As filed with the Securities and Exchange Commission on February 11, 2000.
Registration No. 333-89253
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___ [X] Post-Effective Amendment No. 1
PAINEWEBBER INVESTMENT TRUST
(Exact name of registrant as specified in charter)
51 West 52nd Street
New York, New York 10019-6114
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, ESQ.
Mitchell Hutchins Asset Management, Inc.
1285 Avenue of the Americas
18th Floor
New York, New York 10019
(Name and address of agent for service)
COPIES TO:
ARTHUR J. BROWN, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
It is proposed that this filing will become effective immediately upon
filing pursuant to Rule 485(b).
<PAGE>
PAINEWEBBER INVESTMENT TRUST
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Part A - Prospectus/Proxy Statement*
o Part B - Statement of Additional Information*
o Part C - Other Information
o Signature Page
o Exhibits
*Previously filed in Registrant's Registration Statement on Form N-14, SEC File
No. 333-89253, on October 18, 1999.
<PAGE>
PART C. OTHER INFORMATION
-------------------------
ITEM 15. INDEMNIFICATION.
----------------
Section 4.2 of Article IV of the Registrant's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its shareholders, or to any shareholder, Trustee, officer,
employee, or agent thereof for any action or failure to act (including without
limitation the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
Section 4.3(a) of Article IV of the Registrant's Declaration of Trust
provides that the appropriate series of the Registrant will indemnify its
Trustees and officers to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid by such Trustees
and officers in connection with any claim, action, suit or proceeding in which
such Trustee or officer becomes involved as a party or otherwise by virtue of
his or her being or having been a Trustee or officer and against amounts paid or
incurred by him or her in the settlement thereof. Additionally, Section 4.3(b)
of Article IV provides that no such person shall be indemnified (i) where such
person is liable to the Trust, a series thereof or the shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office, (ii) where such person has
been finally adjudicated not to have acted in good faith in the reasonable
belief that his or her action was in the best interest of the Trust, or a series
thereof, or (iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in (ii) above resulting in a payment
by a Trustee or officer, unless there has been a determination by the court or
other body approving the settlement or other disposition or based upon a review
of readily available facts by vote of a majority of the non-interested Trustees
or written opinion of independent legal counsel, that such Trustee or officer
did not engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. Section
4.3(b) of Article IV further provides that the rights of indemnification may be
insured against by policies maintained by the Trust. Section 4.4 of Article IV
provides that no Trustee shall be obligated to give any bond or other security
for the performance of any of his or her duties hereunder.
Section 4.6 of Article IV provides that each Trustee, officer or employee
of the Trust or a series thereof shall, in the performance of his or her duties,
be fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Trust or a series thereof, upon an opinion of counsel,
or upon reports made to the Trust or a series thereof by any of its officers or
employees or by the Investment Adviser, the Administrator, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
Section 9 of each Investment Advisory and Administration Contract with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides that
Mitchell Hutchins shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any series of the Registrant in connection with
the matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Each Contract also provides that the Trustees shall
not be liable for any obligations of the Trust or any series under the Contract
and that Mitchell Hutchins shall look only to the assets and property of the
Registrant in settlement of such right or claim and not to the assets and
property of the Trustees.
Section 6 of the Sub-Investment Advisory Agreement between Mitchell
Hutchins and Invista Capital Management, Inc. ("Invista") provides that Invista
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the Agreement
relates, except for a loss resulting from the willful misfeasance, bad faith, or
gross negligence of Invista in the performance of its duties or from its
reckless disregard of its obligations and duties under the Agreement.
<PAGE>
Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and Trustees free and harmless of any claims arising out of any alleged
untrue statement or any alleged omission of material fact contained in
information furnished by Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with the Contract.
Section 10 of each Distribution Contract contains provisions similar to
that of the section of the Investment Advisory and Administration Contracts
limiting the liability of Trust's Trustees.
Section 9 of each Exclusive Dealer Agreement contains provisions similar
to Section 9 of each Distribution Contract with respect to PaineWebber
Incorporated ("PaineWebber")
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to Trustees, officers and controlling
persons of the Trust, pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a Trustee, officer or controlling person of the Trust in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Trust by such
Trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS.
---------
(1) Amended and Restated Declaration of Trust 1/
(2) Restated By-Laws 1/
(3) Voting Trust Agreements -- None
(4) A copy of the form of Agreement and Plan of Reorganization and Termination
was filed as a part of the Registration Statement on Form N-14 on October
18, 1999, and is hereby incorporated by reference.
(5) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(6) (a) Investment Advisory and Administration Contract applicable to
PaineWebber Tactical Allocation Fund 3/
(b) Investment Advisory and Administration Contract applicable to
PaineWebber Global Equity Fund 4/
(c) Sub-Advisory Contract with Invista Capital Management, Inc. 4/
<PAGE>
(7) (a) Distribution Contract for Class A Shares 5/
(b) Distribution Contract for Class B Shares 5/
(c) Distribution Contract for Class C Shares 5/
(d) Distribution Contract for Class Y Shares 5/
(e) Exclusive Dealer Agreement with respect to Class A Shares 5/
(f) Exclusive Dealer Agreement with respect to Class B Shares 5/
(g) Exclusive Dealer Agreement with respect to Class C Shares 5/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 5/
(8) Bonus, profit sharing or pension plans -- None
(9) Custody Contract 1/
(10) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A
shares 4/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
shares 4/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C
shares 4/
(d) Plan pursuant to Rule 18f-3 6/
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the legality
of securities being registered was filed as part of the Registration
Statement on Form N-14 on October 18, 1999, and is hereby incorporated by
reference.
(12) Opinion and consent of Kirkpatrick & Lockhart LLP regarding certain tax
matters in connection with PaineWebber Investment Trust and Global Small
Cap Fund Inc.--(filed herewith)
(13) Transfer Agency Services and Shareholder Services Agreement 7/
(14) Consent of Ernst and Young LLP was filed as an Exhibit to the Registration
Statement on Form N-14 on October 18, 1999, and is hereby incorporated by
reference.
(15) Financial statements omitted from part B -- none
(16) Power of Attorney -- none
(17) Form of Proxy was filed as an Exhibit to the Registration Statement on
Form N-14 on October 18, 1999, and is hereby incorporated by reference.
- -----------------------------
1/ Incorporated by reference from Post-Effective Amendment No. 22 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on February 27, 1998.
2/ Incorporated by reference from Articles IV, V, VI, VII, and X of
Registrant's Amended and Restated Declaration of Trust and from Articles
II and XI of Registrant's Restated By-Laws.
<PAGE>
3/ Incorporated by reference from Post-Effective Amendment No. 14 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on December 29, 1995.
4/ Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on November 23, 1998.
5/ Incorporated by reference from Post-Effective Amendment No. 15 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on July 1, 1996.
6/ Incorporated by reference from Post-Effective Amendment No. 16 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on August 29, 1996.
7/ Incorporated by reference from Post-Effective Amendment No. 23 to the
registration statement of PaineWebber Investment Trust, SEC File. No.
33-39659, filed on September 1, 1998.
ITEM 17. UNDERTAKINGS.
-------------
(1) The undersigned Registrant agrees that prior to any public re-offering
of the securities registered through the use of the prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offering by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused the Post-Effective Amendment to this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York, on the 10th day
of February, 2000.
PAINEWEBBER INVESTMENT TRUST
By: /s/ Dianne E. O'Donnell
-----------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, the
Post-Effective Amendment to this Registration Statement on Form N-14 has been
signed below by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee February 10, 2000
- ---------------------- (Chief Executive Officer)
Margo N. Alexander
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman February 10, 2000
- -------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr.
/s/ Richard Q. Armstrong Trustee February 10, 2000
- ------------------------
Richard Q. Armstrong
Trustee
- -------------------
Richard R. Burt
/s/ Mary C. Farrell Trustee February 10, 2000
- -------------------
Mary C. Farrell
/s/ Meyer Feldberg Trustee February 10, 2000
- --------------------
Meyer Feldberg
/s/ George W. Gowen Trustee February 10, 2000
- --------------------
George W. Gowen
/s/ Frederic V. Malek Trustee February 10, 2000
- ----------------------
Frederic V. Malek
/s/ Carl W. Schafer Trustee February 10, 2000
- ----------------------
Carl W. Schafer
/s/ Brian M. Storms Trustee February 10, 2000
- ----------------------
Brian M. Storms
/s/ Paul H. Schubert Vice President and February 10, 2000
- ---------------------- Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<PAGE>
PAINEWEBBER INVESTMENT TRUST
EXHIBIT INDEX
-------------
(1) Amended and Restated Declaration of Trust 1/
(2) Restated By-Laws 1/
(3) Voting Trust Agreements -- None
(4) A copy of the form of Agreement and Plan of Reorganization and Termination
was filed as a part of the Registration Statement on Form N-14 on October
18, 1999, and is hereby incorporated by reference.
(5) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(6) (a) Investment Advisory and Administration Contract applicable to
PaineWebber Tactical Allocation Fund 3/
(b) Investment Advisory and Administration Contract applicable to
PaineWebber Global Equity Fund 4/
(c) Sub-Advisory Contract with Invista Capital Management, Inc. 4/
(7) (a) Distribution Contract for Class A Shares 5/
(b) Distribution Contract for Class B Shares 5/
(c) Distribution Contract for Class C Shares 5/
(d) Distribution Contract for Class Y Shares 5/
(e) Exclusive Dealer Agreement with respect to Class A Shares 5/
(f) Exclusive Dealer Agreement with respect to Class B Shares 5/
(g) Exclusive Dealer Agreement with respect to Class C Shares 5/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 5/
(8) Bonus, profit sharing or pension plans -- None
(9) Custody Contract 1/
(10) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A
shares 4/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
shares 4/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C
shares 4/
(d) Plan pursuant to Rule 18f-3 6/
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the legality
of securities being registered was filed as part of the Registration
Statement on Form N-14 on October 18, 1999, and is hereby incorporated by
reference.
<PAGE>
(12) Opinion and consent of Kirkpatrick & Lockhart LLP regarding certain tax
matters in connection with PaineWebber Investment Trust and Global Small
Cap Fund Inc.--(filed herewith)
(13) Transfer Agency Services and Shareholder Services Agreement 7/
(14) Consent of Ernst and Young LLP was filed as an Exhibit to the Registration
Statement on Form N-14 on October 18, 1999, and is hereby incorporated by
reference.
(15) Financial statements omitted from part B -- none
(16) Power of Attorney -- none
(17) Form of Proxy was filed as an Exhibit to the Registration Statement on
Form N-14 on October 18, 1999, and is hereby incorporated by reference.
- -----------------------------
1/ Incorporated by reference from Post-Effective Amendment No. 22 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on February 27, 1998.
2/ Incorporated by reference from Articles IV, V, VI, VII, and X of
Registrant's Amended and Restated Declaration of Trust and from Articles
II and XI of Registrant's Restated By-Laws.
3/ Incorporated by reference from Post-Effective Amendment No. 14 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on December 29, 1995.
4/ Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on November 23, 1998.
5/ Incorporated by reference from Post-Effective Amendment No. 15 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on July 1, 1996.
6/ Incorporated by reference from Post-Effective Amendment No. 16 to the
registration statement of PaineWebber Investment Trust, SEC File No.
33-39659, filed on August 29, 1996.
7/ Incorporated by reference from Post-Effective Amendment No. 23 to the
registration statement of PaineWebber Investment Trust, SEC File. No.
33-39659, filed on September 1, 1998
Theodore L. Press
Tel: 202.778.9025
Fax: 202.778.9100
[email protected]
January 28, 2000
Global Small Cap Fund Inc.
PaineWebber Investment Trust
51 West 52nd Street
New York, New York 10019-6114
Re: REORGANIZATION TO COMBINE A MARYLAND
CORPORATION AND A SERIES OF A MASSACHUSETTS
BUSINESS TRUST
----------------------------------------------
Ladies and Gentleman:
Global Small Cap Fund Inc., a Maryland corporation ("Target"), and
PaineWebber Investment Trust, a Massachusetts business trust ("Trust"), on
behalf of PaineWebber Global Equity Fund, a segregated portfolio of assets
("series") thereof ("Acquiring Fund"), have requested our opinion as to certain
federal income tax consequences of the proposed acquisition of Target by
Acquiring Fund pursuant to an Agreement and Plan of Reorganization and
Termination between them dated as of December 29, 1999 ("Plan").1 Specifically,
each Investment Company has requested our opinion --
(1) that Acquiring Fund's acquisition of Target's assets in
exchange solely for voting Class A shares of beneficial interest in
Acquiring Fund ("Acquiring Fund Shares") and Acquiring Fund's
assumption of Target's liabilities, followed by Target's distribution
of those shares PRO RATA to its shareholders of record determined as
of the Effective Time (as herein defined) ("Shareholders")
constructively in exchange for the Shareholders' shares of common
stock of Target ("Target Shares") (such transactions sometimes being
referred to herein collectively as the "Reorganization"), will qualify
as a reorganization within the meaning of section 368(a)(1)(C),2 and
each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
- --------
1 Target and Acquiring Fund are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and Target and Trust are sometimes
referred to herein individually as an "Investment Company" and collectively as
the "Investment Companies."
2 All "section" references are to the Internal Revenue Code of 1986, as amended
("Code"), unless otherwise noted, and all "Treas. Reg. ss." references are to
the regulations under the Code ("Regulations").
<PAGE>
Global Small Cap Fund Inc.
PaineWebber Investment Trust
January 28, 2000
Page 2
(2) that neither the Funds nor the Shareholders will recognize gain
or loss on the Reorganization; and
(3) regarding the basis and holding period after the Reorganization
of the transferred assets and the Acquiring Fund Shares issued pursuant
thereto.
In rendering this opinion, we have examined (1) the Plan, (2) the Combined
Proxy Statement and Prospectus dated November 19, 1999, that was furnished in
connection with the solicitation of proxies by Target's board of directors for
use at a special meeting of its shareholders held on December 30, 1999, and
reconvened on January 14, 2000 ("Proxy Statement"), (3) Acquiring Fund's
currently effective prospectus and statement of additional information, and (4)
other documents we have deemed necessary or appropriate for the purposes hereof.
As to various matters of fact material to this opinion, we have relied,
exclusively and without independent verification, on statements of responsible
officers of each Investment Company and the representations described below and
made in the Plan (as contemplated in paragraph 6.6 thereof) (collectively,
"Representations").
FACTS
-----
Target is a Maryland corporation and is registered with the Securities and
Exchange Commission ("SEC") as a closed-end management investment company under
the Investment Company Act of 1940, as amended ("1940 Act"). Trust is a
Massachusetts business trust and is registered with the SEC as an open-end
management investment company under the 1940 Act; and Acquiring Fund is a series
thereof. Before January 1, 1997, Trust claimed to be classified for federal tax
purposes as an association taxable as a corporation, and it will not elect not
to be so classified.
Target has only a single class of shares, which can be purchased and sold
only on the American Stock Exchange. Acquiring Fund's shares are divided into
four classes, designated Class A, Class B, Class C, and Class Y shares; only
Acquiring Fund Shares (i.e., Class A shares) are involved in the Reorganization.
The Reorganization, together with related acts necessary to consummate the
same ("Closing"), will take place on or about the date hereof. All acts taking
place at the Closing will 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 agree ("Effective Time").
The Funds' investment objectives, policies, and restrictions (which are
described in the Proxy Statement) are similar, the principal difference being
the capitalization focus of their investments, with Acquiring Fund having a
broader investment mandate than Target has. For the reasons, and after
consideration of the factors, described in the Proxy Statement, each Investment
Company's board of directors/trustees approved the Plan, subject to approval of
<PAGE>
Global Small Cap Fund Inc.
PaineWebber Investment Trust
January 28, 2000
Page 3
Target's shareholders. In doing so, each board -- including a majority of its
members who are not "interested persons" (as that term is defined in the 1940
Act) of either Investment Company or Mitchell Hutchins Asset Management Inc.,
each Fund's investment adviser -- determined that (1) the Reorganization is in
its Fund's best interests, (2) the terms of the Reorganization are fair and
reasonable, and (3) the interests of its Fund's shareholders will not be diluted
as a result of the Reorganization.
The Plan, which specifies that it is intended to be a "plan of
reorganization" within the meaning of the Regulations, provides in relevant part
for the following:
(1) The acquisition by Acquiring Fund of all assets, including all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register
shares under applicable securities laws, books and records, deferred and
prepaid expenses shown as assets on Target's books, and other property,
owned by Target at the Effective Time (collectively "Assets"), in exchange
solely for the following:
(a) the number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares determined by dividing the net
value of Target (computed as set forth in paragraph 2.1 of the Plan)
by the net asset value ("NAV") of an Acquiring Fund Share (computed
as set forth in paragraph 2.2 of the Plan), and
(b) Acquiring Fund's assumption of all of Target's
liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether
or not arising in the ordinary course of business, whether or not
determinable at the Effective Time, and whether or not specifically
referred to in the Plan (collectively "Liabilities"),
(2) The constructive distribution of such Acquiring Fund Shares to
the Shareholders,3 and
(3) The termination of Target as soon as reasonably practicable
after that distribution, but in all events within six months after the
Effective Time.
- -----------------------
3 The Plan provides that, at the time of the Reorganization, the Target Shares
will in effect be constructively exchanged for Acquiring Fund Shares,
certificates for which will not be issued. Accordingly, Shareholders will not be
required to and will not make physical delivery of their Target Shares, nor will
they receive certificates for Acquiring Fund Shares, pursuant to the
Reorganization. Target Shares nevertheless will be treated as having been
exchanged for Acquiring Fund Shares, and the tax consequences to the
Shareholders will be unaffected by the absence of Acquiring Fund Share
certificates. See discussion at V. under "Analysis," below.
<PAGE>
Global Small Cap Fund Inc.
PaineWebber Investment Trust
January 28, 2000
Page 4
The distribution described in (2) will be accomplished by Acquiring Fund'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 will be credited with the respective pro rata number
of full and fractional (rounded to the third decimal place) Acquiring Fund
Shares due that Shareholder. All outstanding Target Shares, including those
represented by certificates, simultaneously will be canceled on Target's share
transfer books.
REPRESENTATIONS
---------------
Target has represented and warranted to us as follows:
(1) Target is a corporation that is duly organized, validly existing,
and in good standing under the laws of the State of Maryland; its Articles
of Incorporation are on file with the State Department of Assessments and
Taxation of Maryland; and it is duly registered as a closed-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
(2) Target 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;
(3) The Liabilities were incurred by Target in the ordinary course of
its business and are associated with the Assets;
(4) 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); and
(5) 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.
Trust has represented and warranted to us as follows:
(1) Trust is a trust operating under a written declaration of trust,
the beneficial interest in which is divided into transferable shares, that
is duly organized and validly existing under the laws of the
<PAGE>
Global Small Cap Fund Inc.
PaineWebber Investment Trust
January 28, 2000
Page 5
Commonwealth of Massachusetts; a copy of its Amended and Restated Agreement
and Declaration of Trust is on file with the Secretary thereof; it 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; and Acquiring Fund is a duly established and designated series
thereof;
(2) Acquiring Fund is a "fund" as defined in section 851(g)(2); 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 did not apply to it;
(3) 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) 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;
(5) Following the Reorganization, Acquiring Fund (a) will continue
Target's "historic business" (within the meaning of Treas. Reg. ss.
1.368-1(d)(2)) and (b) use a significant portion of Target's "historic
business assets" (within the meaning of Treas. Reg. ss. 1.368-1(d)(3)) in a
business;
(6) There is no plan or intention for Acquiring Fund to be dissolved
or merged into another business trust or a corporation or any "fund"
thereof (within the meaning of section 851(g)(2)) following the
Reorganization;
(7) Immediately after the Reorganization, (a) not more than 25% of the
value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers; and
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PaineWebber Investment Trust
January 28, 2000
Page 6
(8) Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it at any time
during the past five years directly or indirectly owned, any shares of
Target.
EACH INVESTMENT COMPANY has represented and warranted to us as follows:
(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;
(2) Its management is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (a) any portion of
their Target Shares before the Reorganization to any person related
(within the meaning of Treas. Reg. ss. 1.368-1(e)(3)) to either Fund or
(b) 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;
(3) The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
(4) 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;
(5) There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
(6) 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 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) will be included as assets thereof held immediately before
the Reorganization;
(7) 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,
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Global Small Cap Fund Inc.
PaineWebber Investment Trust
January 28, 2000
Page 7
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;
(8) Immediately after the Reorganization, the Shareholders will not
own shares constituting "control" (within the meaning of section 304(c))
of Acquiring Fund; and
(9) 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).
OPINION
-------
Based solely on the facts set forth above, and conditioned on the
Representations being true at the time of the Closing and the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
(1) Acquiring Fund's acquisition of the Assets 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),
and each Fund will be "a party to a reorganization" within the meaning of
section 368(b);
(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;
(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;
(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;
(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) 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
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PaineWebber Investment Trust
January 28, 2000
Page 8
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 holds them as capital assets at the
Effective Time.
Our opinion is based on, and is conditioned on the continued applicability
of, the provisions of the Code and the Regulations, judicial decisions, and
rulings and other pronouncements of the Internal Revenue Service ("Service") in
existence on the date hereof. All the foregoing authorities are subject to
change or modification that can be applied retroactively and thus also could
affect our opinion; we assume no responsibility to update our opinion with
respect to any such change or modification. Our opinion also is applicable only
to the extent each Fund is solvent, and we express no opinion about the tax
treatment of the transactions described herein if either Fund is insolvent.
ANALYSIS
--------
I. The Reorganization Will Qualify as a C Reorganization, and Each
Fund Will Be a Party to a Reorganization.
A. EACH FUND IS A SEPARATE CORPORATION.
A reorganization under section 368(a)(1)(C) (a "C Reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For a transaction to qualify under that section, therefore, both
entities involved therein must be corporations (or associations taxable as
corporations). Trust, however, is a business trust, not a corporation, and
Acquiring Fund is a separate series of Trust.
Regulation section 301.7701-4(b) provides that certain arrangements known
as trusts (because legal title is conveyed to trustees for the benefit of
beneficiaries) will not be classified as trusts for purposes of the Code because
they are not simply arrangements to protect or conserve the property for the
beneficiaries. That section of the Regulations states that these "business or
commercial trusts" generally are created by the beneficiaries simply as devices
to carry on profit-making businesses that normally would have been carried on
through business organizations classified as corporations or partnerships under
the Code and concludes that the fact that any organization is technically cast
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PaineWebber Investment Trust
January 28, 2000
Page 9
in the trust form will not change its real character if it "is more properly
classified as a business entity under [Treas. Reg.] ss. 301.7701-2."4
Furthermore, pursuant to Treas. Reg. ss. 301.7701-4(c), "[a]n `investment' trust
will not be classified as a trust if there is a power under the trust agreement
to vary the investment of the certificate holders. See Commissioner V. NORTH
AMERICAN BOND TRUST, 122 F.2d 545 (2d Cir. 1941), CERT. DENIED, 314 U.S. 701
(1942)."
Based on these criteria, Trust does not qualify as a trust for federal tax
purposes.5 Trust is not simply an arrangement to protect or conserve property
for the beneficiaries but is designed to carry on a profit-making business.
Furthermore, while Trust is an "investment trust," there is a power under its
declaration of trust to vary its shareholders' investment therein. Trust does
not have a fixed pool of assets -- each series of Trust (including Acquiring
Fund) is a managed portfolio of securities, and its investment adviser has the
authority to buy and sell securities for it. Accordingly, we believe that Trust
should not be classified as a trust, and instead should be classified as a
business entity, for federal tax purposes.
Regulation section 301.7701-2(a) provides that "[a] business entity with
two or more members is classified for federal tax purposes as either a
corporation or a partnership." The term "corporation" is defined for those
purposes (in Treas. Reg. ss. 301.7701-2(b)) to include corporations denominated
as such under the federal or state statute pursuant to which they were organized
and certain other entities. Any business entity that is not classified as a
corporation under that section of the Regulations (an "eligible entity") and has
at least two members can elect to be classified as either an association (and
thus a corporation) or a partnership. Treas. Reg.
ss. 301.7701-3(a).
An eligible entity in existence before January 1, 1997, the effective date
of the check-the-box Regulations, "will have the same classification that the
entity claimed under [the prior Regulations]," unless it elects otherwise.
Treas. Reg. ss. 301.7701-3(b)(3)(i). Based on the reasoning stated in the second
preceding paragraph -- and the fact that, under the law that existed before the
check-the-box Regulations, the word "association" had been held to include a
Massachusetts business trust (see Hecht v. Malley, 265 U.S. 144 (1924)) -- Trust
"claimed" classification under the prior Regulations as an association taxable
as a corporation. Moreover, Trust will not elect not to be so classified.
Accordingly, we believe that Trust will continue to be classified as an
association (and thus a corporation) for federal tax purposes.
- -------------------
4 On December 10, 1996, the Service adopted Regulations for classifying business
organizations (Treas. Reg. ss.ss. 301.7701-1 through -3 and parts of -4, the
so-called "check-the-box" Regulations) to replace the provisions in the
then-existing Regulations that "have become increasingly formalistic. [The
check-the-box Regulations replace] those rules with a much simpler approach that
generally is elective." T.D. 8697, 1997-1 C.B. 215. Regulation section
301.7701-2(a) provides that "a BUSINESS ENTITY is any entity recognized for
federal tax purposes . . . that is not properly classified as a trust under
[Treas. Reg.] ss. 301.7701-4 or otherwise subject to special treatment under the
. . . Code." Trust is not subject to any such special treatment.
5 Because Acquiring Fund is considered separate from each other series of Trust
for federal tax purposes (see the discussion in the last paragraph of I.A.
below), the analysis in the accompanying text applies equally to Acquiring Fund.
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January 28, 2000
Page 10
Trust as such, however, is not participating in the Reorganization, but
rather a separate series thereof (Acquiring Fund) is the participant.
Ordinarily, a transaction involving a segregated pool of assets such as
Acquiring Fund could not qualify as a reorganization, because the pool would not
be a separate taxable entity that constitutes a corporation. Under section
851(g), however, Acquiring Fund is treated as a separate corporation for all
purposes of the Code save the definitional requirement of section 851(a) (which
is satisfied by Trust). Accordingly, we believe that Acquiring Fund is a
separate corporation, and its shares are treated as shares of corporate stock,
for purposes of section 368(a)(1)(C).
B. TRANSFER OF "SUBSTANTIALLY ALL" OF TARGET'S PROPERTIES.
For an acquisition to qualify as a C Reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation in exchange solely for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers the
transfer of at least 90% of the fair market value of the transferor's net
assets, and at least 70% of the fair market value of its gross assets, held
immediately before the reorganization to satisfy the "substantially all"
requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will involve
such a transfer. Accordingly, we believe that the Reorganization will involve
the transfer to Acquiring Fund of substantially all of Target's properties.
C. QUALIFYING CONSIDERATION.
The acquiring corporation in an acquisition intended to qualify as a C
Reorganization must acquire at least 80% (by fair market value) of the
transferor's property solely for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally is disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
Acquiring Fund will exchange only Acquiring Fund Shares, and no money or other
property, for the Assets, we believe that the Reorganization will satisfy the
solely-for-voting-stock requirement to qualify as a C Reorganization.
D. DISTRIBUTION BY TARGET.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a
C Reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. ss. 1.368-2(g) -- Target
will distribute all the Acquiring Fund Shares it receives to the Shareholders in
constructive exchange for their Target Shares; as soon as is reasonably
practicable thereafter, Target will be terminated. Accordingly, we believe that
the requirements of section 368(a)(2)(G)(i) will be satisfied.
<PAGE>
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PaineWebber Investment Trust
January 28, 2000
Page 11
E. REQUIREMENTS OF CONTINUITY.
Regulation section 1.368-1(b) sets forth two prerequisites to a valid
reorganization: (1) a continuity of the business enterprise through the
issuing corporation -- defined in the Regulation as "the acquiring
corporation (as that term is used in section 368(a))," with an exception not
relevant here -- under the modified corporate form as described in Treas.
Reg. ss. 1.368-1(d) ("continuity of business enterprise") and (2) a continuity
of interest as described in Treas. Reg. ss. 1.368-1(e) ("continuity of
interest").
1. CONTINUITY OF BUSINESS ENTERPRISE.
To satisfy the continuity of business enterprise requirement of Treas.
Reg. ss. 1.368-1(d)(1), the issuing corporation must either (i) continue the
target corporation's historic business ("business continuity") or (ii) use a
significant portion of the target corporation's historic business assets in a
business ("asset continuity").
While there is no authority that deals directly with the continuity of
business enterprise requirement in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
bonds. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C Reorganization. Prior to the
exchange, T sold its entire portfolio of corporate stocks and bonds and
purchased a portfolio of municipal bonds. The Service held that this transaction
did not qualify as a reorganization for the following reasons: (1) because T had
sold its historic assets prior to the exchange, there was no asset continuity;
and (2) the failure of P to engage in the business of investing in corporate
stocks and bonds after the exchange caused the transaction to lack business
continuity as well.
The Funds' investment objectives, policies, and restrictions are similar,
the principal difference being the capitalization focus of their investments.
Moreover, after the Reorganization Acquiring Fund, which has a broader
investment mandate than Target has, will continue Target's "historic business"
(within the meaning of Treas. Reg. ss. 1.368-1(d)(2)). Accordingly, there will
be business continuity.
Acquiring Fund not only will continue Target's historic business, but
it also will use in that business a significant portion of Target's "historic
business assets" (within the meaning of Treas. Reg. ss. 1.368-1(d)(3)).
Accordingly, there will be asset continuity as well.
For all the foregoing reasons, we believe that the Reorganization will
satisfy the continuity of business enterprise requirement.
<PAGE>
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PaineWebber Investment Trust
January 28, 2000
Page 12
2. CONTINUITY OF INTEREST.
Regulation section 1.368-1(e)(1)(i) provides that "[c]ontinuity of
interest requires that in substance a substantial part of the value of the
proprietary interests in the target corporation be preserved in the
reorganization. A proprietary interest in the target corporation is preserved
if, in a potential reorganization, it is exchanged for a proprietary interest in
the issuing corporation . . . ." That section of the Regulations goes on to
provide that "[h]owever, a proprietary interest in the target corporation is not
preserved if, in connection with the potential reorganization, . . . stock of
the issuing corporation furnished in exchange for a proprietary interest in the
target corporation in the potential reorganization is redeemed. All facts and
circumstances must be considered in determining whether, in substance, a
proprietary interest in the target corporation is preserved."
For purposes of issuing private letter rulings, the Service considers
the continuity of interest requirement satisfied if ownership in an acquiring
corporation on the part of a transferor corporation's former shareholders is
equal in value to at least 50% of the value of all the formerly outstanding
shares of the transferor corporation.6 Although shares of both the target
and acquiring corporations held by the target corporation's shareholders that
are disposed of before or after the transaction will be considered in
determining satisfaction of the 50% standard, the Service has recently issued
private letter rulings that excepted from that determination "shares which
are required to be redeemed at the demand of shareholders by . . . Target or
Acquiring in the ordinary course of their businesses as open-end investment
companies (or series thereof) pursuant to Section 22(e) of the 1940 Act."
Priv. Ltr. Ruls. 9823018 (Mar. 5, 1998) and 9822053 (Mar. 3, 1998); cf. Priv.
Ltr. Rul. 199941046 (July 16, 1999) (redemption of a target RIC shareholder's
shares, amounting to 42% of the RIC's value, and other "shares redeemed in
the ordinary course of Target's business as an open-end investment company
pursuant to section 22(e) . . ." excluded from determination of whether the
- ------------------
6 Rev. Proc. 77-37, SUPRA; BUT SEE Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity
of interest was held to exist in a reorganization of two RICs where immediately
after the reorganization 26% of the shares were redeemed to allow investment in
a third RIC); SEE ALSO REEF CORP. V. COMMISSIONER, 368 F.2d 125 (5th Cir. 1966),
cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor
corporation's stock was not a sufficient shift in proprietary interest to
disqualify a transaction as a reorganization under section 368(a)(1)(F) ("F
Reorganization"), even though only 52% of the transferor's shareholders would
hold all the transferee's stock); AETNA CASUALTY AND SURETY CO. V. U.S., 568
F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39% minority interest did
not prevent a transaction from qualifying as an F Reorganization); Rev. Rul.
61-156, 1961-2 C.B. 62 (a transaction qualified as an F Reorganization even
though the transferor's shareholders acquired only 45% of the transferee's
stock, while the remaining 55% of that stock was issued to new shareholders in a
public underwriting immediately after the transfer).
<PAGE>
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PaineWebber Investment Trust
January 28, 2000
Page 13
target or a related person acquired its shares with consideration other than
target or acquiring fund shares).7
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes. A preconceived plan or arrangement by or among
an acquired corporation's shareholders to dispose of more than 50% of an
acquiring corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
There is no plan or intention of Shareholders to redeem, sell, or
otherwise dispose of (1) any portion of their Target Shares before the
Reorganization to any person related (within the meaning of Treas. Reg.
ss. 1.368-1(e)(3)) to either Fund or (2) 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. Although Acquiring Fund's shares
will be offered for sale to the public on an ongoing basis after the
Reorganization, sales of those shares will arise out of a public offering
separate and unrelated to the Reorganization and not as a result thereof.
SEE REEF CORP. V. COMMISSIONER, 368 F.2d at 134; Rev. Rul. 61-156, SUPRA.
Similarly, although Shareholders may redeem Acquiring Fund Shares pursuant to
their rights as shareholders of a series of an open-end investment company
(see Priv. Ltr. Ruls. 9823018 and 9822053, SUPRA, and 8816064 (Jan. 28,
1988)), those redemptions will result from the exercise of those rights in
the course of Acquiring Fund's business as an open-end series and not from
the C Reorganization as such.
Accordingly, we believe that the Reorganization will satisfy the
continuity of interest requirement.
F. BUSINESS PURPOSE.
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in Gregory v. Helvering, 293
U.S. 465 (1935), and is now set forth in Treas. Reg. ss.ss. 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
- ----------------
7 Although, under section 6110(j)(3), a private letter ruling may not be
cited as precedent, tax practitioners look to such rulings as generally
indicative of the Service's views on the proper interpretation of the Code
and the Regulations. CF. ROWAN COMPANIES, INC. V. COMMISSIONER, 452 U.S. 247
(1981).
<PAGE>
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PaineWebber Investment Trust
January 28, 2000
Page 14
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doctrine,
a transaction must have a BONA FIDE business purpose (and not a purpose to avoid
federal income tax) to qualify as a valid reorganization. The substantial
business purposes of the Reorganization are described in the Proxy Statement.
Accordingly, we believe that the Reorganization is being undertaken for bona
fide business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
G. SATISFACTION OF SECTION 368(A)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (with an exception not relevant here) were
"investment companies" immediately before the transaction, then the transaction
shall not be considered a reorganization with respect to any such investment
company and its shareholders. But that section does not apply to a participating
investment company if, among other things, it is a RIC or --
(1) not more than 25% of the value of its total assets is invested in
the stock and securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested in
the stock and securities of five or fewer issuers.
In determining total assets for these purposes, cash and cash items (including
receivables) and U.S. government securities are excluded. Section
368(a)(2)(F)(iv). Each Fund will meet the requirements to qualify for treatment
as a RIC for its respective current taxable year and will satisfy the foregoing
percentage tests. Accordingly, we believe that section 368(a)(2)(F) will not
cause the Reorganization to fail to qualify as a C Reorganization with respect
to either Fund.
For all the foregoing reasons, we believe that the Reorganization will
qualify as a C Reorganization.
H. EACH FUND WILL BE A PARTY TO A REORGANIZATION.
Section 368(b)(2) provides, in pertinent part, that in the case of a
reorganization involving the acquisition by one corporation of properties of
another -- and Treas. Reg. ss. 1.368-2(f) further provides that if one
corporation transfers substantially all its properties to a second corporation
in exchange for all or a part of the latter's voting stock (i.e., a C
Reorganization) -- the term "a party to a reorganization" includes each
corporation. Pursuant to the Reorganization, Target is transferring all its
properties to Acquiring Fund in exchange for Acquiring Fund Shares. Accordingly,
we believe that each Fund will be "a party to a reorganization."
<PAGE>
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January 28, 2000
Page 15
II. TARGET WILL RECOGNIZE NO GAIN OR LOSS.
Under sections 361(a) and (c), no gain or loss shall be recognized to a
corporation that is a party to a reorganization if, pursuant to the plan of
reorganization, (1) it exchanges property solely for stock or securities in
another corporate party to the reorganization and (2) distributes that stock or
securities to its shareholders. (Such a distribution is required by section
368(a)(2)(G)(i) for a reorganization to qualify as a C Reorganization.) Section
361(c)(4) provides that sections 311 and 336 (which require recognition of gain
on certain distributions of appreciated property) shall not apply to such a
distribution.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a bona fide
business purpose.
As noted above, it is our opinion that the Reorganization will qualify as
a C Reorganization, each Fund will be a party to a reorganization, and the Plan
constitutes a plan of reorganization. Target will exchange the Assets solely for
Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities and
then will be terminated pursuant to the Plan, distributing those shares to the
Shareholders in constructive exchange for their Target Shares. As also noted
above, it is our opinion that the Reorganization is being undertaken for bona
fide business purposes (and not a purpose to avoid federal income tax); we also
do not believe that the principal purpose of Acquiring Fund's assumption of the
Liabilities is avoidance of federal income tax on the proposed transaction.
Accordingly, we believe that Target will recognize no gain or loss on the
Reorganization.8
III. ACQUIRING FUND WILL RECOGNIZE NO GAIN OR LOSS.
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt of money or other property in exchange for its stock.
Acquiring Fund will issue Acquiring Fund Shares to Target in exchange for the
- -----------------
8 Notwithstanding anything herein to the contrary, we express no opinion as to
the effect of the Reorganization on either Fund 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.
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Assets, which consist of money and securities. Accordingly, we believe that
Acquiring Fund will recognize no gain or loss on the Reorganization.
IV. ACQUIRING FUND'S BASIS FOR THE ASSETS WILL BE A CARRYOVER BASIS, AND ITS
HOLDING PERIOD WILL INCLUDE TARGET'S HOLDING PERIOD.
Section 362(b) provides, in pertinent part, that the basis of property
acquired by a corporation in connection with a reorganization to which section
368 applies shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on the transfer (a
"carryover basis"). As noted above, it is our opinion that the Reorganization
will qualify as such a reorganization and that Target will recognize no gain on
the Reorganization. Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as Target's basis therefor immediately before the
Reorganization.
Section 1223(2) provides in general that the period for which a taxpayer
has held acquired property that has a carryover basis shall include the period
for which the property was held by the transferor. As noted above, it is our
opinion that Acquiring Fund's basis for the Assets will be a carryover basis.
Accordingly, we believe that Acquiring Fund's holding period for the Assets will
include Target's holding period therefor.
V. A SHAREHOLDER WILL RECOGNIZE NO GAIN OR LOSS.
Under section 354(a)(1), no gain or loss shall be recognized if stock in a
corporation that is a party to a reorganization is exchanged pursuant to a plan
of reorganization solely for stock in that corporation or another corporate
party to the reorganization. Pursuant to the Plan, the Shareholders will receive
solely Acquiring Fund Shares for their Target Shares. As noted above, it is our
opinion that the Reorganization will qualify as a C Reorganization, each Fund
will be a party to a reorganization, and the Plan constitutes a plan of
reorganization. Although section 354(a)(1) requires that the transferor
corporation's shareholders exchange their shares therein for shares of the
acquiring corporation, the courts and the Service have recognized that the Code
does not require taxpayers to perform useless gestures to come within the
statutory provisions. SEE, e.g., EASTERN COLOR PRINTING CO., 63 T.C. 27, 36
(1974); DAVANT V. COMMISSIONER, 366 F.2d 874 (5th Cir. 1966). Therefore,
although Shareholders will not actually surrender Target Share certificates in
exchange for Acquiring Fund Shares, their Target Shares will be canceled on the
issuance of Acquiring Fund Shares to them (all of which will be reflected on
Acquiring Fund's share transfer books) and will be treated as having been
exchanged therefor. SEE Rev. Rul. 81-3, 1981-1 C.B. 125; Rev. Rul. 79-257,
1979-2 C.B. 136. Accordingly, we believe that 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.
<PAGE>
Global Small Cap Fund
PaineWebber Investment Trust
January 28, 2000
Page 17
VI. A SHAREHOLDER'S BASIS FOR ACQUIRING FUND SHARES WILL BE A SUBSTITUTED
BASIS, AND ITS HOLDING PERIOD THEREFOR WILL INCLUDE ITS HOLDING PERIOD FOR
ITS TARGET SHARES.
Section 358(a)(1) provides, in pertinent part, that in the case of an
exchange to which section 354 applies, the basis of the property permitted to be
received thereunder without the recognition of gain or loss shall be the same as
the basis of the property exchanged therefor, decreased by, among other things,
the fair market value of any other property and the amount of any money received
in the exchange and increased by the amount of any gain recognized on the
exchange by the shareholder ( a "substituted basis"). As noted above, it is our
opinion that the Reorganization will qualify as a C Reorganization and, under
section 354, a Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
Acquiring Fund Shares, and no money will be distributed to them pursuant to the
Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares it receives in the Reorganization will be the same as the
basis for its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares.
Section 1223(1) provides in general that the period for which a taxpayer
has held property received in an exchange that has a substituted basis shall
include the period for which the taxpayer held the property exchanged therefor
if the latter property was a capital asset (as defined in section 1221) in the
taxpayer's hands at the time of the exchange. See Treas. Reg. ss. 1.1223-1(a).
As noted above, it is our opinion that a Shareholder will have a substituted
basis for the Acquiring Fund Shares it receives in the Reorganization.
Accordingly, we believe that a Shareholder's holding period for the Acquiring
Fund Shares it receives in the Reorganization will include its holding period
for the Target Shares constructively surrendered in exchange therefor, provided
the Shareholder held them as capital assets at the Effective Time.
We hereby consent to the references to our firm in the part of the Proxy
Statement describing "Proposal: Reorganization of Global Small Cap into Global
Equity" in (1) the section entitled "Reasons for the Reorganization" under the
caption "The Reorganization" and (2) the section entitled "Additional
Information about the Reorganization" under the caption "Federal Income Tax
Considerations."
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By /s/ Theodore L. Press
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Theodore L. Press
