<PAGE>
PAINEWEBBER UTILITY INCOME FUND
(A SERIES OF PAINEWEBBER MANAGED INVESTMENTS TRUST)
51 West 52nd Street
New York, New York 10019
April 25, 2000
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus that seeks your
approval of an important proposal for your PaineWebber Utility Income Fund.
YOUR VOTE ON THIS PROPOSAL WILL HELP DECIDE THE FUND'S FUTURE.
The Board of Trustees of PaineWebber Utility Income Fund ("Utility Income
Fund") proposes to reorganize the Fund into PaineWebber Balanced Fund
("Balanced Fund"). Under the proposed reorganization, each shareholder of each
class of shares of Utility Income Fund automatically would become a holder of
the corresponding class of shares of Balanced Fund, and Utility Income Fund
would be liquidated.
Utility Income Fund and Balanced Fund have similar investment objectives and
investment policies in that both are conservative funds relative to other
funds that invest in equity securities. Utility Income Fund's investment
objective is to achieve current income and capital appreciation. Balanced
Fund's investment objective is to achieve high total return with low
volatility. Utility Income Fund pursues its objective by investing primarily
in income-producing stocks and bonds issued by U.S. and foreign utility
companies (i.e., companies that own or operate facilities for
telecommunications or for generating, transmitting or distributing
electricity, gas or water). The Fund also may invest, to a lesser extent, in
stocks and bonds issued by companies outside the utility industries and in
high quality money market instruments. Balanced Fund pursues its objective by
allocating investments among stocks, bonds and money market instruments. The
Fund normally has investments in each asset class but it always keeps at least
25% of its total assets in a combination of bonds and cash.
Due to the similar investment objectives and investment policies of Utility
Income Fund and Balanced Fund, along with the more flexible investment
parameters of Balanced Fund, the proposed merger is believed to be in the
overall best interests of all Utility Income Fund shareholders. AFTER CAREFUL
CONSIDERATION, THE BOARD HAS UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDS
THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE "FOR" THE
REORGANIZATION PROPOSAL.
The enclosed document describes the proposed reorganization and compares the
investment policies, operating expenses and performance histories of Utility
Income Fund and Balanced Fund in more detail. Please read it carefully. We
have included a section of questions and answers that we think will be of
interest to most investors. After reviewing the enclosed document, please
complete, date and sign your proxy card and return it in the enclosed postage-
paid return envelope.
YOUR VOTE IS VERY IMPORTANT. Please take a moment to review the enclosed
materials and to date, sign and return your proxy card today. Voting your
shares early will permit Utility Income Fund to avoid costly follow-up mail
and telephone solicitation.
THE BOARD URGES THAT YOU VOTE "FOR" THE PROPOSED REORGANIZATION.
Sincerely,
Margo N. Alexander
President
<PAGE>
PAINEWEBBER UTILITY INCOME FUND MERGER
QUESTIONS AND ANSWERS
On Thursday, February 10, 2000, the Board of Trustees of PaineWebber Utility
Income Fund unanimously approved the merger of PaineWebber Utility Income Fund
into PaineWebber Balanced Fund. Here are answers to some of the most commonly
asked questions about the proposed merger.
Q: WHAT IS A MERGER?
A: A fund is said to merge when it combines with another fund, transferring
substantially all of its net assets into that other fund, and subsequently the
old fund ceases to operate.
Q: WHY IS THIS MERGER BEING PROPOSED?
A: Utility Income Fund was launched in July 1993. Unfortunately, Fund assets
have not grown significantly since that time, and there is no reason to
believe that they will increase significantly in the future. As of
February 29, 2000, the Fund's assets were approximately $30 million. If
shareholders of Utility Income Fund approve the merger of Utility Income Fund
into Balanced Fund, you should benefit from economies of scale--which could
mean lower operating expenses--and from the opportunity for broader investment
diversification.
Q: WHEN WILL THE PROPOSED MERGER OCCUR?
A: The Funds will merge on or about June 23, 2000 pending Utility Income Fund
shareholder approval at a special meeting to be held on June 12, 2000.
Q: HOW WILL THE MERGER AFFECT FUND EXPENSES?
A: The combined Fund is expected to have lower overall expenses than Utility
Income Fund currently has, due to its larger asset base. Based on preliminary
calculations for the current fiscal year, Mitchell Hutchins has estimated
that, on a PRO FORMA basis, each class of shares of the combined fund would
have lower total annual operating expenses as a result of the merger.
The table below shows comparative expenses for Class A shares of Utility
Income Fund (for the six months ended September 30, 1999), Balanced Fund (for
the fiscal year ended August 31, 1999), and the PRO FORMA expense ratios for
Class A shares of Balanced Fund, as of August 31, 1999, had the Reorganization
then taken place. A PRO FORMA comparison of the expense ratios of each of the
other classes of the Funds shows similar reductions in total expenses. (For
more details about fees and expenses of each class of shares, see "Comparative
Fee Table" on pages 2-4 of the proxy statement/prospectus.)
<TABLE>
<CAPTION>
PRO FORMA
UTILITY INCOME FUND BALANCED FUND COMBINED FUND
ANNUAL FUND OPERATING (CLASS A) (CLASS A) (CLASS A)
EXPENSES (SIX MONTHS ENDED (FISCAL YEAR ENDED (AS OF AUGUST 31,
SEPTEMBER 30, 1999) AUGUST 31, 1999) 1999)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.70% 0.75% 0.75%
- ----------------------------------------------------------------------------------
Distribution and/or
Service (12b-1) Fees 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------
Other Expenses 0.61% 0.22% 0.21%
- ----------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.56% 1.22% 1.21%
- ----------------------------------------------------------------------------------
</TABLE>
If Utility Income Fund's shareholders approve the Reorganization and
thereafter become shareholders of Balanced Fund, they will pay a slightly
higher management fee but will pay lower total annual operating expenses
because Balanced Fund is much larger than Utility Income Fund and thus has
significantly lower overall operating expenses.
<PAGE>
Each Fund will pay its own expenses of the Reorganization. These expenses
are estimated to be $165,000 for Utility Income Fund and $30,000 for Balanced
Fund.
Q: HOW MANY SHARES WILL I RECEIVE AT THE TIME OF THE MERGER?
A: If the merger is approved, you will receive shares of Balanced Fund in
exchange for shares of Utility Income Fund. You will receive full and
fractional shares of the corresponding class of Balanced Fund having an
aggregate value equal to the net asset value of your Utility Income Fund
shares at the time of the merger. Net asset values will be calculated as of
the closing date, which is expected to be June 23, 2000.
Q: IF I CURRENTLY ELECT TO RECEIVE MY UTILITY INCOME FUND DIVIDEND AS CASH OR
IF I HAVE THE DIVIDEND AUTOMATICALLY REINVESTED INTO THE FUND, WILL MY
DISTRIBUTION CHOICE REMAIN THE SAME FOR MY BALANCED FUND SHARES AFTER THE
MERGER?
A: If you do not currently own shares of Balanced Fund, your dividend
distribution election for Utility Income Fund will remain the same after the
merger.
If you currently own shares of BOTH Balanced Fund and Utility Income Fund,
your dividend distribution after the merger will be the choice you currently
have selected for your Balanced Fund shares.
Q: WILL THE MERGER SUBJECT ME TO ANY TAXES?
A: The merger has been structured as a tax-free transaction, which means that
no gain or loss will be recognized by either Fund. This means that you will
not realize any gain or loss on your receipt of Balanced Fund shares, and that
your basis for the Balanced Fund shares received in the merger will be the
same as your basis for your Utility Income Fund shares.
Immediately prior to the merger, Utility Income Fund will have to distribute
all of its undistributed income or capital gain, if any, to its shareholders,
and that distribution will be taxable to Utility Income Fund shareholders.
Q: WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF EACH FUND?
A: Utility Income Fund and Balanced Fund have similar investment objectives
and policies in that both are conservative funds relative to other funds that
invest in equity securities. More detailed descriptions follow in the table
below. (See "Comparison of the Funds" on page 4 and "Comparison of Principal
Risk Factors" on page 11 of the proxy statement/prospectus for more
information on the investment policies and risks of each Fund.)
<TABLE>
<CAPTION>
UTILITY INCOME FUND BALANCED FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Objective Current income and capital High total return with low
appreciation volatility
- -----------------------------------------------------------------------------------------------
Investment Strategies Pursues objective by investing at Pursues its objective by allocating
least 65% of its total assets in investments among stocks, bonds,
income-producing stocks and and money market instruments
bonds issued by U.S. and foreign
utility companies
May invest up to 35% of its total Normally has investments in each
assets in stocks and bonds issued asset class but it always keeps at
by companies outside the utility least 25% of its total assets in a
industries and in high quality combination of bonds and cash
money market instruments
</TABLE>
2
<PAGE>
Q: HOW HAVE BALANCED FUND AND UTILITY INCOME FUND PERFORMED?
A: The following tables show the average annual total returns over several
time periods for each class of shares of each Fund. The tables do reflect
sales charges on shares of the Funds. The tables also compare each Fund's
returns to returns of a broad-based market index. In addition, the table for
Utility Income Fund compares the Fund's returns to a more narrowly based index
that reflects the utility industries market sector. The comparative indices
are unmanaged and, therefore, do not include any sales charges or expenses.
<TABLE>
<CAPTION>
BALANCED FUND
AVERAGE ANNUAL
TOTAL RETURNS
(as of
December 31,
1999)
CLASS
(INCEPTION CLASS A CLASS B* CLASS C CLASS Y S&P 500
DATE) (7/1/91) (12/12/86) (7/2/92) (3/26/98) INDEX
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year (2.22)% (2.95)% 0.84% 2.78% 21.04%
- ------------------------------------------------------------------
Five Years 15.41% 15.37% 15.61% N/A 28.56%
- ------------------------------------------------------------------
Ten Years N/A 10.92% N/A N/A 18.21%
- ------------------------------------------------------------------
Life of Class 11.38% 9.91% 11.28% 6.08% **
</TABLE>
* Assumes conversion of Class B shares to Class A shares after six years.
** The average annual total return for the S&P 500 Index (1) for the life
of Class A shares was 20.30%, (2) for the period since December 31, 1986
(the approximate period since the inception of Class B shares) was
18.01%, (3) for the period since June 30, 1992 (the approximate period
since the inception of Class C shares) was 21.25%, and (4) for the
period since March 31, 1998 (the approximate period since the inception
of Class Y shares) was 19.50%.
<TABLE>
<CAPTION>
UTILITY
INCOME FUND
AVERAGE
ANNUAL TOTAL
RETURNS
(as of
December 31,
1999)
CLASS S&P
(INCEPTION CLASS A CLASS B* CLASS C CLASS Y S&P 500 UTILITY
DATE) (7/2/93) (7/2/93) (7/2/93) (9/10/98) INDEX INDEX
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Year (1.20)% (2.41)% 1.71% 3.76% 21.04% (8.88)%
- -----------------------------------------------------------------------
Five Years 14.28% 14.21% 14.46% N/A 28.56% 13.66%
- -----------------------------------------------------------------------
Life of Class 8.96% 8.96% 8.91% 13.76% ** ***
</TABLE>
* Assumes conversion of Class B shares to Class A shares after six years.
** The average annual total return for the S&P 500 Index (1) for the period
since June 30, 1993 (the approximate period since the inception of Class
A, Class B, and Class C shares) was 22.47%, and (2) for the period since
September 30, 1998 (the approximate period since the inception of Class
Y shares) was 35.97%.
*** The average annual total return for the S&P Utility Index (1) for the
period since June 30, 1993 (the approximate period since the inception
of Class A, Class B, and Class C shares) was 9.11%, and (2) for the
period since September 30, 1998 (the approximate period since the
inception of Class Y shares) was (5.32)%.
3
<PAGE>
Q: CAN I REDEEM OR EXCHANGE MY UTILITY INCOME FUND SHARES BEFORE THE
REORGANIZATION?
A: If you do not wish to receive shares of Balanced Fund, you are free to
redeem or exchange your Utility Income Fund shares any time prior to the
merger. You will be subject to any applicable contingent deferred sales
charges and potential capital gains taxes if you redeem your Utility Income
Fund shares. If you elect to exchange your shares prior to the merger, you may
be subject to capital gains taxes. Consult your tax adviser for the tax
implications of an exchange. Please call your Financial Advisor to discuss
your investment options or with any questions.
Q: WHAT IS THE BOARD'S RECOMMENDATION?
A: Your Board of Trustees recommends a vote "FOR" the merger.
4
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
(A SERIES OF PAINEWEBBER MANAGED INVESTMENTS TRUST)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JUNE 12, 2000
----------------
To the Shareholders:
Notice Is Hereby Given that a Special Meeting of Shareholders ("Meeting") of
PaineWebber Utility Income Fund ("Utility Income Fund"), a portfolio of
PaineWebber Managed Investments Trust ("Trust"), will be held on Monday, June
12, 2000, at 1285 Avenue of the Americas, 14th Floor, New York, New York,
10019, at 2:00 p.m., Eastern time, for the following purpose:
To approve an Agreement and Plan of Reorganization and Termination
("Plan") that provides for the reorganization of Utility Income Fund into
PaineWebber Balanced Fund ("Balanced Fund"), a portfolio of PaineWebber
Master Series, Inc. ("Master Series"). Pursuant to the Plan, Utility Income
Fund will transfer all its assets to Balanced Fund, which will assume all
the liabilities of Utility Income Fund, and Master Series will issue to
each Utility Income Fund shareholder the number of full and fractional
shares of the applicable class of Balanced 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 in Utility Income
Fund.
Shareholders of record as of the close of business on March 31, 2000, are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
Please execute and return promptly in the enclosed envelope the accompanying
proxy, which is being solicited by the Board of Trustees of the Trust.
Returning your proxy promptly is important to ensure a quorum at the Meeting.
You may revoke your proxy at any time before it is exercised by the subsequent
execution and submission of a revised proxy, by giving written notice of
revocation to the Trust at any time before the proxy is exercised or by voting
in person at the Meeting.
By Order of the Board of Trustees,
Dianne E. O'Donnell
Secretary
April 25, 2000
51 West 52nd Street
New York, New York 10019-6114
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN.
Please indicate your voting instructions on the enclosed proxy card,
sign and date 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 DESCRIBED ABOVE. In order to avoid
the additional expense of further solicitation, we ask your cooperation in
mailing your proxy card promptly.
For more information or if you have questions regarding casting your
vote for the Meeting, please call 1-888-634-9904.
If we do not receive your completed proxy cards after several weeks, you
may be contacted by our proxy solicitor, Shareholder Communications
Corporation. Our proxy solicitor will remind you to vote your shares.
<PAGE>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to the Trust involved in validating your
vote if you fail to sign your proxy card properly.
1.Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2.Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy
card.
3.All Other Accounts: The capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
------------ ---------------
Corporate Accounts
(1)ABC Corp.................................... ABC Corp.
John Doe, Treasurer
(2)ABC Corp.................................... John Doe, Treasurer
(3)ABC Corp. c/o John Doe, Treasurer........... John Doe
(4)ABC Corp. Profit Sharing Plan............... John Doe, Trustee
Partnership Accounts
(1)The XYZ Partnership......................... Jane B. Smith, Partner
(2)Smith and Jones, Limited Partnership........ Jane B. Smith, General Partner
Trust Accounts
(1)ABC Trust Account........................... Jane B. Doe, Trustee
(2)Jane B. Doe, Trustee u/t/d 12/28/78......... Jane B. Doe
Custodial or Estate Accounts
(1)John B. Smith, Cust. f/b/o
John B. Smith, Jr.,
UGMA/UTMA...................................... John B. Smith
(2)Estate of John B. Smith..................... John B. Smith, Jr., Executor
<PAGE>
PAINEWEBBER UTILITY INCOME FUND
(A PORTFOLIO OF PAINEWEBBER MANAGED INVESTMENTS TRUST)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
1-800-647-1568
PAINEWEBBER BALANCED FUND
(A PORTFOLIO OF PAINEWEBBER MASTER SERIES, INC.)
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
1-800-647-1568
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: APRIL 25, 2000
This Combined Proxy Statement and Prospectus ("Proxy Statement/Prospectus")
is being furnished in connection with a Special Meeting of Shareholders of
PaineWebber Utility Income Fund ("Utility Income Fund"), a portfolio of
PaineWebber Managed Investments Trust ("Trust"), a Massachusetts business
trust, to be held on June 12, 2000, at 1285 Avenue of the Americas, 14th
Floor, New York, New York, 10019, at 2:00 p.m., Eastern time (such meeting and
any adjournments thereof are referred to collectively as the "Meeting"). At
the Meeting, the shareholders of Utility Income Fund are being asked to
consider and approve an Agreement and Plan of Reorganization and Termination
("Plan") that provides for the reorganization ("Reorganization") of Utility
Income Fund into PaineWebber Balanced Fund ("Balanced Fund"), a series of
PaineWebber Master Series, Inc. ("Master Series"), a Maryland corporation. A
form of the Plan is attached as Appendix A to this Proxy Statement/Prospectus.
The Board of Trustees of the Trust has unanimously approved the Plan as being
in the best interests of Utility Income Fund and its shareholders. (Utility
Income Fund and Balanced Fund sometimes are referred to individually as a
"Fund" and together as "Funds.")
Pursuant to the Plan, Utility Income Fund will transfer all its assets to
Balanced Fund, which will assume all the liabilities of Utility Income Fund,
and Master Series will issue to each Utility Income Fund shareholder the
number of full and fractional shares of common stock of the applicable class
of Balanced Fund having an aggregate net asset value ("NAV") that, on the
effective date of the Reorganization, is equal to the aggregate NAV of the
shareholder's shares of beneficial interest in the corresponding class of
Utility Income Fund. The value of each Utility Income Fund shareholder's
account with Balanced Fund immediately after the Reorganization will be the
same as the value of such shareholder's account with Utility Income Fund
immediately prior to the Reorganization. The Reorganization has been
structured as a tax-free transaction. As a result of the Reorganization,
shareholders of each class of shares of Utility Income Fund will become
shareholders of the corresponding class of shares of Balanced Fund. No sales
charges will be assessed in connection with the Reorganization.
Balanced Fund is a diversified series of Master Series, which is an open-end
management investment company comprised of two outstanding series. Balanced
Fund's investment objective is to achieve high total return with low
volatility. The Fund seeks to achieve its investment objective by allocating
investments among stocks, bonds, and money market instruments. The Fund
normally has investments in each asset class, but it always keeps at least 25%
of its total assets in a combination of bonds and cash.
This Proxy Statement/Prospectus sets forth the information that a
shareholder of Utility Income Fund should know before voting on the Plan. It
should be read carefully and retained for future reference.
<PAGE>
A Statement of Additional Information ("SAI") dated April 25, 2000,
containing additional information about the Reorganization, including
historical financial statements, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference in its
entirety into this Proxy Statement/Prospectus. A Prospectus and SAI for
Balanced Fund, each dated December 10, 1999, as supplemented, and Balanced
Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1999, have been filed with the SEC and are hereby incorporated herein by
reference. A copy of the current Prospectus of Balanced Fund and its Annual
Report accompany this Proxy Statement/Prospectus. Because Balanced Fund's
Prospectus is a joint prospectus for two funds, it includes information on one
other fund, PaineWebber Tactical Allocation Fund, which is not relevant to
this Proxy Statement/Prospectus. Please disregard all references to
PaineWebber Tactical Allocation Fund. Information about Utility Income Fund is
included in its current Prospectus and SAI, each dated August 1, 1999, as
supplemented, which are on file with the SEC and are hereby incorporated by
reference into this Proxy Statement/Prospectus. Copies of the other referenced
documents, as well as Utility Income Fund's Semi-Annual Report to Shareholders
for the six months ended September 30, 1999, and its Annual Report to
Shareholders for the fiscal year ended March 31, 1999, are available without
charge by writing either Utility Income Fund or Balanced Fund at the address
shown above, or by calling (800) 647-1568. The SEC maintains a Web site at
http://www.sec.gov that contains the documents described above and other
information about the Trust and Master Series. Additional information about
the Funds also may be obtained on the Web at http://www.painewebber.com.
AS WITH ALL OTHER MUTUAL FUND SECURITIES, THE SEC HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER THE INFORMATION IN THIS
PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU
OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
SECTION TITLE PAGE
- ------------- ----
INTRODUCTION........................................................... 1
SYNOPSIS............................................................... 2
The Proposed Reorganization.......................................... 2
Comparative Fee Table................................................ 2
Comparison of the Funds.............................................. 4
Investment Objectives.............................................. 4
Investment Policies................................................ 4
Operations of Balanced Fund Following the Reorganization........... 6
Performance........................................................ 6
Sales Charges and Distribution and Service Fees.................... 8
Distribution, Purchase, Exchange and Redemption.................... 8
Fund Board Members and Officers.................................... 9
Investment Advisers and Portfolio Management....................... 9
Accountants........................................................ 10
COMPARISON OF PRINCIPAL RISK FACTORS................................... 11
Risks Common to Both Funds........................................... 11
Investing in Securities Generally.................................. 11
Equity Risk........................................................ 11
Interest Rate Risk and Credit Risk................................. 11
Derivatives Risk................................................... 11
Primary Differences in Investment Risks of the Funds................. 12
Utility Industries Concentration Risk.............................. 12
Asset Allocation Risk.............................................. 12
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION........................ 12
Reasons for the Reorganization....................................... 12
Terms of the Reorganization.......................................... 13
Description of Securities to be Issued............................... 14
Dividends and other Distributions.................................... 14
Temporary Waiver of Investment Restrictions.......................... 15
Federal Income Tax Considerations.................................... 15
ORGANIZATION OF THE FUNDS.............................................. 16
FINANCIAL HIGHLIGHTS................................................... 16
CAPITALIZATION......................................................... 16
LEGAL MATTERS.......................................................... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.......... 17
EXPERTS................................................................ 17
APPENDIX A: Form of Agreement and Plan of Reorganization and
Termination........................................................... A-1
APPENDIX B: Security Ownership of Certain Beneficial Owners............ B-1
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
Utility Income Fund, a portfolio of the Trust, in connection with the
solicitation of proxies by the Board for use at the Meeting. All properly
executed and unrevoked proxies received in time for the Meeting will be voted
in accordance with the instructions contained therein. If no instructions are
given, shares represented by proxies will be voted "FOR" approval of the Plan.
The presence in person or by proxy of Utility Income Fund shareholders
entitled to cast a majority of all the votes entitled to be cast at the
Meeting will constitute a quorum. If a quorum is not present at the Meeting or
a quorum is present but sufficient votes to approve the Plan 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 the 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" the Plan in favor of such an
adjournment and will vote those proxies required to be voted "AGAINST" the
Plan against such adjournment.
Approval of the Plan requires the affirmative vote of a majority of the
votes entitled to be cast on the Plan.
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 at the Meeting for quorum purposes but will not be
considered votes cast at the Meeting. Abstentions and broker non-votes are
effectively votes against the Plan because the required affirmative vote is a
specified majority of the total shares outstanding.
Any person giving a proxy has the power to revoke it at any time prior to
its exercise by executing a superseding proxy or by submitting a written
notice of revocation to the Secretary of the Trust ("Secretary"). To be
effective, such revocation must be received by the Secretary prior to the
Meeting. In addition, although mere attendance at the Meeting will not revoke
a proxy, a shareholder present at the Meeting may withdraw his or her proxy by
voting in person.
Shareholders of record as of the close of business on March 31, 2000
("Record Date"), are entitled to vote at the Meeting. On the Record Date,
there were 1,206,423 Class A shares, 320,775 Class B shares, 446,485 Class C
shares, and 8,348 Class Y shares of Utility Income Fund outstanding. Each
share is entitled to one vote for each full share held and a fractional vote
for each fractional share held.
Except as set forth in Appendix B, as of the Record Date, Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), the investment adviser,
administrator and distributor of both Funds, does not know of any other person
who owns beneficially 5% or more of any class of shares of either Fund.
The Trust has engaged the services of Shareholder Communications Corporation
("SCC") to assist it in the solicitation of proxies for the Meeting. The Trust
expects to solicit proxies principally by mail, but it or SCC may also solicit
proxies by telephone. The Trust's officers and employees of Mitchell Hutchins
who assist in the proxy solicitation will not receive any additional or
special compensation for any such efforts. Each Fund will bear its expenses
incurred in connection with the Reorganization, which are estimated to be
$165,000 for Utility Income Fund and $30,000 for Balanced Fund. SCC will be
paid approximately $25,000 for proxy solicitation services. The Trust will
request broker/dealer firms, custodians, nominees and fiduciaries to forward
proxy materials to the beneficial owners of the shares held of record by such
persons. The Trust may reimburse such broker/dealer firms, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
with such proxy solicitation.
The Trust intends to mail this Proxy Statement/Prospectus and the
accompanying proxy card on or about April 28, 2000.
<PAGE>
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus, the Prospectus and SAI of each Fund and the
Plan. As discussed more fully below, the Trust's Board believes that the
proposed Reorganization will benefit Utility Income Fund's shareholders. The
Funds have similar investment objectives and policies. Furthermore, it is
anticipated that, following the Reorganization, the total annual operating
expenses for the combined Fund will be lower as a percentage of net assets
than those of Utility Income Fund.
THE PROPOSED REORGANIZATION
Each Board, including its Trustees or directors who are not "interested
persons," as that term is defined in the Investment Company Act of 1940, as
amended ("1940 Act"), of the Trust or Master Series ("Independent Board
Members" of the Trust or Master Series, as appropriate), considered and
approved the Plan at a meeting held on February 10, 2000. The Plan provides
for the acquisition by Balanced Fund of all of Utility Income Fund's assets in
exchange for Balanced Fund shares and the assumption by Balanced Fund of all
of Utility Income Fund's liabilities. Utility Income Fund will then distribute
the Balanced Fund shares to its shareholders, by class, so that each Utility
Income Fund shareholder will receive the number of full and fractional shares
of the corresponding class of Balanced Fund equal in aggregate value to the
net asset value of the shareholder's shares of Utility Income Fund at the time
of the Reorganization. These transactions are scheduled to occur as of 4:00
p.m., Eastern time, on June 23, 2000, or on such later date as the conditions
to consummation of the Reorganization are satisfied ("Closing Date"). Utility
Income Fund will be terminated as soon as is practicable after the Closing
Date. See "Additional Information About the Reorganization," below.
The Trust and Master Series each will receive an opinion of Kirkpatrick &
Lockhart LLP, the counsel to each Fund, 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, neither Fund nor any of its shareholders will recognize any gain
or loss for federal income tax purposes as a result of the Reorganization. To
the extent Utility Income Fund sells securities prior to the Closing Date, it
may recognize net gains or losses. Any such net recognized gains would
increase the amount of any distribution made to shareholders of Utility Income
Fund prior to the Closing Date. See "Additional Information About the
Reorganization -- Federal Income Tax Considerations," below.
For the reasons set forth below under "Additional Information About the
Reorganization--Reasons for the Reorganization," the Trust's Board has
determined that the Reorganization is in the best interests of Utility Income
Fund and that the interests of existing Utility Income Fund shareholders will
not be diluted as a result of the Reorganization. Accordingly, the Trust's
Board recommends approval of the transaction.
COMPARATIVE FEE TABLE
The table below describes the fees and expenses that you would pay if you
buy and hold Utility Income Fund shares, Balanced Fund shares before the
Reorganization and Balanced Fund shares after the Reorganization. The "Annual
Fund Operating Expenses" set forth below are based on the fees and expenses
for the fiscal year ended August 31, 1999, for Balanced Fund and for the six
months ended September 30, 1999, for Utility Income Fund. The PRO FORMA
information reflects the anticipated effects of the Reorganization.
2
<PAGE>
<TABLE>
<CAPTION>
BALANCED FUND
UTILITY INCOME FUND BALANCED FUND Pro Forma
---------------------------- ---------------------------- ----------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C Y A B C Y A B C Y
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your
investment)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge
(load) Imposed on
Purchases (as a 4.5% None None None 4.5% None None None 4.5% None None None
percentage of offering
price)
- -----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (load) (as a
percentage of original None(1) 5% 1% None None(1) 5% 1% None None(1) 5% 1% None
purchase price or
redemption proceeds,
whichever is less)
- -----------------------------------------------------------------------------------------------------------------
Exchange Fee............ None None None None None None None None None None None None
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (fees that are deducted from fund assets)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees......... 0.70% 0.70% 0.70% 0.70% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------
Distribution and/or
Service (12b-1) Fees.... 0.25% 1% 1% None 0.25% 1% 1% None 0.25% 1% 1% None
- -----------------------------------------------------------------------------------------------------------------
Other Expenses.......... 0.61% 0.68% 0.64% 0.79% 0.22% 0.23% 0.20% 0.21% 0.21% 0.22% 0.19% 0.20%
- -----------------------------------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(2)... 1.56% 2.38% 2.34% 1.49% 1.22% 1.98% 1.95% 0.96% 1.21% 1.97% 1.94% 0.95%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For investments of $1,000,000 and over, a contingent deferred sales charge
of 1% of the shares' offering price or their net asset value at the time
of sale by the shareholder, whichever is less, is charged on sales of
shares made within one year of the purchase date. Class A shares
representing reinvestment of dividends and other distributions are not
subject to this 1% charge. Withdrawals in the first year after purchase of
up to 12% of the value of the Fund account under the Funds' Systematic
Withdrawal Plan are not subject to this charge.
(2) Total Annual Fund Operating Expenses for Utility Income Fund for the
fiscal year ended March 31, 1999, were as follows: Class A--1.59%; Class
B--2.35%; Class C--2.35%; and Class Y--1.25% (expenses for Class Y shares
are annualized based on the period from September 10, 1998 to March 31,
1999).
The example below is intended to help you compare the costs of investing in
each Fund, both before and after the Reorganization.
The example assumes that you invest $10,000 in each Fund and the combined
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The example also assumes that your investments each have
a 5% return each year and that each Fund's operating expenses remain the same.
Although your actual returns and costs may be higher or lower, based on these
assumptions your costs would be:
3
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
UTILITY INCOME FUND
Class A............................................. $ 604 $ 929 $1,277 $2,254
Class B (assuming sale of all shares at end of
period)............................................ 738 1,033 1,455 2,323
Class B (assuming no sale of shares)................ 238 733 1,255 2,323
Class C (assuming sale of all shares at end of
period)............................................ 338 733 1,255 2,686
Class C (assuming no sale of shares)................ 238 733 1,255 2,686
Class Y............................................. 127 397 686 1,511
BALANCED FUND
Class A............................................. $ 569 $ 820 $1,090 $1,861
Class B (assuming sale of all shares at end of
period)............................................ 701 921 1,268 1,930
Class B (assuming no sale of shares)................ 201 621 1,068 1,930
Class C (assuming sale of all shares at end of
period)............................................ 298 612 1,052 2,275
Class C (assuming no sale of shares)................ 198 612 1,052 2,275
Class Y............................................. 98 306 531 1,178
PRO FORMA BALANCED FUND
Class A............................................. $ 568 $ 817 $1,085 $1,850
Class B (assuming sale of all shares at end of
period)............................................ 700 918 1,262 1,919
Class B (assuming no sale of shares)................ 200 618 1,062 1,919
Class C (assuming sale of all shares at end of
period)............................................ 297 609 1,047 2,264
Class C (assuming no sale of shares)................ 197 609 1,047 2,264
Class Y............................................. 97 303 525 1,166
</TABLE>
COMPARISON OF THE FUNDS
Investment Objectives
The Funds have similar investment objectives in that both are conservative
funds relative to other funds that invest in equity securities. Balanced
Fund's investment objective is to achieve high total return with low
volatility. Utility Income Fund's investment objective is to achieve current
income and capital appreciation.
Investment Policies
The primary difference in the Funds' investment policies is that Utility
Income Fund concentrates its investments in income-producing stocks and bonds
issued by U.S. and foreign utility companies, while Balanced Fund pursues an
asset allocation strategy and does not concentrate its investments in any
particular industry.
Balanced Fund allocates investments among stocks, bonds, and money market
instruments. The Fund normally has investments in each asset class, but it
always keeps at least 25% of its total assets in a combination of bonds and
cash. This is intended to limit changes in the value of Fund shares compared
to funds that invest solely in stocks. The Fund's bonds are primarily
investment grade, but it may invest to a lesser extent in lower quality bonds.
For Balanced Fund, Mitchell Hutchins uses a fundamental valuation technique
to adjust the allocation of its assets among asset classes. Mitchell Hutchins
believes investors tend to reach a consensus as to the likely effect of
changes in key economic variables (for example, interest rates, profits and
inflation) on each asset class. Mitchell Hutchins also believes that prices of
securities in each asset class tend to move toward a level that reflects that
consensus, but that this takes time. Mitchell Hutchins attempts to adjust the
allocation of Balanced Fund's assets among asset classes before prices fully
reflect the consensus view.
4
<PAGE>
In buying and selling individual securities for Balanced Fund, Mitchell
Hutchins uses the following process:
. Stocks. Mitchell Hutchins uses its own Factor Valuation Model to
identify companies that appear to be undervalued. The model ranks
companies based on "value" factors, such as dividends, cash flows,
earnings and book values, as well as on "growth" factors, such as
earnings momentum and industry performance forecasts. Mitchell Hutchins
then applies fundamental analysis to select specific stocks from among
those identified by the model.
. Bonds. Mitchell Hutchins selects bonds based on its analysis of their
duration and risk structures (comparing yields on U.S. Treasury bonds to
yields on riskier types of bonds).
Unlike Balanced Fund, Utility Income Fund invests primarily in income-
producing stocks and bonds issued by U.S. and foreign utility companies (i.e.,
companies that own or operate facilities for telecommunications or for
generating, transmitting or distributing electricity, gas or water). The Fund
also invests, to a lesser extent, in stocks and bonds issued by companies
outside the utility industries and in high quality money market instruments.
For Utility Income Fund, Mitchell Hutchins seeks to find companies that
should benefit from a changing operating environment. Long-term changes
include a trend toward deregulation in all utility industries, an increasing
ability of telephone companies to enter new businesses and consolidation among
electric utilities. Mitchell Hutchins allocates Utility Income Fund's
investments between stocks and bonds based on its judgment of what will
achieve the best balance of income and growth under prevailing economic
conditions. Mitchell Hutchins evaluates individual issuers based on the
issuer's business and regulatory environment, its ability to maintain low
production costs and other measures of fundamental value.
Securities of Foreign Issuers. Both Funds may invest in U.S. dollar
denominated securities of foreign companies. Utility Income Fund also may
invest in securities of foreign companies that are denominated in foreign
currencies.
Bonds Rated Below Investment Grade. The bonds held by each Fund are
primarily investment grade, although Balanced Fund may invest up to 10% of its
total assets in bonds and other securities that are rated below investment
grade, while Utility Income Fund may invest only up to 5% of its net assets in
bonds and convertible securities that are rated lower than investment grade.
Derivatives. Both Funds have similar policies with respect to the use of
options, futures, and other derivatives. Utility Income Fund may invest in
derivatives as part of its investment strategy or to help manage portfolio
risks, including foreign currency risks, while Balanced Fund may invest in
derivatives to adjust its exposure to different asset classes, to manage the
duration of its bond investments and to maintain exposure to stocks or bonds
while maintaining a cash balance for fund management purposes. "Duration" is a
measure of the fund's exposure to interest rate risk.
Other Investment Policies. Each Fund may invest up to 10% of its net assets
in illiquid securities and may purchase securities on a when-issued basis or
may purchase or sell securities for delayed delivery. Each Fund may lend up to
33 1/3% of its total assets to qualified broker-dealers or institutional
investors. Each Fund may borrow from banks or through reverse repurchase
agreements for temporary or emergency purposes, but not in excess of 10% of
its total assets. Neither Fund may purchase securities while borrowings in
excess of 5% of its total assets are outstanding. Each Fund may enter into
repurchase agreements. Both Funds also may take a temporary or defensive
position that is different from its normal investment strategies in order to
protect itself from adverse market conditions.
Portfolio Turnover. Each Fund may engage in frequent trading (high portfolio
turnover) to achieve its investment objectives. Frequent trading may increase
the portion of a Fund's capital gains that are realized for tax purposes in
any given year, which may increase the Fund's taxable dividends in that year.
Frequent trading also may increase the portion of a Fund's realized capital
gains that are considered "short-term" for tax purposes. Shareholders will pay
higher taxes on dividends that represent net short-term capital gains than
they would pay on dividends that represent net long-term capital gains.
Frequent trading also may result in higher
5
<PAGE>
fund expenses due to transaction costs. Neither Fund restricts the frequency
of trading to limit expenses or the tax effect that its dividends may have on
shareholders. While both Funds have substantially similar policies with
respect to portfolio turnover, Balanced Fund's portfolio turnover rate has
generally been higher than Utility Income Fund's portfolio turnover rate
because its asset allocation model actively moves assets among stocks, bonds,
and cash. For example, portfolio turnover rates for Utility Income Fund for
the last two fiscal years ended March 31, 1998, and 1999, were 10% and 21%,
respectively, while the portfolio turnover rates for Balanced Fund's last two
fiscal years ended August 31, 1998, and 1999, were 190% and 234%,
respectively.
Operations of Balanced Fund Following the Reorganization
Although there are some differences in the Funds' investment objectives and
investment policies, it is not expected that Balanced Fund will revise its
investment objective or any of its policies following the Reorganization to
reflect those of Utility Income Fund. Mitchell Hutchins has reviewed Utility
Income Fund's current portfolio and determined that Utility Income Fund's
holdings generally are compatible with Balanced Fund's portfolio. As a result,
Mitchell Hutchins believes that, if the Reorganization is approved, a majority
of Utility Income Fund's assets could be transferred to and held by Balanced
Fund. Mitchell Hutchins currently estimates that Utility Income Fund will sell
between one quarter and one half of its total assets in connection with the
Reorganization, and the proceeds of these sales will be held in temporary
investments or reinvested in assets that are consistent with the holdings of
Balanced Fund. It also is expected that some of Utility Income Fund's holdings
may not remain at the time of the Reorganization due to normal portfolio
turnover. As of the date of this Proxy Statement/Prospectus, Mitchell Hutchins
anticipates that, in connection with the Reorganization, Utility Income Fund
likely will restructure its portfolio to reflect a reduction in its
investments in certain types of companies, primarily electric utility
companies. These anticipated sales of portfolio securities are based upon
Mitchell Hutchins' current assessment of Utility Income Fund's holdings and
may change depending on changes in market conditions and on Mitchell Hutchins'
continuing assessment of the compatibility of Utility Income Fund's
investments with Balanced Fund's portfolio composition and its investment
objective or policies at the approximate time of the Reorganization. The need
for Utility Income Fund to dispose of assets in connection with the
Reorganization may result in the Fund's selling securities at a
disadvantageous time, and could result in Utility Income Fund's realizing
gains (or losses) that would not otherwise have been realized.
Performance
The following bar chart provides information about the performance of
Balanced Fund Class B shares, and thus gives some indication of the risks of
investing in the Fund. The bar chart shows how Balanced Fund's performance has
varied from year to year. (Class B shares have the longest performance history
of any class of Balanced Fund's shares.) The chart does not take into account
the contingent deferred sales charges imposed on sales of Class B shares of
Balanced Fund. If it did, the total returns shown for the Fund would be lower.
6
<PAGE>
Balanced Fund's past performance does not necessarily indicate how it will
perform in the future.
[PERFORMANCE CHART APPEARS HERE]
Total return January 1 to March 31, 2000 -- 1.77%
Best quarter during years shown: 4th quarter, 1998--15.09%
Worst quarter during years shown: 3rd quarter, 1998--(8.21%)
The following tables show the average annual total returns over several time
periods for each class of shares of each Fund. The tables do reflect sales
charges on shares of the Funds. The tables also compare each Fund's returns to
returns of a broad-based market index. In addition, the table for Utility
Income Fund compares the Fund's returns to a more narrowly based index that
reflects the utility industries market sector. The comparative indices are
unmanaged and, therefore, do not include any sales charges or expenses.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND
AVERAGE ANNUAL TOTAL RETURNS
(as of December 31, 1999)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS CLASS A CLASS B* CLASS C CLASS Y S&P 500
(INCEPTION DATE) (7/1/91) (12/12/86) (7/2/92) (3/26/98) INDEX
- -------------------------------------------------------------------------------
One Year........................ (2.22%) (2.95%) 0.84% 2.78% 21.04%
Five Years...................... 15.41% 15.37% 15.61% N/A 28.56%
Ten Years....................... N/A 10.92% N/A N/A 18.21%
Life of Class................... 11.38% 9.91% 11.28% 6.08% **
</TABLE>
- -------------------------------------------------------------------------------
* Assumes conversion of Class B shares to Class A shares after six years.
** The average annual total return for the S&P 500 Index (1) for the life of
Class A shares was 20.30%, (2) for the period since December 31, 1986 (the
approximate period since the inception of Class B shares) was 18.01%, (3)
for the period since June 30, 1992 (the approximate period since the
inception of Class C shares) was 21.25%, and (4) for the period since
March 31, 1998 (the approximate period since the inception of Class Y
shares) was 19.50%.
7
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UTILITY INCOME FUND
AVERAGE ANNUAL TOTAL
RETURNS
(as of December 31,
1999)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS CLASS A CLASS B* CLASS C CLASS Y S&P 500 S&P UTILITY
(INCEPTION DATE) (7/2/93) (7/2/93) (7/2/93) (9/10/98) INDEX INDEX
- ---------------------------------------------------------------------------------
One Year................ (1.20%) (2.41%) 1.71% 3.76% 21.04% (8.88%)
Five Years.............. 14.28% 14.21% 14.46% N/A 28.56% 13.66%
Life of Class........... 8.96% 8.96% 8.91% 13.76% ** ***
</TABLE>
- -------------------------------------------------------------------------------
* Assumes conversion of Class B shares to Class A shares after six years.
** The average annual total return for the S&P 500 Index (1) for the period
since June 30, 1993 (the approximate period since the inception of Class
A, Class B, and Class C shares) was 22.47%, and (2) for the period since
September 30, 1998 (the approximate period since the inception of Class Y
shares) was 35.97%.
*** The average annual total return for the S&P Utility Index (1) for the
period since June 30, 1993 (the approximate period since the inception of
Class A, Class B, and Class C shares) was 9.11%, and (2) for the period
since September 30, 1998 (the approximate period since the inception of
Class Y shares) was (5.32%).
Sales Charges and Distribution and Service Fees
NO SALES CHARGES ARE APPLICABLE TO BALANCED FUND SHARES RECEIVED IN
CONNECTION WITH THE REORGANIZATION. The Class A shares of both Funds are
normally sold subject to a maximum initial sales charge of 4.5%. Class B
shares of both Funds are sold subject to a maximum contingent deferred sales
charge ("CDSC") of 5% (as a percentage of original purchase price or
redemption proceeds, whichever is less). Class C shares of both Funds are sold
subject to a maximum CDSC of 1% (as a percentage of original purchase price or
redemption proceeds, whichever is less). For purposes of calculating the CDSC,
the holding period for the Class B and Class C shares of Balanced Fund
distributed to Class B and Class C shareholders of Utility Income Fund will
include the holding period for the shares of Utility Income Fund. The Class Y
shares of each Fund are sold without initial sales charges or CDSCs. New
purchases of Class A, Class B, Class C and Class Y shares of Balanced Fund by
any shareholders will be subject to their terms. For more information about
sales charges for each class of shares of Balanced Fund and Utility Income
Fund, see "Flexible Pricing" in the Balanced Fund Prospectus and Utility
Income Fund Prospectus.
Each Fund has adopted a plan under rule 12b-1 for its Class A, Class B and
Class C shares that allows it to pay service and (for Class B and Class C
shares) distribution fees for the sale of its shares and services provided to
shareholders. The Class A shares of both Funds pay an annual fee to Mitchell
Hutchins for shareholder services in the amount of 0.25% of average daily net
assets. The Class B and Class C shares of both Funds pay an annual 12b-1
distribution fee of 0.75% of average daily net assets, as well as an annual
12b-1 service fee of 0.25% of average daily net assets. If you hold your Class
B shares for six years, they will automatically convert to Class A shares,
which have lower ongoing expenses. Class C shares do not convert to another
class of shares. The Class Y shares of both Funds are not subject to a 12b-1
fee.
Distribution, Purchase, Exchange and Redemption
Mitchell Hutchins is the distributor of shares of both Funds and has
appointed PaineWebber Incorporated ("PaineWebber") to be the exclusive dealer
for the sale of those shares. The minimum initial investment in Balanced Fund
is $1,000; each additional investment must be $100 or more. These minimums may
be waived or reduced for investments by employees of PaineWebber or its
affiliates, certain pension plans, retirement accounts, unaffiliated
investment programs or participants in Balanced Fund's automatic investment
plan.
Purchase and redemption procedures are identical for both Funds. If you are
a PaineWebber client, or a client of a PaineWebber correspondent firm, you can
purchase Fund shares through your Financial Advisor. Otherwise, you can invest
in the Funds through the Funds' transfer agent, PFPC Inc. For a more complete
discussion of share purchases, see "Buying Shares" in either the Balanced Fund
Prospectus or the Utility Income Fund Prospectus.
8
<PAGE>
You can sell your Fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the
Fund will assume that you want to sell shares in the following order: first
Class A, then Class C, then Class B, and last, Class Y. For a more complete
discussion of share redemption procedures, see "Selling Shares" in either the
Balanced Fund Prospectus or the Utility Income Fund Prospectus.
You may exchange Class A, Class B, or Class C shares of each Fund for shares
of the same class of most other PaineWebber funds. You may not exchange Class
Y shares of either Fund. No front-end or contingent deferred sales charge is
imposed on the shares acquired through an exchange. However, you may have to
pay a contingent deferred sales charge if you later sell the shares you
acquired in the exchange. Exchanges are subject to minimum investment and
other requirements of the PaineWebber fund into which exchanges are made. For
a more complete discussion of share exchange procedures, see "Exchanging
Shares" in either the Balanced Fund Prospectus or the Utility Income Fund
Prospectus.
The price at which you may buy, sell, or exchange Fund shares is based on
the net asset value per share. Each Fund calculates NAV on days that the New
York Stock Exchange ("NYSE") is open. Each Fund calculates NAV separately for
each class as of the close of regular trading on the NYSE (generally, 4:00
p.m. Eastern time). The NYSE normally is not open, and the Funds do not price
their shares, on most national holidays and on Good Friday. If trading on the
NYSE is halted for the day before 4:00 p.m., Eastern time, the Funds' NAV per
share will be calculated as of the time trading was halted. Your price for
buying, selling or exchanging shares will be based on the NAV that is next
calculated after the Fund accepts your order. For more information on the
pricing and valuation of shares, see "Pricing and Valuation" in either the
Balanced Fund Prospectus or the Utility Income Fund Prospectus.
Fund Board Members and Officers
Following the Reorganization, the Board of Directors and officers of Master
Series will continue to serve in that capacity for Master Series. The current
members of the Board of Directors of Master Series are the same persons who
are currently Trustees of the Trust, with the exception of Mary Farrell, who
is not a Trustee of the Trust. Ms. Farrell is a managing director, senior
investment strategist and member of the Investment Policy Committee of
PaineWebber. She joined PaineWebber in 1982. Ms. Farrell is a director or
trustee of 30 investment companies for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment adviser. For more information
about Master Series' officers, see the Balanced Fund SAI, incorporated by
reference herein.
Investment Advisers and Portfolio Management
Utility Income Fund paid advisory fees to Mitchell Hutchins for the fiscal
year ended March 31, 1999, at the rate of 0.70% of the Fund's average daily
net assets. Balanced Fund paid advisory fees to Mitchell Hutchins for the
fiscal year ended August 31, 1999, at the rate of 0.75% of the Fund's average
daily net assets. Under the advisory contract between Balanced Fund and
Mitchell Hutchins, the Fund pays Mitchell Hutchins an annual fee, computed
daily and paid monthly, as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
<S> <C>
Up to $500 million............................................ 0.750%
In excess of $500 million up to $1.0 billion.................. 0.725%
In excess of $1.0 billion up to $1.5 billion.................. 0.700%
In excess of $1.5 billion up to $2.0 billion.................. 0.675%
Over $2.0 billion............................................. 0.650%
</TABLE>
Under the advisory agreement between Utility Income Fund and Mitchell
Hutchins, the Fund pays advisory fees to Mitchell Hutchins at the rate of
0.70% of the Fund's average daily net assets. If Utility Income Fund's
shareholders approve the Reorganization and thereafter become shareholders of
Balanced Fund, they will pay a slightly higher management fee but will pay
lower total annual operating expenses because Balanced Fund is much larger
than Utility Income Fund and thus has significantly lower overall operating
expenses.
9
<PAGE>
Mitchell Hutchins is located at 51 West 52nd Street, New York, New York
10019, and is a wholly owned asset management subsidiary of PaineWebber
Incorporated, which is wholly owned by Paine Webber Group Inc., a publicly
owned financial services holding company. Mitchell Hutchins supervises all
aspects of the Funds' operations and provides investment advisory services to
each Fund, including obtaining and evaluating economic, statistical and
financial information to formulate and implement investment programs for the
Funds. On February 29, 2000, Mitchell Hutchins was adviser or sub-adviser of
31 investment companies with 76 separate portfolios and aggregate assets of
approximately $54.4 billion.
Mark Tincher and Christopher T. Solmssen are responsible for the day-to-day
management of Utility Income Fund's stock portfolio. Mr. Tincher also is
responsible for determining the allocation of fund assets between stocks and
bonds. James F. Keegan and Julieanna Berry are responsible for the day-to-day
management of the Fund's bond portfolio. Mr. Tincher and Mr. Solmssen assumed
their responsibilities for Utility Income Fund in May 1999. Mr. Tincher is a
managing director and chief investment officer of equities of Mitchell
Hutchins, responsible for overseeing the management of equity investments.
Prior to joining Mitchell Hutchins in 1995, Mr. Tincher was a vice president
at Chase Manhattan Private Bank, where he directed the U.S. funds management
and equity research area and oversaw the management of all Chase U.S. equity
funds. Mr. Solmssen is a vice president of Mitchell Hutchins and an equity
analyst covering utilities, telecommunications and energy. Prior to joining
Mitchell Hutchins in January 1998, Mr. Solmssen worked at Sun America Asset
Management as an equity analyst.
Mrs. Berry and Mr. Keegan have held their fund responsibilities since March
and April 1996, respectively. Mrs. Berry is a first vice president of Mitchell
Hutchins, where she has been employed as a portfolio manager since 1989. Mr.
Keegan is a senior vice president of Mitchell Hutchins and oversees all
corporate bond investments. Prior to joining Mitchell Hutchins in 1995, Mr.
Keegan was the director of fixed income strategy and research at the Merrion
Group, L.P.
T. Kirkham Barneby is responsible for the asset allocation decisions for
Balanced Fund. Mr. Barneby is a managing director and chief investment officer
of quantitative investments of Mitchell Hutchins. Mr. Barneby rejoined
Mitchell Hutchins in 1994, after being with Vantage Global Management for one
year. During the eight years that Mr. Barneby was previously with Mitchell
Hutchins, he was a senior vice president responsible for quantitative
management and asset allocation models. Mr. Tincher is responsible for the
day-to-day management of the equity portion of Balanced Fund. Information
about Mr. Tincher's background may be found above.
Dennis L. McCauley is responsible for the day-to-day management of the debt
securities portion of Balanced Fund. Mr. McCauley is a managing director and
chief investment officer of fixed income investments of Mitchell Hutchins,
responsible for overseeing all active fixed income investments, including
domestic and global taxable and tax-exempt mutual funds, since 1994.
Nirmal Singh assists Mr. McCauley in managing Balanced Fund's debt
securities. Mr. Singh has been a senior vice president of Mitchell Hutchins
since September 1993. Susan Ryan is responsible for the day-to-day management
of the portion of Balanced Fund's assets invested in money market instruments.
Ms. Ryan has been with Mitchell Hutchins since 1982 and is a senior vice
president of Mitchell Hutchins.
Accountants
PricewaterhouseCoopers LLP serves as Balanced Fund's independent
accountants. Ernst & Young LLP serves as Utility Income Fund's independent
auditors. Upon completion of the Reorganization, PricewaterhouseCoopers LLP
will continue to provide services to the combined Fund. PricewaterhouseCoopers
LLP has no direct financial interest or material indirect financial interest
in Balanced Fund. The independent accountants examine annual financial
statements for Balanced Fund and provide other audit and tax-related services.
10
<PAGE>
COMPARISON OF PRINCIPAL RISK FACTORS
RISKS COMMON TO BOTH FUNDS
Both Funds are subject to similar risk factors associated with their
investments in equities, bonds, and money market instruments.
Investing in Securities Generally
An investment in either Balanced Fund or Utility Income Fund is not
guaranteed; an investor may lose money by investing in either Fund.
Equity Risk
Because both Funds invest in common stocks and other equity securities, the
Funds are subject to equity risk. The prices of common stocks and other equity
securities generally fluctuate more than those of other investments. They
reflect changes in the issuing company's financial condition and changes in
the overall market. A Fund may lose a substantial part, or even all, of its
investment in a company's stock.
Interest Rate Risk and Credit Risk
Because both Funds invest in bonds, the Funds also are subject to interest
rate risk and credit risk. Balanced Fund must invest at least 25% of its total
assets in a combination of bonds and cash. Utility Income Fund does not have a
similar policy.
The value of bonds generally can be expected to fall when interest rates
rise and to rise when interest rates fall. Interest rate risk is the risk that
interest rates will rise, so that the value of a fund's investments in bonds
will fall. Because interest rate risk is the primary risk presented by U.S.
government and other very high quality bonds, changes in interest rates may
actually have a larger effect on the value of those bonds than on lower
quality bonds.
Credit risk is the risk that the issuer of a bond will not make principal or
interest payments when they are due. Even if an issuer does not default on a
payment, a bond's value may decline if the market believes that the issuer has
become less able, or less willing, to make payments on time. Even high quality
bonds are subject to some credit risk.
The bonds held by each Fund are primarily investment grade, although
Balanced Fund may invest up to 10% of its total assets in bonds and other
securities that are rated below investment grade, while Utility Income Fund
may invest only up to 5% of its net assets in bonds and convertible securities
that are rated lower than investment grade. Credit risk is higher for lower
quality bonds than for higher quality bonds. Bonds that are not investment
grade involve high credit risk and are considered speculative. Lower quality
bonds may fluctuate in value more than higher quality bonds and, during
periods of market volatility, may be more difficult to sell at the time and
price a fund desires.
Derivatives Risk
Both Funds may use derivatives as part of their investment strategies to
attempt to hedge market risks, to manage the effective maturity or interest
rate sensitivity of the portfolios, or to enhance income or realize gains. As
a result, both Funds are subject to the risks of investing in derivatives.
The value of "derivatives"--so called because their value derives from the
value of an underlying asset, reference rate or index--may rise or fall more
rapidly than other investments. For some derivatives, it is possible for a
fund to lose more than the amount it invested in the derivative. Options,
futures contracts and forward currency contracts are examples of derivatives.
A fund's use of derivatives may not succeed for various reasons, including
unexpected changes in the values of the derivatives or the assets underlying
them. Also, if a fund uses derivatives as a hedge, the hedge will not succeed
if changes in the values of the derivatives are not matched by opposite
changes in the values of the assets being hedged.
11
<PAGE>
PRIMARY DIFFERENCES IN INVESTMENT RISKS OF THE FUNDS
The investment risks of Utility Income Fund differ from those of Balanced
Fund in that Utility Income Fund is subject to the risks of concentrating its
investments in income-producing stocks and bonds issued by U.S. and foreign
utility companies, while Balanced Fund pursues an asset allocation strategy
and does not concentrate its investments in any particular industry.
Utility Industries Concentration Risk
Utility Income Fund concentrates its investments in the utility industries.
Therefore, it will be more affected by economic, competitive, and regulatory
developments in those industries than it would be if it invested in a broad
range of businesses.
Interest rate changes may affect the value of the Fund's assets. When
interest rates decline, prices of utility stocks and bonds tend to increase.
When interest rates rise, these prices tend to decrease.
The same trend toward deregulation that presents opportunities in the
utility industries also presents special risks. Some companies may be faced
with increased competition and may become less profitable.
Electric utility companies are subject to increases in fuel and other
operating costs, increases in interest costs and compliance costs relating to
environmental, nuclear facility and other safety regulations. Other types of
utilities face similar problems.
Asset Allocation Risk
Balanced Fund allocates its investments among stocks, bonds, and cash (money
market instruments). Mitchell Hutchins may not be successful in choosing the
best allocation among different asset classes. A fund, such as Balanced Fund,
that allocates its assets among different asset classes is more dependent on
Mitchell Hutchins' ability to successfully assess the relative values in each
asset class than are funds that do not do so.
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
At a meeting of the Trust's Board held on February 10, 2000, Mitchell
Hutchins proposed that the Trust's Board approve the Reorganization of Utility
Income Fund into Balanced Fund. Mitchell Hutchins explained that it had
reviewed whether it is in the best interests of shareholders of Utility Income
Fund to continue to operate the Fund as a stand-alone series of the Trust. As
part of its review, Mitchell Hutchins noted that (1) the Fund has a very small
asset base (approximately $30 million as of February 29, 2000), despite its
almost seven-year existence, (2) the Fund's performance record is weak
relative to its benchmark indices and peers, and (3) there is insufficient
interest to indicate that the Fund could achieve an economically viable size
in the foreseeable future. Mitchell Hutchins further noted that the
performance of Balanced Fund generally has been better than Utility Income
Fund's performance. (See "Comparison of the Funds--Performance" for more
information about the performance of each Fund.)
Mitchell Hutchins informed the Trust's Board that both Funds are
conservative funds relative to other funds that invest in equity securities
and also noted that both Funds appeal to similar investors. Mitchell Hutchins
noted to the Trust's Board the similarities and differences of the investment
objectives and policies of the Funds (as described above). Mitchell Hutchins
also informed the Trust's Board that the investment objective and policies of
Balanced Fund do not preclude it from investing in securities of companies in
the utility industries.
Mitchell Hutchins also reviewed the compatibility of the current portfolio
holdings of the Funds: (1) as of December 31, 1999, Balanced Fund was invested
to a limited extent (about 5.39%) in securities of companies in the utility
industries; (2) Utility Income Fund may invest up to 35% of its total assets
in stocks and bonds issued by companies outside the utility industries and in
high quality money market instruments; and (3) as of December 31, 1999, 19.08%
of Utility Income Fund's net assets were invested outside of utility
industries, and 4.13% of its net assets were invested in bonds or money market
instruments. Mitchell Hutchins estimated that Utility Income Fund will sell
between one quarter and one half of its total assets in connection with the
Reorganization.
12
<PAGE>
Mitchell Hutchins additionally estimated that, on a PRO FORMA basis, each
class of Balanced Fund shares would likely have lower total annual operating
expenses after the Reorganization than Utility Income Fund had based on
preliminary calculations for the current fiscal year. (See "Comparative Fee
Table" above for a more complete description of the fees and expenses of the
Funds, both before and after the Reorganization.) Mitchell Hutchins noted that
the reduction in total annual operating expenses would be due primarily to
significantly lower "Other Expenses" incurred by Balanced Fund, although this
reduction would be offset by a slightly higher management fee payable to
Mitchell Hutchins.
Finally, Mitchell Hutchins reviewed with the Trust's Board the principal
terms of the Plan. Mitchell Hutchins informed the Board that the
Reorganization would be tax-free to Utility Income Fund and its shareholders,
would continue to permit current Utility Income Fund shareholders to exchange
into other PaineWebber open-end funds after the Reorganization without having
to pay a sales load should their investment priorities change, and that no
additional sales charges would be imposed on any Balanced Fund shares issued
in connection with the Reorganization. Furthermore, Mitchell Hutchins informed
the Trust's Board that, for purposes of calculating the contingent deferred
sales charge, the holding period for the Class B and Class C shares
distributed to Class B and Class C shareholders of Utility Income Fund will
include the holding period for the shares of Utility Income Fund.
As part of its consideration, the Trust's Board examined a number of factors
with respect to the Reorganization, including: (1) the compatibility of the
Funds' investment objectives, policies and restrictions; (2) the Funds'
respective investment performances; (3) the likely impact of the
Reorganization on the expense ratio of Balanced Fund and that expense ratio
relative to Utility Income 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) the benefits of the broader investment
policies of Balanced Fund, (7) the potential benefits of the Reorganization to
other persons, including Mitchell Hutchins and its affiliates, (8) Mitchell
Hutchins' assessment that the proposed Reorganization will not dilute the
interests of shareholders of Utility Income Fund; (9) the advisory
arrangements in place for the Funds and the level and quality of investment
advisory services provided by Mitchell Hutchins; and (10) the terms of the
proposed Plan.
On the basis of the information provided to the Trust's Board and its
evaluation of that information, the Trust's Board, including a majority of its
Independent Board Members, determined that the Reorganization would be in the
best interests of Utility Income Fund and that the interests of existing
Utility Income Fund shareholders would not be diluted as a result of the
Reorganization. Therefore, the Trust's Board unanimously approved the
Reorganization and recommended the approval of the Plan by the shareholders of
Utility Income Fund at the Meeting.
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Plan. Significant provisions of the Plan are summarized
below; however, this summary is qualified in its entirety by reference to the
Plan. A copy of the form of Agreement and Plan of Reorganization and
Termination is attached as Appendix A to this Proxy Statement/Prospectus.
The Plan contemplates (a) Balanced Fund's acquiring on the Closing Date all
the assets of Utility Income Fund in exchange solely for Balanced Fund shares
and Balanced Fund's assumption of all of Utility Income Fund's liabilities and
(b) the distribution of those shares to Utility Income Fund shareholders.
Utility Income Fund's assets include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights
of action, rights to register shares under applicable securities laws, books
and records, deferred and prepaid expenses shown as assets on its books and
other property owned by it as of the close of business on the Closing Date
("Effective Time") (collectively, the "Assets"). Balanced Fund will assume
from Utility Income Fund all its 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 referred to in the Plan
(collectively, the
13
<PAGE>
"Liabilities"); provided, however, that Utility Income Fund will use its best
efforts to discharge all of its known Liabilities prior to the Effective Time.
Balanced Fund will deliver its shares to Utility Income Fund, which then will
be distributed to Utility Income Fund's shareholders. As a result of the
Reorganization, shareholders of each class of Utility Income Fund shares will
become shareholders of the corresponding class of Balanced Fund shares.
The value of the Assets to be acquired, and the amount of the Liabilities to
be assumed, by Balanced Fund and the NAV of a Balanced Fund share will be
determined as of the close of regular trading on the NYSE on the Closing Date
("Valuation Time"), using the applicable valuation procedures described in
each Fund's then-current Prospectus and SAI. Utility Income Fund's net asset
value will be the value of its assets to be acquired by Balanced Fund, less
the amount of Utility Income Fund's liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, Utility Income Fund
will distribute to its shareholders of record as of the Effective Time the
Balanced Fund shares it receives, by class, so that each Utility Income Fund
shareholder will receive the number of full and fractional shares of the
corresponding class of Balanced Fund equal in aggregate NAV to the
shareholder's shares in Utility Income Fund. That distribution will be
accomplished by opening accounts on the books of Balanced Fund in the names of
Utility Income Fund's shareholders and crediting those accounts with Balanced
Fund shares equal in aggregate NAV to the shareholders' shares in Utility
Income Fund. Fractional shares of Balanced Fund will be rounded to the third
decimal place.
Immediately after the Reorganization, each former shareholder of Utility
Income Fund will own shares of the class of Balanced Fund equal in NAV to the
aggregate NAV of that shareholder's shares of the corresponding class of
Utility Income Fund immediately prior to the Reorganization. The NAV per share
of Balanced Fund will not change as a result of the Reorganization. Thus, the
Reorganization will not result in a dilution of any shareholder interest.
Each Fund will bear its own expenses in connection with the Reorganization,
which are estimated to be $165,000 for Utility Income Fund and $30,000 for
Balanced Fund. Utility Income Fund will be terminated after the
Reorganization.
The consummation of the Reorganization is subject to a number of conditions
set forth in the Plan, some of which may be waived by either Fund. In
addition, the Plan may be amended in any mutually agreeable manner, except
that no amendment may be made subsequent to the Meeting that would have a
material adverse effect on the interests of Utility Income Fund shareholders.
If the Reorganization is not approved by shareholders at the Meeting, Utility
Income Fund will continue to operate as a portfolio of the Trust and the
Trust's Board will then consider other options and alternatives for the future
of the Fund.
DESCRIPTION OF SECURITIES TO BE ISSUED
Balanced Fund has an authorized capital of four billion shares of common
stock, par value $0.001 per share, divided into four classes, designated Class
A, Class B, Class C and Class Y shares. A share of each class of Balanced Fund
represents an identical interest in the Fund's investment portfolio and has
the same rights, privileges and preferences, except as noted in the Balanced
Fund SAI. Each share of the Fund is entitled to participate equally in
dividends and other distributions of the Fund. Shares of Balanced Fund entitle
their holders to one vote per full share and fractional votes for fractional
shares held. Balanced Fund does not hold annual meetings. Shares of the Fund
are voted together, except that only the shareholders of a particular class of
the Fund may vote on matters affecting only that class.
DIVIDENDS AND OTHER DISTRIBUTIONS
Balanced Fund normally declares and pays dividends semi-annually and
distributes any net capital gains annually. A shareholder of Balanced Fund
receives dividends in additional shares of the distributing class unless the
shareholder elects to receive cash.
14
<PAGE>
On or before the Closing Date, Utility Income Fund will declare as a
distribution substantially all of its undistributed net investment income, net
capital gain, net short-term capital gain and net gains from foreign currency
transactions, if any, in order to continue to maintain its tax status as a
regulated investment company.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Utility Income Fund, which
prohibit it from acquiring more than a stated percentage of ownership of
another company, might be construed as restricting its ability to carry out
the Reorganization. By approving the Plan, shareholders of Utility Income Fund
will be agreeing to waive, only for the purpose of the Reorganization, those
fundamental investment restrictions that could prohibit or otherwise impede
the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The Reorganization is intended to be a tax-free reorganization within the
meaning of section 368(a)(1)(C) of the Code. The Trust and Master Series will
each receive an opinion of Kirkpatrick & Lockhart LLP, their counsel,
substantially to the following effect:
(1) Balanced Fund's acquisition of the Assets in exchange solely for
Balanced Fund shares and Balanced Fund's assumption of the Liabilities,
followed by Utility Income Fund's distribution of those shares pro rata to
its shareholders constructively in exchange for their Utility Income Fund
shares, will qualify as a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(2) Utility Income Fund will recognize no gain or loss on its transfer of
the Assets to Balanced Fund in exchange solely for Balanced Fund shares and
Balanced Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to Utility Income Fund's shareholders in
constructive exchange for their Utility Income Fund shares;
(3) Balanced Fund will recognize no gain or loss on its receipt of the
Assets in exchange solely for Balanced Fund shares and its assumption of
the Liabilities;
(4) Balanced Fund's basis for the Assets will be the same as Utility Income
Fund's basis therefor immediately before the Reorganization, and Balanced
Fund's holding period for the Assets will include Utility Income Fund's
holding period therefor;
(5) A Utility Income Fund shareholder will recognize no gain or loss on the
constructive exchange of all its Utility Income Fund shares solely for
Balanced Fund shares pursuant to the Reorganization; and
(6) A Utility Income Fund shareholder's aggregate basis for the Balanced
Fund shares to be received by it in the Reorganization will be the same as
the aggregate basis for its Utility Income Fund shares to be constructively
surrendered in exchange for those Balanced Fund shares, and its holding
period for those Balanced Fund shares will include its holding period for
those Utility Income Fund shares, provided the shareholder holds them as
capital assets on the Closing Date.
The 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.
Utilization by Balanced Fund after the Reorganization of any pre-
Reorganization capital losses realized by Utility Income Fund could be subject
to limitation in future years under the Code.
Shareholders of Utility Income 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.
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<PAGE>
ORGANIZATION OF THE FUNDS
Balanced Fund is a diversified series of Master Series and commenced
operations on December 12, 1986. Master Series was organized as a Maryland
corporation on October 29, 1985, and is registered under the 1940 Act as an
open-end management investment company. The operations of Master Series, as a
Maryland corporation, are governed by its Articles of Incorporation and By-
Laws and Maryland law.
Utility Income Fund is a diversified series of the Trust and commenced
operations on July 2, 1993. The Trust was organized as a Massachusetts
business trust on November 21, 1986, and is registered under the 1940 Act as
an open-end management investment company. The operations of the Trust, as a
Massachusetts business trust, are governed by its Amended and Restated
Declaration of Trust and By-Laws and Massachusetts law.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand Balanced
Fund's financial performance for the past five years. Shorter periods are
shown for classes of Fund shares that have existed for less than five years.
Certain information reflects financial results for a single Fund share. In the
tables, "total investment return" represents the rate that an investor would
have earned (or lost) on an investment in the Fund, assuming reinvestment of
all dividends and distributions. The table is included in Balanced Fund's
current Prospectus, dated December 10, 1999, which is incorporated herein by
reference and accompanies this Proxy Statement/Prospectus. The information has
been audited by PricewaterhouseCoopers LLP, independent accountants for
Balanced Fund, whose report, along with the Fund's financial statements, are
included in the Fund's Annual Report to Shareholders, dated August 31, 1999,
which is also incorporated herein by reference and accompanies this Proxy
Statement/Prospectus.
CAPITALIZATION
The following table shows the capitalization of Utility Income Fund and
Balanced Fund as of December 31, 1999, and on a pro forma combined basis as of
December 31, 1999, giving effect to the Reorganization:
<TABLE>
<CAPTION>
UTILITY
INCOME BALANCED
FUND: CLASS FUND: Pro Forma CLASS A
A CLASS A COMBINED BALANCED FUND
----------- ------------ ----------------------
<S> <C> <C> <C>
Net Assets..................... $18,508,760 $192,152,489 $210,661,249
Shares Outstanding............. 1,287,676 17,400,670 19,077,188
Net Asset Value Per Share...... $ 14.37 $ 11.04 $ 11.04
<CAPTION>
UTILITY
INCOME BALANCED
FUND: CLASS FUND: Pro Forma CLASS B
B CLASS B COMBINED BALANCED FUND
----------- ------------ ----------------------
<S> <C> <C> <C>
Net Assets..................... $ 6,006,860 $ 25,842,907 $ 31,849,767
Shares Outstanding............. 417,047 2,281,970 2,812,611
Net Asset Value Per Share...... $ 14.40 $ 11.32 $ 11.32
<CAPTION>
UTILITY
INCOME BALANCED
FUND: CLASS FUND: Pro Forma CLASS C
C CLASS C COMBINED BALANCED FUND
----------- ------------ ----------------------
<S> <C> <C> <C>
Net Assets..................... $ 7,190,911 $ 18,545,176 $ 25,736,087
Shares Outstanding............. 500,821 1,675,744 2,325,329
Net Asset Value Per Share...... $ 14.36 $ 11.07 $ 11.07
<CAPTION>
UTILITY
INCOME BALANCED
FUND: CLASS FUND: Pro Forma CLASS Y
Y CLASS Y COMBINED BALANCED FUND
----------- ------------ ----------------------
<S> <C> <C> <C>
Net Assets..................... $ 121,559 $ 375,048 $ 496,607
Shares Outstanding............. 8,489 34,003 45,024
Net Asset Value Per Share...... $ 14.32 $ 11.03 $ 11.03
</TABLE>
REQUIRED VOTE. The proposal to approve the Plan requires the affirmative
vote of a majority of the votes entitled to be cast on the proposal.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PLAN OF REORGANIZATION.
----------------
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LEGAL MATTERS
Certain legal matters concerning the issuance of Balanced Fund shares as
part of the Reorganization and the tax consequences of the Reorganization will
be passed upon by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, counsel to Master Series and to the Trust.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
Master Series and the Trust are each subject to the information requirements
of the Securities Exchange Act of 1934 and the 1940 Act and in accordance
therewith each files reports and other information with the SEC. Reports,
proxy statements, registration statements and other information may be
inspected without charge and copied at the Public Reference Room maintained by
the SEC at 450 Fifth Street, N.W., Washington, DC 20549, and at the following
regional offices of the SEC: 7 World Trade Center, Suite 1300, New York, NY
10048, and 500 West Madison Street, 14th floor, Chicago, IL 60661. Copies of
such material may also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, DC, 20549 at the prescribed rates. The SEC maintains an Internet
web site at http://www.sec.gov that contains information regarding Master
Series and the Trust, and other registrants that file electronically with the
SEC.
EXPERTS
The audited financial statements of Utility Income Fund incorporated by
reference herein and incorporated by reference in its Statement of Additional
Information ("SAI") for the fiscal year ended March 31, 1999 have been audited
by Ernst & Young LLP, independent auditors, whose report thereon is included
in Utility Income Fund's Annual Report to Shareholders for the fiscal year
ended March 31, 1999. The financial statements audited by Ernst & Young LLP
have been incorporated herein by reference in reliance on its report given on
its authority as experts in auditing and accounting.
The audited financial statements of Balanced Fund incorporated by reference
herein and incorporated by reference or included in its SAI for the fiscal
year ended August 31, 1999, have been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report thereon is included in Balanced Fund's
Annual Report to Shareholders for the fiscal year ended August 31, 1999. The
financial statements audited by PricewaterhouseCoopers LLP have been
incorporated herein by reference in reliance on its report given on its
authority as experts in auditing and accounting.
17
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of June , 2000, between PaineWebber Master Series, Inc., a Maryland
corporation ("Master Series"), on behalf of PaineWebber Balanced Fund, a
segregated portfolio of assets ("series") thereof ("Acquiring Fund"), and
PaineWebber Managed Investments Trust, a Massachusetts business trust
("Trust"), on behalf of PaineWebber Utility Income Fund, a series thereof
("Target"). (Acquiring Fund and Target are sometimes referred to herein
individually as a "Fund" and collectively as the "Funds," and Master Series
and Trust are sometimes referred to herein individually as an "Investment
Company" and collectively as the "Investment Companies.") All agreements,
representations, actions, and obligations described herein made or to be taken
or undertaken by Acquiring Fund or Target are made and shall be taken or
undertaken by Master Series or Trust, respectively.
The Investment Companies wish to effect a reorganization described in
section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
("Code"), and intend this Agreement to be, and adopt it as, a "plan of
reorganization" within the meaning of the regulations under section 368 of the
Code ("Regulations"). The reorganization will involve the transfer of Target's
assets to Acquiring Fund in exchange solely for voting shares of common stock
of Acquiring Fund ("Acquiring Fund Shares") and the assumption by Acquiring
Fund of Target's liabilities, followed by the constructive distribution of
those shares PRO RATA to the holders of shares of beneficial interest in
Target ("Target Shares") in exchange therefor, all on the terms and conditions
set forth herein. The foregoing transactions are referred to herein
collectively as the "Reorganization."
The Target Shares are divided into four classes, designated Class A, Class
B, Class C, and Class Y shares ("Class A Target Shares," "Class B Target
Shares," "Class C Target Shares," and "Class Y Target Shares," respectively).
The Acquiring Fund Shares also are divided into four classes, also designated
Class A, Class B, Class C, and Class Y shares ("Class A Acquiring Fund
Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and
"Class Y Acquiring Fund Shares," respectively). Each class of Acquiring Fund
Shares is substantially similar to the identically designated class of Target
Shares.
In consideration of the mutual promises contained herein, the parties agree
as follows:
1. PLAN OF REORGANIZATION AND TERMINATION
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
(rounded to the third decimal place) (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 net asset value ("NAV") of a Class A
Acquiring Fund Share (computed as set forth in paragraph 2.2), (ii)
Class B Acquiring Fund Shares determined by dividing the Target
Value attributable to the Class B Target Shares by the NAV of a
Class B Acquiring Fund Share (as so computed), (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 (as so computed), and (iv) Class Y Acquiring
Fund Shares determined by dividing the Target Value attributable to
the Class Y Target Shares by the NAV of a Class Y Acquiring Fund
Share (as so computed), 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).
A-1
<PAGE>
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.
Notwithstanding the foregoing, Target agrees to use its best efforts to
discharge all its known Liabilities before the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount
large enough so that it will have distributed substantially all (and in any
event not less than 90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and substantially all of
its 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 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 (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Master Series's transfer agent's 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 B Acquiring
Fund Shares due that Shareholder, 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, and the account for a Shareholder
of Class Y Target Shares shall be credited with the respective pro rata number
of Class Y Acquiring Fund Shares due that Shareholder). All outstanding Target
Shares, including any represented by certificates, shall simultaneously be
canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within six months
after the Effective Time, Target shall be terminated as a series of 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 on 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 ("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 ("SAI"), less (b) the amount of the
Liabilities as of the Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of each class of an 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 SAI.
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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 or about
June 23, 2000, or at such other place and/or on such other date as to which
the Investment Companies 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 to which the Investment Companies 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 Target Value and the NAV of each class of Acquiring Fund
Shares 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. Trust's fund accounting and pricing agent shall deliver at the Closing
a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund,
as reflected on Acquiring Fund's books immediately after the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Trust's custodian shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary
taxes in conjunction with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or provision
for payment has been made.
3.3. Trust shall deliver to Master Series at the Closing a list of the names
and addresses of the Shareholders and the number of outstanding Target Shares
(by class) owned by each Shareholder, all as of the Effective Time, certified
by Trust's Secretary or an Assistant Secretary thereof. Master Series's
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.
Master Series shall issue and deliver a confirmation to Trust evidencing the
Acquiring Fund Shares to be credited to Target at the Effective Time or
provide evidence satisfactory to Trust that such Acquiring Fund Shares have
been credited to Target's account on Acquiring Fund's books. At the Closing,
each Investment Company shall deliver to the other bills of sale, checks,
assignments, stock certificates, receipts, or other documents the other
Investment Company or its counsel reasonably requests.
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. Trust is a trust operating under a written declaration of trust,
the beneficial interest in which is divided into transferable shares
("Business Trust"), that is duly organized and validly existing under the
laws of the Commonwealth of Massachusetts; and a copy of its Amended and
Restated Agreement and Declaration of Trust ("Declaration of Trust") is on
file with the Secretary of the Commonwealth of Massachusetts;
4.1.2. Trust is duly registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("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 Trust;
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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 on delivery
and payment for the Assets, Acquiring Fund will acquire good and marketable
title thereto;
4.1.5. Target's current prospectus and SAI conform in all material
respects to the applicable requirements of the Securities Act of 1933, as
amended ("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
the Declaration of Trust or Trust's 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 Master Series;
4.1.7. Except as otherwise disclosed in writing to and accepted by Master
Series, 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 or 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 Master
Series, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to Target's
knowledge) threatened against 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; and 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 have
been duly authorized as of the date hereof by all necessary action on the
part of 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, this Agreement constitutes a valid and legally
binding obligation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Target's shareholders;
4.1.11. No governmental consents, approvals, authorizations, or filings
are required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act"), or the 1940 Act for the execution or performance of
this Agreement by Trust, except for (a) the filing with the Securities and
Exchange Commission ("SEC") of a registration statement by Master Series 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"), and (b) 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
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respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the rules and 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 Master Series for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary course of
its business and are associated with the Assets; and there are no
Liabilities other than liabilities disclosed or provided for in Trust's
financial statements referred to in paragraph 4.1.18 and liabilities
incurred by Target in the ordinary course of its business subsequent to
September 30, 1999, or otherwise previously disclosed to Master Series,
none of which has been materially adverse to the business, assets, or
results of Target's operations;
4.1.14. Target is a "fund" as defined in section 851(g)(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; it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it; and the Assets will 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;
4.1.17. Target's federal income tax returns, and all applicable state and
local tax returns, for all taxable years through and including the taxable
year ended March 31, 1999, have been timely filed and all taxes payable
pursuant to such returns have been timely paid; and
4.1.18. Trust's financial statements for the year ended March 31, 1999,
and for the six months ended September 30, 1999, to be delivered to Master
Series, fairly represent Target's financial position as of each such date
and the results of its operations and changes in its net assets for the
period then ended.
4.2.Acquiring Fund represents and warrants as follows:
4.2.1. Master Series is a corporation that is duly organized, validly
existing, and in good standing under the laws of the State of Maryland; and
its Articles of Incorporation are on file with the Department of
Assessments and Taxation of Maryland;
4.2.2. Master Series is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
Master Series;
4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring
Fund's assumption of the Liabilities) will be issued in exchange for the
Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid and non-assessable;
4.2.6. Acquiring Fund's current prospectus and SAI 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;
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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, Maryland law or any
provision of Master Series's Articles of Incorporation 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 Trust;
4.2.8. Except as otherwise disclosed in writing to and accepted by 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 Master Series 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; and Acquiring Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement have
been duly authorized as of the date hereof by all necessary action on the
part of Master Series's board of directors (together with Trust's board of
trustees, the "Boards"), which has made the determinations required by Rule
17a-8(a) under the 1940 Act; and this Agreement constitutes a valid and
legally binding obligation of Acquiring Fund, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
4.2.10. No governmental consents, approvals, authorizations, or filings
are required under the 1933 Act, the 1934 Act, or the 1940 Act for the
execution or performance of this Agreement by Master Series, except for (a)
the filing with the SEC of the Registration Statement and (b) 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 rules and 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 Trust for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(g)(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 taxable year; Acquiring Fund intends to
continue to meet all such requirements for the next taxable year; and it
has no earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M of the Code did not apply to it;
4.2.13. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at NAV in the ordinary course of that business;
4.2.14. Following the Reorganization, Acquiring Fund (a) will continue
Target's "historic business" (within the meaning of section 1.368-1(d)(2)
of the Regulations), (b) use a significant portion of Target's "historic
business assets" (within the meaning of section 1.368-1(d)(3) of the
Regulations) in a business,
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(c) 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, and
(d) 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 a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following the
Reorganization;
4.2.16. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers;
4.2.17. Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it directly or
indirectly owned at any time during the past five years, any shares of
Target;
4.2.18. Acquiring Fund's federal income tax returns, and all applicable
state and local tax returns, for all taxable years through and including
the taxable year ended August 31, 1999, have been timely filed and all
taxes payable pursuant to such returns have been timely paid; and
4.2.19. Master Series's financial statements for the year ended August
31, 1999, to be delivered to Trust, fairly represent Acquiring Fund's
financial position as of that date and the results of its operations and
changes in its net assets for the year then ended.
4.3.Each Fund represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares received by
each Shareholder will be approximately equal to the fair market value of
its Target Shares constructively surrendered in exchange therefor;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Target Shares before the Reorganization to any person related (within
the meaning of section 1.368-1(e)(3) of the Regulations) to either Fund or
(ii) any portion of the Acquiring Fund Shares to be received by them in the
Reorganization to any person related (within such meaning) to Acquiring
Fund, (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, (c) 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 and (d) does not 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 (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.3.5. The fair market value of the Assets on a going concern basis will
equal or exceed the Liabilities to be assumed by Acquiring Fund and those
to which the Assets are subject;
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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 to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions not made as
part of the Reorganization and (b) 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) after the date of this Agreement will be included
as assets held thereby immediately before the Reorganization;
4.3.8. None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration
for, or allocable to, any of the Target Shares held by such Shareholder;
none of the Acquiring Fund Shares received by any such Shareholder will be
separate consideration for, or allocable to, any employment agreement,
investment advisory agreement, or other service agreement; and the
consideration paid to any such Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;
4.3.9. Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" (within the meaning of section 304(c) of
the Code) of Acquiring Fund; and
4.3.10. Neither Fund will be reimbursed for any expenses incurred by it
or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B.
187).
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 changes in operations
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 (1) Target shall not dispose
of more than an insignificant portion of its historic business assets
during such period without Acquiring Fund's prior consent and (2) if
Target's shareholders approve this Agreement (and the transactions
contemplated hereby), then between the date of such approval and the
Closing, the Funds shall coordinate their respective portfolios so that
the transfer of the Assets to Acquiring Fund will not cause it to fail
to be in compliance with all of its investment policies and
restrictions immediately after the Closing.
5.2. Target covenants to call a shareholders' meeting to consider and act on
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 Master Series in obtaining
information Master Series reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that its 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 Master Series at the Closing.
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5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal and state 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. Acquiring Fund 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 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 its 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 each Board and shall have been approved by
Target's shareholders in accordance with the Declaration of Trust, Trust's By-
Laws, and 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 Investment Company 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 either Fund's assets or properties, provided that
either Investment Company 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. Trust shall have received an opinion of Kirkpatrick & Lockhart LLP
("Counsel") substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of Master Series, a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Maryland with power under its Articles of
Incorporation to own all its properties and assets and, to the knowledge of
Counsel, to carry on its business as presently conducted;
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6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Master Series on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by Trust on behalf
of Target, is a valid and legally binding obligation of Master Series with
respect to Acquiring Fund, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized, validly issued and
outstanding, and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Master Series's Articles of Incorporation or By-Laws or any
provision of any agreement (known to Counsel, without any independent
inquiry or investigation) to which Master Series (with respect to Acquiring
Fund) is a party or by which it is bound or (to the knowledge of 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 Master Series (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
Trust;
6.4.5. To the knowledge of 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 Master Series
on behalf of Acquiring Fund of the transactions contemplated herein, except
those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those
that may be required under state securities laws;
6.4.6. Master Series is registered with the SEC as an investment company,
and to the knowledge of Counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.4.7. To the knowledge of 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 Master Series (with respect to Acquiring Fund) or any of
its properties or assets attributable or allocable to Acquiring Fund and
(b) Master Series (with respect to Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Acquiring Fund's
business, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by Trust.
In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the State of Maryland, on an opinion of competent Maryland counsel,
(2) make assumptions regarding the authenticity, genuineness, and/or
conformity of documents and copies thereof without independent verification
thereof, (3) limit such opinion to applicable federal and state law, and (4)
define the word "knowledge" and related terms to mean the knowledge of
attorneys then with Counsel who have devoted substantive attention to matters
directly related to this Agreement and the Reorganization.
6.5. Master Series shall have received an opinion of Counsel substantially
to the effect that:
6.5.1. Target is a duly established series of Trust, a Business Trust
duly organized and validly existing under the laws of the Commonwealth of
Massachusetts with power under the Declaration of Trust to own all its
properties and assets and, to the knowledge of Counsel, to carry on its
business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Trust on behalf of Target and (b) assuming due authorization,
execution, and delivery of this Agreement by Master Series on behalf of
Acquiring Fund, is a valid and legally binding obligation of Trust with
respect to Target, enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency,
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<PAGE>
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 the Declaration of Trust or Trust's By-Laws or any provision of any
agreement (known to Counsel, without any independent inquiry or
investigation) to which Trust (with respect to Target) is a party or by
which it is bound or (to the knowledge of 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 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 Master Series;
6.5.4. To the knowledge of 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 Trust on
behalf of Target of the transactions contemplated herein, except those
obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that
may be required under state securities laws;
6.5.5. Trust is registered with the SEC as an investment company, and to
the knowledge of Counsel no order has been issued or proceeding instituted
to suspend such registration; and
6.5.6. To the knowledge of 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 Trust (with respect to Target) or any of its properties or
assets attributable or allocable to Target and (b) 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 Target's business, except as set forth in such opinion or
as otherwise disclosed in writing to and accepted by Master Series.
In rendering such opinion, Counsel may (1) rely, as to matters governed by the
laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (2) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (3) limit such opinion to applicable federal
and state law, and (4) define the word "knowledge" and related terms to mean
the knowledge of attorneys then with Counsel who have devoted substantive
attention to matters directly related to this Agreement and the
Reorganization.
6.6. Each Investment Company shall have received an opinion of Counsel,
addressed to and in form and substance satisfactory to it, as to the federal
income tax consequences mentioned below ("Tax Opinion"). In rendering the Tax
Opinion, Counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this Agreement, which
Counsel may treat as representations made to it, or in separate letters
addressed to Counsel and the certificates delivered pursuant to paragraph 3.4.
The Tax Opinion shall be substantially to the effect that, based on the facts
and assumptions stated therein and conditioned on consummation of the
Reorganization in accordance with this Agreement, 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 pro rata to the
Shareholders constructively in exchange for their Target Shares, will
qualify as 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. Target will recognize no gain or loss on the transfer of the
Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and
Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
6.6.3. Acquiring Fund will recognize no gain or loss on its receipt of
the Assets in exchange solely for Acquiring Fund Shares and its assumption
of the Liabilities;
A-11
<PAGE>
6.6.4. Acquiring Fund's basis for the Assets will be the same as Target's
basis therefor immediately before the Reorganization, and Acquiring Fund's
holding period for the Assets will include Target's holding period
therefor;
6.6.5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares pursuant
to the Reorganization; and
6.6.6. A Shareholder's aggregate basis for the Acquiring Fund Shares to
be received by it in the Reorganization will be the same as the aggregate
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 the Shareholder held them as capital assets at the Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, the 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, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's 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. Each Fund will bear its own Reorganization expenses.
8. ENTIRE AGREEMENT; NO 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 not
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 December 31, 2000; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees/directors,
or officers of either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target's shareholders, in any manner
mutually agreed on in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
A-12
<PAGE>
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; 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. Master Series acknowledges that Trust is a Business Trust. This
Agreement is executed by Trust on behalf of Target and by its trustees and/or
officers in their capacities as such, and not individually. Trust's
obligations under this Agreement are not binding on or enforceable against any
of its trustees, officers, or shareholders but are only binding on and
enforceable against Target's assets and property; and a trustee of Trust shall
not be personally liable hereunder to Master Series or its directors or
shareholders for any act, omission, or obligation of Trust or any other
trustee thereof. Master Series agrees that, in asserting any rights or claims
under this Agreement on behalf of Acquiring Fund, it shall look only to
Target's assets and property in settlement of such rights or claims and not to
such trustees, officers, or shareholders.
11.4. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by each Investment
Company and delivered to the other party hereto. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
ATTEST: PAINEWEBBER MANAGED INVESTMENTS
TRUST, on behalf of its series,
PaineWebber Utility Income Fund
<TABLE>
<S> <C>
________________________________________ By:_____________________________________
</TABLE>
ATTEST: PAINEWEBBER MASTER SERIES, INC.,
on behalf of its series,
PaineWebber Balanced Fund
<TABLE>
<S> <C>
________________________________________ By:_____________________________________
</TABLE>
A-13
<PAGE>
APPENDIX B
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the Record Date, the following persons owned beneficially and of record
5% or more of the Class Y shares of Utility Income Fund or Balanced Fund, as
shown in the table below. Mitchell Hutchins did not know of any other person
who owned benefically or of record 5% or more of any other class of either
Fund's outstanding equity securities as of the Record Date.
UTILITY INCOME FUND
<TABLE>
<CAPTION>
PERCENT BENEFICIAL
PERCENT BENEFICIAL OWNERSHIP OF
OWNERSHIP OF CLASS Y CLASS Y SHARES OF
SHARES OF UTILITY COMBINED BALANCED
SHAREHOLDER'S NAME/ADDRESS INCOME FUND FUND
- -------------------------- -------------------- ------------------
<S> <C> <C>
William B. Campbell
c/o Mitchell Hutchins Asset Management
Inc. 12.08% 2.42%
51 West 52nd Street
New York, New York 10019
Ruth H. Palermo
c/o Mitchell Hutchins Asset Management
Inc. 7.57% 4.54%*
51 West 52nd Street
New York, New York 10019
Joanne D. Eynon
c/o Mitchell Hutchins Asset Management
Inc. 7.26% 3.91%*
51 West 52nd Street
New York, New York 10019
Susan L. Thomas
c/o Mitchell Hutchins Asset Management
Inc. 5.39% 1.08%
51 West 52nd Street
New York, New York 10019
Elizabeth S. Britt
c/o Mitchell Hutchins Asset Management
Inc. 5.27% 1.06%
51 West 52nd Street
New York, New York 10019
Rebecca L. Norfleet
c/o Mitchell Hutchins Asset Management
Inc. 5.07% 3.38%*
51 West 52nd Street
New York, New York 10019
</TABLE>
* Indicates that shareholder held shares of Balanced Fund as of the Record
Date.
B-1
<PAGE>
BALANCED FUND
<TABLE>
<CAPTION>
PERCENT BENEFICIAL
PERCENT BENEFICIAL OWNERSHIP OF
OWNERSHIP OF CLASS CLASS Y SHARES OF
Y SHARES OF COMBINED BALANCED
SHAREHOLDER'S NAME/ADDRESS BALANCED FUND FUND
- -------------------------- ------------------ ------------------
<S> <C> <C>
Anne L. Solnit
c/o Mitchell Hutchins Asset Management
Inc. 14.62% 11.69%
51 West 52nd Street
New York, New York 10019
Bernice F. Thomas
c/o Mitchell Hutchins Asset Management
Inc. 6.41% 5.13%
51 West 52nd Street
New York, New York 10019
Siegfried Richard Weigele
c/o Mitchell Hutchins Asset Management
Inc. 6.14% 4.92%
51 West 52nd Street
New York, New York 10019
</TABLE>
B-2
<PAGE>
PROXY PROXY
PaineWebber Utility Income Fund
(a series of PaineWebber Managed Investments Trust)
Special Meeting of Shareholders - June 12, 2000
This proxy is being solicited for the Board of Trustees of PaineWebber Managed
Investments Trust ("Trust") on behalf of PaineWebber Utility Income Fund, a
series of the Trust. The undersigned hereby appoints as proxies SCOTT GRIFF and
EVELYN DE SIMONE and each of them (with the power of substitution) to vote for
the undersigned all shares of common stock of the undersigned in PaineWebber
Utility Income Fund, a series of PaineWebber Managed Investments Trust, at the
above referenced 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 below. Unless indicated to the contrary, this
proxy shall be deemed to grant authority to vote "FOR" the proposal relating to
PaineWebber Utility Income Fund.
The Board of Trustees recommends a vote "FOR" the Proposal. Please indicate
your vote by filling in the box completely. Example: [ ]
PROPOSAL FOR AGAINST ABSTAIN
Approval of the Agreement and Plan of [ ] [ ] [ ]
Plan of Reorganization and Termination
that provides for the combination of
PaineWebber Utility Income Fund, a series
of PaineWebber Managed Investments Trust
and PaineWebber Balanced Fund, a series of
PaineWebber Master Series, Inc.
Please date and sign the reverse side of this card.
<PAGE>
YOUR VOTE IS IMPORTANT.
Please date and sign this proxy below and return it promptly
in the enclosed envelope.
If shares are held by an individual, sign your name exactly as
it appears on this card. If shares are held jointly, either
party may sign, but the name of the party signing should confirm
exactly to the name shown on this proxy card. If shares are held
by a corporation, partnership or similar account, the name and
the capacity of the individual signing the proxy card should be
indicated--for example: "ABC Corp., John Doc, Treasurer."
--------------------------------------------------
Signature
--------------------------------------------------
Signature (if held jointly)
Date ________________________________________, 2000
Please mark your vote on the reverse side of this card.
