees shown
below reflect a maximum initial sales charge of 4% (with respect to PW U.S.
Government Income Fund) and 2.25% (with respect to each of MH/KP Intermediate
Income Fund and MH/KP Government Income Fund) of the public offering price
that is charged in connection with the sale of Class A shares. The amounts
shown for PW U.S. Government Income Fund and combined Fund Class A shares
held for one year are higher than for the Acquired Funds' Class A shares held
for one year due to the higher initial sales charge normally imposed on PW
U.S. Government Income Fund Class A shares. However, no initial sales charge
will be charged in connection with Class A shares of PW U.S. Government
Income Fund distributed to Class A shareholders of the Acquired Funds as part
of the Reorganizations.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
PW U.S. Government Income Fund
Class A shares(1) ............ $50 $71 $ 93 $158
Class D shares ............... $15 $48 $ 82 $180
Class C shares ............... $ 7 $22 $ 39 $ 87
MH/KP Intermediate Income Fund
Class A shares(2) ............ $39 $73 $110 $212
Class B shares ............... $23 $71 $122 $262
Class C shares(3) ............ $13 $41 $ 71 $157
MH/KP Government Income Fund
Class A shares(2) ............ $38 $70 $105 $202
Class B shares ............... $19 $58 $100 $216
Class C shares(3) ............ $10 $30 $ 53 $117
Combined Fund
Class A shares(1) ............ $50 $70 $ 92 $155
Class D shares ............... $15 $47 $ 81 $178
Class C shares(3) ............ $ 7 $22 $ 38 $ 85
</TABLE>
(1) Assumes deduction at the time of purchase of the maximum 4% initial
sales charge.
(2) Assumes deduction at the time of purchase of the maximum 2.25% initial
sales charge.
(3) Does not include advisory fees payable by shareholders holding Class C
shares through the INSIGHT Program.
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in this Example of a 5% annual return are required by regulations
of the 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.
13
<PAGE>
FORMS OF ORGANIZATION
MH/KP Government Income Fund is a diversified, open-end management
investment company organized as a Maryland corporation. It commenced
operations on November 22, 1985. It is authorized to issue 500 million shares
of common stock, par value $.01 per share. It does not currently issue share
certificates. MH/KP Government Income Fund is not required to (and does not)
hold shareholder meetings annually.
PW Trust and MH/KP Trust (each a "Trust" and collectively, the "Trusts")
are each an open-end management investment company organized as a
Massachusetts business trust. Each Trust's Declaration of Trust authorizes
its trustees to create separate series and, within each series, separate
classes, of an unlimited number of shares of beneficial interest, par value
$.001 per share. PW U.S. Government Income Fund, a diversified series of PW
Trust, commenced operations on August 31, 1984. MH/KP Intermediate Income
Fund, a series of MH/KP Trust, commenced operations on March 12, 1992. The
Trusts do not issue share certificates. The Trusts are also not required to
(and do not) hold annual meetings of shareholders.
Although shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for its obligations, each Trust's
Declaration of Trust expressly disclaims, and provides indemnification
against, such liability. Accordingly, the risks of a shareholder's incurring
financial loss on account of shareholder liability is limited to
circumstances in which PW U.S. Government Income Fund or MH/KP Intermediate
Income Fund itself would be unable to meet its obligations, a possibility
that Mitchell Hutchins, the investment adviser of each such Fund, believes is
remote and, thus, does not pose a material risk.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of each Fund are set forth below. PW
U.S. Government Income Fund has an investment objective generally similar to
that of each Acquired Fund in that the primary focus of each Fund is on
current income; however, PW U.S. Government Income Fund's investment strategy
may differ from the Acquired Funds' investment strategies in some material
respects. There can be no assurance that any Fund will achieve its investment
objective, and each Fund's net asset value ("NAV") fluctuates based upon
changes in the value of its portfolio securities.
PW U.S. GOVERNMENT INCOME FUND. The investment objective of PW U.S.
Government Income Fund is to provide high current income consistent with the
preservation of capital and liquidity. The Fund seeks to achieve its
objective by investing primarily in U.S. government securities. Under normal
market conditions, the Fund invests at least 65% of its total assets in U.S.
government securities, including mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government mortgage- backed securities"), other obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
repurchase agreements with respect to those securities. Subject to this 65%
investment policy, the Fund may invest up to 35% of its total assets in
mortgage- and asset-backed securities issued by private issuers 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 Mitchell Hutchins to be of comparable
quality. The Fund may invest up to 5% of its total assets in investment grade
debt securities of other issuers, such as corporate debt securities.
Securities are considered to be investment grade if they are rated within the
four highest categories established by S&P or Moody's or have received an
equivalent rating from another NRSRO or, if unrated, are determined by
Mitchell Hutchins to be of comparable quality. As a matter of fundamental
policy, the Fund normally concentrates at least 25% of its total assets in
mortgage- and
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asset-backed securities issued or guaranteed by private issuers or by
agencies or instrumentalities of the U.S. government. PW U.S. Government
Income Fund may also invest in certain zero coupon securities that are U.S.
Treasury notes and bonds that have been stripped of their unmatured interest
coupon receipts or interests in such U.S. Treasury securities or coupons.
MH/KP INTERMEDIATE INCOME FUND. The investment objective of MH/KP
Intermediate Income Fund is maximum total return, consisting primarily of
current income and secondarily of capital appreciation. The Fund seeks to
achieve its investment objective by following a strategy that contemplates
shifts (sometimes frequent) among a wide range of investments. The Fund
invests in the following classes of investments selected by GE Investment
Management Incorporated ("GEIM"), the Fund's sub-adviser, subject to
monitoring by Mitchell Hutchins: securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities; corporate debt
instruments, such as bonds, debentures, notes and non-convertible preferred
stock; mortgage- related securities, including adjustable-rate
mortgage-related securities ("ARMs"), collateralized mortgage obligations
("CMOs") and government stripped mortgage-related securities; asset-backed
and receivable- backed securities; and money market instruments. The Fund
generally invests in intermediate fixed income securities with the result
that, under normal market conditions, the average dollar-weighted maturity of
the Fund's portfolio will be between three and ten years, although the Fund
may hold instruments with remaining maturities of up to 30 years.
The Fund limits its purchases of debt securities to those that are
investment grade and at all times at least 65% of the Fund's total assets are
invested in securities rated in the three highest rating categories by S&P or
Moody's or, if unrated securities, deemed by GEIM to be of comparable
quality. The Fund invests primarily in U.S. debt securities that are traded
over-the-counter or listed on securities exchanges. Although the Fund
reserves freedom of action to invest up to 35% of its total assets in
securities of foreign companies or governments that are listed on foreign
securities exchanges or traded in foreign over-the-counter markets, at
present it limits its investment in these securities to not more than 5% of
its total assets.
MH/KP GOVERNMENT INCOME FUND. The investment objective of MH/KP Government
Income Fund is to provide high current income. The Fund seeks to achieve its
objective primarily from interest income from U.S. government securities,
premiums from put and call options on U.S. government securities and net
gains from closing purchase and sale transactions with respect to options on
U.S. government securities. The Fund may invest in mortgage-related
securities, including CMOs. The Fund may also realize net short-term gains
from sales of portfolio securities. In addition, the Fund may also invest up
to 20% of its assets in high-quality short-term investments, including
repurchase agreements. The Fund expects that under normal market conditions,
not less than 65% of its total assets will be invested in U.S. government
securities.
The Fund invests in U.S. Treasury securities, including bills, notes,
bonds and other debt securities issued by the U.S. Treasury. These
instruments are direct obligations of the U.S. government and differ
primarily in interest rates, maturities, call provisions and the times of
their issuances. The Fund also invests in securities issued by agencies of
the U.S. government or instrumentalities established or sponsored by the U.S.
government. These obligations, including those which are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. The Fund's investments include
mortgage-backed securities of U.S. government issuers or private issuers.
These securities represent an undivided ownership interest in a pool of
mortgage loans. The Fund may purchase U.S. government securities on a
when-issued or delayed-delivery basis.
OTHER POLICIES OF THE FUNDS. All three Funds are authorized to use options
and futures contracts to reduce the overall risk of their investments
(hedge). PW U.S. Government Income Fund and MH/KP
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Government Income Fund also may use options to enhance income and PW U.S.
Government Income Fund may use interest rate futures contracts to enhance
income (subject to a limit of 5% of that Fund's net assets on the aggregate
amount of initial margin and premiums on futures positions that are not for
bona fide hedging purposes). PW U.S. Government Income Fund also may engage
in interest rate protection transactions, including interest rate swaps,
caps, collars and floors, for hedging purposes.
PW U.S. Government Income Fund and MH/KP Intermediate Income Fund may use
dollar rolls, in which the Fund sells mortgage-backed or other securities for
delivery in the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. PW U.S.
Government Income Fund also may use reverse repurchase agreements, in which
the Fund sells securities to a bank or dealer and agrees to repurchase the
securities at a mutually agreed-upon date and price. Dollar roll and reverse
repurchase agreement transactions are considered to be borrowings and so are
subject to each Fund's limitation on borrowing (33 1/3 % of total assets for
PW U.S. Government Income Fund and 20% for MH/KP Intermediate Income Fund).
MH/KP Government Income Fund is authorized to borrow from banks up to 30% of
the value of its net assets for leverage purposes.
Each Fund may engage in short sales "against the box," typically to defer
realization of gains and losses for tax purposes. (A short sale "against the
box" is a short sale pursuant to which the Fund at all times owns at least an
equal amount of the securities sold short or other securities convertible or
exchangeable into the securities without further consideration.) MH/KP
Intermediate Income Fund also may sell securities short when the Fund does
not own those securities, provided that the market value of all securities
sold short (other than "against the box") does not exceed 25% of the value of
the Fund's assets. In addition, MH/KP Intermediate Income Fund may not (1)
sell short the securities of any single issuer listed on a national
securities exchange to the extent of more than 2% of the value of the Fund's
net assets or (2) sell short the securities of any class of an issuer to the
extent of more than 2% of the outstanding securities of the class at the time
of the transaction.
Each Fund may lend its portfolio securities to broker-dealers and other
institutional investors (up to 10% of the total value of its portfolio
securities for PW U.S. Government Income Fund, 30% for MH/KP Government
Income Fund and 33 1/3 % for MH/KP Intermediate Income Fund) and receive
interest on the loan or a flat fee in addition to amounts equivalent to any
dividends, interest or other distributions on the securities loaned. Each
Fund may invest up to 10% of its total assets in illiquid securities.
OPERATIONS OF PW U.S. GOVERNMENT INCOME FUND FOLLOWING THE REORGANIZATIONS
There are differences in the investment objectives and some of the
investment policies of the Funds. However, the PW Trust Board recently
approved a change in PW U.S. Government Income Fund's investment policies to
permit that Fund, like MH/KP Intermediate Income Fund, to invest in corporate
debt. It is not expected, however, that PW U.S. Government Income Fund will
make any further revisions to its investment objective or policies following
the Reorganizations to reflect those of either Acquired Fund. If the
Reorganizations are approved, the Acquired Funds will sell any assets that
are inconsistent with the investment policies of PW U.S. Government Income
Fund prior to the effective time of the Reorganizations, and the proceeds
thereof will be held in temporary investments or reinvested in assets that
qualify to be held by PW U.S. Government Income Fund. The need for the
Acquired Funds to dispose of assets prior to the effective time of the
Reorganizations may result in selling securities at a disadvantageous time
and could result in an Acquired Fund's realizing losses that would not
otherwise have been realized.
After the Reorganizations, the trustees and officers of PW Trust and PW
U.S. Government Income Fund's investment adviser, distributor, exclusive
dealer and other outside agents will continue to serve PW U.S.
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Government Income Fund in their current capacities. In addition, Nirmal Singh
and Craig M. Varrelman, who currently are primarily responsible for the
day-to-day portfolio management of PW U.S. Government Income Fund, will
continue to be primarily responsible for that Fund's portfolio management
following the Reorganizations. Mr. Singh is a vice president of Mitchell
Hutchins responsible for overseeing mortgage-backed securities investments
for MH/KP Government Income Fund. Mr. Varrelman is a first vice president of
Mitchell Hutchins. Prior to joining Mitchell Hutchins in 1993, Mr. Singh was
with Merrill Lynch Asset Management, Inc., where he was a member of the
portfolio management team responsible for managing several diversified funds,
including mortgage-backed securities funds with assets totaling approximately
$8 billion. From 1990 to 1993, Mr. Singh was a senior portfolio manager at
Nomura Mortgage Funds Management Corporation, where he was responsible for
managing approximately $3 billion in mortgage assets. Mr. Varrelman has been
with Mitchell Hutchins as a portfolio manager since 1988 and manages fixed
income portfolios with assets totaling approximately $1.5 billion, with an
emphasis on U.S. government securities.
Effective on or about November 1, 1995, PW U.S. Government Income Fund's
Class C and Class D shares will be renamed Class Y and Class C shares,
respectively. In addition, Class A shares purchased after that date which are
purchased without an initial sales charge due to a sales charge waiver for
purchases of $1 million or more and held less than one year, and Class D (to
be renamed Class C) shares purchased after that date that are held for less
than one year, will be subject to a CDSC of 1% of the lower of (1) the NAV of
the shares at the time of purchase, or (2) the NAV of the shares at the time
of redemption. Class A and Class D shares issued to Acquired Fund
shareholders as part of the Reorganizations will not be subject to that CDSC.
PURCHASES
Shares of PW U.S. Government Income Fund are available through PaineWebber
and its correspondent firms or, for investors who are not clients of
PaineWebber, through PFPC Inc., PW U.S. Government Income Fund's transfer
agent ("Transfer Agent"). The minimum initial investment in PW U.S.
Government Income Fund is $1,000; subsequent purchases must be $100 or more.
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. A "Business
Day" is any day, Monday through Friday, on which the New York Stock Exchange,
Inc. ("NYSE") is open for business.
PW U.S. Government Income Fund's Class A shares normally are sold with a
maximum initial sales charge of 4% of the public offering price although the
PW U.S. Government Income Fund Class A shares that will be distributed to
shareholders of the Acquired Funds as part of the Reorganizations will not be
subject to an initial sales charge. However, following the Reorganizations,
new purchases of Class A shares of PW U.S. Government Income Fund will be
subject to an initial sales charge of up to 4%, and any Class D or Class C
shares of PW U.S. Government Income Fund that are purchased by former
Acquired Fund shareholders will be subject to their respective terms.
For PW U.S. Government Income Fund, sales charge waivers and reduced sales
charge purchase plans are available for Class A shares, and exchange fee
waivers are available for Class A and Class D shares. Class D shares of PW
U.S. Government Income Fund are sold without an initial sales charge or CDSC.
No initial sales charge or CDSC is imposed with respect to Class A shares of
PW U.S. Government Income Fund that are purchased with reinvested dividends
or other distributions on that Class of shares.
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Class C shares of PW U.S. Government Income Fund will be issued to holders
of Class C shares in each Acquired Fund in connection with the
Reorganizations. Effective November 1, 1995, PW U.S. Government Income Fund
Class C shares (which will have been 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 U.S. Government
Income 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 U.S. Government Income Fund Class C shares. PW
U.S. Government Income Fund Class C shares will be sold to eligible investors
at NAV, without any initial sales charge or CDSC, and without any Rule 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 the INSIGHT Program, a total
portfolio asset allocation program sponsored by PaineWebber, and thus become
eligible to purchase PW U.S. Government Income 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 1.50% 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, for qualified plans,
billed separately.
Shares of the Acquired Funds are available through PaineWebber and its
correspondent firms, or for investors who are not clients of PaineWebber, the
Transfer Agent. The minimum initial investment in each Acquired Fund is
$1,000, and the minimum subsequent investment must be $50 or more, except
that for Individual Retirement Accounts, other tax qualified retirement plans
and accounts established pursuant to Uniform Gifts/Transfers to Minors Acts,
the minimum initial investment is $250 and the minimum subsequent investment
is $1.00. The Acquired Funds' Class A shares normally are sold with a maximum
initial sales charge of 2.25% of the public offering price. Class C shares of
each Acquired Fund are sold without an initial sales charge or CDSC, although
the Class C shares are currently available to participants in the INSIGHT
Program, and a maximum annual investment advisory fee of 1.50% of shares held
through the INSIGHT Program is paid by participants in that program.
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' NAV 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
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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 NAV per share
next computed after it is received 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.
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 NAV below the lesser of $500 or the current
minimum for initial purchases (with respect to PW U.S. Government Income Fund
and MH/KP Intermediate Fixed Income Fund), or below $500 (with respect to
MH/KP Government Income Fund). If a 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 NAV per share.
Both Acquired Funds' shares will cease to be offered on October 16, 1995,
so that their shares will no longer be available for purchase or exchange
starting on October 17, 1995 (the next Business Day). Redemptions of an
Acquired 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, Class B and Class D shares of each Fund may be exchanged for
shares of the Corresponding Class of other PaineWebber and MH/KP mutual
funds, and Class A, Class B and Class D shares of each Fund 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 will be
imposed on the shares being disposed of, through an exchange. Exchanges may
be subject to minimum investment and other requirements of the funds into
which exchanges are made. As noted above, the $5.00 service fee currently
imposed on each exchange of shares of PW U.S. Government Income Fund for
shares of any other PaineWebber or MH/KP mutual funds will continue to be
imposed following the Reorganizations. Class C shares of each Fund have no
exchange privileges.
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DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from each Fund's net investment income, if any, are declared
daily and paid monthly. Substantially all of PW U.S. Government Income Fund's
net capital gain (the excess of net long-term capital gain over net
short-term capital loss) and net short-term capital gain, if any, is
distributed annually. MH/KP Intermediate Income Fund's net capital gain, if
any, is distributed annually after the close of the fiscal year in which it
is earned. MH/KP Government Income Fund makes quarterly distributions of net
short-term capital gains; its net capital gain, if any, is distributed
annually. Shareholders of each Fund may reinvest dividends and other
distributions in additional shares of the applicable class on the payment
date at those shares' NAV that day or receive them in cash. Each Fund may
make additional distributions, if necessary, to avoid a 4% excise tax on
certain undistributed ordinary income and capital gain.
On or before the Closing Date, each Acquired Fund will declare as a
distribution substantially all of its net investment income, net capital gain
and net short-term capital gain in order to maintain its tax status as a
regulated investment company. Each Acquired Fund will pay these distributions
to its shareholders only in cash. PW U.S. Government Income Fund also may
declare and distribute as a dividend, on or before the Closing Date,
substantially all of any previously undistributed net investment income.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
PW Trust has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, with respect to both Reorganizations, MH/KP Trust has received an
opinion of Willkie Farr & Gallagher, its counsel, with respect to the
Reorganization involving MH/KP Intermediate Income Fund, and MH/KP Government
Income Fund has received an opinion of Sullivan & Cromwell, its counsel with
respect to the Reorganization involving that Fund, each to the effect that
the proposed 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 any of
the Funds or their shareholders as a result of the Reorganizations. See "The
Proposed Transactions -- Federal Income Tax Considerations," page 27.
COMPARISON OF PRINCIPAL RISK FACTORS
Because PW U.S. Government Income Fund's investment objective and policies
are generally similar to those of the Acquired Funds, in that the primary
focus of each Fund is on current income and each Fund invests a large portion
of its assets in securities of U.S. government issuers, the investment risks
of all three Funds are those typically associated with investing in an income
fund. Certain differences are identified below. See the Prospectus of PW U.S.
Government Income Fund, which accompanies this Proxy Statement, for a more
detailed discussion of the investment risks of PW U.S. Government Income
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 NAV per share, will rise when interest rates
decline. Conversely, when interest rates rise, the value of fixed income
securities, and thus the Fund's NAV per share, may be expected to decline.
TYPES OF DEBT SECURITIES. PW U.S. Government Income Fund and MH/KP
Government Income Fund each invests, under normal market conditions, at least
65% of its total assets in U.S. government securities. In the case of both
Funds, these securities consist of mortgage-backed securities or other
obligations issued or
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guaranteed by the U.S. government its agencies or instrumentalities. PW U.S.
Government Income Fund and MH/KP Government Income Fund each may invest in
mortgage-backed securities of private issuers, and PW U.S. Government Income
Fund also may invest in asset-backed securities of private issuers. In the
case of PW U.S. Government Income Fund, all mortgage- and asset-backed
securities of private issuers must be rated at the time of purchase AAA by
S&P, Aaa by Moody's, have an equivalent rating from another NRSRO or, if
unrated, be determined by Mitchell Hutchins to be of comparable quality. In
the case of MH/KP Government Income Fund, there is no express quality
standard for mortgage-backed securities of private issuers. MH/KP Government
Income Fund also is authorized to invest up to 20% of its assets in high
quality money market instruments, including commercial paper of domestic
corporations and bank obligations. In contrast, PW U.S. Government Income
Fund's investments in money market instruments are limited to obligations of
the U.S. government, its agencies or instrumentalities, and repurchase
agreements secured by such obligations. Unlike MH/KP Government Income Fund,
however, PW U.S. Government Income Fund may invest up to 5% of its total
assets in investment grade corporate obligations.
Unlike the other two Funds, MH/KP Intermediate Income Fund may invest
without limitation in corporate debt instruments, such as bonds, debentures,
notes and non-convertible preferred stock, in addition to investing in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, mortgage-related securities, asset-backed and
receivable-backed securities and money market instruments. MH/KP Intermediate
Income Fund follows a strategy that contemplates shifts (sometimes frequent)
among a wide range of investments. PW U.S. Government Income Fund does not
have comparable freedom to shift its investments from one type of debt
security to another. As a result, PW U.S. Government Income Fund is not
subject to as much risk from mistiming a shift of investment type but also
may not have as much opportunity for the enhanced return that may result from
such shifts.
PW U.S. Government Income Fund also has a fundamental policy of
concentrating, under normal market circumstances, 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.
Neither MH/KP Government Income Fund nor MH/KP Intermediate Income Fund has a
comparable concentration policy. PW U.S. Government Income Fund's
concentration policy has the effect of increasing that Fund's exposure to the
risks related to mortgage- and asset-backed securities and might cause the
Fund's NAV to fluctuate more than would be the case for a fund that is not
required to maintain at least 25% of its total assets in these types of
securities.
QUALITY OF PORTFOLIO SECURITIES. MH/KP Intermediate Income Fund is
permitted to purchase investment grade corporate debt securities, although it
must maintain at all times at least 65% of its total assets in securities
rated in the three highest rating categories by S&P or Moody's or, if
unrated, determined by GEIM to be of comparable quality. (MH/KP Government
Income Fund, because it does not invest in corporate debt securities, is
subject to no such limitation.) This quality standard could permit MH/KP
Intermediate Income Fund to maintain a portfolio that is of lower quality
than that maintained by PW U.S. Government Income Fund, which is permitted to
invest only up to 5% of its total assets in investment grade securities other
than securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities or (with respect to up to 35% of its total assets)
mortgage- and asset-backed securities rated AAA by S&P, Aaa by Moody's,
comparably rated by another NRSRO or, if unrated, determined by Mitchell
Hutchins to be comparable to such rated securities. Securities rated BBB by
S&P or Baa by Moody's are in the lowest investment grade category assigned by
those NRSROs, and Moody's considers such securities to have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity for such securities to make
principal and interest payments than is the case for higher grade debt
securities. MH/KP Intermediate Fixed Income Fund is more subject to these
risks than PW U.S. Government Income Fund; however, because PW
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U.S. Government Income Fund is required to invest almost all its assets in
U.S. government securities and securities in the highest NRSRO rating
category, PW U.S. Government Income Fund may have less opportunity to earn as
high a return for its shareholders.
PORTFOLIO TURNOVER. Each Fund's portfolio is actively managed. The
portfolio turnover rates for PW U.S. Government Income Fund, MH/KP
Intermediate Fixed Income Fund and MH/KP Government Income Fund for the
fiscal years ended November 30, 1994, August 31, 1994 and January 31, 1995,
were 358%, 279% and 256%, respectively. Each Fund's portfolio turnover rate
may vary greatly from year to year and is not a limiting factor when Mitchell
Hutchins (or GEIM, with respect to MH/KP Intermediate Income Fund) deems
portfolio changes appropriate. A higher turnover rate for a particular Fund
(100% or more) will involve correspondingly greater increases in portfolio
transaction costs, which will be borne directly by that Fund, and may
increase the potential for short-term capital gains.
AVERAGE PORTFOLIO MATURITY. MH/KP Intermediate Income Fund, under normal
circumstances, maintains an average dollar-weighted portfolio maturity of
three to ten years, although that Fund may hold instruments with remaining
maturities of up to 30 years. This limitation on average portfolio maturity
may, under some circumstances, adversely affect MH/KP Intermediate Income
Fund's ability to achieve its investment objective of maximum total return
due to the types and remaining maturities of the securities in which that
Fund invests. PW U.S. Government Income Fund and MH/KP Government Income Fund
are not subject to any limitations on average portfolio maturity, which may
be varied by Mitchell Hutchins in response to actual or anticipated changes
in market conditions and interest rates.
FOREIGN SECURITIES. MH/KP Intermediate Income Fund is authorized to invest
up to 35% of its total assets in securities of foreign companies or
governments that are listed on foreign securities exchanges or traded in
foreign over-the-counter markets. At present, however, that Fund does not
anticipate investing more than 5% of its total assets in these types of
securities. To the extent that MH/KP Intermediate Income Fund invests in
foreign securities (whether denominated in U.S. dollars or foreign
currencies), it will be exposed to risks not typically associated with
investments in obligations of the U.S. government and domestic corporations.
Investment in foreign securities involves risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy. Securities of many foreign companies may
be less liquid and their prices more volatile than securities of comparable
U.S. companies. Foreign securities may from time to time be difficult to
liquidate rapidly without significantly depressing the price of those
securities. There may be less information publicly available concerning
foreign issuers of securities held by MH/KP Intermediate Income Fund than is
available concerning U.S. issuers. Also, changes in foreign currency exchange
rates will affect that Fund's NAV, the value of dividends and interest
earned, gains and losses realized on the sale of securities and net
investment income to be distributed to its shareholders by it. In addition,
some foreign currency values may be volatile and there is the possibility of
government controls on currency exchange or governmental intervention in
currency markets. Any of these factors could adversely affect MH/KP
Intermediate Income Fund. Finally, the costs attributable to foreign
investing that MH/KP Intermediate Income Fund must bear frequently are higher
than those attributable to domestic investing. For example, the costs of
maintaining custody of securities in foreign countries exceed custodian costs
related to domestic securities.
MH/KP Government Income Fund may invest up to 10% of its assets in
obligations of foreign branches of U.S. banks. Such investments may be
subject to some of the same risks as foreign securities, including adverse
future political and economic developments, the possible imposition of
withholding taxes on interest income, the seizure or nationalization of
foreign deposits and foreign exchange controls, currency blockage or other
restrictions.
22
<PAGE>
PW U.S. Government Income Fund is not authorized to invest in securities
of foreign issuers or obligations of foreign branches of U.S. banks and,
accordingly, is not subject to the above risks.
HEDGING AND INCOME STRATEGIES USING OPTIONS AND FUTURES CONTRACTS. Each
Fund may use options and futures contracts for hedging purposes, and PW U.S.
Government Income Fund and MH/KP Government Income Fund may use options to
enhance income. PW U.S. Government Income Fund also may use interest rate
futures contracts to enhance income (subject to a limit of 5% of that Fund's
net assets on the amount of aggregate initial margin and premiums on futures
positions that are not for bona fide hedging purposes). There can be no
assurance, however, that any strategy utilizing these instruments will
succeed. If Mitchell Hutchins, or GEIM with respect to MH/KP Intermediate
Income Fund, incorrectly forecasts interest rates, market values or other
economic factors in utilizing a strategy involving options or futures
contracts for a Fund, the Fund would be in a better position had it not used
these instruments at all. The use of these strategies 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 transactions involving options and futures contracts and the
possible inability of a Fund to close out or to liquidate its position.
LENDING PORTFOLIO SECURITIES. Each Fund may lend securities to the extent
permitted under the 1940 Act. If a Fund lends securities, it is subject to
risks, which, like those associated with other extensions of credit, include
possible loss of rights in the collateral should the borrower fail
financially.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. In
entering into such an agreement, a Fund bears a risk of loss in the event the
other party to the transaction defaults on its obligations and the Fund is
delayed or prevented from exercising its rights to dispose of the underlying
securities, including a risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or a part of the income from the
agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Fund may purchase
securities on a when-issued or delayed-delivery basis. Securities purchased
on a when-issued or delayed-delivery basis may expose a Fund to risk because
the securities may experience fluctuations in value prior to their actual
delivery. A Fund will not accrue income with respect to a when-issued or
delayed-delivery security prior to its stated delivery date. Purchasing
securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery
takes place may be higher than that obtained in the transaction itself.
THE PROPOSED TRANSACTIONS
REORGANIZATION PLANS
The terms and conditions under which the proposed transactions may be
consummated are set forth in the Reorganization Plans. Significant provisions
of the Reorganization Plans are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Plans, which are
attached as Appendices A and B to this Proxy Statement.
23
<PAGE>
Each Reorganization Plan contemplates (1) PW U.S. Government Income Fund's
acquiring on the Closing Date the assets of an Acquired Fund in exchange
solely for its shares and its assumption of the Acquired Fund's liabilities
and (2) the constructive distribution of such shares to the shareholders of
the Acquired Fund, by Class.
The assets of each Acquired Fund to be acquired by PW U.S. Government
Income Fund include all cash, cash equivalents, securities, receivables and
other property owned by the Acquired Fund. PW U.S. Government Income Fund
will assume from each Acquired Fund all debts, liabilities, obligations and
duties of such Fund of whatever kind or nature; provided, however, that each
Acquired Fund will use its best efforts, to the extent practicable, to
discharge all of its known debts, liabilities, obligations and duties prior
to the Closing Date. PW U.S. Government Income Fund also will deliver its
shares to each Acquired Fund, which then will be constructively distributed
to the Acquired Funds' shareholders.
The value of an Acquired Fund's assets to be acquired, and the amount of
its liabilities to be assumed, by PW U.S. Government Income Fund and the NAV
of a Class A, a Class D and a Class C share of PW U.S. Government Income 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 the Corporation's Board (with respect to
MH/KP Government Income Fund), PW Trust's Board (with respect to PW U.S.
Government Income Fund) or MH/KP Trust's Board (with respect to MH/KP
Intermediate Income 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 the respective Boards. All
investments quoted in foreign currencies will be valued in U.S. dollars on
the basis of the foreign currency exchange rates prevailing at the time such
valuation is determined by MH/KP Intermediate Income Fund's custodian.
On, or as soon as practicable after, the Closing Date, each Acquired Fund
will distribute to its shareholders of record the shares of PW U.S.
Government Income Fund it received, by Class, so that each Acquired Fund
shareholder will receive a number of full and fractional shares of the
Corresponding Class or Classes of PW U.S. Government Income Fund equal in
value to the NAV of the shareholder's holdings in the Acquired Fund; each
Acquired Fund will be terminated or dissolved, as applicable, as soon as is
practicable thereafter. Such distribution will be accomplished by opening
accounts on the books of PW U.S. Government Income Fund in the names of the
Acquired Funds' shareholders and by transferring thereto the shares of each
Class previously credited to the account of each Acquired Fund on those
books. Fractional shares in each Class of shares of PW U.S. Government Income
Fund will be rounded to the third decimal place.
Accordingly, immediately after each Reorganization, each former
shareholder of the participating Acquired Fund will own shares of the Class
of PW U.S. Government Income Fund that will equal the NAV of that
shareholder's shares of the Corresponding Class of the Acquired Fund
immediately prior to the Reorganization. Moreover, because shares of each
Class of PW U.S. Government Income Fund will be issued at net asset value in
exchange for the net assets applicable to the Corresponding Class of each
Acquired Fund, the aggregate value of shares of each Class of PW U.S.
Government Income Fund so issued will equal the aggregate value of the shares
of the Corresponding Class of the Acquired Fund. The NAV per share of PW U.S.
Government Income Fund will be unchanged by the transactions. Thus, the
Reorganizations will not result in a dilution of any shareholder interest.
24
<PAGE>
Any transfer taxes payable upon issuance of shares of PW U.S. Government
Income Fund in a name other than that of the registered holder of the shares
on the books of an Acquired Fund shall be paid by the person to whom such
shares are to be issued as a condition of such transfer. Any reporting
responsibility of an Acquired Fund will continue to be its responsibility up
to and including the Closing Date and such later date on which such Fund is
terminated or dissolved.
The cost of the Reorganizations, including professional fees and the cost
of soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the cost of any supplementary solicitation,
will be borne by the Funds in proportion to their respective net assets.
Mitchell Hutchins recommended this method of expense allocation to the
Boards. Mitchell Hutchins based its recommendations on its belief that this
method is fair because, for the reasons discussed under "Reasons for the
Reorganizations," the Reorganizations have the potential to benefit all
Funds. The Boards considered this expense allocation method in approving the
Reorganizations and in finding that the Reorganizations are in the best
interests of their respective Fund.
The consummation of each Reorganization is subject to a number of
conditions set forth in its Reorganization Plan, some of which may be waived
by an Acquired Fund. In addition, each Reorganization Plan may be amended in
any mutually agreeable manner, except that no amendment may be made
subsequent to the Meeting that would have a material adverse effect on the
affected Acquired Fund's shareholders' interests.
REASONS FOR THE REORGANIZATIONS
MH/KP Trust's Board, including a majority of its Independent Persons, has
determined that the Reorganization involving MH/KP Intermediate Income Fund
is in the best interests of that Fund, that the terms of the Reorganization
are fair and reasonable and that the interests of that Fund's shareholders
will not be diluted as a result of the Reorganization. MH/KP Government
Income Fund's Board, including a majority of its Independent Persons, has
determined that the Reorganization is in the best interests of that Fund,
that the terms of the Reorganization are fair and reasonable and that the
interests of that Fund's shareholders will not be diluted as a result of the
Reorganization. In addition, PW Trust's Board, including a majority of its
Independent Persons, has determined that each Reorganization is in the best
interests of PW U.S. Government Income Fund, that the terms of the
Reorganizations are fair and reasonable and that the interests of the Fund's
shareholders will not be diluted as a result of the Reorganizations.
In considering the Reorganizations, the Boards made an extensive inquiry
into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the effect of the Reorganizations on expected investment performance
of the Funds;
(3) the effect of the Reorganizations on the expense ratio of PW U.S.
Government Income Fund relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganizations;
(5) the tax consequences of the Reorganizations;
(6)possible alternatives to the Reorganizations, including continuing to
operate on a stand-alone basis or liquidation; and
(7)the potential benefits of the Reorganizations to other persons,
including Mitchell Hutchins and PaineWebber.
25
<PAGE>
The Reorganizations were recommended by Mitchell Hutchins to the Boards at
meetings of the Boards held on July 20, 1995. In considering the proposed
transactions, the Boards were advised by Mitchell Hutchins that combining the
Funds would result in lower expenses borne by the shareholders of each
Acquired Fund as a percentage of net assets. PW U.S. Government Income Fund
has a lower advisory fee than either of the Acquired Funds, and the 12b-1 fee
it pays with respect to its Class A shares is lower than the 12b-1 fee
charged with respect to Class A shares of MH/KP Government Income Fund. The
Boards were further advised that the expenses of PW U.S. Government Income
Fund also would be likely to decrease if, as a result of the Reorganizations,
the combined Fund experienced increased sales of its shares.
In recommending the Reorganizations, Mitchell Hutchins advised the Boards
that the Funds have generally compatible investment objectives and policies,
with the material differences noted, and that PW U.S. Government Income Fund
and MH/KP Government Income Fund have substantially similar investment
strategies. Mitchell Hutchins also noted its belief that there is no reason
to maintain three Funds with similar investment objectives, two of which have
generally similar investment portfolios. MH/KP Trust's Board considered the
fact that MH/KP Intermediate Income Fund (unlike the other two Funds) has the
ability to invest in corporate debt. In order to preserve the tax-free nature
of the Reorganization of MH/KP Intermediate Income Fund with PW U.S.
Government Income Fund, the Board of PW Trust approved a change in the
investment policies of PW U.S. Government Income Fund to permit that Fund to
invest up to 5% of its total assets in corporate debt. The Boards were also
advised by Mitchell Hutchins that, if dispositions of foreign securities held
by MH/KP Intermediate Income Fund should be necessary prior to the
Reorganizations, any capital gains realized from such dispositions would be
offset by that Fund's accumulated capital losses. In approving the proposed
transactions, the Boards took account of the opinion that PW U.S. Government
Income Fund's overall objective of achieving high current income consistent
with the preservation of capital and liquidity by investing primarily in U.S.
government securities remains an appropriate one to offer to investors as
part of an overall investment strategy. The Boards also considered the fact
that the risk profile of PW U.S. Government Income Fund is generally similar
to that of MH/KP Government Income Fund and may represent less risk than that
of MH/KP Intermediate Income Fund.
Mitchell Hutchins also advised the Boards that it did not expect to
receive any immediate direct benefits from the Reorganizations, because the
compensation that would be received by it as investment adviser to the
Combined Fund would be less than the aggregate compensation it receives from
the three Funds currently, assuming no change in aggregate net assets.
However, Mitchell Hutchins noted that it could benefit in the future if the
Combined Fund's assets grow faster than would be the case for the three
separate Funds in the absence of the Reorganizations.
THE BOARDS OF TRUSTEES/DIRECTORS
RECOMMEND THAT THE SHAREHOLDERS OF THE
ACQUIRED FUNDS VOTE "FOR" THE REORGANIZATIONS.
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 U.S. Government Income Fund as one of its series
and have authorized the public offering of four Classes of shares of that
Fund. Each share in a Class represents an equal proportionate interest in PW
U.S. Government Income Fund with each other share in that Class. Shares of PW
U.S. Government Income Fund entitle their holders to one vote per full share
and fractional votes for fractional shares held, except that each Class of
shares has exclusive voting rights on matters pertaining to its plan of
distribution.
26
<PAGE>
On the Closing Date, PW U.S. Government Income 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 Reorganizations. Each Class represents interests in the same assets of
the Fund. The Classes differ as follows: (1) each Class has exclusive voting
rights on matters pertaining to its plan of distribution; (2) Class A shares
are subject to an initial sales charge; (3) Class B shares bear ongoing
distribution fees, are subject to a CDSC upon certain redemptions and
automatically convert into Class A shares approximately six years after
issuance; (4) Class C shares have no initial sales charge or CDSC and bear no
service or distribution fees, but may be purchased only by certain categories
of purchasers; (5) Class D shares are subject to neither an initial sales
charge nor a CDSC, bear ongoing distribution expenses and do not convert into
any other Class; and (6) each Class may bear differing amounts of certain
Class-specific expenses. Each share of each Class of PW U.S. Government
Income Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any dissolution, except that because of the
higher expenses resulting from the distribution fees borne by the Class B and
Class D shares, dividends on those shares are expected to be lower than those
for Class A and Class C shares of the Fund; for the same reason, dividends on
Class B shares are expected to be lower than those on Class D 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 normally
will be no meetings of shareholders for the purpose of electing trustees
unless less 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 the Trust's outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of an Acquired Fund's assets for shares of PW U.S. Government
Income Fund shares and PW U.S. Government Income Fund's assumption of that
Acquired 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,
with respect to both Reorganizations, MH/KP Trust has received an opinion of
Willkie Farr & Gallagher, its counsel, with respect to the Reorganization
involving MH/KP Intermediate Income Fund, and MH/KP Government Income Fund
has received an opinion of Sullivan & Cromwell, its counsel, with respect to
the Reorganization involving that Fund, each substantially to the effect
that:
(i) PW U.S. Government Income Fund's acquisition of the Acquired
Fund's assets in exchange solely for PW U.S. Government Income Fund shares
and PW U.S. Government Income Fund's assumption of the Acquired Fund's
liabilities, followed by the Acquired Fund's distribution of those shares
to its shareholders constructively in exchange for their Acquired Fund
shares, will constitute a "reorganization" within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized to the Acquired Fund on the
transfer to PW U.S. Government Income Fund of its assets in exchange
solely for PW U.S. Government Income Fund shares and PW U.S. Government
Income Fund's assumption of the Acquired Fund's liabilities or on the
subsequent distribution of those shares to the Acquired Fund's
shareholders in constructive exchange for their Acquired Fund shares;
27
<PAGE>
(iii) No gain or loss will be recognized to PW U.S. Government Income
Fund on its receipt of the transferred assets in exchange solely for PW
U.S. Government Income Fund shares and its assumption of the Acquired
Fund's liabilities;
(iv) PW U.S. Government Income Fund's basis for the transferred assets
will be the same as the basis thereof in the Acquired Fund's hands
immediately prior to the Reorganization, and PW U.S. Government Income
Fund's holding period for those assets will include the Acquired Fund's
holding period therefor;
(v) An Acquired Fund shareholder will recognize no gain or loss on the
constructive exchange of all its Acquired Fund shares solely for PW U.S.
Government Income Fund shares pursuant to the Reorganization; and
(vi) An Acquired Fund shareholder's basis for the PW U.S. Government
Income Fund shares to be received by it in the Reorganization will be the
same as the basis for its Acquired Fund shares to be constructively
surrendered in exchange for those PW U.S. Government Income Fund shares,
and its holding period for those PW U.S. Government Income Fund shares
will include its holding period for those PW U.S. Government Income 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 U.S. Government Income Fund after the Reorganizations of
pre-Reorganization capital losses realized by an Acquired Fund could be
subject to limitation in future years under the Code.
Shareholders of an Acquired Fund should consult their tax advisers
regarding the effect, if any, of the Reorganizations in light of their
individual circumstances. Because the foregoing discussion only relates to
the federal income tax consequences of the Reorganizations, those
shareholders also should consult their tax advisers as to state and local tax
consequences, if any, of the Reorganizations.
CAPITALIZATION
The following tables show the capitalization of the Funds as of May 31,
1995 (unaudited) and on a pro forma combined basis (unaudited) as of that
date giving effect to the Reorganizations, and assuming that the Acquired
Funds indicated participate in the Reorganizations.
28
<PAGE>
If only MH/KP Intermediate Income Fund participates in a Reorganization:
<TABLE>
<CAPTION>
PW U.S. MH/KP
GOVERNMENT INTERMEDIATE PRO FORMA
INCOME FUND INCOME FUND COMBINED
-------------- -------------- --------------
<S> <C> <C> <C>
Net Assets
Class A .......... $405,579,008 $18,166,267 $423,745,275
Class B(1) ....... $ 91,313,714 $ 1,955,872 $ 91,313,714
Class C .......... $ 6,244,754 $ 1,119,988 $ 7,364,742
Class D(1) ....... $ 58,050,249 N/A $ 60,006,121
NAV Per Share
Class A .......... $8.95 $12.11 $8.95
Class B(1) ....... $8.95 $12.11 $8.95
Class C .......... $8.94 $12.11 $8.94
Class D(1) ....... $8.94 N/A $8.94
Shares Outstanding
Class A .......... 45,333,801 1,499,522 47,362,763
Class B(1) ....... 10,205,633 161,442 10,205,633
Class C .......... 698,559 92,489 823,843
Class D(1) ....... 6,494,838 N/A 6,713,525
</TABLE>
(1) Class B shares of MH/KP Intermediate Income Fund will be exchanged
for Class D shares of PW U.S. Government Income Fund.
If only MH/KP Government Income Fund participates in a Reorganization:
<TABLE>
<CAPTION>
PW U.S. MH/KP
GOVERNMENT GOVERNMENT PRO FORMA
INCOME FUND INCOME FUND COMBINED
-------------- ------------- --------------
<S> <C> <C> <C>
Net Assets
Class A .......... $405,579,008 $41,266,459 $446,845,467
Class B(1) ....... $ 91,313,714 $ 1,308,185 $ 91,313,714
Class C .......... $ 6,244,754 $ 3,347,882 $ 9,592,636
Class D(1) ....... $ 58,050,249 N/A $ 59,358,434
NAV Per Share
Class A .......... $8.95 $14.17 $8.95
Class B(1) ....... $8.95 $14.17 $8.95
Class C .......... $8.94 $14.17 $8.94
Class D(1). ...... $8.94 N/A $8.94
Shares Outstanding
Class A .......... 45,333,801 2,911,215 49,942,954
Class B(1) ....... 10,205,633 92,329 10,205,633
Class C .......... 698,559 236,332 1,073,148
Class D(1) ....... 6,494,838 N/A 6,641,180
</TABLE>
(1) Class B shares of MH/KP Government Income Fund will be exchanged for
Class D shares of PW U.S. Government Income Fund.
29
<PAGE>
If both Acquired Funds participate in the Reorganizations:
<TABLE>
<CAPTION>
PW U.S. MH/KP MH/KP
GOVERNMENT INTERMEDIATE GOVERNMENT PRO FORMA
INCOME FUND INCOME FUND INCOME FUND COMBINED
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Assets
Class A .......... $405,579,008 $18,166,267 $41,266,459 $465,011,734
Class B(1) ....... $ 91,313,714 $ 1,955,872 $ 1,308,185 $ 91,313,714
Class C .......... $ 6,244,754 $ 1,119,988 $ 3,347,882 $ 10,712,624
Class D(1) ....... $ 58,050,249 N/A N/A $ 61,314,306
NAV Per Share
Class A .......... $8.95 $12.11 $14.17 $8.95
Class B(1) ....... $8.95 $12.11 $14.17 $8.95
Class C .......... $8.94 $12.11 $14.17 $8.94
Class D(1) ....... $8.94 N/A N/A $8.94
Shares Outstanding
Class A .......... 45,333,801 1,499,522 2,911,215 51,971,916
Class B(1) ....... 10,205,633 161,442 92,329 10,205,633
Class C .......... 698,559 92,489 236,332 1,198,432
Class D(1) ....... 6,494,838 N/A N/A 6,859,867
</TABLE>
(1) Class B shares of each Acquired Fund will be exchanged for Class D
shares of PW U.S. Government Income Fund.
ADDITIONAL INFORMATION ABOUT PW U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
The table below provides condensed information concerning income and
capital changes for one Class A, one Class D and one Class C share of PW U.S.
Government Income Fund for the periods shown. (No Class B shares of PW U.S.
Government Income Fund will be issued in connection with the
Reorganizations.) This information is supplemented by the financial
statements and accompanying notes appearing in PW U.S. Government Income
Fund's Annual Report to Shareholders for the fiscal year ended November 30,
1994, and the unaudited financial statements and accompanying notes in PW
U.S. Government Income Fund's Semi-Annual Report to Shareholders for the six
months 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 they relate
to the five years in the period ended November 30, 1994, 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. The
information appearing below for the periods prior to the year ended November
30, 1990 also have been audited by Ernst & Young LLP, whose reports thereon
were unqualified.
30
<PAGE>
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
FOR THE SIX
MONTHS ENDED
MAY 31, 1995 FOR THE YEARS ENDED NOVEMBER 30,
--------------------------------------
(UNAUDITED) 1994 1993 1992 1991
------------------------------------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.50 $ 10.03 $ 9.98 $ 9.97 $ 9.47
------------ -------- -------- -------- --------
Net increase (decrease) from
investment operations:
Net investment income .............. 0.30 0.60 0.67 0.75 0.77
Net realized and unrealized gains
(losses) from investment
transactions ...................... 0.45 (1.53) 0.05 0.01 0.49
------------ -------- -------- -------- --------
Net increase (decrease) in net asset
value resulting from operations .... 0.75 (0.93) 0.72 0.76 1.26
------------ -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income ............................ (0.30) (0.60) (0.67) (0.75) (0.76)
Distributions from net realized
gains from investment
transactions ...................... -- -- -- -- --
Return of capital -- -- -- -- --
------------ -------- -------- -------- --------
Total dividends and distributions
to shareholders ................... (0.30) (0.60) (0.67) (0.75) (0.76)
------------ -------- -------- -------- --------
Net asset value, end of period ...... $ 8.95 $ 8.50 $10.03 $ 9.98 $ 9.97
============ ======== ======== ======== ========
Total investment return (1) .......... 9.08% (9.62)% 7.38% 7.92% 13.80%
============ ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) ................... $405,579 $428,722 $648,923 $703,198 $737,189
Ratio of expenses to average
net assets ........................ 1.01%* 0.95% 0.91% 0.93% 0.87%
Ratio of net investment income to
average net assets .................. 7.02%* 6.48% 6.60% 7.42% 7.94%
Portfolio turnover rate ............ 91.33% 358.07% 83.13% 28.33% 71.22%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.51 $9.28 $9.31 $10.27 $10.18 $9.78
-------- -------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations:
Net investment income .............. 0.76 0.80 0.80 0.81 0.96 1.03
Net realized and unrealized gains
(losses) from investment
transactions ...................... (0.05) 0.23 -- (0.85) 0.32 0.63
-------- -------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset
value resulting from operations .... 0.71 1.03 0.80 (0.04) 1.28 1.66
-------- -------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from net investment
income ............................ (0.75) (0.80) (0.80) (0.85) (0.96) (1.03)
Distributions from net realized
gains from investment
transactions ...................... -- -- -- (0.07) (0.23) (0.23)
Return of capital -- -- (0.03) -- -- --
-------- -------- ---------- ---------- ---------- ----------
Total dividends and distributions
to shareholders ................... (0.75) (0.80) (0.83) (0.92) (1.19) (1.26)
-------- -------- ---------- ---------- ---------- ----------
Net asset value, end of period ...... $ 9.47 $ 9.51 $ 9.28 $ 9.31 $ 10.27 $ 10.18
======== ======== ========== ========== ========== ==========
Total investment return (1) .......... 8.36% 11.66% 8.93% (0.21)% 13.51% 18.23%
======== ======== ========== ========== ========== ==========
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) ................... $795,240 $963,226 $1,279,535 $2,018,208 $3,139,662 $1,646,231
Ratio of expenses to average
net assets ........................ 0.66% 0.72% 0.67% 0.68% 0.66% 0.68%
Ratio of net investment income to
average net assets .................. 8.57% 8.82% 8.83% 8.44% 9.35% 10.04%
Portfolio turnover rate ............ 34.48% 124.54% 302.09% 98.00% 224.38% 255.67%
</TABLE>
---------------
* Annualized.
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, reinvestment of all dividends
and capital gain distributions 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 of Class
A shares would be lower if sales charges were included. Total
investment return information for periods of less than one year has
not been annualized.
31
<PAGE>
<TABLE>
<CAPTION>
CLASS D
--------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEARS JULY 2, 1992+ TO
MAY 31, 1995 ENDED NOVEMBER 30,
NOVEMBER 30,
(UNAUDITED) 1994 1993 1992
------------ -------- -------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.49 $ 10.02 $ 9.98 $10.13
------------ -------- -------- ----------------
Net increase (decrease) from
investment operations:
Net investment income ............. 0.28 0.55 0.62 0.25
Net realized and unrealized
gains (losses) from investment
transactions ..................... 0.45 (1.53) 0.04 (0.15)
------------ -------- -------- ----------------
Net increase (decrease) in net asset
value resulting from operations ... 0.73 (0.98) 0.66 0.10
------------ -------- -------- ----------------
Less Distributions:
Dividends from net investment
income ........................... (0.28) (0.55) (0.62) (0.25)
Distributions from net realized
gains from investment
transactions ..................... -- -- -- --
Return of Capital -- -- -- --
------------ -------- -------- ----------------
Total dividends and
distributions to shareholders ... (0.28) (0.55) (0.62) (0.25)
------------ -------- -------- ----------------
Net asset value, end of period ..... $ 8.94 $ 8.49 $10.02 $ 9.98
============ ======== ======== ================
Total investment return (1) ......... 8.81% (10.08)% 6.75% 0.62%
============ ======== ======== ================
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) .................. $58,050 $68,400 $143,473 $127,026
Ratio of expenses to average net
assets ............................. 1.52%* 1.45% 1.40% 1.44%*
Ratio of net investment income
to average net assets ............ 6.55%* 5.99% 6.06% 6.13%*
Portfolio turnover rate ........... 91.33% 358.07% 83.13% 28.33%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
FOR THE PERIOD
FOR THE SIX SEPTEMBER 11,
MONTHS ENDED FOR THE YEAR ENDED 1991+ TO
MAY 31, 1995 NOVEMBER 30, NOVEMBER 30,
(UNAUDITED) 1994 1993 1992 1991
------------ ------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.49 $10.02 $9.97 $9.97 $9.88
Net increase (decrease) from
investment operations:
Net investment income ............. 0.31 0.62 0.70 0.77 0.18
Net realized and unrealized
gains (losses) from investment
transactions ..................... 0.45 (1.53) 0.05 0.01 0.09
------------ ------- ------ ------ --------------
Net increase (decrease) in net asset
value resulting from operations ... 0.76 (0.91) 0.75 0.78 0.27
------------ ------- ------ ------ --------------
Less Distributions:
Dividends from net investment
income ........................... (0.31) (0.62) (0.70) (0.78) (0.18)
Distributions from net realized
gains from investment
transactions ..................... -- -- -- -- --
Return of Capital -- -- -- -- --
------------ ------- ------ ------ --------------
Total dividends and
distributions to shareholders ... (0.31) (0.62) (0.70) (0.78) (0.18)
------------ ------- ------ ------ --------------
Net asset value, end of period ..... $ 8.94 $ 8.49 $10.02 $ 9.97 $ 9.97
============ ======= ====== ====== ==============
Total investment return (1) ......... 9.26% (9.37)% 7.69% 8.13% 2.37%
============ ======= ====== ====== ==============
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) .................. $6,245 $4,955 $6,232 $5,517 $4,514
Ratio of expenses to average net
assets ............................. 0.69%* 0.65% 0.62% 0.63% 0.72%*
Ratio of net investment income
to average net assets ............ 7.29%* 6.76% 6.87% 7.70% 8.36%*
Portfolio turnover rate ........... 91.33% 358.07% 83.13% 28.33% 71.22%
</TABLE>
---------------
* Annualized.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, reinvestment of all dividends
and capital gain distributions at net asset value on the payable
dates, and a sale at net asset value on the last day of each period
reported. The figures do not include sales charges. Total investment
return information for periods of less than one year has not been
annualized.
32
<PAGE>
MISCELLANEOUS
AVAILABLE INFORMATION
Each Trust and MH/KP Government Income Fund 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. 20549, at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of PW U.S.
Government Income Fund shares will be passed upon by Kirkpatrick & Lockhart
LLP, counsel to PW Trust.
EXPERTS
The financial statements of PW U.S. Government Income Fund, MH/KP
Intermediate Income Fund and MH/KP Government Income Fund, which are included
in each Fund's Statement of Additional Information, incorporated herein by
reference, have been audited by Ernst & Young LLP, independent auditors, with
respect to PW U.S. Government Income Fund, and Deloitte & Touche LLP,
independent auditors, with respect to each Acquired Fund, whose reports
thereon are included in the Funds' Annual Reports to Shareholders for the
fiscal years ended November 30, 1994, August 31, 1994 and January 31, 1995,
respectively. The financial statements audited by Ernst & Young LLP and
Deloitte & Touche LLP are incorporated herein by reference in reliance on
their reports given on their authority as experts in auditing and accounting.
33
<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 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 Intermediate Fixed Income 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). Except as noted in the following
sentence, these classes differ only with respect to the sales charges imposed
on the purchase of shares and the fees ("12b-1 fees") payable by each class
pursuant to plans adopted under Rule 12b-1 promulgated under the Investment
Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund
Shares are offered at net asset value ("NAV") plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of
0.25% of the average daily net assets attributable to the class ("class
assets"); (2) Class B Acquiring Fund Shares are offered at NAV without
imposition of any sales charge and are subject to a contingent deferred sales
charge and 12b-1 service and distribution fees at the respective annual rates
of 0.25% and 0.75% of class assets; (3) Class C Acquiring Fund Shares are and
will be offered to a limited class of offerees (currently only the trustee of
the PaineWebber Savings Investment Plan on behalf of that plan) at NAV
without imposition of any sales charge and are not subject to any 12b-1 fee;
and (4) Class D Acquiring Fund Shares are offered at NAV without imposition
of any sales charge and are subject to 12b-1 service and distribution fees at
the respective annual rates of 0.25% and 0.50% of class assets. These classes
also may differ from one another with respect to the allocation of certain
class-specific expenses other than 12b-1 fees. Only Classes A, 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-1
<PAGE>
(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set
forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class D
Acquiring Fund Shares determined by dividing the Target Value 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.
A-2
<PAGE>
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.
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.
A-3
<PAGE>
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;
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;
A-4
<PAGE>
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 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.
A-5
<PAGE>
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. 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 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)
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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;
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
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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;
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.
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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:
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.
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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
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consummation by PW Trust on behalf of Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required under state
securities laws;
6.4.6. PW Trust is registered with the SEC as an 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;
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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.
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
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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.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or
not they are consummated) will be borne by the Funds proportionately, as
follows: each such expense will be borne by the Funds in proportion to their
respective net assets as of the close of business on the last business day of
the month in which such expense was incurred. Such expenses include: (a)
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.
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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 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.
ATTEST:
PAINEWEBBER MANAGED INVESTMENTS TRUST,
on behalf of its series,
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
By: /s/ Ilene Shore /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
INTERMEDIATE FIXED INCOME FUND
By: /s/ Stephanie Johnson /s/ Scott Griff
--------------------------- -----------------------------------
Assistant Secretary Vice President
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APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND DISSOLUTION ("Agreement") is
made as of August 8, 1995, between PaineWebber Managed Investments Trust, a
Massachusetts business trust ("PW Trust"), on behalf of PaineWebber U.S.
Government Income Fund, a segregated portfolio of assets ("series") thereof
("Acquiring Fund"), and Mitchell Hutchins/Kidder, Peabody Government Income
Fund, Inc., a Maryland corporation ("Target"). (Acquiring Fund and Target are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds," and PW Trust and Target are sometimes referred to herein
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 common stock in Target ("Target Shares") in exchange therefor, all
upon the terms and conditions set forth herein. The foregoing transactions
are referred to herein as the "Reorganization." All agreements,
representations, actions, and obligations described herein made or to be
taken or undertaken by Acquiring Fund are made and shall be taken or
undertaken by PW Trust on its behalf.
Acquiring Fund's shares are divided into four classes, designated Class A,
Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class
B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D
Acquiring Fund Shares," respectively). Except as noted in the following
sentence, these classes differ only with respect to the sales charges imposed
on the purchase of shares and the fees ("12b-1 fees") payable by each class
pursuant to plans adopted under Rule 12b-1 promulgated under the Investment
Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund
Shares are offered at net asset value ("NAV") plus a sales charge, if
applicable, and are subject to a 12b-1 service fee at the annual rate of
0.25% of the average daily net assets attributable to the class ("class
assets"); (2) Class B Acquiring Fund Shares are offered at NAV without
imposition of any sales charge and are subject to a contingent deferred sales
charge and 12b-1 service and distribution fees at the respective annual rates
of 0.25% and 0.75% of class assets; (3) Class C Acquiring Fund Shares are and
will be offered to a limited class of offerees (currently only the trustee of
the PaineWebber Savings Investment Plan on behalf of that plan) at NAV
without imposition of any sales charge and are not subject to any 12b-1 fee;
and (4) Class D Acquiring Fund Shares are offered at NAV without imposition
of any sales charge and are subject to 12b-1 service and distribution fees at
the respective annual rates of 0.25% and 0.50% of class assets. These classes
also may differ from one another with respect to the allocation of certain
class-specific expenses other than 12b-1 fees. Only Classes A, 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, except that Class A Target Shares and Class A Acquiring Fund
Shares are subject to different maximum initial sales charges and Class A
Target Shares are subject to a 12b-1 distribution fee at the annual rate of
0.25% of class assets.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND DISSOLUTION 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--
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(a) to issue and deliver to Target the number of full and fractional
(i) Class A Acquiring Fund Shares determined by dividing the net value of
Target (computed as set forth in paragraph 2.1) ("Target Value")
attributable to the Class A Target Shares by the NAV (computed as set
forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class D
Acquiring Fund Shares determined by dividing the Target Value 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 dissolved and any
further actions shall be taken in connection therewith as required by
applicable law.
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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
dissolved.
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.
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. Target 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. Target shall deliver to PW Trust at the Closing a list of the names
and addresses of the Shareholders and the number (by class) of outstanding
Target Shares owned by each Shareholder, all as of the Effective Time,
certified by the Secretary or Assistant Secretary of Target. The Transfer
Agent shall deliver at the Closing a certificate as to the opening on
Acquiring Fund's share transfer books of accounts in the Shareholders' names.
PW Trust shall issue and deliver a confirmation to Target evidencing the
Acquiring Fund Shares (by class) to be credited to Target at the Effective
Time or provide evidence satisfactory to Target that such Acquiring Fund
Shares have been credited to Target's account on Acquiring Fund's books. At
the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other documents as the
other party or its counsel may reasonably request.
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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. Target is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and a copy of
its Articles of Incorporation is on file with the Department of
Assessments and Taxation of Maryland;
4.1.2. Target is duly registered as an open-end management investment
company under the 1940 Act, and such registration will be in full force
and effect at the Effective Time;
4.1.3. 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;
4.1.4. Target's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act
and the rules and regulations 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;
4.1.5. 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, Maryland law or any provision of
Target's Articles of Incorporation or By-Laws or of any agreement,
instrument, lease, or other undertaking to which Target is a party or by
which it is bound or result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Target is a party or by which it is bound, except as previously
disclosed in writing to and accepted by PW Trust;
4.1.6. Except as disclosed in writing to and accepted by PW Trust, all
material contracts and other commitments of or applicable to Target (other
than this Agreement and investment contracts, including options, futures,
and forward contracts) will be terminated, or provision for discharge of
any 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;
4.1.7. 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 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;
4.1.8. The execution, delivery, and performance of this Agreement has
been duly authorized as of the date hereof by all necessary action on the
part of Target's board of directors, which has made the
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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;
4.1.9. At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Target's
shareholders;
4.1.10. No governmental consents, approvals, 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 Target, except for (a) the filing with the SEC of a
registration statement by PW Trust on Form N-14 relating to the Acquiring
Fund Shares issuable hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a prospectus/proxy statement
("Proxy Statement") (b) receipt of the exemptive relief referenced in
subparagraph 4.1.8, and (c) such consents, approvals, authorizations, and
filings as have been made or received or as may be required subsequent to
the Effective Time;
4.1.11. On the effective date of the Registration 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;
4.1.12. The Liabilities were incurred by Target in the ordinary course
of its business;
4.1.13. Target qualified for treatment as a regulated investment
company ("RIC") under Subchapter M of the Code for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; and it
has no earnings and 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;
4.1.14. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
4.1.15. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government 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
4.1.16. Target will be dissolved as soon as reasonably practicable
after the Reorganization, but in all events within six months after the
Effective Time.
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4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW 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;
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. 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 material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Massachusetts law
or any provision of PW Trust's Declaration of Trust or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by Target;
4.2.8. Except as otherwise disclosed in writing to and accepted by
Target, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to
Acquiring Fund's knowledge) threatened against PW Trust with respect to
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
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)
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<PAGE>
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 Target for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of
the Code; it qualified for treatment as a RIC under Subchapter M of the
Code for each past taxable year since it commenced operations and will
continue to meet all the requirements for such qualification for its
current 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;
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
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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 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;
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.
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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:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by Target's board of directors and shall have
been approved by Target's shareholders in accordance with applicable law.
B-9
<PAGE>
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. Target shall have received an opinion of Kirkpatrick & Lockhart LLP,
counsel to PW Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of PW Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all of its properties and assets and, to the knowledge of such
counsel, to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by PW Trust on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by Target, is a
valid and legally binding 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
Target;
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
B-10
<PAGE>
consummation by PW Trust on behalf of Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act, and the 1940 Act and such as may be required under state
securities laws;
6.4.6. PW Trust is registered with the SEC as an 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 Target.
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 Sullivan & Cromwell,
counsel to Target, substantially to the effect that:
6.5.1. Target is a corporation duly organized and validly existing
under the laws of the State of Maryland with power under its Articles of
Incorporation to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by 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 Target 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 Target's Articles of Incorporation or By-Laws or any provision of
any agreement (known to such counsel, without any independent inquiry or
investigation) to which Target (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 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
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;
B-11
<PAGE>
6.5.5. Target 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 Target or any of its properties or assets and (b) Target
is not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and adversely
affects its business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by PW Trust.
In rendering such opinion, such counsel may (i) rely, as to matters governed
by the laws of the State of Maryland, on an opinion of competent Maryland
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 Target shall have received an opinion of Sullivan & Cromwell, 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.
B-12
<PAGE>
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 its board of directors, such waiver will not have a material
adverse effect on the Shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
7.2. Except as otherwise provided herein, all expenses incurred in
connection with the transactions contemplated by this Agreement (whether or
not they are consummated) will be borne by the Funds proportionately, as
follows: each such expense will be borne by the Funds in proportion to their
respective net assets as of the close of business on the last business day of
the month in which such expense was incurred. Such expenses include: (a)
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/directors or officers of either Investment Company, to the other
Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's 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.
B-13
<PAGE>
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 PW Trust is a Business Trust. Notice is
hereby given that this instrument is executed on behalf of PW Trust's
trustees solely in their capacity as trustees, and not individually, and that
PW Trust's obligations under this instrument are not binding on or
enforceable against any of its trustees, officers, or shareholders, but are
only binding on and enforceable against Acquiring Fund's assets and property.
Target agrees that, in asserting any rights or claims under this Agreement,
it shall look only to Acquiring Fund's assets and property in settlement of
such rights or claims and not to such trustees or shareholders.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST:
PAINEWEBBER MANAGED INVESTMENTS TRUST,
on behalf of its series,
PAINEWEBBER U.S. GOVERNMENT INCOME FUND
By:
By: /s/ Ilene Shore /s/ Dianne E. O'Donnell
--------------------------- ---------------------------------
Assistant Secretary Vice President
ATTEST:
MITCHELL HUTCHINS/KIDDER, PEABODY
GOVERNMENT INCOME FUND, INC.
By: /s/ Stephanie Johnson /s/ Scott Griff
--------------------------- -----------------------------------
Assistant Secretary Vice President
14
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
-------------------------------------------------------------------------
#################################################################
Mitchell Hutchins/Kidder, Peabody Intermediate Fixed Income Fund
a series of Mitchell Hutchins/Kidder, Peabody Investment Trust
Special Meeting of Shareholders - October 19, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Ilene Shore
and each of them (with power of substitution) to vote for the undersigned all
shares of beneficial interest of the undersigned at the aforesaid meeting and
any adjournment thereof with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. Unless indicated to the contrary, this proxy shall be deemed to
grant authority to vote "FOR" all proposals. This proxy is solicited on behalf
of the Board of Trustees of Mitchell Hutchins/Kidder, Peabody Investment Trust.
This proxy will not be voted unless it is dated and signed
exactly as instructed.
If shares are held jointly, each Shareholder named should
sign. If only one signs, his or her signature will be binding.
If the Shareholder is a corporation, the President or a Vice
President should sign in his or her own name, indicating title. If
the Shareholder is a partnership, a partner should sign his or
her own name, indicating that he or she is a "Partner".
Sign exactly as name appears hereon.
Dated: ______________________, 1995
-----------------------------
Signature of Shareholder
-----------------------------
Signature of Co-Owner
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
-------------------------------------------------------------------------
#################################################################
Please indicate your vote by filling 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 U.S. Government Income Fund and Mitchell Hutchins/Kidder, Peabody
Intermediate Fixed Income Fund. For Against Abstain
[ ] [ ] [ ]
Please sign and date 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.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
-------------------------------------------------------------------------
#################################################################
Mitchell Hutchins/Kidder, Peabody Government Income Fund, Inc.
Special Meeting of Shareholders - October 19, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Ilene Shore
and each of them (with power of substitution) to vote for the undersigned all
shares of common stock of the undersigned at the aforesaid meeting and any
adjournment thereof with all the power the undersigned would have if personally
present. The shares represented by this proxy will be voted as instructed.
Unless indicated to the contrary, this proxy shall be deemed to grant authority
to vote "FOR" all proposals. This proxy is solicited on behalf of the Board of
Directors of Mitchell Hutchins/Kidder, Peabody Government Income Fund, Inc.
This proxy will not be voted unless it is dated and signed
exactly as instructed.
If shares are held jointly, each Shareholder named should
sign. If only one signs, his or her signature will be binding.
If the Shareholder is a corporation, the President or a Vice
President should sign in his or her own name, indicating title. If
the Shareholder is a partnership, a partner should sign his or
her own name, indicating that he or she is a "Partner".
Sign exactly as name appears hereon.
Dated: ______________________, 1995
-----------------------------
Signature of Shareholder
-----------------------------
Signature of Co-Owner
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
-------------------------------------------------------------------------
#################################################################
Please indicate your vote by filling in the appropriate box below.
The Board of Directors recommends a vote "FOR"
1. Approval of an Agreement and Plan of Reorganization and Dissolution between
PaineWebber U.S. Government Income Fund and Mitchell Hutchins/Kidder, Peabody
Government Income Fund, Inc. For Against Abstain
[ ] [ ] [ ]
Please sign and date 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.