As filed with the Securities and Exchange Commission on August 29, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.___ [ ] Post-Effective Amendment No.___
PAINEWEBBER MUTUAL FUND TRUST
(Exact Name of Registrant as Specified in Charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of Principal Executive Offices)
(212) 713-2000
(Registrant's Area Code and Telephone Number)
GREGORY K. TODD, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and Address of Agent for Service)
Copies to:
ELINOR W. GAMMON, ESQ.
SUSAN M. CASEY, ESQ.
Kirkpatrick & Lockhart LLP
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective.
The Registrant has filed a declaration registering an indefinite
amount of securities pursuant to Rule 24f-2 under the Investment Company
Act of 1940, as amended. Accordingly, no filing fee is payable herewith.
The Registrant filed on April 26, 1995, the notice required by Rule 24f-2
for its fiscal year ended February 28, 1995.
It is proposed that this filing will become effective on September 28,
1995 pursuant to Rule 488.
<PAGE>
PAINEWEBBER MUTUAL FUND TRUST
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER MUTUAL FUND TRUST
Form N-14 Cross Reference Sheet
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
--------------- -----------------
1. Beginning of Cover Page
Registration Statement
and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Synopsis Information Synopsis; Comparison of
and Risk Factors Principal Risk Factors
4. Information About the Synopsis; The Proposed
Transaction Transaction
5. Information About the Synopsis; Comparison of
Registrant Principal Risk Factors;
See Also the Prospectus
--- ----
of PaineWebber National
Tax-Free Income Fund,
dated July 1, 1995,
previously filed on
EDGAR, Accession Number
0000889812-95-000354.
6. Information About the Synopsis; Comparison of
Company Being Acquired Principal Risk Factors;
See Also the Prospectus
--- ----
of Mitchell
Hutchins/Kidder, Peabody
Municipal Bond Fund,
dated October 28, 1994,
as supplemented August
21, 1995, both
previously filed on
EDGAR, Accession Number
0000950117-95-000300.
7. Voting Information Voting Information
8. Interest of Certain Not Applicable
Persons and Experts
9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information Statement of Additional
About the Registrant Information of
PaineWebber National
Tax-Free Income Fund,
dated July 1, 1995,
previously filed on
EDGAR, Accession Number
0000889812-95-000354.
<PAGE>
PAINEWEBBER MUTUAL FUND TRUST
Form N-14 Cross Reference Sheet
13. Additional Information Statement of Additional
About the Company Being Information of Mitchell
Acquired Hutchins/Kidder, Peabody
Municipal Bond Fund,
dated October 28, 1994,
previously filed on
EDGAR, Accession Number
0000950117-95-000300.
14. Financial Statements Annual Report of
PaineWebber National
Tax-Free Income Fund for
Fiscal Year Ended
February 28, 1995,
previously filed on
EDGAR, Accession Number
0000950130-95-000893 and
Annual Report of
Mitchell
Hutchins/Kidder, Peabody
Municipal Bond Fund for
Fiscal Year Ended June
30, 1995, previously
filed on EDGAR,
Accession Number
0000912057-95-007073.
<PAGE>
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY MUNICIPAL BOND FUND
(a series of Mitchell Hutchins/Kidder, Peabody Investment Trust II)
September ___, 1995
Dear Shareholder:
The attached proxy materials describe a proposal that Mitchell
Hutchins/Kidder, Peabody Municipal Bond Fund ("MH/KP Fund") reorganize and
become part of PaineWebber National Tax-Free Income Fund ("PW Fund"). If
the proposal is approved and implemented, each shareholder of MH/KP Fund
automatically will become a shareholder of PW Fund.
Your board of trustees recommends a vote FOR the reorganization
proposal. The board believes that combining the two Funds will benefit
MH/KP Fund's shareholders by providing them with a portfolio that has an
investment objective similar to the investment objective of MH/KP Fund and
that, before taking into account voluntary fee waivers and expense
reimbursements, will have lower operating expenses as a percentage of net
assets. The attached proxy materials provide more information about the
proposed reorganization and the two Funds.
Your vote is important no matter how many shares you own. Voting your
--------------------------------------------------------
shares early will permit MH/KP Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today.
Very truly yours,
MARGO N. ALEXANDER
President, Mitchell Hutchins/
Kidder, Peabody Municipal Bond Fund
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
MUNICIPAL BOND FUND
(a series of Mitchell Hutchins/Kidder, Peabody Investment Trust II)
------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
October 27, 1995
------------------
To The Shareholders:
A special meeting of shareholders ("Meeting") of Mitchell
Hutchins/Kidder, Peabody Municipal Bond Fund ("MH/KP Fund"), a series of
Mitchell Hutchins/Kidder, Peabody Investment Trust II, will be held on
October 27, 1995 at 10:00 a.m., Eastern time, at 1285 Avenue of the
Americas, 38th Floor, New York, New York 10019, for the following purposes:
(1) To consider an Agreement and Plan of Reorganization and
Termination under which PaineWebber National Tax-Free Income Fund ("PW
Fund"), a series of PaineWebber Mutual Fund Trust, would acquire the assets
of MH/KP Fund in exchange solely for shares of beneficial interest in PW
Fund and the assumption by PW Fund of MH/KP Fund's liabilities, followed by
the distribution of those shares to the shareholders of MH/KP Fund, all as
described in the accompanying Prospectus/Proxy Statement; and
(2) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
You are entitled to vote at the Meeting and any adjournment thereof if
you owned shares of MH/KP Fund at the close of business on September 20,
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 ___, 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 NATIONAL TAX-FREE INCOME FUND
(a series of PaineWebber Mutual Fund Trust)
MITCHELL HUTCHINS/KIDDER, PEABODY
MUNICIPAL BOND FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust II)
1285 Avenue of the Americas
New York, New York 10019
(Toll Free) 1-800-647-1568
PROSPECTUS/PROXY STATEMENT
September __, 1995
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund
("MH/KP Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment
Trust II ("MH/KP Trust"), in connection with the solicitation of proxies by
MH/KP Trust's board of trustees for use at a special meeting of MH/KP Fund
shareholders to be held on October 27, 1995, at 10:00 a.m., Eastern time,
and at any adjournment thereof ("Meeting").
As more fully described in this Proxy Statement, the primary purpose
of the Meeting is to vote on a proposed reorganization ("Reorganization").
Under the Reorganization, PaineWebber National Tax-Free Income Fund ("PW
Fund"), a series of PaineWebber Mutual Fund Trust ("PW Trust"), would
acquire the assets of MH/KP Fund, in exchange solely for shares of
beneficial interest in PW Fund and the assumption by PW Fund of MH/KP
Fund's liabilities. Those PW Fund shares then would be distributed to the
shareholders of MH/KP Fund, by class, so that each shareholder of MH/KP
Fund would receive a number of full and fractional shares of the applicable
class of PW Fund having an aggregate value that, on the effective date of
the Reorganization, is equal to the aggregate net asset value of the
shareholder's shares of the corresponding class in MH/KP Fund. As soon as
practicable following the distribution, MH/KP Fund will be terminated.
PW Fund is a diversified series of PW Trust, which is an open-end
management investment company. PW Fund's investment objective is high
current income exempt from federal income tax, consistent with the
preservation of capital and liquidity within the Fund's quality standards.
PW Fund seeks to achieve its investment objective by investing primarily in
investment grade debt obligations of varying maturities issued by states,
municipalities and public authorities.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the Reorganization and PW Fund
that a shareholder should know before voting. This Proxy Statement is
accompanied by the Prospectus of PW Fund dated July 1, 1995, and by its
Annual Report to Shareholders for the fiscal year ended February 28, 1995,
which are incorporated by reference into this Proxy Statement. A Statement
of Additional Information of PW Fund, dated September___, 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 reference. A Prospectus of MH/KP Fund dated October
28, 1994 (as supplemented August 21, 1995), a Statement of Additional
Information of MH/KP Fund dated October 28, 1994, and a Statement of
Additional Information of PW Fund dated July 1, 1995 have been filed with
the SEC and also are incorporated herein by this reference. Copies of
these documents, as well as MH/KP Fund's Annual Report to Shareholders, may
be obtained without charge and further inquiries may be made by contacting
your PaineWebber Incorporated ("PaineWebber") investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMPARISON OF PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . . . . 12
THE PROPOSED TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . 14
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION . . . A-1
APPENDIX B - BENEFICIAL OWNERSHIP OF SHARES OF PW FUND AND MH/KP FUND . B-1
<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY
MUNICIPAL BOND FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust II)
------------------------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
To Be Held On
October 27, 1995
------------------------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund
("MH/KP Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment
Trust II ("MH/KP Trust"), in connection with the solicitation of proxies by
its board of trustees for use at a special meeting of shareholders to be
held on October 27, 1995, and at any adjournment thereof ("Meeting"). This
Proxy Statement will first be mailed to shareholders on or about September
___, 1995.
At least thirty percent of MH/KP Fund's outstanding shares on
September 20, 1995, represented in person or by proxy, must be present for
the transaction of business at the Meeting. If a quorum is not present at
the Meeting or a quorum is present but sufficient votes to approve the
proposal are not received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of
those shares represented at the Meeting in person or by proxy. The persons
named as proxies will vote those proxies that they are entitled to vote FOR
any such proposal in favor of such an adjournment and will vote those
proxies required to be voted AGAINST any such proposal against such
adjournment. A shareholder vote may be taken on one or more of the
proposals in this Proxy Statement prior to any such adjournment if
sufficient votes have been received and it is otherwise appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial
owners or other persons entitled to vote and for which the broker does not
have discretionary voting authority. Abstentions and broker non-votes will
be counted as shares present for purposes of determining whether a quorum
is present but will not be voted for or against any adjournment or
proposal. Accordingly, abstentions and broker non-votes effectively will
be a vote against adjournment or against any proposal where the required
vote is a percentage of the shares present or outstanding. Abstentions and
broker non-votes will not be counted, however, as votes cast for purposes
of determining whether sufficient votes have been received to approve a
proposal.
The individuals named as proxies on the enclosed proxy card will vote
in accordance with your direction as indicated thereon if your proxy card
is received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of the
Agreement and Plan of Reorganization and Termination, dated as of August
24, 1995 ("Reorganization Plan"), which is attached to this Proxy Statement
as Appendix A. Under the Reorganization Plan, PaineWebber National Tax-
Free Income Fund ("PW Fund"), a series of PaineWebber Mutual Fund Trust
("PW Trust"), would acquire the assets of MH/KP Fund in exchange solely for
shares of beneficial interest in PW Fund and the assumption by PW Fund of
MH/KP Fund's liabilities; those PW Fund shares then would be distributed to
MH/KP Fund's shareholders. (These transactions are collectively referred
to herein as the "Reorganization," and MH/KP Fund and PW Fund may be
referred to herein individually as a "Fund" or, collectively, as "Funds".)
After completion of the Reorganization, MH/KP Fund will be terminated.
<PAGE>
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 prior to the Meeting and must
indicate your name and account number. If you attend the Meeting in person
you may, if you wish, vote by ballot at the Meeting, thereby canceling any
proxy previously given.
As of September 20, 1995 ("Record Date"), MH/KP Fund had _______
shares of beneficial interest outstanding. The solicitation of proxies,
the cost of which will be borne by 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 MH/KP Fund, who will
be paid fees and expenses of up to approximately $2,500 for soliciting
services.
[Except as set forth in Appendix B, management does not know of any
single shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934) who owns beneficially more than 5% of the
outstanding shares of either Fund. Trustees and officers of PW Trust own
in the aggregate less than 1% of the shares of PW Fund.]
Approval of the Reorganization Plan requires the affirmative vote of a
majority of the outstanding voting securities of MH/KP Fund. As defined
in the Investment Company Act of 1940 ("1940 Act"), "majority of the
outstanding voting securities" means the lesser of (1) 67% of MH/KP Fund's
shares present at a meeting of shareholders if the owners of more than 50%
of MH/KP Fund's shares then outstanding are present in person or by proxy
or (2) more than 50% of MH/KP Fund's outstanding shares. Each outstanding
full share of MH/KP Fund is entitled to one vote, and each outstanding
fractional share thereof is entitled to a proportionate fractional share of
one vote. If the Reorganization Plan is not approved by the requisite vote
of shareholders of MH/KP Fund, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of
proxies. Although the shareholders of MH/KP Fund may exchange or redeem
out of the Fund, they do not have the appraisal rights which may be
accorded to shareholders of corporations that propose similar
reorganizations under the laws of some states.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, the Prospectuses for the Funds (which are
incorporated herein by this reference), and the Reorganization Plan.
Shareholders should read the entire Proxy Statement and the Prospectus of
PW Fund carefully. As discussed more fully below, MH/KP Trust's board of
trustees believes that the Reorganization will benefit MH/KP Fund's
shareholders. PW Fund has an investment objective similar to the
investment objective of MH/KP Fund, although its investment strategy may
differ from the investment strategy of MH/KP Fund in some respects. It is
expected that, following the Reorganization, the total operating expenses
for the combined Fund, before taking into account voluntary fee waivers and
expense reimbursements, will be lower as a percentage of net assets than
the total operating expenses experienced by MH/KP Fund.
The Reorganization
The Reorganization Plan was considered and approved by MH/KP Trust's
board of trustees at a meeting held on July 20, 1995. The Reorganization
Plan provides for the acquisition of the assets of MH/KP Fund by PW Fund,
in exchange solely for shares of PW Fund and the assumption by PW Fund of
the liabilities of MH/KP Fund. MH/KP Fund will then distribute those
shares to its shareholders, by class, so that each MH/KP Fund shareholder
will receive the number of full and fractional shares of the class of PW
Fund that corresponds most closely in terms
2
<PAGE>
of fees and other characteristics ("Corresponding Class") and that equals
in value such shareholder's holdings in MH/KP Fund as of the Closing Date
(defined below). MH/KP Fund then will be terminated as soon as practicable
thereafter.
The exchange of MH/KP Fund's assets for PW Fund shares and PW Fund's
assumption of its liabilities will occur as of 4:00 pm., Eastern time, on
November 3, 1995 or such later date as the conditions to the closing are
satisfied ("Closing Date").
PW Fund currently offers for sale three classes of shares (each a
"Class" and collectively, "Classes"), designated as Class A, Class B and
Class D shares. In connection with the Reorganization, PW Fund has
recently authorized and will issue Class C shares. Class B shares of PW
Fund will not be issued in connection with the Reorganization. MH/KP Fund
has three Classes of shares, designated as Class A, Class B and Class C
shares. In the Reorganization, shareholders of MH/KP Fund Class A, Class B
and Class C shares will receive Class A, Class D and Class C shares of PW
Fund, respectively. The following table shows which Class of shares of PW
Fund will be received by shareholders of each Class of shares of MH/KP Fund:
MH/KP Fund PW Fund
---------- -------
Class A Class A
Class B Class D
Class C Class C
For the reasons set forth below under "The Proposed Transaction --
Reasons for the Reorganization," MH/KP Trust's board of trustees, including
the trustees who are not "interested persons" of MH/KP Trust or PW Trust as
that term is defined in the 1940 Act ("Independent Trustees"), has
determined that the Reorganization is in the best interests of MH/KP Fund,
that the terms of the Reorganization are fair and reasonable and that the
interests of MH/KP Fund's shareholders will not be diluted as a result of
the Reorganization. Accordingly, MH/KP Trust's board of trustees
recommends approval of the transaction. In addition, PW Trust's board of
trustees, including its Independent Trustees, has determined that the
Reorganization is in the best interests of PW Fund, that the terms of the
Reorganization are fair and reasonable, and that the interests of PW Fund's
shareholders will not be diluted as a result of the Reorganization.
Comparative Fee Table
Certain fees and expenses that MH/KP Fund's shareholders pay, directly
or indirectly, are different from those incurred by PW Fund shareholders.
MH/KP Fund's Class A shares are sold with a maximum initial sales charge of
2.25% of the public offering price. PW Fund's Class A shares normally are
sold with a maximum sales charge of 4% of the public offering price. The
Class A shares of PW Fund that will be distributed to shareholders of MH/KP
Fund as part of the Reorganization, however, will not be subject to an
initial sales charge. Following the Reorganization, new purchases of Class
A shares of PW Fund will be subject to an initial sales charge of up to 4%.
Shareholders of MH/KP Fund are not charged a fee for exchanges of the
Fund's shares for shares of a Corresponding Class of other PaineWebber or
Mitchell Hutchins/Kidder, Peabody mutual funds. PW Fund shareholders pay a
$5.00 fee for each exchange, which fee will continue to be imposed on
exchanges from PW Fund after the Reorganization.
Mitchell Hutchins is currently paid a management fee at the annual
rate of 0.60% of the average daily net assets of MH/KP Fund. Since
February 13, 1995, Mitchell Hutchins has been voluntarily waiving this
management fee. PW Fund pays Mitchell Hutchins an annual investment
advisory and administration fee, computed daily and paid monthly, at a rate
of 0.50% of its average daily net assets.
The Class A and Class B shares of MH/KP Fund pay 12b-1 fees that are
identical to those paid by the Class A and Class D shares of PW Fund,
respectively. No 12b-1 fees are paid by the Class C shareholders of either
Fund, but persons who hold their Class C shares through the INSIGHT
Investment Advisory Program(SM)
3
<PAGE>
("INSIGHT Program") must pay to PaineWebber Incorporated ("PaineWebber") a
maximum annual investment advisory fee of 1.50% of the assets held through
the INSIGHT Program.
The following tables show (i) shareholder transaction expenses
currently incurred by Class A, Class B and Class C shares of MH/KP Fund,
and shareholder transaction expenses that each Class issued in the
Reorganization will incur after giving effect to the Reorganization; (ii)
the current fees and expenses incurred by the Class A, Class B and Class C
shares of MH/KP Fund for the twelve months ended February 28, 1995
(unaudited) and the Class A and Class D shares of PW Fund for the fiscal
year ended February 28, 1995, respectively; and (iii) pro forma fees for PW
Fund's Class A, Class D and Class C shares after giving effect to the
Reorganization.
Shareholder Transaction Expenses
MH/KP Fund Combined Fund
---------- -------------
Class Class Class Class Class Class
A B(1) C A D C
Maximum sales charge (as a
percentage of public offering
price) 2.25% NONE NONE 4.00% NONE NONE
Exchange fee NONE NONE NONE $5.00 $5.00 N/A*
Maximum contingent deferred
sales charge (as a percentage
of redemption proceeds) NONE NONE NONE NONE NONE NONE
* Class C shares will not be exchangeable for shares of other
PaineWebber or Mitchell Hutchins/Kidder, Peabody mutual funds.
Annual Fund Operating Expenses
(as a percentage of average net assets)
MH/KP Fund PW Fund Combined Fund
---------- ------- -------------
(Pro Forma)
-----------
Class Class Class Class Class Class Class Class
A B(1) C(3) A D A D C(3)(4)
Manage- 0.60% 0.60% 0.60% 0.50% 0.50% 0.50% 0.50% 0.50%
ment Fees
12b-1 0.25% 0.75% 0.00% 0.25% 0.75% 0.25% 0.75% 0.00%
Fees(2)
Other
Expenses 1.02% 1.02% 1.02% 0.13% 0.15% 0.13% 0.14% 0.13%
Total Fund
Operating
Expenses(5) 1.87% 2.37% 1.62% 0.88% 1.40% 0.88% 1.39% 0.63%
__________________________________
(1) Class B shares of MH/KP Fund will be exchanged for Class D shares of
PW Fund.
(2) 12b-1 fees have two components, as follows:
4
<PAGE>
Both Funds MH/KP Fund PW Fund
Class A Class B Class D
------- ------- -------
12b-1 service fee 0.25% 0.25% 0.25%
12b-1 distribution fee 0.00% 0.50% 0.50%
(3) Maximum annual 1.50% advisory fee is payable by shareholders holding
Class C shares through the INSIGHT Program.
(4) PW Fund has recently authorized and will issue new Class C shares,
which will be exchanged for Class C shares of MH/KP Fund.
(5) The ratios of total operating expenses as a percentage of average net
assets were 2.15%, 2.65% and 1.90% for Class A, Class B and Class C,
respectively, of MH/KP Fund for the fiscal year ended June 30, 1995.
During the fiscal year ended June 30, 1995, and the twelve months ended
February 28, 1995, certain fees and expenses were waived and/or reimbursed
for MH/KP Fund. After giving effect to those waivers and reimbursements,
the Total Fund Operating Expenses of MH/KP Fund for the fiscal year ended
June 30, 1995 were 0.27%, 0.76% and 0.21% for Class A, Class B and Class C,
respectively, and, for the twelve months ended February 28, 1995, were
0.32%, 0.80% and 0.23% for Class A, Class B and Class C, respectively.
5
<PAGE>
Example of Effect on Fund Expenses
The following illustrates the expenses on a $1,000 investment under
the existing and estimated fees and expenses stated above, assuming a 5%
annual return. The fees shown below reflect an initial maximum sales
charge of 2.25% of the public offering price that normally is charged in
connection with the sale of MH/KP Fund's Class A shares and an initial
maximum sales charge of 4.0% of the public offering price that normally is
charged in connection with the sale of PW Fund's Class A shares. Amounts
shown for PW Fund and Combined Fund Class A shares held for one year are
higher than for MH/KP Fund Class A shares held for one year due to the higher
initial sales charge normally charged on PW Fund Class A shares. However,
no initial sales charge will be charged in connection with Class A shares
of PW Fund distributed to Class A shareholders of MH/KP Fund as part of the
Reorganization.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
MH/KP Fund
Class A shares(1).. $41 $80 $121 $237
Class B shares .... $24 $74 $127 $271
Class C shares(2) . $16 $51 $88 $192
PW Fund
Class A shares(3).. $49 $67 $87 $144
Class D shares .... $14 $44 $77 $168
Combined Fund
Class A shares(3).. $49 $67 $87 $144
Class D shares .... $14 $44 $76 $167
Class C shares(2).. $6 $20 $35 $79
______________________________
(1) Assumes deduction at the time of purchase of the maximum 2.25% initial
sales charge.
(2) Does not include advisory fees payable by shareholders holding Class C
shares through the INSIGHT program.
(3) Assumes deduction at the time of purchase of the maximum 4% initial
sales charge.
Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted by the National Association
of Securities Dealers, Inc. rules regarding investment companies. This
Example assumes that all dividends and other distributions are reinvested
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 average net
assets and the extent to which a Fund incurs variable expenses, such as
transfer agency costs.
Forms of Organization
PW Trust and MH/KP Trust (each a "Trust" and, collectively, "Trusts")
are open-end management investment companies organized as Massachusetts
business trusts. 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
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beneficial interest, par value of $.001 per share. PW Fund, a diversified
series of PW Trust, commenced operations on December 3, 1984. Prior to
June 30, 1992, PW Fund was part of a different Massachusetts business
trust, PaineWebber Managed Municipal Trust. MH/KP Fund, a diversified
series of MH/KP Trust, commenced operations on September 8, 1993. The
Trusts are not required to (and do not) hold annual shareholder meetings.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust of each Trust expressly disclaims, and provides
indemnification against, such liability. Accordingly, the risk of a
shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which a Fund itself would be unable to meet
its obligations, a possibility that Mitchell Hutchins, the investment
adviser of each Fund, believes is remote and thus does not pose a material
risk.
Investment Objectives and Policies
The investment objective and policies of each Fund are set forth
below. PW Fund has an investment objective similar to the investment
objective of MH/KP Fund, although its investment strategy may differ
in some material respects. There can be no assurance that either
Fund will achieve its investment objective, and each Fund's net asset value
fluctuates based upon changes in the value of its portfolio securities.
PW Fund. The investment objective of PW Fund is high current income
exempt from federal income tax, consistent with preservation of capital and
liquidity within the Fund's quality standards. In seeking to achieve this
objective, PW Fund invests only in municipal securities that are rated at
least BBB or SP-2 by Standard & Poor's ("S&P"), Baa or MIG-2 by Moody's
Investors Service, Inc. ("Moody's") or an equivalent rating by another
nationally recognized statistical rating organization ("NRSRO") or, if
unrated, determined by Mitchell Hutchins to be of comparable quality.
PW Fund seeks to invest 100% of its net assets in municipal
obligations. Normally, at least 80% of PW Fund's net assets are invested
in municipal obligations that pay interest that is not a tax preference
item for purposes of the federal alternative minimum tax ("AMT"). Under
normal market conditions, PW Fund will invest no more than 20% of its net
assets in private activity bonds. PW Fund may invest in municipal leases,
provided it does not invest more than 5% of its total assets in uninsured
"non-appropriation" municipal lease obligations. PW Fund may invest in
floating-rate and variable-rate municipal securities, with or without
demand features. PW Fund may not invest more than 10% of its total assets
in "inverse floaters." Although PW Fund may engage in repurchase
agreements, it does not intend to do so except under unusual circumstances
or as a temporary measure. PW Fund may engage in certain option income
strategies and use options and futures in hedging strategies, all of which
may generate taxable income. PW Fund has not engaged in these strategies
in the past, however, and has no intention of so doing during the coming
year. PW Fund may invest up to 10% of its net assets in illiquid
securities.
MH/KP Fund. MH/KP Fund's investment objective is to achieve as high a
level of current income that is exempt from federal income taxation as is
consistent with prudent investment management and the preservation of
capital. MH/KP Fund seeks to achieve its investment objective through a
portfolio consisting of high quality municipal obligations. Under normal
market conditions, MH/KP Fund invests at least 80% of its net assets in
Municipal Obligations (defined as debt securities issued by or on behalf of
states, territories and possessions of the United States and the District
of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is, in the opinion of bond counsel
to their issuer, excluded from gross income for federal income tax
purposes). In addition, it is a non-fundamental policy of MH/KP Fund that
under normal market conditions, at least 65% of its total assets will be
invested in municipal bonds, and at least 65% of its total assets will be
invested in Municipal Obligations rated no lower than Aa, VMIG-2, MIG-2 or
Prime-2 by Moody's, AA, SP-2 or A-2 by S&P or AA or F-1 by Fitch Investors
Service, Inc. ("Fitch"). MH/KP Fund may invest up to 35% of its total
assets in Municipal Obligations that are rated at least Baa, VMIG-3, MIG-3
or Prime-3 by Moody's, BBB, SP-3 or A-3 by S&P or BBB or F-3 by Fitch.
These Municipal Obligations, though considered investment grade, are also
considered to possess speculative characteristics insofar as adverse
changes in economic conditions are more likely
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to weaken the ability of issuers of these debt securities to pay principal
and interest. MH/KP Fund may invest up to 20% of its total assets in short-
term investments, even if not tax exempt; however, if MH/KP Fund is
maintaining a temporary defensive position, MH/KP Fund may hold these
investments, or cash, without limitation.
MH/KP may invest without limitation in Municipal Obligations the
interest on which is a tax preference item for purposes of the AMT.
MH/KP Fund may also invest up to 5% of its assets in zero coupon Municipal
Obligations.
MH/KP Fund may invest up to 15% of its net assets in illiquid
securities. MH/KP Fund may invest in private activity bonds, provided that
it will not invest more than 25% of its assets in private activity bonds
relating to similar projects. MH/KP Fund may purchase and write put and
call options on municipal bond index and interest rate futures contracts
that are traded on a U.S. exchange or board of trade to the extent
permitted under rules and interpretations of the Commodity Futures
Trading Commission. MH/KP Fund will invest no more than 25% of its net
assets in issuers that are in the same state.
Other Policies of Both Funds. Each Fund may purchase securities on a
when-issued or delayed-delivery basis, provided that each Fund maintains a
segregated account containing cash, U.S. government securities or other
liquid, high-grade debt obligations equal in value to the Fund's purchase
commitments. Neither Fund will lend money except through purchasing debt
obligations and entering into repurchase agreements.
Operations of PW Fund Following the Reorganization
There are differences in the investment objectives and policies of the
Funds. It is not expected, however, that PW Fund will revise its
investment objective or policies following the Reorganization to reflect
those of MH/KP Fund. Based on its review of the investments held by each
Fund, Mitchell Hutchins believes that all of the assets held by MH/KP Fund
will be consistent with the investment policies of PW Fund and thus can be
transferred to and held by PW Fund if the Reorganization is approved.
After the Reorganization, the trustees and officers of PW Trust and PW
Fund's investment adviser, distributor, exclusive dealer and other outside
agents will continue to serve PW Fund in their current capacities.
Gregory W. Serbe and Richard S. Murphy, who currently are portfolio managers
for PW Fund and who have been primarily responsible for the day-to-day
portfolio management of PW Fund, will continue as the portfolio managers of
PW Fund. Mr. Murphy is a senior vice president of Mitchell Hutchins. Mr.
Serbe is a vice president of PW Trust and a managing director of Mitchell
Hutchins.
As indicated above, PW Fund will issue Class C Shares in connection
with the Reorganization. Effective on or about November 1, 1995, PW Fund's
Class C and Class D shares will be renamed Class Y and Class C shares,
respectively. In addition, Class A shares purchased after that date which
are purchased without an initial sales charge due to a sales waiver for
purchases of $1 million or more, and held less than one year, and Class D
(to be renamed Class C) shares that are held less than one year, will be
subject to a contingent deferred sales charge ("CDSC") of 1% of the lower
of (1) the net asset value of the shares at the time of purchase, or (2)
the net asset value of the shares at the time of redemption. Class A and
Class D shares of PW Fund that are issued to MH/KP Fund shareholders as
part of the Reorganization will not be subject to that CDSC.
Purchases
Shares of PW Fund are available through PaineWebber and its
correspondent firms or, for investors who are not clients of PaineWebber,
through PFPC Inc., the Fund's transfer agent ("Transfer Agent"). The
minimum initial investment in PW Fund Class A, B or D shares is $1,000;
each additional investment must be $100 or more. Purchases through
PaineWebber investment executives or correspondent firms may be made in
person or by mail, telephone or, for purchases of $1 million or more, 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
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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 Fund's Class A shares normally are sold with a maximum initial
sales charge of 4% of the public offering price. The PW Fund Class A
shares that will be distributed to shareholders of MH/KP Fund as part of
the Reorganization will not be subject to an initial sales charge.
Following the Reorganization, however, new purchases of Class A shares of
PW Fund will be subject to an initial sales charge up to 4%, and any Class
B or Class D shares of PW Fund that are purchased by former MH/KP Fund
shareholders will be subject to their respective terms.
PW Fund's Class B shares are sold subject to a maximum CDSC of 5% of
redemption proceeds, which declines to zero after six years, when those
Class B shares automatically convert into Class A shares. Class D shares
of PW Fund are sold without an initial sales charge or CDSC but are subject
to higher ongoing expenses than Class A shares and do not convert into
another Class. No initial sales charge or CDSC is imposed with respect to
Class A or Class B shares, respectively, of PW Fund that are purchased with
reinvested dividends or other distributions on those Classes of shares.
Class C shares will be issued to holders of Class C shares of MH/KP
Fund in connection with the Reorganization. Effective November 1, 1995, PW
Fund's Class C shares (renamed 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, to certain employee benefit and retirement
plans of Paine Webber Group Inc. ("PW Group") and its affiliates, and to
certain unit investment trusts sponsored by PaineWebber. Thus, Class C
shares will be available for purchase by INSIGHT Program participants when
purchased through that program. Class C shares will also be available for
purchase by the trustee of the PaineWebber Savings Investment Plan ("PW SIP"),
a defined contribution plan sponsored by PW Group. The trustee of the PW SIP
purchases shares to implement the investment choices of individual plan
participants with respect to their PW SIP contributions. PW Fund, however, is
not expected to be an investment option available to individual participants
in the PW SIP.
Class C shares will be sold to eligible investors at the net asset
value next determined after the purchase order is received. No initial sales
charge or CDSC will be imposed, nor will Class C shares be subject to
Rule 12b-1 distribution or service fees. PW Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Class C shares for a period of time.
INSIGHT Program. An investor who purchases $50,000 or more of shares
of the PaineWebber or Mitchell Hutchins/Kidder, Peabody mutual funds that
are in the Flexible Pricing System may participate in the INSIGHT Program,
a total portfolio asset allocation program sponsored by PaineWebber, and
thus become eligible to purchase Class C shares of PW Fund, when such Class
C shares are made available to INSIGHT Program participants on November 1,
1995. The INSIGHT Program offers comprehensive investment services,
including a personalized asset allocation investment strategy using an
appropriate combination of funds, professional investment advice regarding
investment among the funds by portfolio specialists, 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 another of their PaineWebber accounts or
billed separately.
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Shares of MH/KP Fund are available through a PaineWebber brokerage
account. The minimum initial investment in MH/KP Fund is $1,000, and the
minimum subsequent investment is $50, except that for accounts established
pursuant to the Uniform Gifts/Transfers to Minors Act, the minimum initial
investment is $250 and the minimum subsequent investment is $1.00. MH/KP
Fund's Class A shares normally are sold with a maximum initial sales charge
of 2.25% of the public offering price. MH/KP Fund's Class B and Class C
shares 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% is paid by
participants in that program. Class C shares of MH/KP Fund are available
exclusively to former Kidder, Peabody & Co. Incorporated ("Kidder Peabody")
employees and their associated accounts, directors or trustees of
any PaineWebber/Kidder, Peabody or Mitchell Hutchins/Kidder, Peabody mutual
fund, employee benefit plans formerly sponsored by Kidder, Peabody, and
participants in the INSIGHT 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'
net asset value next determined after receipt of the request by
PaineWebber's New York City offices. Within three Business Days after
receipt of the request, repurchase proceeds (less any applicable CDSC) will
be paid by check or credited to the shareholder's brokerage account at the
election of the shareholder. PaineWebber investment executives and
correspondent firms are responsible for promptly forwarding redemption
requests to PaineWebber's New York City offices. PaineWebber reserves the
right not to honor any redemption request, in which case PaineWebber
promptly will forward the request to the Transfer Agent for treatment as
described below.
Shareholders of each Fund also may redeem shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the
Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950,
Wilmington, Delaware 19899. A redemption request will be executed at the
net asset value per share next computed after it is received in "good
order," and redemption proceeds will be paid within seven days of the
receipt of the request. Shareholders are responsible for ensuring that a
request for redemption is received in "good order." "Good order" means
that the request must be accompanied by the following: (1) a letter of
instruction or a stock assignment specifying the number of shares or amount
of investment to be redeemed (or that all shares credited to the Fund
account be redeemed), signed by all registered owners of the shares in the
exact names in which they are registered, (2) a guarantee of the signature
of each registered owner by an eligible institution acceptable to the
Transfer Agent and in accordance with SEC rules, such as a commercial bank,
trust company or member of a recognized stock exchange, (3) other
supporting legal documents for estates, trusts, guardianships,
custodianships, partnerships and corporations and (4) duly endorsed share
certificates, if any.
A shareholder may have redemption proceeds of $1 million or more wired
to the shareholder's PaineWebber brokerage account or a commercial bank
account designated by the shareholder. Questions about this option, or
redemption requirements generally, should be referred to the shareholder's
PaineWebber investment executive or correspondent firm. If a shareholder
requests redemption of shares which were purchased recently, the Fund may
delay payment until it is assured that good payment has been received. In
the case of purchases by check, this can take up to 15 days.
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to redeem all Fund shares in any
shareholder account having a net asset value below the lesser of $500 or
the current minimum for initial purchasers. If the Fund elects to do so,
it will notify the shareholder and provide the shareholder the opportunity
to increase the amount invested to the minimum required level or more
within 60 days of the notice. The Fund will not redeem accounts that fall
below the minimum required level solely as a result of a reduction in net
asset value per share.
If the Reorganization is approved, shares of MH/KP Fund will cease to
be offered on October 27, 1995, so that shares of MH/KP Fund will no longer
be available for purchase or exchange starting on October 30, 1995
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(the next Business Day). If the Meeting is adjourned and the
Reorganization is approved on a later date, MH/KP Fund shares will no
longer be available for purchase or exchange on the Business Day following
the date on which the Reorganization is approved and all contingencies have
been met. Redemptions of MH/KP Fund's shares and exchanges of such shares
for shares of any other PaineWebber or Mitchell Hutchins/Kidder, Peabody
fund may be effected through the Closing Date.
Exchanges
Class A, B and D shares of PW Fund and Class A and B shares of MH/KP
Fund may be exchanged for shares of the Corresponding Class of other
PaineWebber and Mitchell Hutchins/Kidder, Peabody funds and may be acquired
through an exchange of shares of the Corresponding Class of other
PaineWebber and Mitchell Hutchins/Kidder, Peabody funds, as provided in
each Fund's Prospectus. No initial sales charge is imposed on the shares
being acquired, and no CDSC is imposed on the shares being disposed of,
through an exchange. Exchanges may be subject to minimum investment and
other requirements of the fund into which exchanges are made. As noted
above, the $5.00 service fee currently imposed on each exchange of shares
of PW Fund for shares of any other PaineWebber or Mitchell Hutchins/Kidder,
Peabody mutual fund will continue to be imposed following the
Reorganization. Class C shares of each Fund have no exchange privileges.
Dividends and Other Distributions
PW Fund distributes substantially all of its net investment income and
realized net gains to shareholders each year. Dividends are declared daily
and paid monthly. PW Fund also distributes, at least annually,
substantially all of its net capital gain (the excess of net long-term
capital gain over net short-term capital loss) if any, together with any
other taxable income (including any net short-term capital gain). Dividends
from MH/KP Fund's net investment income are declared daily and paid
monthly, and distributions of any net realized capital gains of that Fund
are distributed annually after the close of the fiscal year in which they
are earned. Both Funds may make additional distributions if necessary to
avoid a 4% excise tax on certain undistributed income and capital gain.
PW Fund's dividends and other distributions are paid in additional
shares of the applicable Class at net asset value unless the shareholder
has requested cash payments. Shareholders who wish to receive dividends
and/or other distributions in cash, either mailed to the shareholder by
check or credited to the shareholder's PaineWebber account, should contact
their PaineWebber investment executives or correspondent firms.
On or before the Closing Date, MH/KP Fund will declare as a
distribution substantially all of its net investment income, net capital
gain and net short-term capital gain in order to continue to maintain its
tax status as a regulated investment company. On or before the Closing
Date, PW Fund also may declare and distribute as a dividend substantially
all of any previously undistributed net investment income. Such
distributions by either Fund will be paid only in cash.
Federal Income Tax Consequences of the Reorganization
PW Trust has received an opinion of Kirkpatrick & Lockhart LLP, its
counsel, and MH/KP Trust has received an opinion of Willkie Farr &
Gallagher, its counsel, each to the effect that the Reorganization will
constitute a tax-free reorganization within the meaning of section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code").
Accordingly, no gain or loss will be recognized to either Fund or its
shareholders as a result of the Reorganization. See "The Proposed
Transaction -- Federal Income Tax Considerations," page [17].
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COMPARISON OF PRINCIPAL RISK FACTORS
Because PW Fund's investment objective and investment policies
are similar to those of MH/KP Fund, the investment risks of the two Funds
are also similar. These risks are those typically associated with
investing in a municipal bond fund. Certain differences are identified
below. See the Prospectus of PW Fund, which accompanies this Proxy
Statement, for a more detailed discussion of the investment risks of PW
Fund and of the various types of Municipal Obligations in which PW Fund
invests.
Municipal Obligations. Both Funds invest in Municipal Obligations,
which may be either "general obligation" bonds or "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
specific excise tax or other specific revenue source such as from the user
of the facility being financed.
Municipal Obligations also include municipal lease obligations, such
as leases, installment purchase contracts and conditional sales contracts,
and certificates of participation therein. Municipal lease obligations are
issued by state and local governments and authorities to purchase land or
various types of equipment or facilities. Certain lease obligations
contain "non-appropriation" clauses that provide that the municipality has
no obligation to make payments in future years unless money is appropriated
for the purpose on a yearly basis. PW Fund limits its investment in such
"non-appropriation" leases to not more than 5% of total assets. MH/KP Fund
has no such percentage limitation, but does limit its investment in such
leases to those which the municipality is required to continue under all
circumstances except bankruptcy and that meet several other conditions
intended to reduce the risk of loss.
Both Funds may also invest in private activity bonds. To the extent a
Fund invests in private activity bonds, shareholders generally will be
required to include a portion of their exempt-interest dividends from that
Fund in calculating their liability for the AMT. Under normal conditions,
PW Fund limits its investment in private activity bonds to no more than 20%
of assets; MH/KP Fund places no percentage limitation on its investment in
such instruments.
MH/KP Fund may invest in zero coupon Municipal Obligations. The Fund
must accrue income on these investments for tax and accounting purposes
which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Fund's distribution obligations, in
which case the Fund will forgo the purchase of additional income producing
assets with these funds. Zero coupon Municipal Obligations may experience
greater volatility in market value than Municipal Obligations that make
regular payments of interest. PW Fund does not invest in zero coupon
Municipal Obligations.
Both Funds may invest in Municipal Obligations on which the rate of
interest varies inversely with interest rates on other Municipal
Obligations or an index. Such obligations include components of securities
on which interest is paid in two separate parts -- an auction component,
which pays interest at a market rate that is set periodically through an
auction process or other method, and a residual component, or "inverse
floater," which pays interest at a rate equal to the difference between the
rate that the issuer would have paid on a fixed-rate obligation at the time
of issuance and the rate paid on the auction component. The market value
of an inverse floater will be more volatile than that of a fixed-rate
obligation and, like most debt obligations, will vary inversely with
changes in interest rates. PW Fund limits its investment in such inverse
floaters to 10% of its total assets. MH/KP Fund is subject to no such
percentage limitation.
Interest Rate Risk. If general market interest rates are increasing,
the prices of Municipal Obligations ordinarily will decrease and, if rates
decrease, the opposite generally will be true. During periods of market
uncertainty, the market values of fixed income securities can become
volatile. Generally, the longer the maturity of a Municipal Obligations,
the higher the rate of interest paid and the greater the volatility of the
Municipal Obligation.
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Credit Quality. Each Fund is permitted to purchase investment grade
Municipal Obligations. PW Fund may invest a higher percentage of its
assets in the two lower grades of investment grade bonds and accordingly
may be subject to greater investment risk than MH/KP Fund. Since its
inception, however, PW Fund has not invested in the lowest grade of
investment grade securities. Under normal market conditions, MH/KP Fund
invests at least 65% of its total assets in Municipal Obligations rated in
the two highest rating categories by an NRSRO. MH/KP Fund may invest up
to 35% of its total assets in Municipal Obligations that are rated in the
fourth highest rating categories by an NRSRO. PW Fund, however, may invest
in Municipal Obligations that are rated in the top four categories by an
NRSRO, without any percentage limitations as to how investments are allocated
among the four categories. The fourth highest rating category includes
securities rated BBB by S&P, Baa by Moody's or comparably rated by another
NRSRO. These securities are investment grade, although Moody's considers
securities rated Baa to have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity for these securities to make principal and interest
payments than is the case for higher rated securities. MH/KP Fund has
authority to invest in short-term municipal notes that are one grade lower
than the minimal quality permissible for PW Fund (i.e., MH/KP Fund can
- -
invest in instruments rated MIG-3, VMIG-3 or Prime 3 by Moody's or SP-3 or
A-3 by S&P, while PW Fund may not invest in instruments rated lower than
MIG-2, VMIG-2 or Prime 2 by Moody's, or SP-2 or A-2 by S&P).
Ratings of debt securities represent the NRSRO's opinion regarding
their quality, are not a guarantee of quality and may be reduced after a
Fund has acquired the security. In the event that a security's rating is
downgraded, neither Fund is required to sell the security, but Mitchell
Hutchins will consider the event its their determination of whether the
Fund should continue to hold the obligation.
Hedging Strategies. Each Fund may use options, futures contracts, and
options on futures contracts. There can be no assurance, however, that any
strategy utilizing these instruments will succeed. If Mitchell Hutchins
incorrectly forecasts interest rates, market values or other economic
factors in utilizing a hedging strategy for a Fund, the Fund might have
been in a better position had it not hedged at all. The use of these
instruments involves certain special risks, including (1) the fact that
skills needed to use hedging instruments are different from those needed to
select the Funds' securities, (2) possible imperfect correlation, or even
no correlation, between price movements of hedging instruments and price
movements of the investments being hedged, (3) the fact that, while hedging
strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in hedged investments and (4) the possible inability of a
Fund to purchase or sell a portfolio security at a time that otherwise
would be favorable for it to do so, or the possible need for a Fund to sell
a portfolio security at a disadvantageous time, due to its need to maintain
"cover" or to segregate securities in connection with hedging transactions
and the possible inability of a Fund to close out or to liquidate its
hedged position.
Other Investment Policies and Strategies. There are several other
differences between the two Funds' investment policies and strategies.
MH/KP Fund will not invest more than 25% of its total assets in obligations
whose issuers are in the same state or more than 25% of its total assets in
obligations that are secured by revenues from any one of the following
entities: hospital and health facilities, ports and airports, and colleges
and universities. It may invest more than 25% of its total assets in
Municipal Obligations of one or more of the following categories:
turnpikes and toll roads, public housing authorities, general obligations
of states and localities, state and local housing finance authorities,
municipal utilities, bonds that are secured or backed by U.S. Treasury or
other securities issued or guaranteed by the U.S. government, and pollution
control bonds. PW Fund may invest more than 25% of its total assets in
municipal securities that are related in such a way that an economic,
business or political development affecting one such security might affect
the other securities, such as securities the interest on which is paid from
similar types of projects.
While both Funds may invest in floating- and variable-rate demand
notes and bonds, MH/KP Fund will invest no more than 10% of its net assets
in notes and bonds for which no secondary market exists and as to which it
cannot exercise the demand feature on seven or fewer days' notice. PW Fund
is not so limited. Both Funds may invest in participation interests.
While PW Fund has no specific limitations on the amount it may invest in
participation interests, MH/KP Fund will not invest more than 10% of its
net assets in participation interests with respect to which it does not
have the right to demand payment on not more than seven days' notice. In
addition,
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if the participation interest is unrated, or has been given a rating below
that which otherwise is permissible for purchase by MH/KP Fund, the
participation interest must be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise must be
collateralized by U.S. government securities.
THE PROPOSED TRANSACTION
Reorganization Plan
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Reorganization Plan. Significant
provisions of the Reorganization Plan are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization
Plan, which is attached as Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) the acquisition by PW Fund on
the Closing Date of the assets of MH/KP Fund in exchange solely for PW Fund
shares and the assumption by PW Fund of MH/KP Fund's liabilities, and (b)
the constructive distribution of such shares to the shareholders of MH/KP
Fund, by Class.
The assets of MH/KP Fund to be acquired by PW Fund include all cash,
cash equivalents, securities, receivables and other property owned by MH/KP
Fund. PW Fund will assume from MH/KP Fund all debts, liabilities,
obligations and duties of MH/KP Fund of whatever kind or nature; provided,
however, that MH/KP Fund will use its best efforts, to the extent
practicable, to discharge all of its known debts, liabilities, obligations
and duties prior to the Closing Date. PW Fund also will deliver to MH/KP
Fund shares of PW Fund, which then will be constructively distributed to
MH/KP Fund's shareholders.
The value of MH/KP Fund's assets to be acquired, and the amount of its
liabilities to be assumed, by PW Fund and the net asset value of a Class A,
Class C, and Class D share of PW Fund will be determined as of the close of
regular trading on the NYSE on the Closing Date. Where market quotations
are readily available, portfolio securities will be valued based upon such
market quotations, provided such quotations adequately reflect, in Mitchell
Hutchins' judgment, the fair value of the security. Where such market
quotations are not readily available, such securities will be valued based
upon appraisals received from a pricing service using a computerized matrix
system or based upon appraisals derived from information concerning the
security or similar securities received from recognized dealers in those
securities. The amortized cost method of valuation generally will be used
to value debt instruments with 60 days or less remaining to maturity,
unless MH/KP Trust's board of trustees (with respect to MH/KP Fund) or PW
Trust's board of trustees (with respect to PW Fund) determines that this
does not represent fair value. All other securities and assets will be
valued at fair value as determined in good faith by or under the direction
of each Trust's board of trustees, as applicable.
On, or as soon as practicable after, the Closing Date, MH/KP Fund will
distribute to its shareholders of record the shares of PW Fund it received,
by Class, so that each shareholder of MH/KP Fund will receive a number of
full and fractional shares of the Corresponding Class of PW Fund equal in
value to the shareholder's holdings in MH/KP Fund; MH/KP Fund will be
terminated as soon as practicable thereafter. Such distribution will be
accomplished by opening accounts on the books of PW Fund in the names of
MH/KP Fund shareholders and by transferring thereto the shares of each
Class previously credited to the account of MH/KP Fund on those books.
Fractional shares in each Corresponding Class of PW Fund will be rounded to
the third decimal place.
Accordingly, immediately after the Reorganization, each former
shareholder of MH/KP Fund will own shares of the Class of PW Fund equal in
value to that shareholder's shares in the Corresponding Class of MH/KP Fund
immediately prior to the Reorganization. Moreover, because shares of each
Class of PW Fund will be issued at net asset value in exchange for the net
assets applicable to the Corresponding Class of MH/KP Fund, the aggregate
value of each Class of PW Fund shares so issued will equal the aggregate
value of the shares of the Corresponding Class of MH/KP Fund. The net
asset value per share of PW Fund will be unchanged by the transaction.
Thus, the Reorganization will not result in a dilution of any shareholder
interest.
14
<PAGE>
Any transfer taxes payable upon issuance of shares of PW Fund in a
name other than that of the registered holder of the shares on the books of
MH/KP Fund shall be paid by the person to whom such shares are to be issued
as a condition of such transfer. Any reporting responsibility of MH/KP
Fund will continue to be its responsibility up to and including the Closing
Date and such later date on which it is terminated.
The cost of the Reorganization, including professional fees and the
cost of soliciting proxies for the Meeting, consisting principally of
printing and mailing expenses, together with the cost of any supplementary
solicitation, will be borne by both Funds in proportion to their respective
net assets. Mitchell Hutchins recommended this method of expense
allocation to the trustees of the Trusts. Mitchell Hutchins based its
recommendations on its belief that the method is fair because, for the
reasons discussed under "Reasons for the Reorganization," the transaction
has the potential to benefit both Funds. The trustees of each Trust
considered the expense allocation method in approving the Reorganization
and finding that the Reorganization is in the best interests of each Fund.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be
waived by each Trust. In addition, the Reorganization Plan may be amended
in any mutually agreeable manner, except that no amendment may be made
subsequent to the Meeting that has a material adverse effect on the
shareholders' interests.
Reasons for the Reorganization
MH/KP Trust's board of trustees, including a majority of its
Independent Trustees, has determined that the Reorganization is in the best
interests of MH/KP Fund, that the terms of the Reorganization are fair and
reasonable, and that the interests of the shareholders of MH/KP Fund will
not be diluted as a result of the Reorganization. PW Trust's board of
trustees, including a majority of its Independent Trustees, has determined
that the Reorganization is in the best interests of PW Fund, that the terms
of the Reorganization are fair and reasonable, and that the interests of
the shareholders of PW Fund will not be diluted as a result of the
Reorganization.
In considering the Reorganization, the boards of trustees made an
extensive inquiry into a number of factors, including the following:
(1) the compatibility of the investment objectives, policies and
restrictions of the Funds;
(2) the effect of the Reorganization on the expected investment
performance of the Funds;
(3) the effect of the Reorganization on the expense ratio of PW Fund
(after the Reorganization) relative to each Fund's current expense
ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including continuing
to operate on a stand-alone basis or liquidation; and
(7) the potential benefits of the Reorganization to other persons,
including Mitchell Hutchins and PaineWebber.
The Reorganization was recommended to the trustees by Mitchell
Hutchins at meetings of the boards of trustees of MH/KP Trust and PW Trust
held on July 20, 1995. In recommending the Reorganization, Mitchell
Hutchins advised the boards of trustees that, because PW Fund is
considerably larger than MH/KP Fund, the total operating expenses for the
combined Fund following the Reorganization would be approximately the same
as those currently in effect for PW Fund and lower than those of MH/KP
Fund. The boards recognized that the impact of this reduction in expenses
for MH/KP Fund will not be immediately apparent to shareholders, however,
because Mitchell Hutchins (like the previous adviser) has been voluntarily
waiving fees and reimbursing expenses of MH/KP Fund since February 13,
1995.
Mitchell Hutchins advised the board of trustees of MH/KP Fund that it
undertook such waivers and reimbursements pending the merger of MH/KP Fund
with a larger fund. In approving the Reorganization, the
15
<PAGE>
board of trustees of MH/KP Fund considered the fact that such waivers and
reimbursements were voluntary and that Mitchell Hutchins was under no
obligation to continue them.
The boards took into account that the Funds have similar investment
objectives and similar investment policies with the differences noted,
and that Mitchell Hutchins did not believe there was a need to offer both
Funds to investors. The boards recognized that, as the larger of the two
Funds, PW Fund was the logical survivor in the Reorganization. In
considering the proposed transaction, the boards noted that PW Fund's
overall objective of high current income exempt from federal income
taxation consistent with preservation of capital and liquidity within the
Fund's quality standards, remains an appropriate one to offer to investors
as part of an overall investment strategy.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE
------------------------------------------
SHAREHOLDERS OF MH/KP FUND VOTE "FOR" THE
------------------------------------------
REORGANIZATION
--------------
Description of Securities to be Issued
PW Trust is registered with the SEC as an open-end management
investment company. Its trustees are authorized to issue an unlimited
number of shares of beneficial interest of separate series (par value $.001
per share). The trustees have established PW Fund as one of PW Trust's
four series and have authorized the public offering of four Classes of
shares of PW Fund. A separate filing will be made prior to the Closing
Date for the purpose of registering Class C shares with the SEC. Each
share in a Class represents an equal proportionate interest in PW Fund with
each other share in that Class. Shares of PW Fund entitle their holders to
one vote per full share and fractional votes for fractional shares held,
except that each Class of shares has exclusive voting rights on matters
pertaining to its plan of distribution, if any.
On the Closing Date, PW Fund will have outstanding four Classes of
shares, designated as Class A, Class B, Class C and Class D shares. Only
Class A, Class C and Class D shares will be issued as part of the
Reorganization. Each Class represents interests in the same assets of the
Fund. The Classes differ as follows: (1) Class A, Class B and Class D
shares, unlike Class C shares, bear certain fees under plans of
distribution and have exclusive voting rights on matters pertaining to
those plans; (2) Class A shares are subject to an initial sales charge; (3)
Class B shares bear ongoing service and distribution fees, are subject to a
CDSC upon certain redemptions and automatically convert to Class A shares
approximately six years after issuance; (4) Class C shares will be subject
to no sales charge, will 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 service
and distribution fees and do not convert into another Class; and (6) each Class
may bear differing amounts of certain Class-specific expenses. Each share
of each Class of PW Fund is entitled to participate equally in dividends
and other distributions and the proceeds of any liquidation, except that
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 on Class A and Class C shares. For the same reason,
dividends on Class B shares of PW Fund are expected to be lower than those
on its 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 fewer than a majority of the trustees holding office has
been elected by shareholders, at which time the trustees then in office
will call a shareholders' meeting for the election of trustees. Under the
1940 Act, shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a trustee by votes cast in
person or by proxy at a meeting called for that purpose. The trustees are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any trustee when requested in writing to do so
by the shareholders of record holding at least 10% of PW Trust's
outstanding shares.
16
<PAGE>
Federal Income Tax Considerations
The exchange of MH/KP Fund's assets for PW Fund shares and PW Fund's
assumption of MH/KP Fund's liabilities is intended to qualify for federal
income tax purposes as a tax-free reorganization under section 368(a)(1)(C)
of the Code. PW Trust has received an opinion of Kirkpatrick & Lockhart
LLP, its counsel, and MH/KP Trust received an opinion of Willkie Farr &
Gallagher, its counsel, each substantially to the effect that --
(i) PW Fund's acquisition of MH/KP Fund's assets in exchange solely
for PW Fund shares and PW Fund's assumption of MH/KP Fund's
liabilities, followed by MH/KP Fund's distribution of those shares to
its shareholders constructively in exchange for their MH/KP Fund
shares, will constitute a "reorganization" within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized to MH/KP Fund on the transfer
to PW Fund of its assets in exchange solely for PW Fund shares and PW
Fund's assumption of MH/KP Fund's liabilities or on the subsequent
distribution of those shares to MH/KP Fund's shareholders in
constructive exchange for their MH/KP Fund shares;
(iii) No gain or loss will be recognized to PW Fund on its receipt
of the transferred assets in exchange solely for PW Fund shares and
its assumption of MH/KP Fund's liabilities;
(iv) PW Fund's basis for the transferred assets will be the same as
the basis thereof in MH/KP Fund's hands immediately prior to the
Reorganization, and PW Fund's holding period for those assets will
include MH/KP Fund's holding period therefor;
(v) An MH/KP Fund shareholder will recognize no gain or loss on the
constructive exchange of all its MH/KP Fund shares solely for PW Fund
shares pursuant to the Reorganization; and
(vi) An MH/KP Fund shareholder's basis for the PW Fund shares to be
received by it in the Reorganization will be the same as the basis for
its MH/KP Fund shares to be constructively surrendered in exchange for
those PW Fund shares, and its holding period for those PW Fund shares
will include its holding period for those MH/KP Fund shares, provided
they are held as capital assets by the shareholder on the Closing
Date.
Each such opinion may state that no opinion is expressed as to the effect
of the Reorganization on the Funds or any shareholder with respect to any
asset (including certain options, futures and forward contracts) as to
which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
Utilization by PW Fund after the Reorganizations of pre-Reorganization
capital losses realized by MH/KP Fund could be subject to limitation in
future years under the Code.
Shareholders of MH/KP Fund should consult their tax advisers regarding
the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, those shareholders
also should consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
Capitalization
The following table shows the capitalization of each Fund at February
28, 1995 (unaudited, with respect to MH/KP Fund), and on a pro forma
combined basis (unaudited) giving effect to the Reorganization:
17
<PAGE>
Pro Forma
PW Fund MH/KP Fund Combined
------- ---------- ----------
Net Assets
Class A . . . . $346,579,345 $10,541,198 $357,121,083
Class B(1) . . . 58,958,037 4,161,433 58,958,037
Class C . . . . -- 656,333 656,333
Class D . . . . 101,641,722 -- 105,803,155
Net Asset Value Per Share
Class A . . . . $11.26 $11.03 $11.26
Class B(1) . . . 11.26 11.03 11.26
Class C . . . . -- 11.03 11.26
Class D . . . . 11.26 -- 11.26
Shares Outstanding
Class A . . . . 30,774,300 955,842 31,710,618
Class B(1) . . . 5,236,630 377,320 5,236,630
Class C . . . . -- 59,509 58,293
Class D . . . . 9,025,376 -- 9,394,989
(1) Class B shares of MH/KP Fund will be exchanged for Class D shares of
PW Fund.
MISCELLANEOUS
Available Information
Each Trust is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith files
reports, proxy material and other information with the SEC. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20459 at prescribed rates.
Legal Matters
Certain legal matters in connection with the issuance of PW Fund shares as
part of the Reorganization will be passed upon by Kirkpatrick & Lockhart LLP,
counsel to PW Trust.
18
<PAGE>
Experts
The audited financial statements of PW Fund and MH/KP Fund,
incorporated herein by reference or included in their respective Statements
of Additional Information, have been audited by Ernst & Young LLP and
Deloitte & Touche LLP, independent auditors, respectively, whose reports
thereon are included in the Funds' Annual Reports to Shareholders for the
fiscal years ended February 28, 1995 and June 30, 1995, respectively. The
financial statements audited by Ernst & Young LLP and Deloitte & Touche LLP
have been incorporated by reference herein or in the Statement of Additional
Information in reliance on their reports given on their authority as experts
in auditing and accounting.
19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of August 24, 1995, between PaineWebber Mutual
Fund Trust, a Massachusetts business trust ("PW Trust"), on behalf of
PaineWebber National Tax-Free Income Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and Mitchell Hutchins/Kidder,
Peabody Investment Trust II, a Massachusetts business trust ("MH/KP
Trust"), on behalf of its Mitchell Hutchins/Kidder, Peabody Municipal Bond
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
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 Acquiring Fund Shares to the holders of
shares of beneficial interest in Target ("Target Shares") in exchange
therefor, all upon the terms and conditions set forth herein. The
foregoing transactions are referred to herein as the "Reorganization." All
agreements, representations, actions, and obligations described herein made
or to be taken or undertaken by either Fund are made and shall be taken or
undertaken by PW Trust on behalf of Acquiring Fund and by MH/KP Trust on
behalf of Target.
Acquiring Fund's shares are divided into four classes, designated
Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares,"
and "Class D Acquiring Fund Shares," respectively). (Acquiring Fund is
establishing Class C expressly for the purpose of facilitating the
Reorganization -- Class C Acquiring Fund Shares are to be exchanged, in
effect, for Class C Target Shares (defined below) as part of the
Reorganization.) Except as noted in the following sentence, these classes
differ only with respect to the sales charges imposed on the purchase of
shares and the fees ("12b-1 fees") payable by each class pursuant to plans
adopted under Rule 12b-1 promulgated under the Investment Company Act of
1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are
offered at net asset value ("NAV") plus a sales charge, if applicable, and
are subject to a 12b-1 service fee at the annual rate of 0.25% of the
average daily net assets attributable to the class ("class assets");
(2) Class B Acquiring Fund Shares are offered at NAV without imposition of
any sales charge and are subject to a contingent deferred sales charge and
12b-1 service and distribution fees at the respective annual rates of 0.25%
and 0.75% of class assets; (3) Class C Acquiring Fund Shares will be
offered to a limited class of offerees at NAV without imposition of any
sales charge and will not be subject to any 12b-1 fee; and (4) Class D
Acquiring Fund Shares are offered at NAV without imposition of any sales
charge and are subject to 12b-1 service and distribution fees at the
respective annual rates of 0.25% and 0.50% of class assets. These classes
also may differ from one another with respect to the allocation of certain
class-specific expenses other than 12b-1 fees. Only Classes A, C, and D
Acquiring Fund Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A,
Class B, and Class C shares ("Class A Target Shares," "Class B Target
Shares," and "Class C Target Shares," respectively). These classes are
substantially similar to the Class A, Class D, and Class C Acquiring Fund
Shares, respectively (though Class A Target Shares and Class A Acquiring
Fund Shares are subject to different maximum initial sales charges).
<PAGE>
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all
of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund.
Acquiring Fund agrees in exchange therefor --
(a) to issue and deliver to Target the number of full and
fractional (i) Class A Acquiring Fund Shares determined by dividing
the net value of Target (computed as set forth in paragraph 2.1)
("Target Value") attributable to the Class A Target Shares by the NAV
(computed as set forth in paragraph 2.2) of a Class A Acquiring Fund
Share, (ii) Class 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), net
interest income excludable from gross income under section 103(a) of the
Code, 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
A-2
<PAGE>
by certificates, shall simultaneously be canceled on Target's share
transfer records. Acquiring Fund shall not issue certificates representing
the Acquiring Fund Shares in connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated
as a series of MH/KP Trust and any further actions shall be taken in
connection therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is
and shall remain its responsibility up to and including the date on which
it is terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund
Shares in a name other than that of the registered holder on Target's books
of the Target Shares constructively exchanged therefor shall be paid by the
person to whom such Acquiring Fund Shares are to be issued, as a condition
of such transfer.
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 November 3, 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 certi-
ficate 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, in-
cluding 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
A-3
<PAGE>
at the Closing a certificate as to the opening on Acquiring Fund's share
transfer books of accounts in the Shareholders' names. PW Trust shall
issue and deliver a confirmation to MH/KP Trust evidencing the Acquiring
Fund Shares (by class) to be credited to Target at the Effective Time or
provide evidence satisfactory to MH/KP Trust that such Acquiring Fund
Shares have been credited to Target's account on Acquiring Fund's books.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other documents as
the other party or its counsel may reasonably request.
3.4. Each Investment Company shall deliver to the other at the
Closing a certificate executed in its name by its President or a Vice
President in form and substance satisfactory to the recipient and dated the
Effective Time, to the effect that the representations and warranties it
made in this Agreement are true and correct at the Effective Time except as
they may be affected by the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. MH/KP Trust is an unincorporated voluntary association
with transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly organized, validly existing,
and in good standing under the laws of the Commonwealth of
Massachusetts; and a copy of its Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts;
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
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<PAGE>
may have had with respect to actions taken or omitted to be taken by
any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted
by PW Trust, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Target's knowledge) threatened against MH/KP Trust with
respect to Target or any of its properties or assets that, if
adversely determined, would materially and adversely affect Target's
financial condition or the conduct of its business; Target knows of no
facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
4.1.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by all
necessary action on the part of MH/KP Trust's board of trustees, which
has made the determinations required by Rule 17a-8(a) under the 1940
Act; and, subject to approval by Target's shareholders and receipt of
any necessary exemptive relief or no-action assurances requested from
the Securities and Exchange Commission ("SEC") or its staff with
respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement
will constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorgan-
ization, 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
under Subchapter M of the Code ("RIC") 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;
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4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably
practicable after the Reorganization, but in all events within six
months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Trust is a Business Trust; it is duly organized,
validly existing, and in good standing under the laws of the
Commonwealth of Massachusetts; and a copy of its Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts;
4.2.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be
in full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated
series of PW Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in ex-
change 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 author-
ized 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
A-6
<PAGE>
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 contem-
plated hereby;
4.2.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by all
necessary action on the part of PW Trust's board of trustees, which
has made the determinations required by Rule 17a-8(a) under the 1940
Act; and, subject to receipt of any necessary exemptive relief or no-
action assurances requested from the SEC or its staff with respect to
sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganiza-
tion, moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
4.2.10. No governmental consents, approvals, 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 for each
past taxable year since it commenced operations and will continue to
meet all the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue addi-
tional 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 busi-
ness in substantially the same manner that Target conducted that busi-
ness 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;
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4.2.16. Immediately after the Reorganization, (a) not more than
25% of the value of Acquiring Fund's total assets (excluding cash,
cash items, and U.S. government securities) will be invested in the
stock and securities of any one issuer and (b) not more than 50% of
the value of such assets will be invested in the stock and securities
of five or fewer issuers; and
4.2.17. Acquiring Fund does not own, directly or indirectly, nor
at the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as a series of an
open-end investment company. Consequently, its management expects
that the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization will
be de minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities that Target held or was subject
to immediately prior thereto, plus any liabilities and expenses of the
parties incurred in connection with the Reorganization;
4.3.5. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by Acquiring
Fund and those to which the Assets are subject;
4.3.6. There is no intercompany indebtedness between the Funds
that was issued or acquired, or will be settled, at a discount;
4.3.7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before
the Reorganization. For the purposes of this representation, any
amounts used by Target to pay its Reorganization expenses and
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its
policy of distributing all or substantially all of its income and
gains to avoid the obligation to pay federal income tax and/or the
excise tax under section 4982 of the Code and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
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
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<PAGE>
consideration for, or allocable to, any employment agreement; and the
consideration paid to any such Shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services; and
4.3.9. Immediately after the Reorganization, the Shareholders
will not own shares constituting "control" of Acquiring Fund within
the meaning of section 304(c) of the Code.
5. COVENANTS
---------
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being
understood that (a) such ordinary course will include declaring and paying
customary dividends and other distributions and such changes in operations
as are contemplated by each Fund's normal business activities and (b) each
Fund will retain exclusive control of the composition of its portfolio
until the Closing; provided that Target shall not dispose of more than an
insignificant portion of its historic business assets during such period
without Acquiring Fund's prior consent.
5.2. Target covenants to call a shareholders' meeting to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target covenants that it will assist PW Trust in obtaining such
information as PW Trust reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that Target's books and records (including all
books and records required to be maintained under the 1940 Act and the
rules and regulations thereunder) will be turned over to PW Trust at the
Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy State-
ment 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.
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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.
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, in-
solvency, 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 preemp-
tive right to subscribe for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate PW Trust's Declaration of Trust or By-Laws
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or any provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which PW Trust (with respect
to Acquiring Fund) is a party or by which it is bound or (to the
knowledge of such counsel, without any independent inquiry or
investigation) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which PW Trust (with respect to Acquiring Fund) is a party or by which
it is bound, except as set forth in such opinion or as previously
disclosed in writing to and accepted by MH/KP Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by PW Trust on behalf of Acquiring Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities laws;
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 Acquir-
ing 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, insol-
vency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general
principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate 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
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MH/KP Trust (with respect to Target) is a party or by which it is
bound, except as set forth in such opinion or as previously disclosed
in writing to and accepted by PW Trust;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by MH/KP Trust on behalf of Target of the transactions
contemplated herein, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may be required under
state securities laws;
6.5.5. MH/KP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued
or proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is pending or threatened as to MH/KP Trust (with respect to
Target) or any of its properties or assets attributable or allocable
to Target and (b) MH/KP Trust (with respect to Target) is not a party
to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects
its business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by PW Trust.
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 Ac-
quiring 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;
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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 Reorgan-
ization, and Acquiring Fund's holding period for the Assets will in-
clude Target's holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be
received by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at
the Effective Time.
Notwithstanding subparagraphs 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 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) regis-
tration 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.
A-13
<PAGE>
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material
breach of any representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition
will not or cannot be met, or (c) if the Closing has not occurred on or
before March 31, 1996; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be
no liability for damages on the part of either Fund, or the trustees or
officers of either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner
as may be mutually agreed upon in writing by the parties; provided that
following such approval no such amendment shall have a material adverse
effect on the Shareholders' interests.
11. MISCELLANEOUS
-------------
11.1. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts; provided that,
in the case of any conflict between such laws and the federal securities
laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation
other than the parties and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.
11.3. The parties acknowledge that each Investment Company is a
Business Trust. Notice is hereby given that this instrument is executed on
behalf of each Investment Company's trustees solely in their capacity as
trustees, and not individually, and that each Investment Company's
obligations under this instrument are not binding on or enforceable against
any of its trustees, officers, or shareholders, but are only binding on and
enforceable against the respective Funds' assets and property. Each Fund
agrees that, in asserting any rights or claims under this Agreement, it
shall look only to the other Fund's assets and property in settlement of
such rights or claims and not to such trustees or shareholders.
A-14
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER MUTUAL FUND TRUST,
on behalf of its series,
PAINEWEBBER NATIONAL TAX-FREE
INCOME FUND
By: /s/ Jennifer Farrell /s/ Dianne E. O'Donnell
- ---------------------------- -------------------------------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST II,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER, PEABODY
MUNICIPAL BOND FUND
By: /s/ S. H. Johnson /s/ Scott Griff
- ---------------------------- -------------------------------------------
Assistant Secretary Vice President
A-15
<PAGE>
APPENDIX B
BENEFICIAL OWNERSHIP OF SHARES OF PW FUND AND MH/KP FUND
Name Address Number (and Percentage)
---- ------- of Shares Beneficially
Owned
----------------
B-1
<PAGE>
PAINEWEBBER NATIONAL TAX-FREE INCOME FUND
(a series of PaineWebber Mutual Fund Trust)
MITCHELL HUTCHINS/KIDDER, PEABODY
MUNICIPAL BOND FUND
(a series of Mitchell Hutchins/
Kidder, Peabody Investment Trust II)
1285 Avenue of the Americas
New York, New York 10019
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby PaineWebber National Tax-Free Income Fund
("PW Fund") would acquire the assets of Mitchell Hutchins/Kidder, Peabody
Municipal Bond Fund ("MH/KP Fund") in exchange solely for shares of
beneficial interest in PW Fund and the assumption by PW Fund of MH/KP
Fund's liabilities. This Statement of Additional Information consists of
this cover page and the following described documents, each of which is
incorporated by reference herein:
(1) The Statement of Additional Information of PW Fund, dated July 1,
1995, previously filed on EDGAR, Accession Number 0000889812-95-
00354.
(2) The Statement of Additional Information of MH/KP Fund, dated
October 28, 1994 previously filed on EDGAR, Accession Number
0000950117-95-000300.
(3) The Annual Report to Shareholders of PW Fund for the fiscal year
ended February 28, 1995, previously filed on EDGAR, Accession
Number 0000950130-95-000893.
(4) The Annual Report to Shareholders of MH/KP Fund for the fiscal
year ended June 30, 1995, previously filed on EDGAR, Accession
Number 0000912057-95-007073.
This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the prospectus/proxy statement
dated September __, 1995 relating to the above-referenced matter. A copy
of the prospectus/proxy statement may be obtained by calling any
PaineWebber investment executive or correspondent firm or by calling
toll-free 1-800-852-4750. This Statement of Additional Information is
dated September __, 1995.
<PAGE>
PAINEWEBBER MUTUAL FUND TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification
Section 2 of "Indemnification" in Article X of the Declaration of
Trust provides that the appropriate series of the Registrant will indemnify
the trustees and officers of the Registrant to the fullest extent permitted
by law against claims and expenses asserted against or incurred by them by
virtue of being or having been a trustee or officer; provided that no such
person shall be indemnified where there has been an adjudication or other
determination, as described in Article X, that such person is liable to the
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office or did not act in good faith in the reasonable
belief that his action was in the best interest of the Registrant. Section
2 of "Indemnification" in Article X also provides that the Registrant may
maintain insurance policies covering such rights of indemnification.
Additionally, "Limitation of Liability" in Article X of the
Declaration of Trust provides that the trustees or officers of the
Registrant shall not be personally liable to any person extending credit
to, contracting with or having a claim against the Registrant or a
particular series; and that, provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the
best interest of the Registrant, the trustees and officers shall not be
liable for neglect or wrongdoing by them or any officer, agent, employee or
investment adviser of the Registrant.
Section 2 of Article XI of the Declaration of Trust additionally
provides that, subject to the provisions of Section 1 of Article XI and to
Article X, trustees shall not be liable for errors of judgement or mistakes
of fact or law, for any act or omission in accordance with advice of
counsel or other experts, or for failing to follow such advice, with
respect to the meaning and operation of the Declaration of Trust.
Article IX of the By-Laws provides that the Registrant may purchase
and maintain insurance on behalf of any person who is or was a trustee,
officer or employee of the Registrant, or is or was serving at the request
of the Registrant as a trustee, officer or employee of a corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising
out of his status as such, whether or not the Registrant would have the
power to indemnify him against such liability to the Registrant or its
shareholders, provided that the Registrant may not purchase or maintain
insurance that protects any such person against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of his office.
Section 9 of the Investment Advisory and Administration Contract
("Contract") provides that Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins") shall not be liable for any error of judgement or
mistake of law or for any loss suffered by any series of the Registrant in
connection with the matters to which the Contract relates, except for a
loss resulting from the willful misfeasance, bad faith, or gross negligence
of Mitchell Hutchins in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 10 of
the Contract provides that the trustees shall not be liable for any
obligations of any series or the Registrant under the Contract and that
Mitchell Hutchins shall look only to the assets and property of the
Registrant or appropriate series in settlement of such right or claim and
not to the assets and property of the trustees.
Section 9 of each Distribution Contract provides that the Registrant
will indemnify Mitchell Hutchins and its officers, directors and
controlling persons against all liabilities arising from any alleged untrue
statement of material fact in the Registration Statement or from any
alleged omission to state in the Registration Statement a material fact
required to be stated in it or necessary to make the statements in it, in
light of the circumstances under which they were made, not misleading,
except insofar as liability arises from untrue statements or omissions made
in reliance upon and in conformity with information furnished by Mitchell
Hutchins to the Registrant for use in the
<PAGE>
Registration Statement; and provided that this indemnity agreement shall
not protect any such persons against liabilities arising by reason of their
bad faith, gross negligence or willful misfeasance; and shall not inure to
the benefit of any such persons unless a court of competent jurisdiction or
controlling precedent determines that such result is not against public
policy as expressed in the Securities Act of 1933. Section 9 of each
Distribution Contract also provides that Mitchell Hutchins agrees to
indemnify, defend and hold the Registrant, its officers and trustees free
and harmless of any claims arising out of any alleged untrue statement or
any alleged omission of material fact contained in information furnished by
Mitchell Hutchins for use in the Registration Statement or arising out of
an agreement between Mitchell Hutchins and any retail dealer, or arising
out of supplementary literature or advertising used by Mitchell Hutchins in
connection with each Distribution Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of the relevant Distribution Contract, with respect to
PaineWebber Incorporated ("PaineWebber").
Section 6 of the Service Contract provides that PaineWebber shall be
indemnified and held harmless by the Registrant against all liabilities,
except those arising out of bad faith, gross negligence, willful
misfeasance or reckless disregard of its duties under the Service Contract.
Section 10 of each Distribution Contract and Section 7 of the Service
Contract contain provisions similar to Section 10 of the Investment
Advisory and Administration Contract, applicable to Mitchell Hutchins and
PaineWebber, respectively.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to trustees, officers
and controlling persons of the Registrant, pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the
Registrant by such trustee, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(b) Exhibits:
(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 2/
-
(c) Amendment effective March 21, 1991 to Declaration of Trust 3/
-
(d) Amendment effective July 1, 1991 to Declaration of Trust 4/
-
(e) Amendment effective April 6, 1992 to Declaration of Trust 5/
-
(f) Amendment effective June 30, 1992 to Declaration of Trust 6/
-
(g) Amendment effective July 20, 1995 to Declaration of Trust
(filed herewith)
(2) (a) By-Laws 1/
-
(b) Amendment dated March 19, 1991 to By-Laws 3/
-
(c) Amendment dated September 28, 1994 to By-Laws 7/
-
(3) Voting trust agreement - none
(4) Agreement and Plan of Reorganization and Termination (filed
herewith)
(5) Instruments defining the rights of holders of Registrant's
shares of beneficial interest 8/
-
(6) Investment Advisory and Administration Contract 9/
-
(7) (a) Distribution Contract (Class A Shares) 10/
--
<PAGE>
(b) Distribution Contract (Class B Shares) 10/
--
(c) Distribution Contract (Class D Shares) 10/
--
(d) Exclusive Dealer Agreement (Class A Shares) 10/
--
(e) Exclusive Dealer Agreement (Class B Shares) 10/
--
(f) Exclusive Dealer Agreement (Class D Shares) 10/
--
(8) Bonus, profit sharing or pension plans - none
(9) Custodian Agreement 11/
--
(10) (a) Plan pursuant to Rule 12b-1 (Class A Shares) 4/
-
(b) Plan pursuant to Rule 12b-1 (Class B Shares) 4/
-
(c) Plan pursuant to Rule 12b-1 (Class D Shares) 6/
-
(d) Rule 18f-3 Plan (filed herewith)
(11) (a) Opinion and consent of counsel Kirkpatrick & Lockhart LLP
regarding the legality of the securities being
registered (filed herewith)
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters (filed herewith)
(b) Opinion and consent of Willkie Farr & Gallagher regarding
certain tax matters (filed herewith)
(13) (a) Transfer Agency and Service Contract 12/
--
(b) Service Contract 13/
--
(14) (a) Consent of Ernst & Young LLP (filed herewith)
(b) Consent of Deloitte & Touche LLP (filed herewith)
(15) Omitted financial statements - none
(16) Signed copies of power of attorney - incorporated in signature
page
(17) (a) Declaration of Rule 24f-2 (filed herewith)
(b) Proxy Card (filed herewith)
(c) Financial Data Schedule (filed herewith)
- ----------------------
1/ Incorporated by Reference from Post-Effective Amendment No. 3 to
- -
registration statement, SEC File No. 2-98149, filed January 30, 1987.
2/ Incorporated by Reference from Post-Effective Amendment No. 6 to
- -
registration statement, SEC File No. 2-98149, filed March 31, 1988.
3/ Incorporated by Reference from Post-Effective Amendment No. 10 to
- -
registration statement, SEC File No. 2-98149, filed March 28, 1991.
4/ Incorporated by Reference from Post-Effective Amendment No. 12, SEC
- -
File No. 2-98149, filed March 31, 1992.
5/ Incorporated by Reference from Post-Effective Amendment No. 13, SEC
- -
File No. 2-89-16, filed April 29, 1992.
6/ Incorporated by Reference from Post-Effective Amendment No. 14 to
- -
registration statement of PaineWebber Mutual Fund Trust, SEC File No.
2-98149, filed April 1, 1993.
7/ Incorporated by Reference from Post-Effective Amendment No. 7 to
- -
registration statement, SEC File No. 2-98149, filed June 30, 1995.
<PAGE>
8/ Incorporated by Reference from Articles III, VIII, IX, X and XI of
- -
Registrant's Declaration of Trust, as amended effective January 28,
1988, March 21, 1991, July 1, 1991, April 6, 1992 and June 30, 1992
and from Articles II, VII, X of the Registrant's By-Laws, as amended
September 28, 1994.
9/ Incorporated by Reference from Post-Effective Amendment
- -
No. 7 to registration statement, SEC File No. 2-98149, filed March 31,
1989.
10/ Incorporated by Reference from Post-Effective Amendment No. 16 to
- --
registration statement of PaineWebber Mutual Fund Trust, SEC File No.
2-98149, filed July 1, 1994.
11/ Incorporated by Reference from Post-Effective Amendment No. 5 to
- --
registration statement, SEC File No. 2-98149, filed February 1, 1988.
12/ Incorporated by Reference from Post-Effective Amendment No.
- --
9 to registration statement, SEC File No. 2-98149, filed February 1,
1991.
13/ Incorporated by Reference from Post-Effective Amendment No. 8 to
- --
registration statement, SEC File No. 2-98149, filed March 30, 1990.
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by
the applicable registration form for reoffering by persons who
may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the
City of New York and the State of New York, on this 25th day of August,
1995.
PaineWebber Mutual Fund Trust
By: /s/ Dianne E. O'Donnell
---------------------------
Dianne E. O'Donnell
Vice President, Secretary
Each of the undersigned trustees and officers of PaineWebber Mutual
Fund Trust ("Series") hereby severally constitutes and appoints Victoria E.
Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Elinor W. Gammon and
Robert A. Wittie, and each of them singly, our true and lawful attorneys,
with full power to them to sign for each of us, and in each of our names
and in the capacities indicated below, any and all amendments to the
Registration Statement of the Series, and all instruments necessary or
desirable in connection therewith, filed with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
--------- -----
/s/ Margo N. Alexander President August 25, 1995
---------------------------- (Chief Executive
Margo N. Alexander Officer)
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman August 25, 1995
----------------------------- of the Board of
E. Garrett Bewkes, Jr. Trustees
/s/ Meyer Feldberg Trustee August 25, 1995
-----------------------------
Meyer Feldberg
/s/ George W. Gowen Trustee August 25, 1995
----------------------------
George W. Gowen
/s/ Frederic V. Malek Trustee August 25, 1995
-----------------------------
Frederic V. Malek
/s/ Frank P. L. Minard Trustee August 25, 1995
----------------------------
Frank P. L. Minard
/s/ Judith Davidson Moyers Trustee August 25, 1995
----------------------------
Judith Davidson Moyers
/s/ Thomas F. Murray Trustee August 25, 1995
----------------------------
Thomas F. Murray
/s/ Julian F. Sluyters Vice President and August 25, 1995
------------------------------- Treasurer (Principal
Julian F. Sluyters Financial and
Accounting
Officer)
<PAGE>
PAINEWEBBER MUTUAL FUND TRUST
EXHIBIT INDEX
-------------
Exhibit Number Page
- -------------- -----
(1) (a) Declaration of Trust 1/
-
(b) Amendment effective January 28, 1988 to Declaration of Trust 2/
-
(c) Amendment effective March 21, 1991 to Declaration of Trust 3/
-
(d) Amendment effective July 1, 1991 to Declaration of Trust 4/
-
(e) Amendment effective April 6, 1992 to Declaration of Trust 5/
-
(f) Amendment effective June 30, 1992 to Declaration of Trust 6/
-
(g) Amendment effective July 20, 1995 to Declaration of Trust
(filed herewith)
(2) (a) By-Laws 1/
-
(b) Amendment dated March 19, 1991 to By-Laws 3/
-
(c) Amendment dated September 28, 1994 to By-Laws 7/
-
(3) Voting trust agreement - none
(4) Agreement and Plan of Reorganization and Termination (filed
herewith)
(5) Instruments defining the rights of holders of Registrant's
shares of beneficial interest 8/
-
(6) Investment Advisory and Administration Contract 9/
-
(7) (a) Distribution Contract (Class A Shares) 10/
--
<PAGE>
(b) Distribution Contract (Class B Shares) 10/
--
(c) Distribution Contract (Class D Shares) 10/
--
(d) Exclusive Dealer Agreement (Class A Shares) 10/
--
(e) Exclusive Dealer Agreement (Class B Shares) 10/
--
(f) Exclusive Dealer Agreement (Class D Shares) 10/
--
(8) Bonus, profit sharing or pension plans - none
(9) Custodian Agreement 11/
--
(10) (a) Plan pursuant to Rule 12b-1 (Class A Shares) 4/
-
(b) Plan pursuant to Rule 12b-1 (Class B Shares) 4/
-
(c) Plan pursuant to Rule 12b-1 (Class D Shares) 6/
-
(d) Rule 18f-3 Plan (filed herewith)
(11) (a) Opinion and consent of counsel Kirkpatrick & Lockhart LLP
regarding the legality of the securities being
registered (filed herewith)
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters (filed herewith)
(b) Opinion and consent of Willkie Farr & Gallagher regarding
certain tax matters (filed herewith)
(13) (a) Transfer Agency and Service Contract 12/
--
(b) Service Contract 13/
--
(14) (a) Consent of Ernst & Young LLP (filed herewith)
(b) Consent of Deloitte & Touche LLP (filed herewith)
(15) Omitted financial statements - none
(16) Signed copies of power of attorney - incorporated in signature
page
(17) (a) Declaration of Rule 24f-2 (filed herewith)
(b) Proxy Card (filed herewith)
(c) Financial Data Schedule (filed herewith)
- ----------------------
1/ Incorporated by Reference from Post-Effective Amendment No. 3 to
- -
registration statement, SEC File No. 2-98149, filed January 30, 1987.
2/ Incorporated by Reference from Post-Effective Amendment No. 6 to
- -
registration statement, SEC File No. 2-98149, filed March 31, 1988.
3/ Incorporated by Reference from Post-Effective Amendment No. 10 to
- -
registration statement, SEC File No. 2-98149, filed March 28, 1991.
4/ Incorporated by Reference from Post-Effective Amendment No. 12, SEC
- -
File No. 2-98149, filed March 31, 1992.
5/ Incorporated by Reference from Post-Effective Amendment No. 13, SEC
- -
File No. 2-89-16, filed April 29, 1992.
6/ Incorporated by Reference from Post-Effective Amendment No. 14 to
- -
registration statement of PaineWebber Mutual Fund Trust, SEC File No.
2-98149, filed April 1, 1993.
7/ Incorporated by Reference from Post-Effective Amendment No. 7 to
- -
registration statement, SEC File No. 2-98149, filed June 30, 1995.
<PAGE>
8/ Incorporated by Reference from Articles III, VIII, IX, X and XI of
- -
Registrant's Declaration of Trust, as amended effective January 28,
1988, March 21, 1991, July 1, 1991, April 6, 1992 and June 30, 1992
and from Articles II, VII, X of the Registrant's By-Laws, as amended
September 28, 1994.
9/ Incorporated by Reference from Post-Effective Amendment
- -
No. 7 to registration statement, SEC File No. 2-98149, filed March 31,
1989.
10/ Incorporated by Reference from Post-Effective Amendment No. 16 to
- --
registration statement of PaineWebber Mutual Fund Trust, SEC File No.
2-98149, filed July 1, 1994.
11/ Incorporated by Reference from Post-Effective Amendment No. 5 to
- --
registration statement, SEC File No. 2-98149, filed February 1, 1988.
12/ Incorporated by Reference from Post-Effective Amendment No.
- --
9 to registration statement, SEC File No. 2-98149, filed February 1,
1991.
13/ Incorporated by Reference from Post-Effective Amendment No. 8 to
- --
registration statement, SEC File No. 2-98149, filed March 30, 1990.
EXHIBIT 1(g)
PAINEWEBBER MUTUAL FUND TRUST
CERTIFICATE OF VICE PRESIDENT AND ASSISTANT SECRETARY
I, Gregory K. Todd, Vice President and Assistant Secretary of
PaineWebber Mutual Fund Trust ("Trust"), hereby certify that the trustees
of the Trust, by vote at a meeting held July 20, 1995, adopted the
following resolutions, which became effective on that date:
RESOLVED, that the board hereby establishes an unlimited number of
shares of beneficial interest of each of the Series of the Trust known as
the PaineWebber California Tax-Free Income Fund and PaineWebber National
Tax-Free Income Fund as Class C shares; and be it further
RESOLVED, that the Class A, Class B, Class C, and Class D shares of
each Series of the Trust shall have the same preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of shares, except as
provided in the Trust's Declaration of Trust and as set forth in
resolutions previously adopted by the board with respect to such shares.
Dated: August 23, 1995 By:/s/ Gregory K. Todd
----------------------
Gregory K. Todd
Vice President and
Assistant Secretary
PaineWebber Mutual
Fund Trust
New York, New York (ss)
Subscribed and sworn before me this 23rd day of August, 1995.
/s/ Karyn Freeman
- ------------------------
Notary Public
Exhibit 4
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
----------------------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of August 24, 1995, between PaineWebber Mutual
Fund Trust, a Massachusetts business trust ("PW Trust"), on behalf of
PaineWebber National Tax-Free Income Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), and Mitchell Hutchins/Kidder,
Peabody Investment Trust II, a Massachusetts business trust ("MH/KP
Trust"), on behalf of its Mitchell Hutchins/Kidder, Peabody Municipal Bond
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
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 Acquiring Fund Shares to the holders
of shares of beneficial interest in Target ("Target Shares") in exchange
therefor, all upon the terms and conditions set forth herein. The
foregoing transactions are referred to herein as the "Reorganization." All
agreements, representations, actions, and obligations described herein made
or to be taken or undertaken by either Fund are made and shall be taken or
undertaken by PW Trust on behalf of Acquiring Fund and by MH/KP Trust on
behalf of Target.
Acquiring Fund's shares are divided into four classes, designated
Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares,"
and "Class D Acquiring Fund Shares," respectively). (Acquiring Fund is
establishing Class C expressly for the purpose of facilitating the
Reorganization -- Class C Acquiring Fund Shares are to be exchanged, in
effect, for Class C Target
<PAGE>
Shares (defined below) as part of the Reorganization.) Except as noted
in the following sentence, these classes differ only with respect to the
sales charges imposed on the purchase of shares and the fees ("12b-1 fees")
payable by each class pursuant to plans adopted under Rule 12b-1
promulgated under the Investment Company Act of 1940 ("1940 Act"), as
follows: (1) Class A Acquiring Fund Shares are offered at net asset value
("NAV") plus a sales charge, if applicable, and are subject to a 12b-1
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the class ("class assets"); (2) Class B Acquiring Fund
Shares are offered at NAV without imposition of any sales charge and are
subject to a contingent deferred sales charge and 12b-1 service and
distribution fees at the respective annual rates of 0.25% and 0.75% of
class assets; (3) Class C Acquiring Fund Shares will be offered to a
limited class of offerees at NAV without imposition of any sales charge
and will not be subject to any 12b-1 fee; and (4) Class D Acquiring Fund
Shares are offered at NAV without imposition of any sales charge and are
subject to 12b-1 service and distribution fees at the respective annual
rates of 0.25% and 0.50% of class assets. These classes also may differ
from one another with respect to the allocation of certain class-specific
expenses other than 12b-1 fees. Only Classes A, C, and D Acquiring Fund
Shares are involved in the Reorganization.
Target's shares are divided into three classes, designated Class A,
Class B, and Class C shares ("Class A Target Shares," "Class B Target
Shares," and "Class C Target Shares," respectively). These classes are
substantially similar to the Class A, Class D, and Class C Acquiring Fund
Shares, respectively (though Class A Target Shares and Class A Acquiring
Fund Shares are subject to different maximum initial sales charges).
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET
------------------------------------------------
1.1. Target agrees to assign, sell, convey, transfer, and deliver all
of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund.
Acquiring Fund agrees in exchange therefor --
2
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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
3
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deduction for dividends paid), net interest income excludable from gross
income under section 103(a) of the Code, and realized net capital gain, if
any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall constructively distribute the Acquiring Fund
Shares received by it pursuant to paragraph 1.1 to Target's shareholders of
record, determined as of the Effective Time (collectively "Shareholders"
and individually a "Shareholder"), in exchange for their Target Shares.
Such distribution shall be accomplished by the Funds' transfer agent
("Transfer Agent") opening accounts on Acquiring Fund's share transfer
books in the Shareholders' names and transferring such Acquiring Fund
Shares thereto. Each Shareholder's account shall be credited with the
respective pro rata number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder, by class (i.e.,
the account for a Shareholder of Class A Target Shares shall be credited
with the respective pro rata number of Class A Acquiring Fund Shares due
that Shareholder, the account for a Shareholder of Class B Target Shares
shall be credited with the respective pro rata number of Class D Acquiring
Fund Shares due that Shareholder, and the account for a Shareholder of
Class C Target Shares shall be credited with the respective pro rata number
of Class C Acquiring Fund Shares due that Shareholder). All outstanding
Target Shares, including any represented by certificates, shall
simultaneously be canceled on Target's share transfer records. Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with the Reorganization.
1.6. As soon as reasonably practicable after distribution of the
Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated
as a series of MH/KP Trust and any further actions shall be taken in
connection therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is
and shall remain its responsibility up to and including the date on which
it is terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund
Shares in a name other than that of the registered holder on Target's books
of the Target Shares constructively exchanged there-
4
<PAGE>
for shall be paid by the person to whom such Acquiring Fund Shares are to
be issued, as a condition of such transfer.
2. VALUATION
---------
2.1. For purposes of paragraph 1.1(a), Target's net value shall be
(a) the value of the Assets computed as of the close of regular trading on
the New York Stock Exchange, Inc. ("NYSE") on the date of the Closing
("Valuation Time"), using the valuation procedures set forth in Target's
then-current prospectus and 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 November 3, 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.
5
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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 certi-
ficate 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, in-
cluding 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 deli-
ver to the other such bills of sale, checks, assignments, stock certifi-
cates, receipts, or other documents as the other party or its counsel may
reasonably request.
3.4. Each Investment Company shall deliver to the other at the
Closing a certificate executed in its name by its President or a Vice
President in form and substance satisfactory to the recipient and dated the
Effective Time, to the effect that the representations and warranties it
made in this Agreement are true and correct at the Effective Time except as
they may be affected by the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Target represents and warrants as follows:
4.1.1. MH/KP Trust is an unincorporated voluntary association
with transferable shares organized as a business trust under a written
instrument ("Business Trust"); it is duly
6
<PAGE>
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;
7
<PAGE>
4.1.7. Except as disclosed in writing to and accepted by PW
Trust, all material contracts and other commitments of or applicable
to Target (other than this Agreement and investment contracts,
including options, futures, and forward contracts) will be terminated,
or provision for discharge of any liabilities of Target thereunder
will be made, at or prior to the Effective Time, without either Fund's
incurring any liability or penalty with respect thereto and without
diminishing or releasing any rights Target may have had with respect
to actions taken or omitted to be taken by any other party thereto
prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted
by PW Trust, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Target's knowledge) threatened against MH/KP Trust with
respect to Target or any of its properties or assets that, if
adversely determined, would materially and adversely affect Target's
financial condition or the conduct of its business; Target knows of no
facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
4.1.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by all
necessary action on the part of MH/KP Trust's board of trustees, which
has made the determinations required by Rule 17a-8(a) under the 1940
Act; and, subject to approval by Target's shareholders and receipt of
any necessary exemptive relief or no-action assurances requested from
the Securities and Exchange Commission ("SEC") or its staff with
respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement
will constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorgan-
ization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
8
<PAGE>
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
under Subchapter M of the Code ("RIC") 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
9
<PAGE>
Assets shall be invested at all times through the Effective Time in a
manner that ensures compliance with the foregoing;
4.1.15. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A) of the Code;
4.1.16. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers; and
4.1.17. Target will be terminated as soon as reasonably
practicable after the Reorganization, but in all events within six
months after the Effective Time.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. PW Trust is a Business Trust; it is duly organized,
validly existing, and in good standing under the laws of the
Commonwealth of Massachusetts; and a copy of its Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts;
4.2.2. PW Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be
in full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated
series of PW Trust;
4.2.4. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in ex-
change 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 author-
ized and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding
10
<PAGE>
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
11
<PAGE>
body that materially or adversely affects its business or its ability
to consummate the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date hereof by all
necessary action on the part of PW Trust's board of trustees, which
has made the determinations required by Rule 17a-8(a) under the 1940
Act; and, subject to receipt of any necessary exemptive relief or no-
action assurances requested from the SEC or its staff with respect to
sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Acquiring Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganiza-
tion, moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
4.2.10. No governmental consents, approvals, 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;
12
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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 for each
past taxable year since it commenced operations and will continue to
meet all the requirements for such qualification for its current tax-
able year; Acquiring Fund intends to continue to meet all such
requirements for the next taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue addi-
tional 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 busi-
ness in substantially the same manner that Target conducted that busi-
ness 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
13
<PAGE>
invested in the stock and securities of five or fewer issuers; and
4.2.17. Acquiring Fund does not own, directly or indirectly, nor
at the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
4.3. Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as a series of an
open-end investment company. Consequently, its management expects
that the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization will
be de minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities that Target held or was subject
to immediately prior thereto, plus any liabilities and expenses of the
parties incurred in connection with the Reorganization;
14
<PAGE>
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.
15
<PAGE>
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 State-
ment 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
16
<PAGE>
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.
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
17
<PAGE>
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, in-
solvency, 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 preemp-
18
<PAGE>
tive right to subscribe for or purchase such shares;
6.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate PW Trust's Declaration of Trust or By-Laws or any
provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which PW Trust (with respect
to Acquiring Fund) is a party or by which it is bound or (to the
knowledge of such counsel, without any independent inquiry or
investigation) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which PW Trust (with respect to Acquiring Fund) is a party or by which
it is bound, except as set forth in such opinion or as previously
disclosed in writing to and accepted by MH/KP Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by PW Trust on behalf of Acquiring Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities laws;
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 Acquir-
ing 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.
19
<PAGE>
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an opinion of
competent Massachusetts counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies
thereof without independent verification thereof, (iii) limit such opinion
to applicable federal and state law, and (iv) define the word "knowledge"
and related terms to mean the knowledge of attorneys then with such firm
who have devoted substantive attention to matters directly related to this
Agreement and the Reorganization.
6.5. 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, insol-
vency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general
principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
materially violate 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
20
<PAGE>
MH/KP Trust (with respect to Target) is a party or by which it is
bound, except as set forth in such opinion or as previously disclosed
in writing to and accepted by PW Trust;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or
order of any court or governmental authority is required for the
consummation by MH/KP Trust on behalf of Target of the transactions
contemplated herein, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may be required under
state securities laws;
6.5.5. MH/KP Trust is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued
or proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is pending or threatened as to MH/KP Trust (with respect to
Target) or any of its properties or assets attributable or allocable
to Target and (b) MH/KP Trust (with respect to Target) is not a party
to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects
its business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by PW Trust.
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
21
<PAGE>
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 Ac-
quiring 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 Reorgan-
ization, and Acquiring Fund's holding period for the Assets will in-
clude 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
22
<PAGE>
same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and its
holding period for those Acquiring Fund Shares will include its
holding period for those Target Shares, provided they are held as
capital assets by the Shareholder at the Effective Time.
Notwithstanding subparagraphs 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 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) regis-
tration 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
23
<PAGE>
herewith in each state in which Target's shareholders are resident as of
the date of the mailing of the Proxy Statement to such shareholders;
(d) printing and postage expenses; (e) legal and accounting fees; and
(f) solicitation costs.
8. ENTIRE AGREEMENT; SURVIVAL
--------------------------
Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement
between the parties. The representations, warranties, and covenants
contained herein or in any document delivered pursuant hereto or in
connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
------------------------
This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by Target's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material
breach of any representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition
will not or cannot be met, or (c) if the Closing has not occurred on or
before March 31, 1996; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be
no liability for damages on the part of either Fund, or the trustees or
officers of either Investment Company, to the other Fund.
10. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in such manner
as may be mutually agreed upon in writing by
24
<PAGE>
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.
25
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: PAINEWEBBER MUTUAL FUND TRUST,
on behalf of its series,
PAINEWEBBER NATIONAL TAX-FREE
INCOME FUND
By: /s/ Jennifer Farrell /s/ Dianne E. O'Donnell
----------------------- ------------------------------
Assistant Secretary Vice President
ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY
INVESTMENT TRUST II,
on behalf of its series,
MITCHELL HUTCHINS/KIDDER,
PEABODY MUNICIPAL BOND FUND
By: /s/ S.H. Johnson /s/ Scott Griff
----------------------- ------------------------------
Assistant Secretary Vice President
26
EXHIBIT 10(d)
PAINEWEBBER INVESTMENT SERIES
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
PaineWebber Investment Series, hereby adopts this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act") on behalf of its current operating series, PaineWebber
Global Income Fund, and any series that may be established in the future
(referred to hereinafter collectively as the "Funds" and individually as a
"Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. Class A Shares. Class A shares of each Fund are sold to the
general public subject to an initial sales charge. The initial sales
charge for each Fund is waived for certain eligible purchasers and reduced
or waived for certain large volume purchases.
The maximum sales charge is 4% of the public offering price for Class
A shares of a Fund that invests primarily in debt securities.
The maximum sales charge is 4.5% of the public offering price for
Class A shares of a Fund that invests primarily in equity securities or a
combination of equity and debt securities.
Class A shares of each Fund are subject to an annual service fee of
.25% of the average daily net assets of the Class A shares of each Fund
paid pursuant to a plan of distribution adopted pursuant to Rule 12b-1
under the 1940 Act.
Class A shares of each Fund issued on or after November 1, 1995 will
be subject to a contingent deferred sales charge ("CDSC") on redemptions of
shares (i) purchased without an initial sales charge due to a sales charge
waiver for purchases of $1 million or more and (ii) held less than one
year. The Class A CDSC is equal to 1% of the lower of: (i) the net asset
value of the shares at the time of purchase or (ii) the net asset value of
the shares at the time of redemption. Class A shares of each Fund held one
year or longer and Class A shares of each Fund acquired through
reinvestment of dividends or capital gains distributions on shares
otherwise subject to a Class A CDSC are not subject to the CDSC. The CDSC
for Class A shares of each Fund will be waived under certain circumstances.
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 2
2. Class B Shares. Class B shares of each Fund are sold to the
general public subject to a CDSC, but without imposition of an initial
sales charge.
The maximum CDSC for Class B shares of each Fund is equal to 5% of the
lower of: (i) the net asset value of the shares at the time of purchase or
(ii) the net asset value of the shares at the time of redemption.
Class B shares of each Fund held six years or longer and Class B
shares of each Fund acquired through reinvestment of dividends or capital
gains distributions are not subject to the CDSC.
Class B shares of each Fund are subject to an annual service fee of
.25% of average daily net assets and a distribution fee of .75% of average
daily net assets of the Class B shares of each Fund, each paid pursuant to
a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of each Fund convert to Class A shares approximately
six years after issuance at relative net asset value.
3. Class C Shares. Class C shares are sold without imposition of
an initial sales charge or CDSC and are not subject to any service or
distribution fees.
Class C shares of each Fund are available for purchase only by: (i)
employee benefit and retirement plans, other than individual retirement
accounts and self-employed retirement plans, of Paine Webber Group Inc. and
its affiliates; (ii) certain unit investment trusts sponsored by
PaineWebber Incorporated; (iii) participants in certain wrap fee investment
advisory programs that are currently or in the future sponsored by
PaineWebber Incorporated and that may invest in PaineWebber proprietary
funds, provided that shares are purchased through or in connection with
those programs; and (iv) the holders of Class C shares of any Mitchell
Hutchins/Kidder Peabody ("MH/KP") mutual fund provided that such shares are
issued in connection with the reorganization of a MH/KP mutual fund into
that Fund.
4. Class D Shares. Class D shares of each Fund are sold to the
general public without imposition of a sales charge.
Class D shares of a Fund that invests primarily in equity securities
or a combination of equity and debt securities are subject to an annual
service fee of .25% of average daily net assets and a distribution fee of
.75% of average daily net assets of Class D shares of such
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 3
Fund, each pursuant to a plan of distribution adopted pursuant to Rule 12b-
1 under the 1940 Act.
Class D shares of a Fund that invests primarily in debt securities are
subject to an annual service fee of .25% of average daily net assets and a
distribution fee of .50% of average daily net assets of Class D shares of
such Fund, each pursuant to a plan of distribution adopted pursuant to Rule
12b-1 under the 1940 Act.
Class D shares of a Fund that invests primarily in debt securities
will be subject to a CDSC on redemptions of Class D shares held less than
one year equal to .75% of the lower of: (i) the net asset value of the
shares at the time of purchase or (ii) the net asset value of the shares at
the time of redemption; provided that such CDSC shall apply only to Class D
shares issued on or after November 1, 1995.
Class D shares of a Fund that invests primarily in equity securities
or in a combination of equity and debt securities will be subject to a CDSC
on redemptions of Class D shares held less than one year equal to 1% of the
lower of: (i) the net asset value of the shares at the time of purchase or
(ii) the net asset value of the shares at the time of redemption; provided
that such CDSC shall apply only to Class D shares issued on or after
November 1, 1995.
Class D shares of each Fund held one year or longer and Class D shares
of each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC. The CDSC for Class D shares of
each Fund will be waived under certain circumstances.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of shares
of each Fund ("Class Expenses"). Class Expenses are charged directly to
the net assets of the particular Class and, thus, are borne on a pro rata
basis by the outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a
specific Class;
(2) Blue Sky registration fees incurred by a specific Class of
shares;
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 4
(3) SEC registration fees incurred by a specific Class of
shares;
(4) expenses of administrative personnel and services required
to support the shareholders of a specific Class of shares;
(5) Trustees' fees incurred as a result of issues relating to a
specific Class of shares;
(6) litigation expenses or other legal expenses relating to a
specific Class of shares; and
(7) transfer agent fees identified as being attributable to a
specific Class.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Class B and Class D shares of each Fund may be exchanged for
shares of the corresponding Class of other PaineWebber mutual funds and
MH/KP mutual funds, or may be acquired through an exchange of shares of the
corresponding Class of those funds. Class C shares of the Funds are not
exchangeable.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale
in the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Trustees of PaineWebber Investment
Series, a Fund may alter the nomenclature for the designations of one or
more of its classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms of
the then current prospectus for the applicable Classes; provided, however,
that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Fund contains additional information about the Classes
and each Fund's multiple class structure.
<PAGE>
PaineWebber Investment Series
Multiple Class Plan
Page 5
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective as of the date hereof, provided
that the CDSC imposed on the Class A shares and Class D shares of each Fund
shall apply only to Class A shares and Class D shares issued on or after
November 1, 1995, and further provided that this Plan shall not become
effective with respect to any Fund unless such action has first been
approved by the vote of a majority of the Board and by vote of a majority
of those trustees of the Fund who are not interested persons of PaineWebber
Investment Series.
July 20, 1995
Exhibit 11(a)
August 25, 1995
PaineWebber Mutual Fund Trust
1285 Avenue of the Americas
New York, New York 10019
Dear Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by PaineWebber Mutual Fund Trust ("Trust") of Class A and Class D
shares, and the authorization and issuance of Class C shares, of beneficial
interest (the "Shares") of PaineWebber National Tax-Free Income Fund ("PW
Fund"), a series of the Trust, pursuant to an Agreement and Plan of
Reorganization and Termination ("Plan") between the Trust, on behalf of PW
Fund, and Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund ("MH/KP
Fund"), a series of Mitchell Hutchins/Kidder, Peabody Investment Trust II.
Under the Plan, PW Fund would acquire the assets of MH/KP Fund in
exchange for the Shares and the assumption by PW Fund of MH/KP Fund's
liabilities. In connection with the Plan, the Trust is about to file a
Registration Statement on Form N-14 ("Form N-14") for the purpose of
registering the Shares under the Securities Act of 1933, as amended ("1933
Act") to be issued pursuant to the Plan.
We have examined originals or copies believed by us to be genuine of
the Trust's Declaration of Trust and By-Laws, minutes of meetings of the
Trust's board of trustees, the Plan, and such other documents relating to
the authorization and issuance of the
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 2
Shares as we have deemed relevant. Based upon that examination, we are of
the opinion that the Shares being registered by the Form N-14 may be issued
in accordance with the Plan and the Trust's Declaration of Trust and
By-Laws, subject to compliance with the 1933 Act, the Investment Company
Act of 1940, as amended, and applicable state laws regulating the
distribution of securities, and when so issued, those Shares will be
legally issued, fully paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, Trust shareholders could, under
certain circumstances, be held personally liable for the obligations of the
Trust or a series of the Trust ("Series"), including PW Fund. The Trust's
Declaration of Trust states that the creditors of, contractors with, and
claimants against, the Trust or a Series shall look only to the assets of
that Trust or such Series for payment. It also requires that notice of
such disclaimer be given in each note, bond, contract, certificate,
undertaking or instrument made or issued by the officers or the trustees of
the Trust on behalf of the Trust or a Series. The Declaration of Trust
further provides: (i) for indemnification from Trust or Series assets, as
appropriate, for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust or Series by virtue of ownership of
Shares of a Series; and (ii) for a Series to assume the defense of any
claim against the shareholder for any act or obligation of the Series.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust or a
Series would be unable to meet its obligations.
We hereby consent to this opinion accompanying the Form N-14 that the
Trust plans to file with the Securities and Exchange Commission and to the
reference to our firm under the caption "Miscellaneous -- Legal Matters" in
the Prospectus/Proxy Statement filed as part of the Form N-14.
Sincerely yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Elinor W. Gammon
-------------------------------
Elinor W. Gammon
Exhibit 12(a)
THEODORE L. PRESS
(202) 778-9025
[email protected]
August 25, 1995
PaineWebber Mutual Fund Trust
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
PaineWebber Mutual Fund Trust ("PW Trust"), on behalf of PaineWebber
National Tax-Free Income Fund, a segregated portfolio of assets ("series")
thereof ("Acquiring Fund"), has requested our opinion as to certain federal
income tax consequences of the proposed acquisition by Acquiring Fund of
Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund ("Target"), a series
of Mitchell Hutchins/Kidder, Peabody Investment Trust II ("MH/KP
Trust"),1/ pursuant to an Agreement and Plan of Reorganization and
-
Termination between them dated as of August 24, 1995 ("Plan"), attached as
an exhibit to the prospectus/proxy statement to be furnished in connection
with the solicitation of proxies by MH/KP Trust's board of trustees for use
at a special meeting of Target shareholders ("Special Meeting") to be held
on October 27, 1995 ("Proxy"), included in the registration statement on
Form N-14 to be filed with the Securities and Exchange Commission ("SEC")
on or about the date hereof ("Registration Statement"). Specifically, PW
Trust has requested our opinion:
(1) that the acquisition by Acquiring Fund of Target's
assets in exchange solely for voting shares of beneficial
interest in Acquiring Fund and the assumption by Acquiring Fund
of Target's liabilities, followed by the distribution of those
shares by Target pro rata to its shareholders of record as of the
close of regular trading on the New York Stock Exchange, Inc. on
the date of the Closing (as hereinafter defined) ("Shareholders")
constructively in exchange for their shares of beneficial
interest in Target ("Target Shares") (such transaction sometimes
being referred to herein as the "Reorganization"), will consti-
tute a "reorganization" within the
- --------------------
1/ Acquiring Fund and Target are referred to herein individually either by
- -
such names or as a "Fund" and collectively as the "Funds," and PW Trust and
MH/KP Trust are referred to herein individually either by such names or as
an "Investment Company" and collectively as the "Investment Companies."
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 2
meaning of section 368(a)(1)(C)2/ and that each Fund will be a
-
"party to a reorganization" within the meaning of section 368(b),
(2) that Target, the Shareholders, and Acquiring Fund will
recognize no gain or loss upon the Reorganization, and
(3) regarding the basis and holding period after the Reor-
ganization of the transferred assets and the shares of Acquiring
Fund issued pursuant thereto.
In rendering this opinion, we have examined (1) Target's currently
effective prospectus dated October 28, 1994 (as supplemented August 21,
1995), and statement of additional information ("SAI") dated October 28,
1994, and Acquiring Fund's currently effective prospectus and SAI, both
dated July 1, 1995, (2) the Proxy, (3) the Plan, and (4) such other docu-
ments as we have deemed necessary or appropriate for the purposes hereof.
As to various matters of fact material to this opinion, we have relied,
exclusively and without independent verification, on statements of respon-
sible officers of each Investment Company and the representations described
below and made in the Plan (as contemplated in paragraph 6.6 thereof)
(collectively "Representations").
FACTS
-----
PW Trust is an unincorporated voluntary association with transferable
shares formed as a business trust under the laws of the Commonwealth of
Massachusetts (commonly referred to as a "Massachusetts business trust")
pursuant to a Declaration of Trust dated November 21, 1986; Acquiring Fund
commenced operations as a series thereof on December 3, 1984. MH/KP Trust
is a Massachusetts business trust formed pursuant to a Declaration of Trust
dated August 10, 1992; Target commenced operations as a series thereof on
September 8, 1993. Each Investment Company is registered with the SEC as
an open-end management investment company under the Investment Company Act
of 1940 ("1940 Act"). Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated, serves
as administrator to each Fund, investment manager to Target, and investment
adviser to Acquiring Fund and is the distributor of each Fund's shares.
Target currently offers for sale three classes of shares, designated
Class A, Class B, and Class C shares ("Class A Target Shares," "Class B
Target Shares," and "Class C Target Shares," respectively). Apart from
differences in certain ancillary class-specific expenses, these classes
differ only with respect to the sales charges imposed on the purchase of
shares and the fees ("12b-1 fees") payable by each class pursuant to plans
adopted under Rule 12b-1 promulgated under the 1940 Act.
- --------------------
2/ All section references are to the Internal Revenue Code of 1986, as
- -
amended ("Code"), and all "Treas. Reg. Sec." references are to the regulations
under the Code ("Regulations").
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 3
Acquiring Fund's shares are divided into four classes, designated
Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares,"
and "Class D Acquiring Fund Shares," respectively). Except for possible
differences with respect to the allocation of class-specific expenses other
than 12b-1 fees, these classes differ only with respect to the sales
charges imposed on the purchase of shares and the 12b-1 fees payable by
each class. Only Classes A, C, and D Acquiring Fund Shares are involved in
the Reorganization.
At or immediately before the close of business on the date on which
the Reorganization, together with all related acts necessary to consummate
the same ("Closing") occurs, scheduled for November 3, 1995 (or on such
other date or at such other time as the parties may agree) ("Effective
Time"), Target shall declare and pay to its shareholders a dividend and/or
other distribution in an amount large enough so that it will have distri-
buted substantially all (and in any event not less than 90%) of its invest-
ment company taxable income (computed without regard to any deduction for
dividends paid) and realized net capital gain, if any, for the current tax-
able year through the Effective Time.
The Funds' investment objectives and policies, which are generally
similar, are described in the Proxy and their respective prospectuses and
SAIs. Although there are differences in those objectives and policies,
it is not expected that Acquiring Fund will revise its investment objective
or policies following the Reorganization to reflect Target's. Mitchell
Hutchins believes that all of Target's assets will be consistent with
Acquiring Fund's investment policies and thus can be transferred to and
held by Acquiring Fund pursuant to the Reorganization. If the Reorganization
is approved, however, Target will sell any assets that are inconsistent with
Acquiring Fund's investment policies prior to the Effective Time, and the
proceeds thereof will be held in temporary investments or reinvested in
assets that qualify to be held by Acquiring Fund.
The Reorganization was recommended by Mitchell Hutchins to each
Investment Company's board of trustees (each a "board") at meetings thereof
held on July 20, 1995. In considering the Reorganization, each board made
an extensive inquiry into a number of factors (which are described in the
Proxy, together with Mitchell Hutchins's advice and recommendations to the
boards and the purposes of the Reorganization). Pursuant thereto, each
board approved the Plan, subject to approval of Target's shareholders. In
doing so, each board, including a majority of its members who are not
"interested persons" (as that term is defined in the 1940 Act) of either
Investment Company, determined that the Reorganization is in its Fund's
best interests, that the terms of the Reorganization are fair and reason-
able, and that its Fund's shareholders' interests will not be diluted as a
result of the Reorganization.
The Plan, which specifies that it is intended to be, and is adopted
as, a plan of a reorganization described in section 368(a)(1)(C), provides
in relevant part for the following:
(1) The acquisition by Acquiring Fund of all cash, cash
equivalents, securities, receivables (including interest and
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 4
dividends receivable), claims and rights of action, rights to register
shares under applicable securities laws, books and records, deferred
and prepaid expenses shown as assets on Target's books, and other
property owned by Target at the Effective Time (collectively "Assets")
in exchange solely for
(a) the number of full and fractional (i) Class A
Acquiring Fund Shares determined by dividing the net
value of Target ("Target Value") attributable to the
Class A Target Shares by the net asset value ("NAV") of
a Class A Acquiring Fund Share, (ii) Class D Acquiring
Fund Shares determined by dividing the Target Value
attributable to the Class B Target Shares by the NAV of
a Class D Acquiring Fund Share, and (iii) Class C
Acquiring Fund Shares determined by dividing the Target
Value attributable to the Class C Target Shares by the
NAV of a Class C Acquiring Fund Share, and
(b) Acquiring Fund's assumption of all of Target's
liabilities, debts, obligations, and duties of whatever
kind or nature, whether absolute, accrued, contingent,
or otherwise, whether or not arising in the ordinary
course of business, whether or not determinable at the
Effective Time, and whether or not specifically
referred to in the Plan, including without limitation
Target's share of the expenses incurred in connection
with the Reorganization (collectively "Liabilities")
(Target having agreed in the Plan to use its best
efforts to discharge all of its known liabilities and
obligations prior to the Effective Time),
(2) The constructive distribution of such Acquiring Fund
Shares to the Shareholders, and
(3) The subsequent termination of Target.
The distribution described in (2) will be accomplished by transferring
the Acquiring Fund Shares then credited to Target's account on Acquiring
Fund's share transfer records to open accounts on those records established
in the Shareholders' names, with each Shareholder's account being credited
with the respective pro rata number of full and fractional (rounded to
three decimal places) Acquiring Fund Shares due such Shareholder, by class.
All outstanding Target Shares, including any represented by certificates,
simultaneously will be canceled on Target's share transfer records.
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 5
REPRESENTATIONS
---------------
The representations enumerated below have been made to us by
appropriate officers of each Investment Company.
Each of PW Trust, on behalf of Acquiring Fund, and MH/KP Trust, on
behalf of Target, has represented and warranted to us as follows:
1. The fair market value of the Acquiring Fund Shares, when re-
ceived by the Shareholders, will be approximately equal to the fair
market value of their Target Shares constructively surrendered in
exchange therefor;
2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at
the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as a series of an
open-end investment company. Consequently, its management expects
that the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization will
be de minimis. Nor does its management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject
to substantially the same liabilities that Target held or was subject
to immediately prior thereto, plus any liabilities and expenses of the
parties incurred in connection with the Reorganization;
5. The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by Acquiring Fund
and those to which the Assets are subject;
6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
7. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by Target immediately before
the Reorganization. For the purposes of this representation, any
amounts used by Target to pay its Reorganization expenses and
redemptions and distributions made by it immediately before the
Reorganization (except for (a) distributions made to conform to its
policy of distributing all or substantially all of its
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 6
income and gains to avoid the obligation to pay federal income tax
and/or the excise tax under section 4982 and (b) redemptions not made
as part of the Reorganization) will be included as assets thereof held
immediately before the Reorganization;
8. None of the compensation received by any Shareholder who is
an employee of Target will be separate consideration for, or allocable
to, any of the Target Shares held by such Shareholder-employee; none
of the Acquiring Fund Shares received by any such Shareholder-employee
will be separate consideration for, or allocable to, any employment
agreement; and the consideration paid to any such Shareholder-employee
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services; and
9. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the
meaning of section 304(c).
MH/KP Trust also has represented and warranted to us on behalf of
Target as follows:
1. The Liabilities were incurred by Target in the ordinary
course of its business;
2. Target is a "fund" as defined in section 851(h)(2); it
qualified for treatment as a regulated investment company ("RIC")
under Subchapter M of the Code ("Subchapter M") for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; and
it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it;
3. Target is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case
within the meaning of section 368(a)(3)(A);
4. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock 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
5. Target will be terminated as soon as reasonably practicable
after the Reorganization, but in all events within six months after
the Effective Time.
PW Trust also has represented and warranted to us on behalf of
Acquiring Fund as follows:
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 7
1. Acquiring Fund is a "fund" as defined in section 851(h)(2);
it qualified for treatment as a RIC under Subchapter M for each past
taxable year since it commenced operations and will continue to meet
all the requirements for such qualification for its current taxable
year; Acquiring Fund intends to continue to meet all such requirements
for the next taxable year; and it has no earnings and profits accu-
mulated in any taxable year in which the provisions of Subchapter M
did not apply to it;
2. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-
end investment company; nor does Acquiring Fund have any plan or
intention to redeem or otherwise reacquire any Acquiring Fund Shares
issued to the Shareholders pursuant to the Reorganization, other than
through redemptions arising in the ordinary course of that business;
3. Acquiring Fund (a) will actively continue Target's business
in substantially the same manner that Target conducted that business
immediately before the Reorganization, (b) has no plan or intention to
sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC under
Subchapter M, and (c) expects to retain substantially all the Assets
in the same form as it receives them in the Reorganization, unless and
until subsequent investment circumstances suggest the desirability of
change or it becomes necessary to make dispositions thereof to
maintain such status;
4. There is no plan or intention for Acquiring Fund to be dis-
solved or merged into another corporation or business trust or any
"fund" thereof (within the meaning of section 851(h)(2)) following the
Reorganization;
5. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash
items, and U.S. government securities) will be invested in the stock
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
6. Acquiring fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it
owned, directly or indirectly, at any time during the past five years,
any shares of Target.
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 8
OPINION
-------
Based solely on the facts set forth above, and conditioned on (1) the
Representations being true at the time of Closing and (2) the Reor-
ganization being consummated in accordance with the Plan, our opinion (as
explained more fully in the next section of this letter) is as follows:
1. Acquiring Fund's acquisition of the Assets solely in exchange
for the Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares pro
rata to the Shareholders constructively in exchange for their Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C), and each Fund will be "a party to a reorganization"
within the meaning of section 368(b);
2. No gain or loss will be recognized to Target on the transfer
of the Assets to Acquiring Fund solely in exchange for the Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities or upon
the subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares (section 361);
3. No gain or loss will be recognized to Acquiring Fund on its
receipt of the Assets solely in exchange for the Acquiring Fund Shares
and its assumption of the Liabilities (section 1032(a));
4. Acquiring Fund's basis for the Assets will be the same as the
basis thereof in Target's hands immediately before the Reorganization
(section 362(b)), and Acquiring Fund's holding period for the Assets
will include Target's holding period therefor (section 1223(2));
5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization (section 354(a)); and
6. A Shareholder's basis for the Acquiring Fund Shares to be re-
ceived by it in the Reorganization will be the same as the basis for
its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares (section 358(a)), and its holding period
for those Acquiring Fund Shares will include its holding period for
those Target Shares, provided they are held as capital assets by the
Shareholder on the Closing Date (section 1223(1)).
The foregoing opinion (1) is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the Regulations,
judicial decisions, and rulings and other pronouncements of the Internal
Revenue Service ("Service") in existence on the date hereof and (2) is
applicable only to the extent each Fund is solvent. We express no opinion
about the tax treatment of the transactions described herein if either Fund
is insolvent.
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 9
ANALYSIS
--------
I. The Reorganization Will Be a Reorganization under Section
---------------------------------------------------------
368(a)(1)(C), and Each Fund Will Be a Party to a Reorganization.
---------------------------------------------------------------
A. Each Fund Is a Separate Corporation.
-----------------------------------
A reorganization under section 368(a)(1)(C) (a "C reorganization")
involves the acquisition by one corporation, in exchange solely for all or
a part of its voting stock, of substantially all of the properties of
another corporation. For the transaction to qualify under that section,
therefore, both entities involved therein must be corporations (or associ-
ations taxable as corporations). Each Investment Company, however, is a
Massachusetts business trust, not a corporation, and each Fund is a sepa-
rate series thereof.
Treasury Regulation section 301.7701-4(b) provides that certain
arrangements known as trusts (because legal title is conveyed to trustees
for the benefit of beneficiaries) will not be classified as trusts for
purposes of the Code because they are not simply arrangements to protect or
conserve the property for the beneficiaries. These "business or commercial
trusts" are created simply as devices to carry on profit-making businesses
that normally would have been carried on through corporations or partner-
ships. Treasury Regulation section 301.7701-4(c) further provides that an
"`investment' trust will not be classified as a trust if there is a power
under the trust agreement to vary the investment of the certificate
holders." See Commissioner v. North American Bond Trust, 122 F.2d 545 (2d
--- -----------------------------------------
Cir. 1941), cert. denied, 314 U.S. 701 (1942).
------------
Based on these criteria, neither Investment Company qualifies as a
trust for federal income tax purposes. While each Investment Company is an
"investment trust," it does not have a fixed pool of assets -- each Fund
has been a managed portfolio of securities, and its investment adviser has
had the authority to buy and sell securities for it. Neither Investment
Company is simply an arrangement to protect or conserve property for the
beneficiaries, but each is designed to carry on a profit-making business.
In addition, the word "association" has long been held to include
"Massachusetts business trusts," such as the Investment Companies. See
---
Hecht v. Malley, 265 U.S. 144 (1924). Accordingly, we believe that each
- ---------------
Investment Company will be treated as a corporation for federal income tax
purposes.
Neither Investment Company as such, however, is participating in the
Reorganization, but rather series of each of them are the participants.
Ordinarily, a transaction involving segregated pools of assets (such as the
Funds) could not qualify as a reorganization, because the pools would not
be corporations. Under section 851(h), however, each Fund is treated as a
separate corporation for all purposes of the Code save the definitional re-
quirement of section 851(a) (which is satisfied by each Investment
Company). Thus, we believe that each Fund will be a separate corporation,
and each Fund's shares will be treated as shares of corporate stock, for
purposes of section 368(a)(1)(C).
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 10
B. Satisfaction of Section 368(a)(2)(F).
------------------------------------
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (other than subparagraph (E) thereof) are
"investment companies," the transaction will not be considered a reorgan-
ization with respect to any such investment company or its shareholders
unless, among other things, the investment company is a RIC or --
(1) not more than 25% of the value of its total assets is
invested in the stock and securities of any one issuer
and
(2) not more than 50% of the value of its total assets is
invested in the stock and securities of five or fewer
issuers.
Each Fund will meet the requirements for qualification and treatment as a
RIC for its respective current taxable year, and the foregoing percentage
tests will be satisfied by each Fund. Accordingly, we believe that section
368(a)(2)(F) will not cause the Reorganization to fail to qualify as a C
reorganization with respect to either Fund.
C. Transfer of "Substantially All" of the Properties.
-------------------------------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the
transferor corporation solely in exchange for all or part of the acquiring
corporation's stock. For purposes of issuing private letter rulings, the
Service considers the transfer of at least 70% of the transferor's gross
assets, and at least 90% of its net assets, held immediately before the
reorganization to satisfy the "substantially all" requirement. Rev. Proc.
77-37, 1977-2 C.B. 568. The Reorganization will involve such a transfer.
Accordingly, we believe that the Reorganization will involve the transfer
to Acquiring Fund of substantially all of Target's properties.
D. Qualifying Consideration.
------------------------
For an acquisition to qualify as a C reorganization, the acquiring
corporation must acquire at least 80% (by fair market value) of the
transferor's property solely in exchange for voting stock. Section
368(a)(2)(B)(iii). The assumption of liabilities by the acquiring
corporation or its acquisition of property subject to liabilities normally
are disregarded (section 368(a)(1)(C)), but the amount of any such
liabilities will be treated as money paid for the transferor's property if
the acquiring corporation exchanges any money or property (other than its
voting stock) therefor. Section 368(a)(2)(B). Because Acquiring Fund will
exchange only the Acquiring Fund Shares, and no money or other property,
for the Assets, we believe that the Reorganization will satisfy the solely-
for-voting-stock requirement to qualify as a C reorganization.
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 11
E. Requirements of Continuity.
--------------------------
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to
a valid reorganization: (1) a continuity of the business enterprise under
the modified corporate form ("continuity of business") and (2) a continuity
of interest therein on the part of those persons who, directly or
indirectly, were the owners of the enterprise prior to the reorganization
("continuity of interest").
1. Continuity of Business.
----------------------
The continuity of business enterprise test as set forth in Treas. Reg.
Sec. 1.368-1(d)(2) requires that the acquiring corporation must either
(i) continue the acquired corporation's historic business ("business
continuity") or (ii) use a significant portion of the acquired
corporation's historic business assets in a business ("asset continuity").
While there is no authority that deals directly with the requirement
of continuity of business in the context of a transaction such as the Reor-
ganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in
municipal securities. P acquired the assets of T in exchange for P common
stock in a transaction that was intended to qualify as a C reorganization.
Prior to the exchange, T sold its entire portfolio of corporate securities
and purchased a portfolio of municipal bonds. The Service held that this
transaction did not qualify as a reorganization for the following reasons:
(1) because T had sold its historic assets prior to the exchange, there was
no asset continuity; and (2) the failure of P to engage in the business of
investing in corporate securities after the exchange caused the transaction
to lack business continuity as well.
The Funds' investment objectives and policies are generally similar.
Furthermore, Acquiring Fund will actively continue Target's business in the
same manner that Target conducted it immediately before the Reorganization.
Accordingly, there will be business continuity.
Acquiring Fund not only will continue Target's historic business, but
Acquiring Fund also (1) has no plan or intention to sell or otherwise dis-
pose of any of the Assets, except for dispositions made in the ordinary
course of its business and dispositions necessary to maintain its status as
a RIC, and (2) expects to retain substantially all the Assets in the same
form as it receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status. Although
there are some differences in the Funds' investment policies, Mitchell
Hutchins believes that most, if not all, of Target's assets will be
consistent with Acquiring Fund's investment policies and thus can be
transferred to and held by Acquiring Fund pursuant to the Reorganization.
Accordingly, there will be asset continuity as well.
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 12
For all the foregoing reasons, we believe that the Reorganization will
meet the continuity of business requirement.
2. Continuity of Interest.
----------------------
For purposes of issuing private letter rulings, the Service considers
the continuity of interest requirement of Treas. Reg. Sec. 1.368-1(b)
satisfied if ownership in an acquiring corporation on the part of a
transferor corporation's former shareholders is equal in value to at least
50% of the value of all the formerly outstanding shares of the transferor
corporation. Rev. Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2
----- --- ---
C.B. 206 (continuity of interest was held to exist in a reorganization of
two RICs where immediately after the reorganization 26% of the shares were
redeemed in order to allow investment in a third RIC); also see Reef Corp.
---- --- ----------
v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert. denied, 386 U.S. 1018
- --------------- ------------
(1967) (a redemption of 48% of a transferor corporation's stock was not a
sufficient shift in proprietary interest to disqualify a transaction as a
reorganization under section 368(a)(2)(F) ("F Reorganization"), even though
only 52% of the transferor's shareholders would hold all the transferee's
stock); Aetna Casualty and Surety Co. v. U.S., 568 F.2d 811, 822-23 (2d
-------------------------------------
Cir. 1976) (redemption of a 38.39% minority interest did not prevent a
transaction from qualifying as an F Reorganization); Rev. Rul. 61-156,
1961-2 C.B. 62 (a transaction qualified as an F Reorganization even though
the transferor's shareholders acquired only 45% of the transferee's stock,
while the remaining 55% of that stock was issued to new shareholders in a
public underwriting immediately after the transfer).
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev.
Rul. 66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of
ownership for a period of time sufficient to warrant the conclusion that
such ownership is definite and substantial" will suffice and that
"ordinarily, the Service will treat five years of unrestricted . . .
ownership as a sufficient period" for continuity of interest purposes.
A preconceived plan or arrangement by or among an acquired cor-
poration's shareholders to dispose of more than 50% of an acquiring
corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any
part of the shares received by them in the reorganization without fear of
breaking continuity of interest, because the subsequent sale will be
treated as an independent transaction from the reorganization.
Neither Fund (1) is aware of any plan or intention of Shareholders to
dispose of any portion of the Acquiring Fund Shares to be received by them
in the Reorganization or (2) anticipates dispositions thereof at the time
of or soon after the Reorganization to exceed the usual rate and frequency
of dispositions of shares of Target as a series of an open-end investment
company. Consequently, each Fund expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be de
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 13
minimis. Accordingly, we believe that the Reorganization will meet the
continuity of interest requirement of Treas. Reg. Sec. 1.368-1(b).
F. Distribution by Target.
----------------------
Section 368(a)(2)(G)(i) provides that a transaction will not qualify
as a C reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of
the plan of reorganization. Under the Plan -- which we believe constitutes
a "plan of reorganization" within the meaning of Treas. Reg. Sec. 1.368-2(g) -
- - Target will distribute all the Acquiring Fund Shares to its shareholders
in constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be terminated. Accordingly, we believe
that the requirements of section 368(a)(2)(G)(i) will be satisfied.
G. Business Purpose.
----------------
All reorganizations must meet the judicially imposed requirements of
the "business purpose doctrine," which was established in Gregory v.
----------
Helvering, 293 U.S. 465 (1935), and is now set forth in Treas. Reg. Sec.Sec.
- ---------
1.368-1(b), -1(c), and -2(g) (the last of which provides that, to qualify
as a reorganization, a transaction must be "undertaken for reasons germane
to the continuance of the business of a corporation a party to the reorgan-
ization"). Under that doctrine, a transaction must have a bona fide
business purpose (and not a purpose to avoid federal income tax) to consti-
tute a valid reorganization. The substantial business purposes of the
Reorganization are described in the Proxy. Accordingly, we believe that
the Reorganization is being undertaken for bona fide business purposes (and
not a purpose to avoid federal income tax) and therefore meets the require-
ments of the business purpose doctrine.
For all the foregoing reasons, we believe that the Reorganization will
constitute a reorganization within the meaning of section 368(a)(1)(C).
H. Both Funds are Parties to the Reorganization.
--------------------------------------------
Section 368(b)(2) and Treas. Reg. Sec. 1.368-1(f) provide that if one
corporation transfers substantially all of its properties to a second
corporation in exchange for all or a part of the voting stock of the second
corporation, then both corporations are parties to a reorganization.
Target is transferring substantially all of its properties to Acquiring
Fund in exchange for Acquiring Fund Shares. Accordingly, we believe that
each Fund will be "a party to a reorganization."
II. No Gain or Loss Will Be Recognized to Target.
--------------------------------------------
Under sections 361(a) and (c), no gain or loss will be recognized to a
corporation that is a party to a reorganization (1) on the exchange of
property, pursuant to the plan of reorganization, solely for stock or
securities in another corporate party to the reorganization or (2) on the
distribution to its
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 14
shareholders, pursuant to that plan, of stock in such other corporation
that was received by the distributing corporation in the exchange. (Such a
distribution is required by section 368(a)(2)(G)(i) for a reorganization to
qualify as a C reorganization.) Section 361(c)(4) provides that specified
provisions requiring recognition of gain on certain distributions shall not
apply to a distribution described in (2) above.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to
be received under section 361 without recognition of gain if it were the
sole consideration and, as part of the consideration, another party to the
exchange assumes a liability of the taxpayer or acquires from the taxpayer
property subject to a liability, then that assumption or acquisition shall
not be treated as money or other property and shall not prevent the
exchange from being within section 361. Section 357(b) applies where the
principal purpose of the assumption or acquisition was a tax avoidance
purpose or not a bona fide business purpose.
As noted above, the Reorganization will constitute a C reorganization,
each Fund will be a party to a reorganization, and the Plan constitutes a
plan of reorganization. Target will exchange the Assets solely for the
Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities
and then will be terminated pursuant to the Plan, distributing those shares
to its shareholders in constructive exchange for their Target Shares. As
also noted above, we believe that the Reorganization is being undertaken
for bona fide business purposes (and not a purpose to avoid federal income
tax); we also do not believe that the principal purpose of Acquiring Fund's
assumption of the Liabilities is avoidance of federal income tax on the
proposed transaction. Accordingly, we believe that no gain or loss will be
recognized to Target on the Reorganization.3/
-
III. No Gain or Loss Will Be Recognized to Acquiring Fund.
----------------------------------------------------
Section 1032(a) provides that no gain or loss will be recognized to a
corporation on the receipt by it of money or other property in exchange for
its shares. Acquiring Fund will issue the Acquiring Fund Shares to Target
in exchange for the Assets, which consist of money and securities.
Accordingly, we believe that no gain or loss will be recognized to
Acquiring Fund on the Reorganization.
- --------------------
3/ Notwithstanding anything herein to the contrary, 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.
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 15
IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis,
----------------------------------------------------------------
and Its Holding Period Will Include Target's Holding Period.
-----------------------------------------------------------
Section 362(b) provides that property acquired by a corporation in
connection with a reorganization will have the same basis in that
corporation's hands as the basis of the property in the transferor
corporation's hands immediately before the exchange, increased by any gain
recognized to the transferor on the transfer. As noted above, the Reorgan-
ization will constitute a C reorganization and Target will recognize no
gain on the Reorganization under section 361(a). Accordingly, we believe
that Acquiring Fund's basis for the Assets will be the same as the basis
thereof in Target's hands immediately before the Reorganization.
Section 1223(2) provides that where property acquired in an exchange
has a carryover basis, the property will have a holding period in the hands
of the acquiror that includes the holding period of the property in the
transferor's hands. As stated above, Acquiring Fund's basis for the Assets
will be a carryover basis. Accordingly, we believe that Acquiring Fund's
holding period for the Assets will include Target's holding period
therefor.
V. No Gain or Loss Will Be Recognized to a Shareholder.
----------------------------------------------------
Under section 354(a), no gain or loss is recognized to a shareholder
who exchanges shares for other shares pursuant to a plan of reorganization,
where the shares exchanged, as well as the shares received, are those of a
corporation that is a party to the reorganization. As stated above, the
Reorganization will constitute a C reorganization, the Plan constitutes a
plan of reorganization, and each Fund will be a party to a reorganization.
Accordingly, we believe that under section 354 a Shareholder will recognize
no gain or loss on the constructive exchange of all its Target Shares
solely for Acquiring Fund Shares pursuant to the Reorganization.
VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a
---------------------------------------------------------
Substituted Basis, and its Holding Period therefor Will Include
---------------------------------------------------------------
its Holding Period for its Target Shares.
----------------------------------------
Section 358(a)(1) provides, in part, that in the case of an exchange
to which section 354 applies, the basis of any shares received in the
transaction without the recognition of gain is the same as the basis of the
property transferred in exchange therefor, decreased by, among other
things, the fair market value of any other property and the amount of any
money received in the transaction and increased by the amount of any gain
recognized on the exchange by the shareholder.
As noted above, the Reorganization will constitute a C reorganization
and under section 354 no gain or loss will be recognized to a Shareholder
on the constructive exchange of its Target Shares for Acquiring Fund Shares
in the Reorganization. No property will be distributed to the Shareholders
other than the
<PAGE>
PaineWebber Mutual Fund Trust
August 25, 1995
Page 16
Acquiring Fund Shares, and no money will be distributed to them pursuant to
the Reorganization. Accordingly, we believe that a Shareholder's basis for
the Acquiring Fund Shares to be received by it in the Reorganization will
be the same as the basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares.
Under section 1223(1), the holding period of property received in an
exchange includes the holding period of the property exchanged therefor if
the acquired property has, for the purpose of determining gain or loss, the
same basis in the holder's hands as the property exchanged therefor
("substituted basis") and such property was a capital asset. As noted
above, a Shareholder will have a substituted basis for the Acquiring Fund
Shares it receives in the Reorganization; accordingly, provided that the
Shareholder held its Target Shares as capital assets on the Closing Date,
we believe its holding period for those Acquiring Fund Shares will include
its holding period for those Target Shares.
We hereby consent to this opinion accompanying the Registration
Statement and to the references to our firm under the captions "Synopsis --
Federal Income Tax Consequences of the Reorganization" and "The Proposed
Transaction -- Federal Income Tax Considerations" in the Proxy.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
--------------------------------
Theodore L. Press
Exhibit 12(b)
WILLKIE FARR & GALLAGHER New York
Washington, DC
London
Paris
August 25, 1995
Mitchell Hutchins/Kidder, Peabody
Investment Trust II, on behalf of
Mitchell Hutchins/Kidder, Peabody
Municipal Bond Fund
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have asked us for our opinion concerning certain
federal income tax consequences to (a) Mitchell
Hutchins/Kidder, Peabody Municipal Bond Fund (the "Acquired
Fund"), a series of Mitchell Hutchins/Kidder, Peabody
Investment Trust II, (b) PaineWebber National Tax-Free
Income Fund (the "Acquiring Fund"), a series of PaineWebber
Mutual Fund Trust, and (c) holders of shares of beneficial
interest in the Acquired Fund (the "Acquired Fund
Shareholders") when the holders of Class A, Class B, and
Class C shares of the Acquired Fund receive Class A, Class
D and Class C shares, respectively, of the Acquiring Fund
(all such shares of the Acquiring Fund referred to
hereinafter as the "Acquiring Fund Shares"), in liquidation
of their interests in the Acquired Fund pursuant to an
acquisition by the Acquiring Fund of all or substantially
all of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund and the
subsequent liquidation of the Acquired Fund and
distribution of the Acquiring Fund Shares to the Acquired
Fund Shareholders (the "Reorganization").
We have reviewed such documents and materials as we have
considered necessary for the purpose of rendering this
opinion. In rendering this opinion, we assume that such
<PAGE>
August 25, 1995
Page 2
documents as yet unexecuted will, when executed, conform in
all material respects to the proposed forms of such
documents that we have examined. In addition, we assume
the genuineness of all signatures, the capacity of each
party executing a document so to execute that document, the
authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents
submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts which we
considered to be relevant to the conclusions set forth in
this letter. The opinions expressed in this letter are
based upon certain factual statements relating to the
Acquired Fund and the Acquiring Fund set forth in the
Registration Statement on Form N-14 (the "Registration
Statement") filed by PaineWebber Mutual Fund Trust,
on behalf of the Acquiring Fund, with the Securities and
Exchange Commission and specifically upon the
representations made in the Agreement and Plan of
Reorganization and Termination attached to the Registration
Statement as Appendix A. We have no reason to believe that
these representations and facts are not valid, but we have
not attempted to verify independently any of these
representations and facts, and this opinion is based upon
the assumption that each of them is accurate. Capitalized
terms used herein and not otherwise defined shall have the
meaning given them in the Registration Statement.
The conclusions expressed herein are based upon the
Internal Revenue Code of 1986 (the "Code"), Treasury
regulations issued thereunder, published rulings and
procedures of the Internal Revenue Service and judicial
decisions, all as in effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the Acquiring Fund's acquisition of the assets of
the Acquired Fund in exchange solely for Acquiring Fund
Shares and the Acquiring Fund's assumption of the
liabilities of the Acquired Fund, followed by the Acquired
Fund's distribution of those shares to the Acquired Fund
Shareholders constructively in exchange for their shares of
the Acquired Fund, 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;
<PAGE>
August 25, 1995
Page 3
(2) no gain or loss will be recognized by the
Acquiring Fund upon its receipt of the assets of the
Acquired Fund in exchange solely for Acquiring Fund Shares
and its assumption of the liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the
Acquired Fund upon the transfer of its assets to the
Acquiring Fund in exchange for Acquiring Fund Shares and
the Acquiring Fund's assumption of the liabilities of the
Acquired Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Acquired Fund
Shareholders;
(4) no gain or loss will be recognized by Acquired
Fund Shareholders upon the constructive exchange of their
shares of the Acquired Fund for Acquiring Fund Shares;
(5) the aggregate tax basis of Acquiring Fund Shares
received by each Acquired Fund Shareholder pursuant to the
Reorganization will be the same as the aggregate tax basis
of the shares of the Acquired Fund surrendered in exchange
therefor, and the holding period of the Acquiring Fund
Shares to be received by each Acquired Fund Shareholder
will include the period during which the shares of the
Acquired Fund exchanged therefor were held by such Acquired
Fund Shareholder (provided the shares of the Acquired Fund
were held as capital assets on the date of the
Reorganization); and
(6) the tax basis to the Acquiring Fund of the
Acquired Fund's assets will be the same as the tax basis of
such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will
include the period during which those assets were held by
the Acquired Fund.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our
name and any reference to our firm in the Registration
Statement or in the Prospectus/Proxy Statement constituting
a part thereof.
Very truly yours,
/s/ Willkie Farr & Gallagher
Exhibit 14(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our report on PaineWebber National Tax-
Free Income Fund dated April 21, 1995, in this Registration Statement (Form
N-14) of PaineWebber Mutual Fund Trust.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New york, New York
August 22, 1995
Exhibit 14(b)
CONSENT OF INDEPENDENT AUDITORS
Mitchell Hutchins/Kidder, Peabody Municipal Bond Fund
(One of the portfolios constituting the Mitchell Hutchins/Kidder, Peabody
Investment Trust II):
We consent to the incorporation by reference in this Registration Statement
on Form N-14 of our report dated August 16, 1995, appearing in the annual
report to shareholders for the year ended June 30, 1995, and to the
reference to us under the caption "Experts" appearing in the
Prospectus/Proxy Statement, which is a part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
August 28, 1995
Exhibit 17(a)
Rule 24f-2 NOTICE FOR
PAINEWEBBER MUTUAL FUND TRUST:
PaineWebber California Tax-Free Income Fund
PaineWebber National Tax-Free Income Fund
(1933 Act File No. 2-98149)
1. The fiscal year for which the notice is filed:
March 1, 1994 to February 28, 1995
2. The number or amount of securities of the same class or series, if
any, which had been registered under the Securities Act of 1933 other
than pursuant to this section but which remained unsold at the
beginning of such fiscal year:
None
3. The number or amount of securities, if any, registered during such
fiscal year other than pursuant to this section:
None
4. The number or amount of securities sold during such fiscal year:
$149,366,415 representing 13,491,153 shares of
beneficial interest ($0.001 par value)
5. The number or amount of securities sold during such fiscal year in
reliance upon registration pursuant to this section:
$149,366,415 representing 13,491,153 shares of
beneficial interest ($0.001 par value)
6. The calculation of filing fee:
(a) The total amount of registered shares
of beneficial interest ($0.001 par
value) sold including sales load: $ 149,366,415
(b) Less the total amount of registered
shares of beneficial interest ($0.001
par value) redeemed or
repurchased: $ (379,811,966)
---------------
(c) Difference (i.e., (a) less (b)) $ (230,445,551)
===============
(d) Filing fee pursuant to section
6(b) of 1933 Act (Line (c)
Amount x .00034483): $ 0
===============
/s/ Paul Schubert
--------------------------
Paul Schubert
VP/Assistant Treasurer
Date: April 26, 1995
Exhibit 17(b)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing
- -------------------------------------------------------------------------------
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
MITCHELL HUTCHINS/KIDDER, PEABODY MUNICIPAL BOND FUND
SPECIAL MEETING OF SHAREHOLDERS - OCTOBER 27, 1995
The undersigned hereby appoints as proxies Dianne E. O'Donnell and Jennifer A.
Farrell and each of them (with power of substitution) to vote for the
undersigned all shares of beneficial interest of the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will
be voted as instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL
BE DEEMED TO GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY
SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF MITCHELL HUTCHINS/KIDDER,
PEABODY INVESTMENT TRUST II.
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
<PAGE>
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 National Tax-Free Income Fund and Mitchell
Hutchins/Kidder, Peabody Investment Trust II.
For Against Abstain
[ ] [ ] [ ]
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<NAME> NATIONAL TAX-FREE INCOME FUND CLASS A
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<PERIOD-END> FEB-28-1995
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<INVESTMENTS-AT-VALUE> 362,500
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<OTHER-ITEMS-ASSETS> 10
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<PAYABLE-FOR-SECURITIES> 24,642
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<NAME> NATIONAL TAX-FREE INCOME FUND CLASS B
<MULTIPLIER> 1000
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<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
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<PAID-IN-CAPITAL-COMMON> 58,874
<SHARES-COMMON-STOCK> 5,237
<SHARES-COMMON-PRIOR> 5,920
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<NET-ASSETS> 58,958
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,127
<OTHER-INCOME> 0
<EXPENSES-NET> (1,040)
<NET-INVESTMENT-INCOME> 3,087
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<NET-CHANGE-FROM-OPS> (2,065)
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<DISTRIBUTIONS-OF-GAINS> (79)
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<NUMBER-OF-SHARES-SOLD> 955
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<NET-CHANGE-IN-ASSETS> (683)
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<NAME> NATIONAL TAX-FREE INCOME FUND CLASS D
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<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
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