0000889812-95-000384.txt : 19950802 0000889812-95-000384.hdr.sgml : 19950802 ACCESSION NUMBER: 0000889812-95-000384 CONFORMED SUBMISSION TYPE: N14AE24 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19950801 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINEWEBBER AMERICA FUND /NY/ CENTRAL INDEX KEY: 0000703887 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133175781 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N14AE24 SEC ACT: 1933 Act SEC FILE NUMBER: 033-61455 FILM NUMBER: 95557935 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132421 MAIL ADDRESS: STREET 2: 1285 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER GOVERNMENT FUND INC DATE OF NAME CHANGE: 19890402 N14AE24 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on August 1, 1995 Registration No. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [ ] Post-Effective Amendment No. [ ] PAINEWEBBER AMERICA FUND (Exact Name of Registrant as Specified in Charter) 1285 Avenue of the Americas New York, New York 10019 (Address of Principal Executive Offices) (212) 713-2000 (Registrant's Area Code and Telephone Number) GREGORY K. TODD, ESQ. Mitchell Hutchins Asset Management Inc. 1285 Avenue of the Americas New York, New York 10019 (Name and Address of Agent for Service) Copies to: Arthur J. Brown, Esq. Rebecca H. Laird, Esq. Kirkpatrick & Lockhart LLP South Lobby - 9th Floor 1800 M Street, N.W. Washington, D.C. 20036-5891 Telephone: (202) 778-9000 Approximate Date of Proposed Public Offering: as soon as practicable after this Registration Statement becomes effective. The Registrant has filed a declaration registering an indefinite amount of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. Accordingly, no filing fee is payable herewith. The Registrant filed on October 28, 1994, the notice required by Rule 24f-2 for its fiscal year ended August 31, 1994. It is proposed that this filing will become effective on August 31, 1995 pursuant to Rule 488. PAINEWEBBER AMERICA FUND CONTENTS OF REGISTRATION STATEMENT This Registration Statement contains the following papers and documents: Cover Sheet Contents of Registration Statement Cross Reference Sheet Letters to Shareholders Notices of Special Meeting Part A - Prospectus/Proxy Statement Part B - Statement of Additional Information Part C - Other Information Signature Pages Exhibits PAINEWEBBER AMERICA FUND Form N-14 Cross Reference Sheet Part A Item No. Prospectus/Proxy and Caption Statement Caption --------------- ----------------- 1. Beginning of Registration Cover Page Statement and Outside Front Cover Page of Prospectus 2. Beginning and Outside Back Table of Contents Cover Page of Prospectus 3. Synopsis Information and Synopsis; Comparison of Risk Factors Principal Risk Factors 4. Information About the Synopsis; The Proposed Transaction Transaction 5. Information About the Synopsis; Comparison of Registrant Principal Risk Factors; See also, the Prospectus of PaineWebber Growth and Income Fund previously filed on EDGAR, Accession Number: 0000950109-95- 001701 6. Information About the Synopsis; Comparison of Company Being Acquired Principal Risk Factors; See also, the Prospectus of PaineWebber Global Energy Fund previously filed on EDGAR, Accession Number: 0000950109-95-000498 and Prospectus of Mitchell Hutchins/Kidder, Peabody Equity Income Fund Inc. previously filed on EDGAR, Accession Number: 0000950117-95-000173 7. Voting Information Voting Information 8. Interest of Certain Persons Not Applicable and Experts 9. Additional Information Not Applicable Required for Reoffering by Persons Deemed to be Underwriters Part B Item No. Statement of Additional and Caption Information Caption --------------- ----------------------- 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. Additional Information About Statement of Additional the Registrant Information of PaineWebber America Fund, previously filed on EDGAR, Accession Number: 0000950109-95- 001701 13. Additional Information About Statements of Additional the Company Being Acquired Information of PaineWebber Global Energy Fund, previously filed on EDGAR, Accession Number: 0000950109-95-000498, and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. previously filed on EDGAR, Accession Number: 0000950117-95-000173 14. Financial Statements Annual Reports of PaineWebber Growth and Income Fund for Fiscal Year Ended August 31, 1994; PaineWebber Global Energy Fund for Fiscal Year Ended October 31, 1994; and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. for Fiscal Year Ended January 31, 1995 Semi-Annual Report of PaineWebber Growth and Income Fund for the Six Months Ended February 28, 1995 Semi-Annual Report of PaineWebber Global Energy Fund for the Six Months Ended April 30, 1995 Pro Forma Financial Statements for the Twelve Months Ended February 28, 1995 Part C ------ Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement. PAINEWEBBER GLOBAL ENERGY FUND (a series of PaineWebber Investment Series) , 1995 Dear Shareholder: The attached proxy materials describe a proposal that PaineWebber Global Energy Fund ("Global Energy Fund") reorganize and become part of PaineWebber Growth and Income Fund ("Growth and Income Fund"). If the proposal is approved and implemented, each shareholder of Global Energy Fund automatically would become a shareholder of Growth and Income Fund. Your board of trustees recommends a vote FOR the Reorganization Proposal. The board believes that combining the Funds will benefit Global Energy Fund's shareholders by providing them with a portfolio that has an investment objective similar to the investment objective of Global Energy Fund and that will have lower operating expenses as a percentage of net assets. The attached materials provide more information about the proposed reorganization and the Funds involved. Your vote is important no matter how many shares you own. Voting your shares early will permit the Global Energy Fund to avoid costly follow-up mail and telephone solicitation. After reviewing the attached materials, please complete, date and sign your proxy card and mail it in the enclosed return envelope today. Very Truly Yours, MARGO N. ALEXANDER President, PaineWebber Investment Series MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. , 1995 Dear Shareholder: The attached proxy materials describe a proposal that Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") reorganize and become part of PaineWebber Growth and Income Fund ("Growth and Income Fund"). If the proposal is approved and implemented, each shareholder of Equity Income Fund automatically would become a shareholder of Growth and Income Fund. Your board of directors recommends a vote FOR the Reorganization Proposal. The board believes that combining the Funds will benefit Equity Income Fund's shareholders by providing them with a portfolio that has an investment objective similar to the investment objective of Equity Income Fund and that will have lower operating expenses as a percentage of net assets. The attached materials provide more information about the proposed reorganization and the Funds involved. Your vote is important no matter how many shares you own. Voting your shares early will permit Equity Income Fund to avoid costly follow-up mail and telephone solicitation. After reviewing the attached materials, please complete, date and sign your proxy card and mail it in the enclosed return envelope today. Very Truly Yours, MARGO N. ALEXANDER President, Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. PAINEWEBBER GLOBAL ENERGY FUND (a series of PaineWebber Investment Series) ----------- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS , 1995 ----------- To The Shareholders: A special meeting of shareholders ("Meeting") of PaineWebber Global Energy Fund ("Global Energy Fund"), a series of PaineWebber Investment Series, will be held on October 6, 1995, at 10:00 a.m. eastern time, at 1285 Avenue of the Americas, 38th Floor, New York, New York 10019, for the following purposes: (1) To approve an Amended and Restated Agreement and Plan of Reorganization and Termination under which PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of PaineWebber America Fund, would acquire the assets of Global Energy Fund in exchange solely for shares of beneficial interest in Growth and Income Fund and the assumption by Growth and Income Fund of Global Energy Fund's liabilities followed by the distribution of those shares to the shareholders of Global Energy Fund as described in the accompanying prospectus/ proxy statement; and (2) To transact such other business as may properly come before the Meeting or any adjournment thereof. You are entitled to vote at the Meeting and any adjournment thereof if you owned shares of Global Energy Fund at the close of business on August 22, 1995. If you attend the Meeting, you may vote your shares in person. If you do not expect to attend the Meeting, please complete, date, sign and return the enclosed proxy card in the enclosed postage paid envelope. By order of the board of trustees, DIANNE E. O'DONNELL Secretary , 1995 1285 Avenue of the Americas New York, New York 10019 YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN Please indicate your voting instructions on the enclosed proxy card, date and sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expense to Global Energy Fund of further solicitation, we ask your cooperation in mailing in your proxy card promptly. Unless proxy cards submitted by corporations and partnerships are signed by the appropriate persons as indicated in the voting instructions on the proxy card, they will not be voted. MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. ----------- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS , 1995 ----------- To The Shareholders: A special meeting of shareholders ("Meeting") of Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") will be held on October 6, 1995, at 10:00 a.m. eastern time, at 1285 Avenue of the Americas, 38th Floor, New York, New York 10019, for the following purposes: (1) To approve an Amended and Restated Agreement and Plan of Reorganization and Liquidation under which PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of PaineWebber America Fund, would acquire the assets of Equity Income Fund in exchange solely for shares of beneficial interest in Growth and Income Fund and the assumption by Growth and Income Fund of Equity Income Fund's liabilities followed by the distribution of those shares to the shareholders of Equity Income Fund as described in the accompanying prospectus/ proxy statement; and (2) To transact such other business as may properly come before the Meeting or any adjournment thereof. You are entitled to vote at the Meeting and any adjournment thereof if you owned shares of Equity Income Fund at the close of business on August 22, 1995. If you attend the Meeting, you may vote your shares in person. If you do not expect to attend the Meeting, please complete, date, sign and return the enclosed proxy card in the enclosed postage paid envelope. By order of the board of directors, DIANNE E. O'DONNELL Secretary , 1995 1285 Avenue of the Americas New York, New York 10019 YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN Please indicate your voting instructions on the enclosed proxy card, date and sign the card, and return it in the envelope provided. IF YOU SIGN, DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSALS NOTICED ABOVE. In order to avoid the additional expense to Equity Income Fund of further solicitation, we ask your cooperation in mailing in your proxy card promptly. Unless proxy cards submitted by corporations and partnerships are signed by the appropriate persons as indicated in the voting instructions on the proxy card, they will not be voted. PAINEWEBBER GROWTH AND INCOME FUND (a series of PaineWebber America Fund) PAINEWEBBER GLOBAL ENERGY FUND (a series of PaineWebber Investment Series) MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. 1285 Avenue of the Americas New York, New York 10019 (Toll Free) 1-800-647-1568 Prospectus/Proxy Statement , 1995 This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to shareholders of PaineWebber Global Energy Fund ("Global Energy Fund"), a series of PaineWebber Investment Series ("Investment Series"), and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") (each an "Acquired Fund" and collectively, the "Acquired Funds"), in connection with the solicitation of proxies by Investment Series's board of trustees and Equity Income Fund's board of directors for use at a combined special meeting of shareholders of the Acquired Funds, to be held on October 6, 1995, at 10:00 a.m., eastern time, and at any adjournment thereof ("Meeting"). As more fully described in this Proxy Statement, the purpose of the Meeting is to vote on two proposed reorganizations (each a "Reorganization" and collectively, the "Reorganizations"). In each Reorganization, PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of PaineWebber America Fund, would acquire the assets of an Acquired Fund in exchange solely for shares of beneficial interest in Growth and Income Fund and the assumption by Growth and Income Fund of that Acquired Fund's liabilities. Growth and Income Fund shares then would be distributed to that Acquired Fund's shareholders, by class, so that each such shareholder would receive a number of full and fractional shares of the applicable class of Growth and Income Fund having an aggregate value that, on the effective date of the Reorganization, is equal to the aggregate net asset value of the shareholder's shares of the corresponding class in the Acquired Fund. As soon as practicable following these distributions, Global Energy Fund will be terminated and Equity Income Fund will be liquidated. Growth and Income Fund is a diversified series of the PaineWebber America Fund, which is an open-end management investment company. Growth and Income Fund's investment objective is to achieve current income and capital growth. It seeks to achieve its investment objective by investing primarily in dividend-paying equity securities believed by Mitchell Hutchins Asset Management Inc. to have the potential for rapid earnings growth; stocks are selected through a disciplined methodology that utilizes quantitative measures of value, earnings and price momentum, as well as fundamental analysis. This Proxy Statement, which should be retained for future reference, sets forth concisely the information about each Reorganization and Growth and Income Fund that a shareholder should know before voting. This Proxy Statement is accompanied by the Prospectus of Growth and Income Fund dated May 12, 1995, and by its Annual Report to Shareholders for the fiscal year ended August 31, 1994, which are incorporated by this reference into this Proxy Statement. A Statement of Additional Information dated _______________, 1995, including historical financial statements, has been filed with the Securities and Exchange Commission ("SEC") and is incorporated herein by this reference. Prospectuses of Global Energy Fund, dated March 1, 1995, and Equity Income Fund, dated June 1, 1995, and Statements of Additional Information also dated March 1, 1995 and June 1, 1995, respectively, have been filed with the SEC and are incorporated herein by this reference. Copies of these documents as well as each Fund's annual report or semi-annual report, if applicable, may be obtained without charge and further inquiries may be made by contacting your PaineWebber Incorporated ("PaineWebber") investment executive or PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS VOTING INFORMATION............................................................ 1 APPROVAL OF THE REORGANIZATIONS............................................... 3 SYNOPSIS...................................................................... 3 COMPARISON OF PRINCIPAL RISK FACTORS..........................................17 THE PROPOSED TRANSACTIONS.....................................................19 ADDITIONAL INFORMATION ABOUT GROWTH AND INCOME FUND...........................29 MISCELLANEOUS.................................................................30 Appendix A - Amended and Restated Agreement and Plan of Reorganization and Termination Involving Global Energy Fund.....................31 Appendix B - Amended and Restated Agreement and Plan of Reorganization and Liquidation Involving Equity Income Fund.....................45 PAINEWEBBER GLOBAL ENERGY FUND (a series of PaineWebber Investment Series) MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. ------------ PROSPECTUS/PROXY STATEMENT Special Meeting of Shareholders To Be Held on October 6, 1995 ------------ VOTING INFORMATION This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to shareholders of PaineWebber Global Energy Fund ("Global Energy Fund"), a series of PaineWebber Investment Series ("Investment Series"), and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") (each an "Acquired Fund" and collectively, the "Acquired Funds"), in connection with the solicitation of proxies by the board of trustees of Investment Series and board of directors of Equity Income Fund for use at a combined special meeting of shareholders of the Acquired Funds to be held on October 6, 1995, at 10:00 a.m. eastern time, and at any adjournment thereof ("Meeting"). This Proxy Statement will first be mailed to shareholders on or about ________________, 1995. At least one-third of the shares of Equity Income Fund and a majority of shares of Global Energy Fund outstanding on August 22, 1995, represented in person or by proxy, must be present for the transaction of business by that Acquired Fund at the Meeting. If, with respect to either Acquired Fund, a quorum is not present at the Meeting or a quorum is present but sufficient votes to approve the proposal are not received, the persons named as proxies may propose one or more adjournments of the Meeting with respect to that Acquired Fund to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of a majority of those shares of the Acquired Fund represented at the Meeting in person or by proxy. The persons named as proxies will vote those proxies that they are entitled to vote FOR any such proposal in favor of such an adjournment and will vote those proxies required to be voted AGAINST any such proposal against such adjournment. A shareholder vote may be taken on one or more of the proposals in this Proxy Statement prior to any such adjournment if sufficient votes have been received and it is otherwise appropriate. Broker non-votes are shares held in street name for which the broker indicates that instructions have not been received from the beneficial owners or other persons entitled to vote and the broker does not have discretionary voting authority. Abstentions and broker non-votes will be counted as shares present for purposes of determining whether a quorum is present but will not be voted for or against any adjournment or proposal. Accordingly, abstentions and broker non-votes effectively will be a vote against adjournment or against any proposal where the required vote is a percentage of the shares present or outstanding. Abstentions and broker non-votes will not be counted, however, as votes cast for purposes of determining whether sufficient votes have been received to approve a proposal. The individuals named as proxies on the enclosed proxy card will vote in accordance with your direction as indicated thereon if your proxy card is received properly executed by you or your duly appointed agent or attorney-in-fact. If you sign, date and return the proxy card, but give no voting instructions, your shares will be voted in favor of approval of whichever of the following applies to your Acquired Fund: the Amended and Restated Agreement and Plan of Reorganization and Termination dated as of July 25, 1995 (involving Global Energy Fund) or the Amended and Restated Agreement and Plan of Reorganization and Liquidation dated as of July 25, 1995 (involving Equity Income Fund) (each a "Reorganization Plan"), attached to this Proxy Statement as Appendices A and B, respectively. Under each Reorganization Plan, PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of PaineWebber America Fund ("America Fund"), would acquire the assets of an Acquired Fund in exchange solely for shares of beneficial interest in Growth and Income Fund and the assumption by Growth and Income Fund of that Acquired Fund's liabilities; those shares then would be distributed to that Acquired Fund's shareholders. (Each of these transactions is referred to herein as a "Reorganization.") After completion of a Reorganization, the participating Acquired Fund will be terminated (in the case of Global Energy Fund) or liquidated (in the case of Equity Income Fund). In addition, if you sign, date and return the proxy card, but give no voting instructions, the duly appointed proxies may, in their discretion, vote upon such other matters as may come before the Meeting. The proxy card may be revoked by giving another proxy or by letter or telegram revoking the initial proxy. To be effective, such revocation must be received by Investment Series or Equity Income Fund, as applicable, prior to the Meeting and must indicate your name and account number. In addition, if you attend the Meeting in person you may, if you wish, vote by ballot at the Meeting, thereby canceling any proxy previously given. As of the record date, August 22, 1995 ("Record Date"), Global Energy Fund had ____________ shares of beneficial interest outstanding and Equity Income Fund had ___________ shares outstanding. The solicitation of proxies, the cost of which will be borne by Growth and Income Fund, Global Energy Fund and Equity Income Fund (each a "Fund" and collectively, the "Funds") in proportion to their respective net assets, will be made primarily by mail but also may include telephone or oral communications by representatives of Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), who will not receive any compensation therefor from the Funds, or by Shareholder Communications Corporation, professional proxy solicitors retained by the Acquired Funds, who will be paid fees and expenses of up to approximately $10,000 for soliciting services. Management does not know of any person who owns beneficially 5% or more of the shares of Global Energy Fund or Equity Income Fund. Trustees and officers of Investment Series and directors and officers of Equity Income Fund own in the aggregate less than 1% of the shares of their respective Funds. Summarized below are the proposals the shareholders of each Acquired Fund are being asked to consider: Fund Proposal ---- -------- Global Energy 1. To approve a Reorganization Plan. Equity Income 2. To approve a Reorganization Plan. For voting purposes, the shareholders of each Acquired Fund will vote only on the Reorganization Plan applicable to it. Approval of a Reorganization Plan and consummation of the transactions contemplated thereby for one Acquired Fund do not depend on the approval of the other Reorganization Plan by the other Acquired Fund's shareholders and consummation of the transactions contemplated thereby. With respect to Global Energy Fund, approval of the Reorganization Plan requires the affirmative vote of a "majority of the outstanding voting securities" thereof. As defined in the Investment Company Act of 1940 ("1940 Act"), "majority of the outstanding voting securities" means the lesser of (1) 67% of Global Energy Fund's shares present at a meeting of shareholders if the owners of more than 50% of that Acquired Fund's shares then outstanding are present in person or by proxy, or (2) more than 50% of that Acquired Fund's outstanding shares. Under Maryland law and Equity Income Fund's Amended and Restated Articles of Incorporation, the affirmative vote of a majority of its outstanding shares entitled to vote at the Meeting is required to approve the Reorganization Plan. Each outstanding full share of each Acquired Fund is entitled to one vote, and each outstanding fractional share of each Acquired Fund is entitled to a proportionate fractional share of one vote. If a Reorganization Plan is not approved by the requisite vote of the shareholders of the involved Acquired Fund, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. Although the shareholders of the Acquired Funds may exchange or redeem out of a Fund, they do not have appraisal rights which may be accorded to shareholders of corporations that propose similar types of reorganizations under the laws of some states. 2 APPROVAL OF THE REORGANIZATIONS SYNOPSIS The following is a summary of certain information contained elsewhere in this Proxy Statement, the prospectuses of each Fund, which are incorporated herein by reference, and the Reorganization Plans. Shareholders should read this Proxy Statement and the prospectus of Growth and Income Fund carefully. As discussed more fully below, Investment Series's board of trustees and Equity Income Fund's board of directors believe that the Reorganizations will benefit their respective Acquired Fund's shareholders. Growth and Income Fund has an investment objective substantively identical to that of Equity Income Fund and generally similar to the investment objective of Global Energy Fund, although its investment strategy may differ from the Acquired Funds' investment strategies in some material respects. It is anticipated that, following the Reorganizations, the Acquired Funds' shareholders will, as shareholders of Growth and Income Fund, be subject to lower total operating expenses as a percentage of net assets. The Reorganizations Investment Series' board of trustees approved a Reorganization Plan with respect to Global Energy Fund at a meeting held on April 28, 1995. Equity Income Fund's board of directors approved a reorganization plan at a meeting held on April 26, 1995. The Reorganization Plan involving Global Energy Fund and the Reorganization Plan involving Equity Income Fund, in their final forms (see Appendices A and B) as revised to include certain changes, were considered and approved by each Fund's board of trustees/directors at a meeting on July 20, 1995. Each Reorganization Plan provides for the acquisition by Growth and Income Fund of the assets of an Acquired Fund in exchange solely for shares of Growth and Income Fund and the assumption by Growth and Income Fund of the liabilities of the Acquired Fund. Each Acquired Fund then will distribute the Growth and Income Fund shares to its shareholders, by class, so that each shareholder will receive the number of full and fractional shares of the class of Growth and Income Fund that corresponds most closely in terms of fees and other characteristics ("Corresponding Class") and that is equal in value to such shareholder's holdings in the Acquired Fund as of the Closing Date (defined below). Global Energy Fund then will be terminated, and Equity Income Fund then will be liquidated, as soon as practicable thereafter. The exchange of each Acquired Fund's assets for Growth and Income Fund shares and Growth and Income Fund's assumption of each Acquired Fund's liabilities will occur at or as of 4:00 p.m., eastern time, on October 13, 1995, or such later date as the conditions to any such closing are satisfied ("Closing Date"). Growth and Income Fund currently offers for sale four classes of shares (each a "Class" and collectively, "Classes"), designated as Class A, Class B, Class C and Class D shares. Global Energy Fund has three Classes of shares, designated as Class A, Class B and Class D shares; Equity Income Fund has three Classes of shares, designated as Class A, Class B and Class C shares. In connection with the Reorganizations, (1) shareholders of Class A, Class B and Class D shares of Global Energy Fund will receive Class A, Class B and Class D shares, respectively, of Growth and Income Fund, and (2) shareholders of Class A, Class B and Class C shares of Equity Income Fund will receive Class A, Class D and Class C shares, respectively, of Growth and Income Fund. The following table shows which Class of shares of Growth and Income Fund will be received by each Class of shares of an Acquired Fund: Global Energy Fund Growth and Income Fund ------------------ ---------------------- Class A Class A Class B Class B Class D Class D Equity Income Fund Growth and Income Fund ------------------ ---------------------- Class A Class A Class B Class D Class C Class C For the reasons set forth below under "The Proposed Transactions -- Reasons for the Reorganizations," Investment Series's board of trustees (with respect to Global Energy Fund) and Equity Income Fund's board of directors, including the trustees or directors who are not "interested persons," as that term is defined in the 1940 Act, of Investment Series or Equity Income Fund, as applicable ("Independent Persons"), have determined, in each instance, that the Reorganization is in the best interests of the participating Acquired Fund, that the terms of the Reorganization are fair and reasonable and that the interests of such Acquired Fund's shareholders will not be diluted as a result of the Reorganization. Accordingly, each board recommends approval of the Reorganizations. In addition, the board of trustees of America Fund, including its Independent Persons, has determined that the Reorganizations are in the best interests of Growth and Income Fund, that the terms of the Reorganizations are fair and reasonable and that the interests of Growth and Income Fund's shareholders will not be diluted as a result of the Reorganizations. COMPARATIVE FEE TABLES Reorganization of Global Energy Fund into Growth and Income Fund The following tables show (i) shareholder transaction expenses currently incurred by the Class A, Class B and Class D shares of Global Energy Fund and shareholder transaction expenses that each such Class will incur after giving effect to the Reorganization, and (ii) the current fees and expenses incurred by the Class A, Class B and Class D shares of Global Energy Fund and Growth and Income Fund for the fiscal years ended October 31, 1994 and August 31, 1994, respectively, and pro forma fees for Growth and Income Fund's Class A, Class B and Class D shares after giving effect to the Reorganization. 4 Shareholder Transaction Expenses
Global Energy Fund Combined Fund ------------------------ ------------------------ Class A Class B Class D Class A Class B Class D ------- ------- ------- ------- ------- ------- Maximum sales charge (as a percentage of public offering price) 4.5% None None 4.5% None None Exchange fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 Maximum contin- gent deferred sales charge (as a percen- tage of redemption proceeds None 5% None None 5% None
Annual Fund Operating Expenses (as a percentage of average net assets)
Global Energy Fund Growth and Income Fund Combined Fund ---------------------------- --------------------------- ------------------------- (Fiscal Year Ended 10/31/94) (Fiscal Year Ended 8/31/94) (Estimated) ---------------------------- --------------------------- ------------------------- Class A Class B Class D Class A Class B Class D Class A Class B Class D ------- ------- ---------- ------- ------- --------- ------- ------- ------- Management Fees 0.85% 0.85% 0.85% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 12b-1 Expenses 1/ 0.25% 1.00% 1.00% 0.23% 2/ 1.00% 1.00% 0.23% 1.00% 1.00% Other Expenses 0.89% 0.97% 0.89% 0.27% 0.27% 0.24% 0.27% 0.28% 0.29% ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses 3/ 1.99% 2.82% 2.74% 1.20% 1.97% 1.94% 1.20% 1.98% 1.99% ===== ===== ===== ===== ===== ===== ===== ===== =====
5 ------------ 1/ 12b-1 fees for Global Energy Fund have two components, as follows: Class A Class B Class D ------- ------- ------- 12b-1 service fee............. 0.25% 0.25% 0.25% 12b-1 distribution fee........ 0.00% 0.75% 0.75% 12b-1 fees for Growth and Income Fund have two components, as follows: Class A Class B Class D ------- ------- ------- 12b-1 service fee............. 0.23% 0.25% 0.25% 12b-1 distribution fee........ 0.00% 0.75% 0.75% 2/ The 12b-1 service fees for Class A shares reflect a blended annual rate of the Fund's average daily net assets of 0.25% with respect to shares sold on or after December 2, 1988 and 0.15% with respect to shares sold prior to that date. 3/ For the twelve months ended February 28, 1995 (the period used for the Combined Fund (Estimated) expenses), the ratios of total operating expenses as a percentage of average net assets for Global Energy Fund were 2.11%, 2.87% and 2.89% for Class A, Class B and Class D shares, respectively, and for Growth and Income Fund were 1.20%, 1.98% and 1.99% for Class A, Class B and Class D shares, respectively. Example of Effect of Fund Expenses The following illustrates the expenses on a $1,000 investment under the existing and estimated fees and expenses stated above, assuming a 5% annual return. The fees shown below reflect a maximum initial sales charge of 4.5% of the public offering price that normally is charged in connection with the sale of each Fund's Class A shares. No initial sales charge will be charged in connection with Class A shares of Growth and Income Fund distributed to Class A shareholders of Global Energy Fund as part of the Reorganization.
One Year Three Years Five Years Ten Years -------- ----------- ---------- --------- Global Energy Fund Class A shares............... $64 $105 $147 $266 Class B shares: Assuming complete redemption at end of period................. $79 $117 $169 $277 Assuming no redemption.... $29 $87 $149 $277 Class D shares............... $28 $85 $145 $307
6 Growth and Income Fund Class A shares............... $57 $81 $108 $184 Class B shares: Assuming complete redemption at end of period................. $70 $92 $126 $191 Assuming no redemption.... $20 $62 $106 $191 Class D shares............... $20 $61 $105 $226 Combined Fund Class A shares............... $57 $81 $108 $184 Class B shares: Assuming complete redemption at end of period................. $70 $92 $127 $192 Assuming no redemption.... $20 $62 $107 $192 Class D shares............... $20 $62 $107 $232
This Example assumes that all dividends and other distributions are reinvested and that the percentage amounts listed under Annual Fund Operating Expenses remain the same in the years shown. The above tables and the assumption in the Example of a 5% annual return are required by regulations of the Securities and Exchange Commission ("SEC"); the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of any class of the Funds' shares. The Example should not be considered a representation of past or future expenses, and a Fund's actual expenses may be more or less than those shown. The actual expenses attributable to each class of a Fund's shares will depend upon, among other things, the level of average net assets and the extent to which a Fund incurs variable expenses, such as transfer agency costs. Reorganization of Equity Income Fund into Growth and Income Fund The following tables show (i) shareholder transaction expenses currently incurred by Class A, Class B and Class C shares of Equity Income Fund and shareholder transaction expenses that the Corresponding Class of Growth and Income Fund will incur after giving effect to the Reorganization, and (ii) the current fees and expenses incurred by the Class A, Class B and Class C shares of Equity Income Fund and the Class A, Class D and Class C shares of Growth and Income Fund for the fiscal years ended January 31, 1995 and August 31, 1994, respectively, and pro forma fees for Growth and Income Fund's Class A, Class D and Class C shares after giving effect to the Reorganization. 7 Shareholder Transaction Expenses
Equity Income Fund Combined Fund 1/ ------------------------ ------------------------ Class A Class B Class C Class A Class D Class C ------- ------- ------- ------- ------- ------- Maximum sales charge (as a percentage of public offering price) 4.5% None None 4.50% None None Exchange fee None None None $5.00 $5.00 N/A* Maximum con- tingent deferred sales charge (as a percentage of redemption proceeds None None None None None None
------------ * Class C shares are not exchangeable. Annual Fund Operating Expenses (as a percentage of average net assets)
Equity Income Fund Growth and Income Fund 1/ Combined Fund 1/ --------------------------- --------------------------- ---------------------------------- (Fiscal Year Ended 1/31/95) (Fiscal Year Ended 8/31/94) (Estimated) --------------------------- --------------------------- ---------------------------------- Class A Class B Class C Class A Class D Class C Class A Class D Class C ------- ------- --------- ------- ------- ------- ------- ------- ------- Management Fees 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 12b-1 Expenses 2/ 0.50% 1.00% 0.00% 0.23% 3/ 1.00% 0.00% 0.23% 1.00% 0.00% Other Expenses 0.43% 0.43% 0.43% 0.27% 0.24% 0.20% 0.25% 0.27% 0.18% ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses 4/ 1.63% 2.13% 1.13% 1.20% 1.94% 0.90% 1.18% 1.97% 0.88% ===== ===== ===== ===== ===== ===== ===== ===== =====
8 ------------ 1/ Holders of Class A shares of Equity Income Fund will receive Class A shares of Growth and Income Fund; holders of Class B shares of Equity Income Fund will receive Class D shares of Growth and Income Fund; and holders of Class C shares of Equity Income Fund will receive Class C shares of Growth and Income Fund. As only Class A, Class C and Class D shares of Growth and Income Fund will be issued to Equity Income Fund shareholders in the Reorganization, only those classes are shown. 2/ 12b-1 fees for Equity Income Fund fees have two components, as follows: Class A Class B Class C ------- ------- ------- 12b-1 service fee......... 0.25% 0.25% 0.00% 12b-1 distribution fee.... 0.25% 0.75% 0.00% 12b-1 fees for Growth and Income Fund have two components, as follows: Class A Class D Class C ------- ------- ------- 12b-1 service fee......... 0.23% 0.25% 0.00% 12b-1 distribution fee.... 0.00% 0.75% 0.00% 3/ The 12b-1 service fees for Class A shares reflect a blended annual rate of the Fund's average daily net assets of 0.25% with respect to shares sold on or after December 2, 1988 and 0.15% with respect to shares sold prior to that date. 4/ For the twelve months ended February 28, 1995 (the period used for the Combined Fund (Estimated) expenses), the ratios of total operating expenses as a percentage of average net assets for Equity Income Fund were 1.63%, 2.16% and 1.05% for Class A, Class B and Class C shares, respectively, and for Growth and Income Fund were 1.20%, 1.99% and 0.91% for Class A, Class D and Class C shares, respectively. Example of Effect of Fund Expenses The following illustrates the expenses on a $1,000 investment under the existing and estimated fees and expenses stated above, assuming a 5% annual return. The fees shown below reflect a maximum initial sales charge of 4.5% of the public offering price that normally is charged in connection with the sale of Growth and Income Class A shares and a maximum initial sales charge of 4.5% of the public offering price that is normally charged in connection with the sale of Equity Income Fund Class A shares. No initial sales charge will be charged in connection with Class A shares of Growth and Income Fund distributed to Class A shareholders of Equity Income Fund as part of the Reorganization.
One Year Three Years Five Years Ten Years -------- ----------- ---------- --------- Equity Income Fund Class A shares................ $73 $106 $141 $240 Class B shares................ $22 $67 $114 $246 Class C shares 1/............. $12 $36 $62 $137
9 Growth and Income Fund Class A shares................ $57 $81 $108 $184 Class D shares................ $20 $61 $105 $226 Class C shares................ $9 $29 $50 $111 Combined Fund Class A shares................ $56 $81 $107 $182 Class D shares................ $20 $62 $106 $230 Class C shares................ $9 $28 $49 $108
------------ This Example assumes that all dividends and other distributions are reinvested and that the percentage amounts listed under Annual Fund Operating Expenses remain the same in the years shown. The above tables and the assumption in the Example of a 5% annual return are required by regulations of the SEC; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of any Class of the Funds' shares. The Example should not be considered a representation of past or future expenses, and a Fund's actual expenses may be more or less than those shown. The actual expenses attributable to each Class of a Fund's shares will depend upon, among other things, the level of average net assets and the extent to which a Fund incurs variable expenses, such as transfer agency costs. 10 Reorganizations of Global Energy Fund and Equity Income Fund into Growth and Income Fund The following table shows the current fees and expenses incurred by the Classes of shares of each Fund for the fiscal years ended October 31, 1994, January 31, 1995 and August 31, 1994, respectively, and pro forma fees for Growth and Income Fund's Class A, Class B, Class C and Class D shares after giving effect to the Reorganizations. Annual Fund Operating Expenses (as a percentage of average net assets)
Global Energy Fund Equity Income Fund ------------------------ ------------------------- (FY Ended 10/31/94) (FY Ended 1/31/95) ------------------------ ------------------------- Class A Class B Class D Class A Class B Class C ------- ------- ------- ------- ------- ------- Management Fees 0.85% 0.85% 0.85% 0.70% 0.70% 0.70% 12b-1 Expenses 1/ 0.25% 1.00% 1.00% 0.50% 1.00% 0.00% Other Expenses 0.89% 0.97% 0.89% 0.43% 0.43% 0.43% ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses 3/ 1.99% 2.82% 2.74% 1.63% 2.13% 1.13% ===== ===== ===== ===== ===== ===== Growth and Income Fund ----------------------------------- (FY Ended 8/31/94) Combined Fund (Estimated) ----------------------------------- -------------------------------- Class A Class B Class C Class D Class A Class B Class C Class D ------- ------- ------- ------- ------- ------- ------- ------- Management Fees 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 12b-1 Expenses 1/ 0.23% 2/ 1.00% 0.00% 1.00% 0.23% 1.00% 0.00% 1.00% Other Expenses 0.27% 0.27% 0.20% 0.24% 0.25% 0.28% 0.20% 0.28% ----- ----- ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses 3/ 1.20% 1.97% 0.90% 1.94% 1.18% 1.98% 0.90% 1.98% ===== ===== ===== ===== ===== ===== ===== =====
11 ------------ 1/ 12b-1 fees for Global Energy Fund have two components, as follows: Class A Class B Class D ------- ------- ------- 12b-1 service fee........... 0.25% 0.25% 0.25% 12b-1 distribution fee...... 0.00% 0.75% 0.75% 12b-1 fees for Equity Income Fund have two components as follows: Class A Class B Class C ------- ------- ------- 12b-1 service fee........... 0.25% 0.25% 0.00% 12b-1 distribution fee...... 0.25% 0.75% 0.00% 12b-1 fees for Growth and Income Fund have two components, as follows: Class A Class B Class C Class D ------- ------- ------- ------- 12b-1 service fee........... 0.23% 0.25% 0.00% 0.25% 12b-1 distribution fee...... 0.00% 0.75% 0.00% 0.75% 2/ The 12b-1 service fees for Class A shares reflect a blended annual rate of the Fund's average daily net assets of 0.25% with respect to shares sold on or after December 2, 1988 and 0.15% with respect to shares sold prior to that date. 3/ For the twelve months ended February 28, 1995 (the period used for the Combined Fund (Estimated) expenses), the ratios of total operating expenses as a percentage of average net assets for Global Energy Fund were 2.11%, 2.87% and 2.89% for Class A, Class B and Class D shares, respectively, for Equity Income Fund were 1.63%, 2.16%, and 1.05% for Class A, Class B and Class C shares, respectively, and for Growth and Income Fund were 1.20%, 1.98%, 0.91% and 1.99% for Class A, Class B, Class C and Class D shares, respectively. Example of Effect of Fund Expenses The following illustrates the expenses on a $1,000 investment under the existing and estimated fees and expenses stated above, assuming a 5% annual return. The fees shown below reflect a maximum initial sales charge of 4.5% of the public offering price that normally is charged in connection with the sale of each Funds' Class A shares. No initial sales charge will be charged in connection with Class A Shares of Growth and Income Fund distributed to Class A shareholders of each Acquired Fund as part of the Reorganizations. 12
One Year Three Years Five Years Ten Years -------- ----------- ---------- --------- Global Energy Fund Class A shares.................. $64 $105 $147 $266 Class B shares: Assuming complete redemption at end of period.................... $79 $117 $169 $277 Assuming no redemption....... $29 $87 $149 $277 Class D shares.................. $28 $85 $145 $307 Equity Income Fund Class A shares.................. $73 $106 $141 $240 Class B shares.................. $22 $67 $114 $246 Class C shares.................. $12 $36 $62 $137 Growth and Income Fund Class A shares.................. $57 $81 $108 $184 Class B shares: Assuming complete redemption at end of period.................... $70 $92 $126 $191 Assuming no redemption....... $20 $62 $106 $191 Class C shares.................. $9 $29 $50 $111 Class D shares.................. $20 $61 $105 $226 Combined Fund Class A shares.................. $56 $81 $107 $182 Class B shares: Assuming complete redemption at end of period.................... $70 $92 $127 $192 Assuming no redemption....... $20 $62 $107 $192 Class C shares.................. $9 $29 $50 $111 Class D shares.................. $20 $62 $107 $231
13 This Example assumes that all dividends and other distributions are reinvested and that the percentage amounts listed under Annual Fund Operating Expenses remain the same in the years shown. The above tables and the assumption in the Example of a 5% annual return are required by regulations of the SEC; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of any Class of the Funds' shares. The Example should not be considered a representation of past or future expenses, and a Fund's actual expenses may be more or less than those shown. The actual expenses attributable to each Class of a Fund's shares will depend upon, among other things, the level of average net assets and the extent to which a Fund incurs variable expenses, such as transfer agency costs. The above Example assumes that both of the Acquired Funds will participate in the Reorganizations. If one but not both of the Reorganizations are consummated, the estimated annual fund expense for such combination will not differ significantly from those set forth in the above Example. Forms of Organization Equity Income Fund is an open-end management investment company organized as a Maryland corporation. It commenced operations on November 22, 1985. It is authorized to issue 500 million shares of common stock of par value $.01 per share. It does not currently issue share certificates. Equity Income Fund is not required to (and does not) hold annual meetings. Investment Series and America Fund are open-end management investment companies organized as Massachusetts business trusts. Growth and Income Fund commenced operations as a series of America Fund on December 20, 1983. Global Energy Fund commenced operations as a series of Investment Series on September 18, 1987. Each trust's Declaration of Trust authorizes its trustees to create separate series, and within each series separate classes, of an unlimited number of shares of beneficial interest, par value $.001 per share. The trusts are not required to (and do not) hold annual shareholder meetings. Shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable for its obligations. However, the Declaration of Trust of each trust expressly disclaims, and provides indemnification against, such liability. Accordingly, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which Global Energy Fund or Growth and Income Fund itself would be unable to meet its obligations, a possibility that Mitchell Hutchins believes is remote and, thus, does not pose a material risk. Investment Objectives and Policies The investment objective and policies of each Fund are set forth below. Growth and Income Fund has an investment objective substantively identical to that of Equity Income Fund and generally similar to the investment objective of Global Energy Fund, although its investment strategy may differ from the Acquired Funds' investment strategies in some material respects. There can be no assurance that any Fund will achieve its investment objective, and each Fund's net asset value ("NAV") fluctuates based upon changes in the value of its portfolio securities. 14 Growth and Income Fund. The investment objective of Growth and Income Fund is to provide current income and capital growth. The Fund seeks to achieve its objective by investing primarily in dividend-paying equity securities (common and preferred stocks) believed by Mitchell Hutchins to have the potential for rapid earnings growth. Under normal circumstances, the Fund invests at least 65% of its total assets in such securities. In managing the Fund, Mitchell Hutchins follows a disciplined methodology under which stocks from a universe of approximately 2,000 medium- to large-capitalization companies are ranked utilizing quantitative measures of value, earnings and price momentum in the context of Mitchell Hutchins' economic forecast. Stocks are selected for the Fund based on fundamental analysis of the highest ranking stock. The Fund may invest up to 35% of its total assets in equity securities not meeting all the above criteria, as well as convertible securities (which may be rated below investment grade), U.S. government securities, investment grade corporate debt securities and money market instruments. Equity Income Fund. The investment objective of Equity Income Fund is to provide reasonably high current dividend and interest income and to obtain long-term capital appreciation. Under normal market conditions, the Fund invests not less than 65% of its net assets in equity securities, limited to dividend-paying common stock, preferred stock, warrants, rights and securities convertible into common stock. The Fund's equity investments have tended to be in issuers with large market capitalizations, although the Fund is not limited by issuer size in selecting equity securities for investment. The Fund may also invest a lesser portion of its assets in fixed-income securities and, as needed to provide liquidity in order to meet redemptions, money market instruments. The Fund's investments in fixed-income securities are limited to direct obligations of the U.S. government (such as Treasury bills, notes or bonds) and corporate debt securities rated Aa or better by Moody's Investors Service, Inc. or AA or better by Standard & Poor's Ratings Group. For temporary defensive purposes, the Fund may invest its assets in all classes of securities, including equity and fixed-income, in any proportions deemed prudent under existing market and economic conditions. It is the Fund's policy not to purchase and sell securities with a view toward obtaining short-term (less than six months) profits. Global Energy Fund. The investment objective of Global Energy Fund is to achieve high total return by investing principally in securities of foreign and domestic energy and energy service companies. Under normal market conditions, at least 65% of the Fund's net assets are invested in equity and debt securities of foreign and domestic energy and energy service companies based in at least three countries, including the United States. Energy companies are the primary producers of raw energy materials such as oil and gas. Energy service companies are companies that provide services, supplies and equipment to energy companies. The Fund may invest up to 35% of its assets in equity and debt securities of issuers in any industry, including the utility sector, although no more than 25% of the Fund's assets may be invested in any industry other than the energy or energy service industries. The Fund may invest up to 35% of its assets in non-investment grade securities. The policy of concentrating investments in the energy and energy service industries may cause the value of its shares to fluctuate more than if it invested in a broader number of industries. Other Policies of the Funds Additional Investment Techniques The Funds engage in certain options and futures contracts to attempt to hedge against the overall level of risk associated with their respective investments. Investment Restrictions Global Energy Fund and Growth and Income Fund are permitted to invest in securities rated below investment grade level. None of the Funds may invest more than 15% of its total assets in illiquid securities. While Global Energy Fund concentrates its investments in one industry, neither Growth and Income Fund nor Equity Income Fund may invest more than 25% of its total assets in any one industry. For additional discussion of these investment restrictions, see "Comparison of Risk Factors." 15 Operations of Growth and Income Fund Following the Reorganizations There are differences in some of the Funds' investment policies. It is not expected, however, that Growth and Income Fund will revise its investment policies following the Reorganizations to reflect those of either Acquired Fund. Since the Acquired Funds invest in securities having characteristics different from those of Growth and Income Fund, certain of the securities currently held in the Acquired Funds' portfolios may be sold, rather than transferred to Growth and Income Fund. If the Reorganizations are approved, the Acquired Funds will sell any assets that are inconsistent with the investment policies of Growth and Income Fund prior to the effective time of the Reorganizations, and the proceeds thereof will be held in temporary investments or reinvested in assets that qualify to be held by Growth and Income Fund. The necessity for the Acquired Funds to dispose of assets prior to the effective time of the Reorganizations may result in selling securities at a disadvantageous time and could result in the Acquired Funds' realizing losses that would not otherwise have been realized. Following the Reorganizations, Mark A. Tincher, who currently is the portfolio manager for Growth and Income Fund and who has been primarily responsible for the day-to-day portfolio management of that Fund, will continue as its portfolio manager. Mr. Tincher joined Mitchell Hutchins in March 1995. Prior to joining Mitchell Hutchins, Mr. Tincher worked for Chase Manhattan Private Bank, where he was Vice President and directed the U.S. Funds Management and Equity Research Area. At Chase since 1988, Mr. Tincher oversaw the management of all Chase Equity Funds (the Vista Funds and Trust Investment Funds). Effective on or about November 1, 1995, PW Fund's Class C and Class D shares will be renamed Class Y and Class C shares, respectively. In addition, Class A shares purchased after that date which are purchased without an initial sales charge due to a sales charge waiver for purchases of $1 million or more, and held less than one year, and Class D shares that are held for less than one year, will be subject to a contingent deferred sales charge ("CDSC") of 1% of the lower of (i) the NAV of the shares at the time of purchase, or (ii) the NAV of the shares at the time of redemption. Purchases Shares of each Fund are available through PaineWebber and its correspondent firms or, for investors who are not clients of PaineWebber, through each Fund's transfer agent, PFPC Inc. ("Transfer Agent"). The minimum initial investment in Growth and Income Fund Class A, B or D shares 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 and retirement accounts and participants in the Fund's automatic investment plan. The Class A shares of each Fund are all sold subject to a maximum initial sales charge of 4.5% of the public offering price. The Class A shares of Growth and Income Fund that will be distributed to Class A shareholders of the Acquired Funds in connection with the Reorganizations will not be subject to any initial sales charge. The Class B shares of Growth and Income Fund and Global Energy Fund are sold subject to a maximum CDSC of 5% of redemption proceeds, which declines to zero after six years, when such Class B shares automatically convert into Class A shares of those respective Funds. Following the Reorganizations, the Class B shareholders of Global Energy Fund would remain subject to the maximum 5% CDSC and six-year schedule of reducing CDSCs in effect prior to the Reorganizations. All Class B shareholders of Global Energy Fund will be credited for the period of time from the original date of purchase of their shares for purposes of determining the amount of their CDSC, if any. As is currently the case for Growth and Income Fund and Global Energy Fund, no CDSC will be applied to redemptions of Class B shares that represent reinvested dividends or capital gain distributions. Equity Income Fund's Class B and Class C shares are sold without an initial sales charge or CDSC. The Class D shares of Growth and Income Fund and Global Energy Fund are sold without initial sales charges or CDSCs. 16 Class C shares of Growth and Income Fund are sold to eligible investors at the net asset value next determined after the purchase order is received. No initial or contingent deferred sales charge is imposed, nor are Class C shares subject to Rule 12b-1 distribution or service fees. Growth and Income Fund and Mitchell Hutchins reserve the right to reject any purchase order and to suspend the offering of the Class C shares for a period of time. The Class C shares currently are offered for sale only to the trustee of the PaineWebber Savings Investment Plan ("PW SIP"), a defined contribution plan sponsored by Paine Webber Group Inc. ("PW Group"). The trustee of the PW SIP purchases Class C shares to implement the investment choices of individual plan participants with respect to their PW SIP contributions. Class C shares also may be acquired by present holders of Class C shares of a Mitchell Hutchins/Kidder, Peabody ("MH/KP") mutual fund when those shares are issued in connection with the reorganization of that MH/KP mutual fund into Growth and Income Fund. This category includes participants in INSIGHT, former employees of Kidder, Peabody & Co., Incorporated ("Kidder, Peabody") for associated accounts, present and former directors and trustees of MH/KP mutual funds. Effective on or about November 1, 1995 Growth and Income Fund's Class C shares (renamed Class Y shares) will be available for purchase by INSIGHT participants when purchased through that program. INSIGHT. An investor who purchases $50,000 or more of shares of the PaineWebber or MH/KP mutual funds that are in the Flexible Pricing System may participate in INSIGHT, a total portfolio asset allocation program sponsored by PaineWebber, and thus become eligible to purchase Class C shares. INSIGHT offers comprehensive investment services, including a personalized asset allocation investment strategy using an appropriate combination of funds, professional investment advice regarding investment among the funds by portfolio specialists, monitoring of investment performance and comprehensive quarterly reports that cover market trends, portfolio summaries and personalized account information. Participation in INSIGHT is subject to payment of an advisory fee to PaineWebber at the maximum annual rate of 1.5% of assets held through the program (generally charged quarterly in advance), which covers all INSIGHT investment advisory services and program administration fees. Employees of PaineWebber and its affiliates are entitled to a 50% reduction in the fee otherwise payable for participation in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees charged to their PaineWebber accounts (by the automatic redemption of money market fund shares) or another of their PaineWebber accounts or billed separately. REDEMPTIONS Shareholders of each Fund may submit redemption requests to their investment executives or correspondent firms in person or by telephone, mail or wire. As each Fund's agent, PaineWebber may honor a redemption request by repurchasing shares from a redeeming shareholder at the shares' net asset value next determined after receipt of the request by PaineWebber's New York City offices. Within three Business Days after receipt of the request, repurchase proceeds (less any applicable contingent deferred sales charge) will be paid by check or credited to the shareholder's brokerage account at the election of the shareholder. PaineWebber investment executives and correspondent firms are responsible for promptly forwarding redemption requests to PaineWebber's New York City offices. 17 PaineWebber reserves the right not to honor any redemption request, in which case PaineWebber promptly will forward the request to the Transfer Agent for treatment as described below. Shareholders of each Fund also may redeem shares through the Transfer Agent. Shareholders should mail redemption requests directly to the Transfer Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P. O. Box 8950, Wilmington, Delaware 19899. A redemption request will be executed at the net asset value next computed after it is received in "good order," and redemption proceeds will be paid within seven days of the receipt of the request. "Good order" means that the request must be accompanied by the following: (1) a letter of instruction or a stock assignment specifying the number of shares or amount of investment to be redeemed (or that all shares credited to the Fund account be redeemed), signed by all registered owners of the shares in the exact names in which they are registered, (2) a guarantee of the signature of each registered owner by an eligible institution acceptable to the Transfer Agent and in accordance with SEC rules, such as a commercial bank, trust company or member of a recognized stock exchange, (3) other supporting legal documents for estates, trusts, guardianships, custodianships, partnerships and corporations and (4) duly endorsed share certificates, if any. Shareholders are responsible for ensuring that a request for redemption is received in "good order." A shareholder (other than a participant in the PW SIP) may have redemption proceeds of $1 million or more wired to the shareholder's PaineWebber brokerage account or a commercial bank account designated by the shareholder. Questions about this option, or redemption requirements generally, should be referred to the shareholder's PaineWebber investment executive or correspondent firm. If a shareholder requests redemption of shares which were purchased recently, the Fund may delay payment until it is assured that good payment has been received. In the case of purchases by check, this can take up to 15 days. Because the Funds incur certain fixed costs in maintaining shareholder accounts, each Fund reserves the right to redeem all Fund shares in any shareholder account having a net asset value below the lesser of $500 or the current minimum for initial purchases. If the Fund elects to do so, it will notify the shareholder and provide the shareholder the opportunity to increase the amount invested to the minimum required level or more within 60 days of the notice. The Funds will not redeem accounts that fall below the minimum required level solely as a result of a reduction in net asset value per share. If a Reorganization is approved with respect to an Acquired Fund, purchases of all Classes of its shares will cease on _________ __, 1995, so that its shares will no longer be available for purchase or exchange starting on _________ __, 1995. If the Meeting with respect to an Acquired Fund is adjourned and the Reorganization involving it is approved on a later date, its shares will no longer be available for purchase or exchange on the business day following the date on which the Reorganization is approved and all contingencies have been met. Redemptions of the Acquired Fund's shares and exchanges of such shares for shares of any other PaineWebber or MH/KP fund may be effected through the Closing Date. 18 Exchanges Except for the $5.00 exchange fee, which does not apply to exchanges of Equity Income Fund shares, the exchange policies of the Funds are identical. Class A, Class B and Class D shares of each Fund may be exchanged for shares of the Corresponding Class of other PaineWebber and MH/KP funds, and Class A, Class B and Class D shares of each Fund may be acquired through an exchange of shares of the Corresponding Class of other PaineWebber and MH/KP funds, as provided in the prospectus of each Fund. No initial sales charge is imposed on the shares being acquired, and no CDSC is imposed on the shares being disposed of, through an exchange. However, a CDSC may apply to redemptions of a PaineWebber fund's Class B shares acquired through an exchange. Exchanges may be subject to minimum investment and other requirements of the fund into which exchanges are made. As noted above, the $5.00 service fee currently imposed on each exchange of shares of Growth and Income Fund for shares of any other PaineWebber or MH/KP fund will continue to be imposed following the Reorganizations. Class C shares of Growth and Income Fund and Equity Income Fund have no exchange privileges. Dividends and Other Distributions Growth and Income Fund distributes dividends from net investment income semi-annually, whereas Equity Income Fund distributes such dividends quarterly and Global Energy Fund declares and pays such dividends annually. Each Fund distributes substantially all of its net capital gain (the excess of net long-term capital gain over net short-term capital loss) and net short-term gain, and Global Energy Fund also distributes any net realized gain from foreign currency transactions, at least annually. Shareholders of each Fund may reinvest dividends and other distributions in additional shares on the payment date at those shares' NAV that day or receive them in cash. Each Fund may make additional distributions if necessary to avoid a 4% excise tax on certain undistributed ordinary income and capital gain. Growth and Income Fund's dividends and other distributions on its Class C shares are paid in additional Class C shares at NAV unless the shareholder has requested cash payments. Class C shareholders who wish to receive dividends and/or other distributions in cash, either mailed to the shareholder by check or credited to the shareholder's PaineWebber account, should contact their PaineWebber investment executives or correspondent firms. For PW SIP participants, Growth and Income Fund's Class C dividends and distributions are paid in additional Class C shares at NAV unless the Transfer Agent is instructed otherwise. On or before the Closing Date, each Acquired Fund will declare as a distribution substantially all of its net investment income, net capital gain, net short-term capital gain and (in the case of Global Energy Fund) net realized foreign currency gains in order to maintain its tax status as a regulated investment company. Each Acquired Fund will pay these distributions only in cash. Growth and Income Fund also may declare and distribute as a dividend to its shareholders on or before the Closing Date substantially all of any previously undistributed net investment income. Federal Income Tax Consequences of the Reorganizations America Fund has received an opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to each Reorganization, Investment Series has received an opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to the Reorganization involving Global Energy Fund, and Equity Income Fund has received an opinion of Sullivan & Cromwell, its counsel, with respect to the Reorganization involving that Fund, each to the effect that the Reorganization will constitute a tax-free reorganization within the meaning of section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). Accordingly, no gain or loss will be recognized by any of the Funds or their shareholders as a result of the Reorganizations. See "The Proposed Transactions--Federal Income Tax Considerations," page 22. 19 COMPARISON OF PRINCIPAL RISK FACTORS The facts that the Funds' investment objectives and policies are generally similar and that they are managed by the same investment adviser should minimize the risks that might otherwise be associated with the Reorganizations. In general, Growth and Income Fund's investment policies do not present investment risks that are not also presented by the investment policies of each Acquired Fund. There are, however, the following primary differences in the investment policies of Growth and Income Fund and the Acquired Funds. Industry Concentration Global Energy Fund concentrates its investments in the energy and energy service industries. Under normal circumstances, at least 65% of Global Energy Fund's net assets are invested in equity and debt securities of foreign and domestic energy and energy service companies. In contrast, Growth and Income Fund and Equity Income Fund do not concentrate investments in one industry and have more diversified portfolios. The policy of concentrating investments in energy and energy service industries may cause the value of Global Energy Fund's shares to fluctuate more than if it invested in a greater number of industries. Lower-Rated Debt Securities Global Energy Fund and Growth and Income Fund may invest in lower rated securities than Equity Income Fund. The assets of those Funds may be invested in debt securities or convertible securities rated below investment grade. Such securities are commonly referred to as "junk bonds." While credit ratings are general and are not absolute standards of quality, lower-rated securities generally involve higher risks. Lower-rated securities generally offer a higher current yield than that available from higher-grade issues, but they involve higher risks, in that they are especially subject to adverse changes in general economic conditions and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress that could adversely affect their ability to make payments of principal and interest (or, in the case of convertible preferred stock, dividends) and increase the possibility of default. In addition, such issuers may not have more traditional methods of financing available to them and may be unable to repay debt at maturity by refinancing. The risk of loss due to default by such issuers is significantly greater because such securities are frequently unsecured and subordinated to the prior payment of senior indebtedness. The market for lower-rated debt securities has expanded rapidly in recent years, and its growth paralleled a long economic expansion. In the past, the prices of many lower-rated debt securities declined substantially, reflecting an expectation that many issuers of such securities might experience financial difficulties. As a result, the yields on such securities rose dramatically. However, such higher yields did not reflect the value of the income stream that holders of such securities expected, but rather the risk that holders of such securities could lose a substantial portion of their value as a result of the issuer's financial restructuring or default. There can be no assurance that such declines will not recur. The market for lower-rated debt securities generally is thinner and less active than that for higher-quality securities, which may limit a Fund's ability to sell such securities at their fair value in response to changes in the economy or the financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the value and liquidity of lower-rated securities, especially in a thinly traded market. Foreign Securities 20 Investments in each Fund involve the special risks of investing in foreign securities, although Global Energy Fund may invest without limit in foreign securities denominated in foreign currencies, while both Equity Income Fund and Growth and Income Fund are limited in their investments in foreign securities. Growth and Income Fund is limited to investing not more than 25% of its total assets in U.S. dollar-denominated securities of foreign issuers that are traded on recognized U.S. exchanges or in the U.S. over-the-counter market. The risks of investment in foreign securities include possible adverse political and economic developments abroad and differing regulatory systems and differing characteristics of foreign economies and markets, as well as the fact that there is often less information publicly available about foreign issuers. Many of the securities held by Global Energy Fund may be denominated in foreign currencies, and the value of each Fund's investments can be adversely affected by fluctuations in foreign currency values. Some foreign currencies can be volatile and may be subject to government controls or intervention. Hedging Strategies Each Fund, including Growth and Income Fund, may use options, futures contracts and options on futures contracts. There can be no assurance, however, that any strategy utilizing these instruments will succeed. If Mitchell Hutchins incorrectly forecasts interest rates, market values or other economic factors utilizing a strategy for a Fund, the Fund might have been in a better position had the Fund not hedged at all. The use of these instruments involve certain special risks, including (1) the fact that skills needed to use hedging instruments are different from those needed to select the Funds' securities, (2) possible imperfect correlation, or even no correlation, between price movements of hedging instruments and price movements of the investments being hedged, (3) the fact that, while hedging strategies can reduce the risk of loss, they can also reduce the opportunity for gain, or even result in losses, by offsetting favorable price movements in hedged investments and (4) the possible inability of a Fund to purchase or sell a portfolio security at a time that otherwise would be favorable for it to do so, or the possible need for a Fund to sell a portfolio security at a disadvantageous time, due to the need for the Fund to maintain "cover" or to segregate securities in connection with hedging transactions and the possible inability of the Fund to close out or to liquidate its hedged position. THE PROPOSED TRANSACTIONS Reorganization Plans The terms and conditions under which the proposed transactions may be consummated are set forth in the Reorganization Plans. Significant provisions of the Reorganization Plans are summarized below; however, this summary is qualified in its entirety by reference to the Reorganization Plans, which are attached as Appendices A and B to this Proxy Statement. Each Reorganization Plan contemplates (a) Growth and Income Fund's acquiring on the Closing Date the assets of an Acquired Fund in exchange solely for its shares and its assumption of the Acquired Fund's liabilities and (b) the constructive distribution of such shares to the shareholders of the Acquired Fund. The assets of each Acquired Fund to be acquired by Growth and Income Fund include all cash, cash equivalents, securities, receivables and other property owned by the Acquired Fund. Growth and Income Fund will assume from each Acquired Fund all debts, liabilities, obligations and duties of such Fund of whatever kind or nature; provided, however, that each Acquired Fund will use its best efforts, to the extent practicable, to discharge all of its known debts, liabilities, obligations and duties prior to the Closing Date. Growth and Income Fund also will deliver its shares to each Acquired Fund, which then will be constructively distributed to the Acquired Fund's shareholders. The value of an Acquired Fund's assets to be acquired, and the amount of its liabilities to be assumed, by Growth and Income Fund and the NAV of a Class A, B, C and D share of Growth and Income Fund will be determined 21 as of the close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on the Closing Date. Where market quotations are readily available, portfolio securities will be valued based upon such market quotations, provided such quotations adequately reflect, in Mitchell Hutchins' judgment, fair value of the security. Where such market quotations are not readily available, such securities will be valued based upon appraisals received from a pricing service using a computerized matrix system or based upon appraisals derived from information concerning the security or similar securities received from recognized dealers in those securities. The amortized cost method of valuation generally will be used to value debt instruments with 60 days or less remaining to maturity, unless Equity Income Fund's board of directors (with respect to Equity Income Fund) or Investment Series' or America Fund's board of trustees (with respect to Global Energy Fund and Growth and Income Fund, respectively) determines that this does not represent fair value. All other securities and assets will be valued at fair value as determined in good faith by or under the direction of Equity Income Fund's board of directors or Investment Series's or America Fund's board of trustees, as applicable. All investments quoted in foreign currencies will be valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the time such valuation is determined by each Fund's custodian. On, or as soon as practicable after, the Closing Date, each Acquired Fund will distribute to its shareholders of record the shares of Growth and Income Fund it received, by Class, so that each shareholder of the Acquired Fund will receive a number of full and fractional shares of the Corresponding Class or Classes of Growth and Income Fund shares equal in value to the shareholder's holdings in the Acquired Fund; each Acquired Fund will be terminated (in the case of Global Energy Fund) or liquidated (in the case of Equity Income Fund) as soon as practicable thereafter. Such distribution will be accomplished by opening accounts on the books of Growth and Income Fund in the names of the Acquired Fund's shareholders and by transferring thereto the shares of each Class previously credited to the account of each Acquired Fund on those books. Fractional shares in each Class of Growth and Income Fund will be rounded to the third decimal place. Accordingly, immediately after each Reorganization, each former shareholder of the participating Acquired Fund will own shares of the Class of Growth and Income Fund that will equal the value of that shareholder's shares of the Corresponding Class of the Acquired Fund immediately prior to the Reorganization. Moreover, because shares of each Class of Growth and Income Fund will be issued at NAV in exchange for the net assets applicable to the Corresponding Class of each Acquired Fund, the aggregate value of shares of each Class of Growth and Income Fund so issued will equal the aggregate value of shares of the Corresponding Class of the Acquired Funds. The NAV per share of Growth and Income Fund will be unchanged by the transactions. Thus, the Reorganizations will not result in a dilution of any shareholder interest. Any transfer taxes payable upon issuance of any shares of Growth and Income Fund in a name other than that of the registered holder of the shares on the books of an Acquired Fund shall be paid by the person to whom such shares are to be issued as a condition of such transfer. Any reporting responsibility of an Acquired Fund will continue to be its responsibility up to and including the Closing Date and such later date on which such Fund is terminated or liquidated. The cost of the Reorganizations, including professional fees and the cost of soliciting proxies for the Meeting, consisting principally of printing and mailing expenses, together with the cost of any supplementary solicitation, will be borne by all three Funds in proportion to their respective net assets. Mitchell Hutchins recommended this method of expense allocation to the directors/trustees. Mitchell Hutchins based its recommendations on its belief that the method is fair because, for the reasons discussed under "Reasons for the Reorganizations," the Reorganizations have the potential to benefit all Funds. The directors of Equity Income Fund and the trustees of Investment Series considered the expense allocation method in approving the Reorganizations and in finding that the Reorganizations are in the best interests of their respective Funds. The consummation of each Reorganization is subject to a number of conditions set forth in its Reorganization Plan, some of which may be waived by an Acquired Fund. In addition, the Plans 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 shareholders' interests. 22 Reasons for the Reorganizations The board of directors of Equity Income Fund, including a majority of its Independent Persons, has determined that the Reorganization involving that Fund is in the best interests of that Fund, that the terms of the Reorganization are fair and reasonable and that the interests of Equity Income Fund's shareholders will not be diluted as a result of the Reorganization. Investment Series' board of trustees, including a majority of its Independent Persons, has determined that the Reorganization involving Global Energy Fund is in the best interests of that Fund, that the terms of the Reorganization are fair and reasonable and that the interests of Global Energy Fund's shareholders will not be diluted as a result of the Reorganization. The board of trustees of America Fund, including a majority of its Independent Persons, has determined that the Reorganizations are in the best interests of Growth and Income Fund, that the terms of the Reorganizations are fair and reasonable and that the interests of Growth and Income Fund's shareholders will not be diluted as a result of the Reorganizations. In considering the Reorganizations, the boards of directors/trustees made an extensive inquiry into a number of factors, including the following: (1) the compatibility of the investment objectives, policies and restrictions of the Funds; (2) the effect of the Reorganizations on expected investment performance; (3) the effect of the Reorganizations on the expense ratio of Growth and Income Fund relative to its current expense ratio; (4) the expense ratio of Growth and Income Fund after the Reorganization relative to the current expense ratio of each of the Acquired Funds; (5) the costs to be incurred by each Fund as a result of the Reorganizations; (6) the tax consequences of the Reorganizations; (7) possible alternatives to the Reorganizations, including continuing to operate on a stand-alone basis or liquidation; and (8) the potential benefits of the Reorganizations to other persons, especially Mitchell Hutchins and PaineWebber. At meetings of the Acquired Funds' boards of directors/trustees on April 26 and 28, 1995, Mitchell Hutchins recommended, and the boards approved, the Reorganizations. The Amended and Restated Reorganization Plans were approved in their final form on July 20, 1995 by each Fund's board. Mitchell Hutchins advised the directors/trustees that each Reorganization provided a sound alternative investment option, given the Funds' generally similar investment objectives and policies, with the material differences noted. Mitchell Hutchins and each Acquired Fund's board believe that the Reorganizations offer the Acquired Fund shareholders the benefits of investing in a larger, diversified open-end fund with an investment objective substantially similar to those of the Acquired Funds. In recommending the Reorganizations, Mitchell Hutchins indicated to the boards that the investment advisory and administration fee schedule applicable to Growth and Income Fund would be equal to or lower than that currently in effect for each of the Acquired Funds. The boards also were advised that the expense ratio for each Class of Growth and Income Fund's shares would likely decrease over time as a result of the Reorganizations due to the increased size of the combined Fund. In approving the Reorganizations, the boards noted that the overall investment objective of current income and capital growth remains an appropriate one to offer investors as part of an overall investment strategy. 23 Mitchell Hutchins further advised the boards that, while past performance of Growth and Income Fund has not been as positive as that of the Acquired Funds, the investment policies of Growth and Income Fund have recently been revised. The new policies are intended to improve the Fund's performance. In addition, Mitchell Hutchins has recently appointed Mark A. Tincher as portfolio manager with day-to-day responsibility for Growth and Income Fund. Mr. Tincher is experienced in managing growth and income funds. Mitchell Hutchins also advised the boards that it did not expect to receive any immediate direct benefits from the Reorganizations, because the compensation that would be received by it as investment adviser to the combined Fund would be the same or less than the aggregate compensation it received from the Funds prior to the Reorganizations, assuming no change in aggregate net assets. However, Mitchell Hutchins noted that it could benefit in the future if the combined Fund's assets grow faster than would be the case for the three separate Funds in the absence of the Reorganizations. THE BOARDS OF TRUSTEES/DIRECTORS RECOMMEND THAT THE SHAREHOLDERS OF THE ACQUIRED FUNDS VOTE "FOR" THE PROPOSED REORGANIZATIONS Description of Securities to be Issued America Fund is registered with the SEC as an open-end management investment company. Its trustees are authorized to issue an unlimited number of shares of beneficial interest of separate series (par value $.001 per share). The trustees have established Growth and Income Fund as one of America Fund's series and have divided its shares into four Classes. Each share in a Class represents an equal proportionate interest in Growth and Income Fund with each other share in that Class. Shares of Growth and Income Fund entitle their holders to one vote per full share and fractional votes for fractional shares held, except that each Class of shares has exclusive voting rights on matters pertaining to its plan of distribution. On the Closing Date, Growth and Income Fund will have outstanding four Classes of shares, designated Class A, Class B, Class C and Class D shares. Each Class represents interests in the same assets of the Fund. The Classes differ as follows: (1) Class A, Class B and Class D shares, unlike Class C shares, bear certain fees under plans of distribution and have exclusive voting rights on matters pertaining to their plans of distribution; (2) Class A shares are subject to an initial sales charge; (3) Class B shares bear ongoing distribution expenses, are subject to a CDSC upon certain redemptions and automatically convert to Class A shares approximately six years after issuance; (4) Class C shares are subject to neither an initial sales charge nor a CDSC and bear no ongoing service or distribution fees; (5) Class D shares are subject to neither an initial sales charge nor a CDSC, bear ongoing distribution fees and do not convert to another Class; and (6) each Class may bear differing amounts of certain Class-specific expenses. Each share of each Class of Growth and Income Fund will be entitled to participate equally in dividends and other distributions and the proceeds of any liquidation, except that because of the higher expenses resulting from the distribution fees borne by the Class B and D shares, dividends on those shares are expected to be lower than those for Class A and Class C shares; similarly, dividends on Class A shares are expected to be lower than those for Class C shares. Dividends on each Class also might be affected differently by the allocation of other Class-specific expenses. America Fund does not hold annual meetings of shareholders. There will normally be no meetings of shareholders for the purpose of electing trustees unless fewer than a majority of the trustees holding office has been elected by shareholders, at which time the trustees then in office will call a shareholders' meeting for the election of trustees. Under the 1940 Act, shareholders of record of at least two-thirds of the outstanding shares of an investment company may remove a trustee by votes cast in person or by proxy at a meeting called for that purpose. The trustees are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any trustee when requested in writing to do so by the shareholders of record holding at least 10% of America Fund's outstanding shares. Federal Income Tax Considerations The exchange of an Acquired Fund's assets for shares of Growth and Income Fund and Growth and Income Fund's assumption of liabilities of that Acquired Fund is intended to qualify for federal income tax purposes as a tax-free reorganization under section 368(a)(1)(C) of the Code. America Fund has received an opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to each Reorganization, Investment Series has received an opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to the Reorganization involving Global Energy Fund, and Equity Income Fund has received an opinion of Sullivan & Cromwell, its counsel, with respect to the Reorganization involving Equity Income Fund, each substantially to the effect that -- (i) Growth and Income Fund's acquisition of the Acquired Fund's assets in exchange solely for Growth and Income Fund shares and Growth and Income Fund's assumption of the Acquired Fund's liabilities, followed by the Acquired Fund's distribution of those shares to its shareholders constructively in exchange for their Acquired Fund shares, will constitute a "reorganization" within the meaning of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; (ii) No gain or loss will be recognized to the Acquired Fund on the transfer to Growth and Income Fund of its assets in exchange solely for Growth and Income Fund shares and Growth and Income Fund's assumption of the Acquired Fund's liabilities or on the subsequent distribution of those shares to the Acquired Fund's shareholders in constructive exchange for their Acquired Fund shares; (iii) No gain or loss will be recognized to Growth and Income Fund on its receipt of the transferred assets in exchange solely for Growth and Income Fund shares and its assumption of the Acquired Fund's liabilities; (iv) Growth and Income Fund's basis for the transferred assets will be the same as the basis thereof in the Acquired Fund's hands immediately prior to the Reorganization, and Growth and Income Fund's holding period for those assets will include the Acquired Fund's holding period therefor; (v) An Acquired Fund shareholder will recognize no gain or loss on the constructive exchange of all its Acquired Fund shares solely for Growth and Income Fund shares pursuant to the Reorganization; and (vi) An Acquired Fund shareholder's basis for the Growth and Income Fund shares to be received by it in the Reorganization will be the same as the basis for its Acquired Fund shares to be constructively surrendered in exchange for those Growth and Income Fund shares, and its holding period for those Growth and Income Fund shares will include its holding period for those Acquired Fund shares, provided they are held as capital assets by the shareholder on the Closing Date. Each such opinion may state that no opinion is expressed as to the effect of the Reorganization on the Funds or any shareholder with respect to any asset (including certain options, futures and forward contracts) as to which 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 Growth and Income Fund after the Reorganizations of pre-Reorganization capital losses realized by Global Energy Fund could be subject to limitation in future years under the Code. Shareholders of an Acquired Fund should consult their tax advisers regarding the effect, if any, of the proposed Reorganizations in light of their individual circumstances. Because the foregoing discussion only relates to the federal income tax consequences of the Reorganizations, those shareholders also should consult their tax advisers as to state and local tax consequences, if any, of the Reorganizations. Individual participants in the PW SIP should consult the Plan Documents and their own tax advisers for information on the tax consequences associated with participating in the PW SIP. 25 Capitalization The following tables show the capitalization of each Fund as of February 28, 1995 and on a pro forma combined basis (unaudited) as of that date, giving effect to the Reorganizations and assuming that the Acquired Funds indicated participate in the Reorganizations. If only Global Energy Fund participates in a Reorganization:
Growth and Global Pro Forma Income Fund Energy Fund Combined ----------- ----------- --------- Net Assets Class A $180,816,735 $8,951,715 $189,768,450 Class B $239,383,165 $12,442,509 $251,825,674 Class C $14,543,879 --------- $14,543,879 Class D $29,927,874 $635,332 $30,563,206 NAV Per Share Class A $19.15 $9.92 $19.15 Class B $19.10 $9.92 $19.10 Class C $19.14 ----- $19.14 Class D $19.15 $9.80 $19.15 Shares Outstanding Class A 9,441,600 902,281 9,908,996 Class B 12,533,576 1,254,095 13,184,917 Class C 759,903 ------- 759,803 Class D 1,562,497 64,846 1,595,682
26 If only Equity Income Fund participates in a Reorganization:
Growth and Equity Pro Forma Income Fund Income Fund Combined ----------- ----------- --------- Net Assets Class A $180,816,735 $58,224,548 $239,041,283 Class B 1/ $239,383,165 $1,612,995 $239,383,165 Class C $14,543,879 $3,547,267 $18,091,146 Class D $29,927,874 ------ $31,540,869 NAV Per Share Class A $19.15 $19.57 $19.15 Class B 1/ $19.10 $19.45 $19.10 Class C $19.14 $19.56 $19.14 Class D $19.15 $----- $19.15 Shares Outstanding Class A 9,441,600 2,975,547 12,482,407 Class B 1/ 12,533,576 82,939 12,533,576 Class C 759,803 181,359 945,142 Class D 1,562,497 ----- 1,646,735
------------ 1/ Class B shares of Equity Income Fund will be exchanged for Class D shares of Growth and Income Fund. 27 If both Acquired Funds participate in the Reorganizations:
Growth and Equity Global Income Fund Income Fund Energy Fund Combined ----------- ----------- ----------- ------------ Net Assets Class A $180,816,735 $58,224,548 $8,951,715 $247,992,998 Class B 1/ $239,383,165 $1,612,995 $12,442,509 $251,825,674 Class C $14,543,879 $3,547,267 ----- $18,091,146 Class D $29,927,874 ----- $635,332 $32,176,201 NAV Per Share Class A $19.15 $19.57 $9.92 $19.15 Class B $19.10 $19.45 $9.92 $19.10 Class C $19.14 $19.56 ----- $19.14 Class D $19.15 ----- $9.80 $19.15 Shares Outstanding Class A 9,441,600 2,975,547 902,281 12,949,803 Class B 12,533,576 82,939 1,254,095 13,184,917 Class C 759,803 181,359 ----- 945,142 Class D 1,562,497 ----- 64,846 1,679,920
------------ 1/ Class B shares of Equity Income Fund will be exchanged for Class D shares of Growth and Income Fund. 28 ADDITIONAL INFORMATION ABOUT GROWTH AND INCOME FUND Financial Highlights The table below provides selected per share data and ratios for one Class A share, one Class B share, one Class C share and one Class D share of Growth and Income Fund for each of the periods shown. This information is supplemented by the financial statements and accompanying notes appearing in Growth and Income Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1994, which are incorporated by reference into its Statement of Additional Information. The financial statements and notes, as well as the information in the table appearing below insofar as it relates to the five years in the period ended August 31, 1994, have been audited by Ernst & Young LLP, independent auditors, whose report thereon is included in the Annual Report to Shareholders. Further information about the performance of Growth and Income Fund is also included in the Annual Report to Shareholders, which may be obtained without charge. The information appearing below for periods prior to the year ended August 31, 1990 also has been audited by Ernst & Young LLP, whose reports thereon were unqualified. The financial statements and notes and the financial information in the table below insofar as they relate to the six months ended February 28, 1995 have been taken from the records of the Fund without examination by the Fund's independent auditors, who do not express an opinion thereon. 29 PAINEWEBBER GROWTH & INCOME FUND FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each period is presented below:
CLASS A ------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FEBRUARY 28, FOR THE YEARS ENDED AUGUST 31, 1995 --------------------------------- (UNAUDITED) 1994 1993 1992 1991 1990 ------------ -------- -------- -------- -------- -------- Net asset value, beginning of period....................... $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 ----- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income......... 0.10 0.28 0.28 0.24 0.19 0.51 Net realized and unrealized gains (losses) from investment transactions...... (0.05) (0.41) 0.37 1.25 3.50 (0.61) ----- -------- -------- -------- -------- -------- Total income (loss) from investment operations........ 0.05 (0.13) 0.65 1.49 3.69 (0.10) ----- -------- -------- -------- -------- -------- Less dividends and distributions from: Net investment income......... (0.12) (0.27) (0.27) (0.27) (0.30) (0.53) Net realized gains on investments.................. (1.21) (0.03) -- -- -- -- ----- -------- -------- -------- -------- -------- Total dividends and distributions................ (1.33) (0.30) (0.27) (0.27) (0.30) (0.53) ----- -------- -------- -------- -------- -------- Net asset value, end of period....................... $ 19.15 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 ----- -------- -------- -------- -------- -------- ----- -------- -------- -------- -------- -------- Total return(1)............... 0.65% (0.58)% 3.15% 7.78% 23.62% (0.72)% ----- -------- -------- -------- -------- -------- ----- -------- -------- -------- -------- -------- Ratios/Supplemental Data: Net assets, end of period (000's)...................... $180,817 $222,432 $359,073 $358,643 $232,555 $58,649 Net investment income to average net assets........... 1.21%* 1.20% 1.13% 1.22% 1.42% 1.41% Net investment income to average net assets........... 0.97%* 1.29% 1.33% 1.26% 1.79% 3.11% Portfolio turnover............ 62.25% 94.32% 36.52% 15.57% 52.00% 32.10% CLASS B --------------------------------------------------------------- FOR THE FOR THE SIX MONTHS FOR THE YEARS PERIOD ENDED ENDED JULY 1, FEBRUARY 28, AUGUST 31, 1991 TO 1995 -------------------------------- AUGUST 31, (UNAUDITED) 1994 1993 1992 1991 ------------ -------- -------- -------- ------------ Net asset value, beginning of period....................... $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 18.04 ----- -------- -------- -------- ----- Income (loss) from investment operations: Net investment income......... 0.02 0.10 0.12 0.13 0.02 Net realized and unrealized gains (losses) from investment transactions...... (0.05) (0.37) 0.36 1.20 1.17 ----- -------- -------- -------- ----- Total income (loss) from investment operations........ (0.03) (0.27) 0.48 1.33 1.19 ----- -------- -------- -------- ----- Less dividends and distributions from: Net investment income......... (0.03) (0.11) (0.11) (0.15) -- Net realized gains on investments.................. (1.21) (0.03) -- -- -- ----- -------- -------- -------- ----- Total dividends and distributions................ (1.24) (0.14) (0.11) (0.15) -- ----- -------- -------- -------- ----- Net asset value, end of period....................... $ 19.10 $ 20.37 $ 20.78 $ 20.41 $ 19.23 ----- -------- -------- -------- ----- ----- -------- -------- -------- ----- Total return(1)............... 0.22% (1.31)% 2.34% 6.99% 6.60% ----- -------- -------- -------- ----- ----- -------- -------- -------- ----- Ratios/Supplemental Data: Net assets, end of period (000's)...................... $239,383 $289,290 $461,389 $386,275 $57,539 Net investment income to average net assets........... 1.99% 1.97% 1.90% 1.97% 2.10%* Net investment income to average net assets........... 0.19%* 0.51% 0.57% 4.90% 1.18%* Portfolio turnover............ 65.25% 94.32% 36.52% 15.57% 52.00% CLASS C ---------------------------------------------------- FOR THE FOR THE SIX MONTHS FOR THE YEARS PERIOD ENDED ENDED FEBRUARY 12, FEBRUARY 28, AUGUST 31, 1992 TO 1995 ----------- AUGUST 31, (UNAUDITED) 1994 1993 1992 ------------ -------- -------- ------------ Net asset value, beginning of period....................... $ 20.42 $ 20.86 $ 20.48 $ 20.95 ----- -------- -------- ----- Income (loss) from investment operations: Net investment income......... 0.13 0.33 0.33 0.16 Net realized and unrealized gains (losses) from investment transactions...... (0.05) (0.40) 0.37 (0.49) ----- -------- -------- ----- Total income (loss) from investment operations........ 0.08 (0.07) 0.70 (0.33) ----- -------- -------- ----- Less dividends and distributions from: Net investment income......... (0.15) (0.34) (0.32) (0.14) Net realized gains on investments.................. (1.21) (0.03) -- -- ----- -------- -------- ----- Total dividends and distributions................ (1.36) (0.57) (0.32) (0.14) ----- -------- -------- ----- Net asset value, end of period....................... $ 19.14 $ 20.42 $ 20.86 $ 20.48 ----- -------- -------- ----- ----- -------- -------- ----- Total return(1)............... 0.81% (0.31)% 3.44% (1.15)% ----- -------- -------- ----- ----- -------- -------- ----- Ratios/Supplemental Data: Net assets, end of period (000's)...................... $14,544 $14,690 $17,005 $10,560 Net investment income to average net assets........... 0.90%* 0.90% 0.86% 0.93%* Net investment income to average net assets........... 1.29%* 1.60% 1.62% 1.56%* Portfolio turnover............ 65.25% 94.32% 36.52% 15.57% CLASS D --------------------------------------------------- FOR THE FOR THE SIX MONTHS FOR THE YEARS PERIOD ENDED ENDED JULY 2, FEBRUARY 28, AUGUST 31, 1992+ TO 1995 ----------- AUGUST 31, (UNAUDITED) 1994 1993 1992 ------------ -------- -------- ------------ Net asset value, beginning of period....................... $ 20.42 $ 20.83 $ 20.47 $ 20.95 ----- -------- -------- ----- Income (loss) from investment operations: Net investment income......... 0.02 0.11 0.11 0.02 Net realized and unrealized gains (losses) from investment transactions...... (0.05) (0.38) 0.37 (0.44) ----- -------- -------- ----- Total income (loss) from investment operations........ (0.03) (0.27) 0.48 (0.42) ----- -------- -------- ----- Less dividends and distributions from: Net investment income......... (0.03) (0.11) (0.12) (0.06) Net realized gains on investments.................. (1.21) (0.03) -- -- ----- -------- -------- ----- Total dividends and distributions................ (1.24) (0.14) (1.12) (0.06) ----- -------- -------- ----- Net asset value, end of period....................... $ 19.15 $ 20.42 $ 20.83 $ 20.47 ----- -------- -------- ----- ----- -------- -------- ----- Total return(1)............... 0.26% (1.29)% 2.35% 2.85% ----- -------- -------- ----- ----- -------- -------- ----- Ratios/Supplemental Data: Net assets, end of period (000's)...................... $29,928 $37,287 $61,869 $13,019 Net investment income to average net assets........... 2.00%* 1.94% 1.87% 1.73% Net investment income to average net assets........... 0.18%* 0.54% 0.61% 0.94% Portfolio turnover............ 62.25% 94.32% 36.52% 15.57%
------------ * Annualized. + Commencement of offering of shares. (1) Total return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment of all dividends and capital gain distributions at net asset value on the payable date, and a sale at net asset value on the last day of each period reported. The figures do not include sales charges; results for Class A and Class B shares would be lower if sales charges were included. Total return information for periods less than one year is not annualized. 30 MISCELLANEOUS Available Information Investment Series, Equity Income Fund and America Fund are each subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith file reports, proxy material and other information with the SEC. Such reports, proxy material and other information can be inspected and copied at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549 at prescribed rates. Legal Matters Certain legal matters in connection with the issuance of Growth and Income Fund shares will be passed upon by Kirkpatrick & Lockhart LLP, counsel to America Fund. Experts The audited financial statements of Growth and Income Fund, Global Energy Fund and Equity Income Fund, incorporated by reference herein and in each Fund's respective Statements of Additional Information, have been audited by Ernst & Young LLP, independent auditors, Price Waterhouse LLP, independent accountants, and Deloitte & Touche LLP, independent auditors, respectively, whose reports thereon are included in the Funds' Annual Reports to Shareholders for the fiscal years ended August 31, 1994, October 31, 1994 and January 31, 1995, respectively. In addition, there are unaudited financial statements of Growth and Income Fund and Global Energy Fund in their semi-annual reports to shareholders for the six-month period ended February 28, 1995 and April 30, 1995, respectively. The financial statements audited by Ernst & Young LLP, Price Waterhouse LLP and Deloitte & Touche LLP have been incorporated herein by reference in reliance on their reports given on their authority as experts in auditing and accounting. 31 APPENDIX A AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is made as of July 25, 1995, between PaineWebber America Fund, a Massachusetts business trust ("America Trust"), on behalf of PaineWebber Growth and Income Fund, a segre- gated portfolio of assets ("series") thereof ("Acquiring Fund"), and PaineWebber Investment Series, a Massachusetts business trust ("Investment Series"), on behalf of its PaineWebber Global Energy Fund series ("Target"). (Acquiring Fund and Target are sometimes referred to herein individually as a "Fund" and collectively as the "Funds," and America Trust and Investment Series are sometimes referred to herein collectively as the "Investment Companies.") RECITAL The parties entered into an Agreement and Plan of Reorganiza- tion and Liquidation dated as of May 30, 1995 ("Original Agree- ment"), which provided, inter alia, for Target shareholders to receive Acquiring Fund shares pursuant to the transactions con- templated thereby. The parties now desire to amend and restate the Original Agreement to reflect a change in the class of Acquiring Fund shares to be distributed to holders of Class C Target Shares (as defined below). Therefore, the Original Agreement is hereby amended and restated to read in its entirety as follows: AMENDED AND RESTATED PROVISIONS This Agreement is intended to be, and is adopted as, a plan of a reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). The reorganization will involve the transfer to Acquiring Fund of Target's assets solely in exchange for voting shares of beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the assumption by Acquiring Fund of Target's liabilities, followed by the constructive distribution of the Acquiring Fund Shares to the holders of shares of beneficial interest in Target ("Target Shares") in exchange therefor, all upon the terms and conditions set forth herein. The foregoing transac- tions are referred to herein as the "Reorganization." All agree- ments, representations, actions, and obligations described herein made or to be taken or undertaken by either Fund are made and shall be taken or undertaken by America Trust on behalf of Acquiring Fund and by Investment Series on behalf of Target. Acquiring Fund's shares are divided into four classes, desig- nated Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring Fund Shares," respectively). Except as noted in the following sentence, these classes differ only with respect to the sales charges imposed on the purchase of shares and the fees ("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1 promulgated under the Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are offered at net asset value ("NAV") plus a sales charge, if applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25% of the average daily net assets attributable to the class ("class assets"); (2) Class B Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to a contingent deferred sales charge and 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently only to the trustee of the PaineWebber Savings Investment Plan on behalf of that plan, at NAV without imposition of any sales charge and are not subject to any 12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.50% of class assets. These classes also may differ from one another with respect to the allocation of certain class- specific expenses other than 12b-1 fees. Only Classes A, B, and D Acquiring Fund Shares are involved in the Reorganization. Target's shares are divided into three classes, designated Class A, Class B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and "Class D Target Shares," respec- tively). These classes are identical to the correspondingly let- tered classes of Acquiring Fund Shares, except that the Class A Target Shares are subject to a 12b-1 service fee at the annual rate of 0.25%, rather than 0.23%, of class assets. In consideration of the mutual promises herein, the parties covenant and agree as follows: 1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET 1.1. Target agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring Fund agrees in exchange therefor -- (a) to issue and deliver to Target the number of full and fractional (i) Class A Acquiring Fund Shares determined by dividing the net value of Target (computed as set forth in paragraph 2.1) ("Target Value") attributable to the Class A Target Shares by the NAV (computed as set forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring A-2 Fund Shares determined by dividing the Target Value attribut- able to the Class B Target Shares by the NAV (as so computed) of a Class B Acquiring Fund Share, and (iii) Class D Acquiring Fund Shares determined by dividing the Target Value attribut- able to the Class D Target Shares by the NAV (as so computed) of a Class D Acquiring Fund Share; and (b) to assume all of Target's liabilities described in paragraph 1.3 ("Liabilities"). Such transactions shall take place at the Closing (as defined in paragraph 3.1). 1.2. The Assets shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and rec- ords, deferred and prepaid expenses shown as assets on Target's books, and other property owned by Target at the Effective Time (as defined in paragraph 3.1). 1.3. The Liabilities shall include (except as otherwise pro- vided herein) all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, con- tingent, 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 Agree- ment, including without limitation Target's share of the expenses described in paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best efforts to discharge all of its known Lia- bilities prior to the Effective Time. 1.4. At or immediately before the Effective Time, Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distri- buted substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Effective Time. 1.5. At the Effective Time (or as soon thereafter as is rea- sonably practicable), Target shall constructively distribute the Acquiring Fund Shares received by it pursuant to paragraph 1.1 to Target's shareholders of record, determined as of the Effective Time (collectively "Shareholders" and individually a "Share- holder"), in exchange for their Target Shares. Such distribution shall be accomplished by the Funds' transfer agent ("Transfer Agent") opening accounts on Acquiring Fund's share transfer books in the Shareholders' names and transferring such Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Share- holder, 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 A-3 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, and the account for a Shareholder of Class D Target Shares shall be credited with the respective pro rata number of Class D Acquiring Fund Shares due that Shareholder). All out- standing Target Shares, including any represented by certificates, shall simultaneously be canceled on Target's share transfer re- cords. Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with the Reorganization. 1.6. As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a series of Investment Series and any further ac- tions shall be taken in connection therewith as required by appli- cable law. 1.7. Any reporting responsibility of Target to a public authority is and shall remain its responsibility up to and includ- ing the date on which it is terminated. 1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target's books of the Target Shares constructively exchanged there- for shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer. 2. VALUATION 2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the value of the Assets computed as of the close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"), using the valuation procedures set forth in Target's then-current prospectus and state- ment of additional information less (b) the amount of the Liabili- ties as of the Valuation Time. 2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund Share, a Class B Acquiring Fund Share, and a Class D Acquiring Fund Share shall be computed as of the Valuation Time, using the valuation procedures set forth in Acquiring Fund's then- current prospectus and statement of additional information. 2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of Mitchell Hutchins Asset Management Inc. A-4 3. CLOSING AND EFFECTIVE TIME 3.1. The Reorganization, together with related acts necessary to consummate the same ("Closing"), shall occur at the Funds' prin- cipal office on October 13, 1995, or at such other place and/or on such other date as the parties may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time as the parties may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the net value of Target and the NAV per Acquiring Fund Share is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading shall have been fully resumed and such reporting shall have been restored. 3.2. Investment Series shall deliver to America Trust at the Closing a schedule of the Assets as of the Effective Time, which shall set forth for all portfolio securities included therein their adjusted tax basis and holding period by lot. Target's custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be trans- ferred to Acquiring Fund at the Effective Time and (b) all neces- sary taxes in conjunction with the delivery of the Assets, includ- ing all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. 3.3. Investment Series shall deliver to America Trust at the Closing a list of the names and addresses of the Shareholders and the number (by class) of outstanding Target Shares owned by each Shareholder, all as of the Effective Time, certified by the Secre- tary or Assistant Secretary of Target. The Transfer Agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund's share transfer books of accounts in the Shareholders' names. America Trust shall issue and deliver a confirmation to Investment Series evidencing the Acquiring Fund Shares (by class) to be cre- dited to Target at the Effective Time or provide evidence satisfac- tory to Investment Series that such Acquiring Fund Shares have been credited to Target's account on Acquiring Fund's books. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts, or other docu- ments as the other party or its counsel may reasonably request. 3.4. Each Investment Company shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipi- ent and dated the Effective Time, to the effect that the represen- tations and warranties it made in this Agreement are true and cor- rect at the Effective Time except as they may be affected by the transactions contemplated by this Agreement. A-5 4. REPRESENTATIONS AND WARRANTIES 4.1. Target represents and warrants as follows: 4.1.1. Investment Series is an unincorporated voluntary association with transferable shares organized as a business trust under a written instrument ("Business Trust"); it is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts; and a copy of its Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.1.2. Investment 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; 4.1.3. Target is a duly established and designated series of Investment Series; 4.1.4. At the Closing, Target will have good and market- able title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and upon delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto; 4.1.5. Target's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules and regulations there- under 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 mislead- ing; 4.1.6. Target is not in violation of, and the execution and delivery of this Agreement and consummation of the trans- actions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of Investment Series's Dec- laration of Trust or By-Laws or of any agreement, instrument, lease, or other undertaking to which Target is a party or by which it is bound or result in the acceleration of any obli- gation, 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 America Trust; 4.1.7. Except as disclosed in writing to and accepted by America Trust, all material contracts and other commitments of or applicable to Target (other than this Agreement and invest- A-6 ment contracts, including options, futures, and forward con- tracts) 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 lia- bility or penalty with respect thereto and without diminishing or releasing any rights Target may have had with respect to actions taken or omitted to be taken by any other party thereto prior to the Closing; 4.1.8. Except as otherwise disclosed in writing to and accepted by America Trust, no litigation, administrative pro- ceeding, or investigation of or before any court or govern- mental body is presently pending or (to Target's knowledge) threatened against Investment Series with respect to Target or any of its properties or assets that, if adversely determined, would materially and adversely affect Target's financial con- dition or the conduct of its business; Target knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.1.9. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of Investment Series's board of trustees, which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by Target's shareholders and receipt of any necessary exemptive relief or no-action assurances requested from the Securities and Exchange Commission ("SEC") or its staff with respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.1.10. At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target's shareholders; 4.1.11. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the Secu- rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for the execution or performance of this Agreement by Investment Series, except for (a) the filing with the SEC of a registra- tion statement by America Trust on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto ("Registration Statement"), including A-7 therein a prospectus/proxy statement ("Proxy Statement"), (b) receipt of the exemptive relief referenced in subparagraph 4.1.9, and (c) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.1.12. On the effective date of the Registration State- ment, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by America Trust for use therein; 4.1.13. The Liabilities were incurred by Target in the ordinary course of its business; 4.1.14. Target is a "fund" as defined in section 851(h)(2) of the Code; it qualified for treatment as a regu- lated investment company ("RIC") under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such quali- fication for its current taxable year; and it has no earnings and profits accumulated in any taxable year in which the pro- visions of Subchapter M did not apply to it. The Assets shall be invested at all times through the Effective Time in a man- ner 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 secu- rities) is invested in the stock or securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock or securities of five or fewer issuers; and 4.1.17. Target will be terminated as soon as reasonably practicable after the Reorganization, but in all events within six months after the Effective Time. A-8 4.2. Acquiring Fund represents and warrants as follows: 4.2.1. America Trust is a Business Trust; it is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts; and a copy of its Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.2.2. America Trust is duly registered as an open-end management investment company under the 1940 Act, and such registration will be in full force and effect at the Effective Time; 4.2.3. Acquiring Fund is a duly established and desig- nated series of America Trust; 4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring Fund's assumption of the Liabilities) will be issued in exchange for the Assets in the Reorganization; 4.2.5. The Acquiring Fund Shares to be issued and deli- vered to Target hereunder will, at the Effective Time, have been duly authorized and, when issued and delivered as pro- vided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable, ex- cept to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obligations. Except as contemplated by this Agreement, Acquiring Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any of its shares, nor is there outstanding any secu- rity convertible into any of its shares; 4.2.6. Acquiring Fund's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.2.7. Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of America Trust's Declaration of Trust or By-Laws or of any provision of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as A-9 previously disclosed in writing to and accepted by Investment Series; 4.2.8. Except as otherwise disclosed in writing to and accepted by Investment Series, no litigation, administrative proceeding, or investigation of or before any court or govern- mental body is presently pending or (to Acquiring Fund's knowledge) threatened against America Trust with respect to Acquiring Fund or any of its properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund's financial condition or the conduct of its business; Acquiring Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the pro- visions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contem- plated hereby; 4.2.9. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of America Trust's board of trustees, which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and, subject to receipt of any necessary exemptive relief or no-action assurances requested from the SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be lim- ited by bankruptcy, insolvency, fraudulent transfer, reorgan- ization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.2.10. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for the execution or performance of this Agreement by America Trust, except for (a) the filing with the SEC of the Registration Statement, (b) receipt of the exemp- tive relief referenced in subparagraph 4.2.9, and (c) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.2.11. On the effective date of the Registration State- ment, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such A-10 statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Investment Series for use therein; 4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of the Code; it qualified for treatment as a RIC under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current tax- able year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the pro- visions of Subchapter M did not apply to it; 4.2.13. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its busi- ness as a series of an open-end investment company; nor does Acquiring Fund have any plan or intention to redeem or other- wise reacquire any Acquiring Fund Shares issued to the Share- holders pursuant to the Reorganization, other than through redemptions arising in the ordinary course of that business; 4.2.14. Acquiring Fund (a) will actively continue Tar- get's business in substantially the same manner that Target conducted that business immediately before the Reorganization, (b) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordi- nary course of that business and dispositions necessary to maintain its status as a RIC under Subchapter M of the Code, and (c) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispo- sitions thereof to maintain such status; 4.2.15. There is no plan or intention for Acquiring Fund to be dissolved or merged into another corporation or business trust or any "fund" thereof (within the meaning of section 851(h)(2) of the Code) following the Reorganization; 4.2.16. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock or securities of any one issuer and (b) not more than 50% of the value of such assets will be invested in the stock or securities of five or fewer issuers; and 4.2.17. Acquiring fund does not own, directly or indi- rectly, nor at the Effective Time will it own, directly or A-11 indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target. 4.3. Each Fund represents and warrants as follows: 4.3.1. The fair market value of the Acquiring Fund Shares, when received by the Shareholders, will be approxi- mately equal to the fair market value of their Target Shares constructively surrendered in exchange therefor; 4.3.2. Its management (a) is unaware of any plan or intention of Shareholders to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization and (b) does not anticipate dis- positions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as a series of an open-end investment company. Consequently, its management expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be de minimis. Nor does its management anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganiza- tion; 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 Reor- ganization, Acquiring Fund will hold substantially the same assets and be subject to substantially the same liabilities that Target held or was subject to immediately prior thereto, plus any liabilities and expenses of the parties incurred in connection with the Reorganization; 4.3.5. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 4.3.6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 4.3.7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, held by Target immediately before the Reorganization. For the purposes of this representation, any amounts used by Target to pay its Reorganization expenses and redemptions and distribu- tions made by it immediately before the Reorganization (except for (a) distributions made to conform to its policy of distri- A-12 buting all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 of the Code and (b) redemptions not made as part of the Reorganization) will be included as assets thereof held immediately before the Reorganization; 4.3.8. None of the compensation received by any Share- holder who is an employee of Target will be separate consider- ation for, or allocable to, any of the Target Shares held by such Shareholder-employee; none of the Acquiring Fund Shares received by any such Shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the consideration paid to any such Shareholder-employee will be for services actually rendered and will be commensur- ate with amounts paid to third parties bargaining at arm's- length for similar services; and 4.3.9. Immediately after the Reorganization, the Share- holders will not own shares constituting "control" of Acquir- ing Fund within the meaning of section 304(c) of the Code. 5. COVENANTS 5.1. Each Fund covenants to operate its respective business in the ordinary course between the date hereof and the Closing, it being understood that (a) such ordinary course will include declar- ing and paying customary dividends and other distributions and such changes in operations as are contemplated by each Fund's normal business activities and (b) each Fund will retain exclusive control of the composition of its portfolio until the Closing; provided that Target shall not dispose of more than an insignificant portion of its historic business assets during such period without Acquir- ing Fund's prior consent. 5.2. Target covenants to call a shareholders' meeting to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby. 5.3. Target covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of mak- ing any distribution thereof, other than in accordance with the terms hereof. 5.4. Target covenants that it will assist America Trust in obtaining such information as America Trust reasonably requests concerning the beneficial ownership of Target Shares. 5.5. Target covenants that Target's books and records (in- cluding all books and records required to be maintained under the A-13 1940 Act and the rules and regulations thereunder) will be turned over to America Trust at the Closing. 5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in compliance with applicable federal securities laws. 5.7. Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instru- ments, 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 Acquir- ing Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof. 5.8. America Trust covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and such state securities laws it may deem appropri- ate in order to continue its operations after the Effective Time. 5.9. Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby. 6. CONDITIONS PRECEDENT Each Fund's obligations hereunder shall be subject to (a) per- formance by the other Fund of all the obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other Fund contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further condi- tions that, at or before the Effective Time: 6.1. This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by Investment Series's board of trustees and shall have been approved by Target's share- holders in accordance with applicable law. 6.2. All necessary filings shall have been made with the SEC and state securities authorities, and no order or directive shall have been received that any other or further action is required to permit the parties to carry out the transactions contemplated hereby. The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued, and the SEC shall not have issued an unfavorable report with respect to the Reorganization under sec- A-14 tion 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 (in- cluding the SEC and state securities authorities) deemed necessary by either Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on the assets or properties of either Fund, provided that either Fund may for itself waive any of such condi- tions. 6.3. At the Effective Time, no action, suit, or other pro- ceeding 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. Investment Series shall have received an opinion of Kirkpatrick & Lockhart LLP, counsel to America Trust, substantially to the effect that: 6.4.1. Acquiring Fund is a duly established series of America Trust, a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Declaration of Trust to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.4.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by America Trust on behalf of Acquiring Fund and (b) assuming due authorization, execution, and deli- very of this Agreement by Investment Series on behalf of Tar- get, is a valid and legally binding obligation of America Trust with respect to Acquiring Fund, enforceable in accor- dance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting cre- ditors' rights and by general principles of equity; 6.4.3. The Acquiring Fund Shares to be issued and dis- tributed to the Shareholders under this Agreement, assuming their due delivery as contemplated by this Agreement, will be duly authorized and validly issued and outstanding and fully paid and non-assessable, except to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obli- gations, and no shareholder of Acquiring Fund has any preemp- tive right to subscribe for or purchase such shares; 6.4.4. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated A-15 hereby will not, materially violate America Trust's Declara- tion of Trust or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which America Trust (with respect to Acquir- ing Fund) is a party or by which it is bound or (to the knowl- edge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judg- ment, or decree to which America Trust (with respect to Ac- quiring Fund) is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writ- ing to and accepted by Investment Series; 6.4.5. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by America Trust on behalf of Acquiring Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state securities laws; 6.4.6. America Trust is registered with the SEC as an investment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and 6.4.7. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to America Trust (with respect to Acquiring Fund) or any of its properties or assets attributable or allocable to Acquiring Fund and (b) America Trust (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund's business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Investment Series. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of docu- ments and copies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted sub- stantive attention to matters directly related to this Agreement and the Reorganization. A-16 6.5. America Trust shall have received an opinion of Kirk- patrick & Lockhart LLP, counsel to Investment Series, substantially to the effect that: 6.5.1. Target is a duly established series of Investment Series, a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Declaration of Trust to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.5.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by Investment Series on behalf of Target and (b) assuming due authorization, execution, and delivery of this Agreement by America Trust on behalf of Acquiring Fund, is a valid and legally binding obligation of Investment Series with respect to Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insol- vency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 6.5.3. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate Investment Series's Decla- ration of Trust or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which Investment Series (with respect to Target) is a party or by which it is bound or (to the knowl- edge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judg- ment, or decree to which Investment Series (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 America Trust; 6.5.4. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Investment Series on be- half of Target of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state secu- rities laws; 6.5.5. Investment Series is registered with the SEC as an investment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and A-17 6.5.6. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Investment Series (with respect to Target) or any of its properties or assets attributable or allocable to Target and (b) Investment Series (with respect to Target) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by America Trust. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of docu- ments and copies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted sub- stantive attention to matters directly related to this Agreement and the Reorganization. 6.6. Each Investment Company shall have received an opinion of Kirkpatrick & Lockhart LLP, its 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, such counsel may rely as to factual matters, exclusively and without independent verification, on the representations made in this Agreement (or in separate letters addressed to such coun- sel) 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, for federal income tax pur- poses: 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 distribu- tion of those shares to the Shareholders constructively in exchange for the Shareholders' Target Shares, will constitute a reorganization within the meaning of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; 6.6.2. No gain or loss will be recognized to Target on the transfer to Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assump- tion of the Liabilities or on the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares; A-18 6.6.3. No gain or loss will be recognized to Acquiring Fund on its receipt of the Assets in exchange solely for Acquiring Fund Shares and its assumption of the Liabilities; 6.6.4. Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; 6.6.5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and 6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will in- clude its holding period for those Target Shares, provided they are held as capital assets by the Shareholder at the Effective Time. Notwithstanding paragraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no opinion is expressed as to the effect of the Reorgan- ization on the Funds or any Shareholder with respect to any asset (including certain options, futures, and forward contracts included in the Assets) as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. At any time before the Closing, (a) Acquiring Fund may waive any of the foregoing conditions if, in the judgment of America Trust's board of trustees, such waiver will not have a material adverse effect on its shareholders' interests, and (b) Target may waive any of the foregoing conditions if, in the judgment of Investment Series's board of trustees, such waiver will not have a material adverse effect on the Shareholders' interests. 7. BROKERAGE FEES AND EXPENSES 7.1. Each Investment Company represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 7.2. Except as otherwise provided herein, all expenses incurred in connection with the transactions contemplated by this Agreement (whether or not they are consummated) will be borne by the Funds proportionately, as follows: each such expense will be borne by the Funds in proportion to their respective net assets as of the close of business on the last business day of the month in A-19 which such expense was incurred. Such expenses include: (a) ex- penses incurred in connection with entering into and carrying out the provisions of this Agreement; (b) expenses associated with the preparation and filing of the Registration Statement; (c) registra- tion or qualification fees and expenses of preparing and filing such forms as are necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection herewith in each state in which Target's shareholders are resident as of the date of the mailing of the Proxy Statement to such share- holders; (d) printing and postage expenses; (e) legal and account- ing fees; and (f) solicitation costs. 8. ENTIRE AGREEMENT; SURVIVAL Neither party has made any representation, warranty, or cove- nant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warran- ties, and covenants contained herein or in any document delivered pursuant hereto or in connection herewith shall survive the Clos- ing. 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 con- tained 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, 1995; or 9.2. By the parties' mutual agreement. In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no liability for damages on the part of either Fund, or the trustees or officers of either Investment Company, to the other Fund. 10. AMENDMENT This Agreement may be amended, modified, or supplemented at any time, notwithstanding approval thereof by Target's sharehold- ers, in such manner as may be mutually agreed upon in writing by the parties; provided that following such approval no such amend- A-20 ment shall have a material adverse effect on the Shareholders' in- terests. 11. MISCELLANEOUS 11.1. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachu- setts; 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 succes- sors and assigns any rights or remedies under or by reason of this Agreement. 11.3. The parties acknowledge that each Investment Company is a Business Trust. Notice is hereby given that this instrument is executed on behalf of each Investment Company's trustees solely in their capacity as trustees, and not individually, and that each In- vestment Company's obligations under this instrument are not bind- ing on or enforceable against any of its trustees, officers, or shareholders, but are only binding on and enforceable against the respective Funds' assets and property. Each Fund agrees that, in asserting any rights or claims under this Agreement, it shall look only to the other Fund's assets and property in settlement of such rights or claims and not to such trustees or shareholders. A-21 IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its duly authorized officer. ATTEST: PAINEWEBBER AMERICA FUND, on behalf of its series, PAINEWEBBER GROWTH AND INCOME FUND By: ________________________ __________________________________ Assistant Secretary Vice President ATTEST: PAINEWEBBER INVESTMENT SERIES, on behalf of its series, PAINEWEBBER GLOBAL ENERGY FUND By: ________________________ __________________________________ Assistant Secretary Vice President A-22 APPENDIX B AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION ("Agreement") is made as of July 25, 1995, between PaineWebber America Fund, a Massachusetts business trust ("PW Trust"), on behalf of PaineWebber Growth and Income Fund, a segre- gated portfolio of assets ("series") thereof ("Acquiring Fund"), and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc., a Maryland corporation ("Target"). (Acquiring Fund and Target are sometimes referred to herein individually as a "Fund" and collec- tively as the "Funds," and PW Trust and Target are sometimes referred to herein collectively as the "Investment Companies.") RECITAL The parties entered into an Agreement and Plan of Reorganiza- tion and Liquidation dated as of May 30, 1995 ("Original Agree- ment"), which provided, inter alia, for Target shareholders to receive Acquiring Fund shares pursuant to the transactions con- templated thereby. The parties now desire to amend and restate the Original Agreement to reflect a change in the class of Acquiring Fund shares to be distributed to holders of Class C Target Shares (as defined below). Therefore, the Original Agreement is hereby amended and restated to read in its entirety as follows: AMENDED AND RESTATED PROVISIONS This Agreement is intended to be, and is adopted as, a plan of a reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). The reorganization will involve the transfer to Acquiring Fund of Target's assets solely in exchange for voting shares of beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the assumption by Acquiring Fund of Target's liabilities, followed by the constructive distribution of the Acquiring Fund Shares to the holders of shares of common stock in Target ("Target Shares") in exchange therefor, all upon the terms and conditions set forth herein. The foregoing transactions are referred to herein as the "Reorganization." All agreements, representations, actions, and obligations described herein made or to be taken or undertaken by Acquiring Fund are made and shall be taken or undertaken by PW Trust on its behalf. Acquiring Fund's shares are divided into four classes, desig- nated Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring Fund Shares," re- spectively). Except as noted in the following sentence, these classes differ only with respect to the sales charges imposed on the purchase of shares and the fees ("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1 promulgated under the Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are offered at net asset value ("NAV") plus a sales charge, if applicable, and are subject to a 12b-1 service fee at the annual rate of 0.23% of the average daily net assets attributable to the class ("class assets"); (2) Class B Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to a contingent deferred sales charge and 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently only to the trustee of the PaineWebber Savings Investment Plan on behalf of that plan, at NAV without imposition of any sales charge and are not subject to any 12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class assets. These classes also may differ from one another with respect to the allocation of certain class- specific expenses other than 12b-1 fees. Only Classes A, C and D Acquiring Fund Shares are involved in the Reorganization. Target's shares are divided into three classes, designated Class A, Class B, and Class C shares ("Class A Target Shares," "Class B Target Shares," and "Class C Target Shares," respec- tively). Apart from differences in certain ancillary class-speci- fic expenses, these classes differ only with respect to the sales charges imposed on the purchase of shares and the 12b-1 fees, as follows: (1) Class A Target Shares are offered at NAV plus a sales charge, if applicable, and are subject to 12b-1 service and distri- bution fees at the annual rate for each of 0.25% of class assets; (2) Class B Target Shares are offered at NAV without imposition of any sales charge and are subject to 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class as- sets; and (3) Class C Target Shares are offered, currently to a limited group of investors (consisting of former employees of Kid- der, Peabody & Co. Incorporated ("Kidder") and their associated ac- counts, directors and trustees of mutual funds formerly distributed by Kidder (now known as Mitchell Hutchins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds), Kidder's employee benefit plans, and participants in a certain portfolio asset allocation program), at NAV without imposition of any sales charge and are not subject to any 12b-1 fee. In consideration of the mutual promises herein, the parties covenant and agree as follows: B-2 1. PLAN OF REORGANIZATION AND LIQUIDATION OF TARGET 1.1. Target agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring Fund agrees in exchange therefor -- (a) to issue and deliver to Target the number of full and fractional (i) Class A Acquiring Fund Shares determined by dividing the net value of Target (computed as set forth in paragraph 2.1) ("Target Value") attributable to the Class A Target Shares by the NAV (computed as set forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class D Acquiring Fund Shares determined by dividing the Target Value attribut- able to the Class B Target Shares by the NAV (as so computed) of a Class D Acquiring Fund Share, and (iii) Class C Acquiring Fund Shares determined by dividing the Target Value attribut- able to the Class C Target Shares by the NAV (as so computed) of a Class C Acquiring Fund Share; and (b) to assume all of Target's liabilities described in paragraph 1.3 ("Liabilities"). Such transactions shall take place at the Closing (as defined in paragraph 3.1). 1.2. The Assets shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and rec- ords, deferred and prepaid expenses shown as assets on Target's books, and other property owned by Target at the Effective Time (as defined in paragraph 3.1). 1.3. The Liabilities shall include (except as otherwise pro- vided herein) all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, con- tingent, 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 Agree- ment, including without limitation Target's share of the expenses described in paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best efforts to discharge all of its known Lia- bilities prior to the Effective Time. 1.4. At or immediately before the Effective Time, Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distri- buted substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Effective Time. B-3 1.5. At the Effective Time (or as soon thereafter as is rea- sonably practicable), Target shall constructively distribute the Acquiring Fund Shares received by it pursuant to paragraph 1.1 to Target's shareholders of record, determined as of the Effective Time (collectively "Shareholders" and individually a "Share- holder"), in exchange for their Target Shares. Such distribution shall be accomplished by the Funds' transfer agent ("Transfer Agent") opening accounts on Acquiring Fund's share transfer books in the Shareholders' names and transferring such Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Share- holder, by class (i.e., the account for a Shareholder of Class A Target Shares shall be credited with the respective pro rata number of Class A Acquiring Fund Shares due that Shareholder, the account for a Shareholder of Class B Target Shares shall be credited with the respective pro rata number of Class D Acquiring Fund Shares due that Shareholder, and the account for a Shareholder of Class C Tar- get Shares shall be credited with the respective pro rata number of Class C Acquiring Fund Shares due that Shareholder). All outstand- ing Target Shares, including any represented by certificates, shall simultaneously be canceled on Target's share transfer records. Ac- quiring Fund shall not issue certificates representing the Acquir- ing Fund Shares in connection with the Reorganization. 1.6. As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be liquidated 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 includ- ing the date on which it is liquidated. 1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target's books of the Target Shares constructively exchanged there- for shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer. 2. VALUATION 2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the value of the Assets computed as of the close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"), using the valuation procedures set forth in Target's then-current prospectus and state- ment of additional information less (b) the amount of the Liabili- ties as of the Valuation Time. B-4 2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund Share, a Class C Acquiring Fund Share, and a Class D Acquiring Fund Share shall be computed as of the Valuation Time, using the valuation procedures set forth in Acquiring Fund's then- current prospectus and statement of additional information. 2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of Mitchell Hutchins Asset Management Inc. 3. CLOSING AND EFFECTIVE TIME 3.1. The Reorganization, together with related acts necessary to consummate the same ("Closing"), shall occur at the Funds' prin- cipal office on October 13, 1995, or at such other place and/or on such other date as the parties may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time as the parties may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the net value of Target and the NAV per Acquiring Fund Share is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading shall have been fully resumed and such reporting shall have been restored. 3.2. Target shall deliver to PW Trust at the Closing a sched- ule of the Assets as of the Effective Time, which shall set forth for all portfolio securities included therein their adjusted tax basis and holding period by lot. Target's custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be transferred to Acquir- ing Fund at the Effective Time and (b) all necessary taxes in con- junction with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. 3.3. Target shall deliver to PW Trust at the Closing a list of the names and addresses of the Shareholders and the number (by class) of outstanding Target Shares owned by each Shareholder, all as of the Effective Time, certified by the Secretary or Assistant Secretary of Target. The Transfer Agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund's share transfer books of accounts in the Shareholders' names. PW Trust shall issue and deliver a confirmation to Target evidencing the Acquiring Fund Shares (by class) to be credited to Target at the Effective Time or provide evidence satisfactory to Target that such Acquiring Fund Shares have been credited to Target's account on Acquiring Fund's books. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certi- B-5 ficates, receipts, or other documents as the other party or its counsel may reasonably request. 3.4. Each Investment Company shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipi- ent and dated the Effective Time, to the effect that the represen- tations and warranties it made in this Agreement are true and cor- rect at the Effective Time except as they may be affected by the transactions contemplated by this Agreement. 4. REPRESENTATIONS AND WARRANTIES 4.1. Target represents and warrants as follows: 4.1.1. Target is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland, and a copy of its Articles of Incorporation is on file with the Department of Assessments and Taxation of Maryland; 4.1.2. Target is duly registered as an open-end manage- ment investment company under the 1940 Act, and such registra- tion will be in full force and effect at the Effective Time; 4.1.3. At the Closing, Target will have good and market- able title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and upon delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto; 4.1.4. Target's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules and regulations there- under 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 mislead- ing; 4.1.5. Target is not in violation of, and the execution and delivery of this Agreement and consummation of the trans- actions contemplated hereby will not conflict with or violate, Maryland law or any provision of Target's Articles of Incorpo- ration or By-Laws or of any agreement, instrument, lease, or other undertaking to which Target is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound, B-6 except as previously disclosed in writing to and accepted by PW Trust; 4.1.6. Except as disclosed in writing to and accepted by PW Trust, all material contracts and other commitments of or applicable to Target (other than this Agreement and investment contracts, including options, futures, and forward contracts) will be terminated, or provision for discharge of any liabili- ties 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 re- leasing any rights Target may have had with respect to actions taken or omitted to be taken by any other party thereto prior to the Closing; 4.1.7. Except as otherwise disclosed in writing to and accepted by PW Trust, no litigation, administrative proceed- ing, or investigation of or before any court or governmental body is presently pending or (to Target's knowledge) threat- ened against Target or any of its properties or assets that, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business; Target knows of no facts that might form the basis for the institu- tion of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.1.8. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of Target's board of direc- tors, which has made the determinations required by Rule 17a- 8(a) under the 1940 Act; and, subject to approval by Target's shareholders and receipt of any necessary exemptive relief or no-action assurances requested from the Securities and Ex- change Commission ("SEC") or its staff with respect to sec- tions 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.1.9. At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target's shareholders; 4.1.10. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the Secu- rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for B-7 the execution or performance of this Agreement by Target, except for (a) the filing with the SEC of a registration statement by PW Trust on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amend- ment thereto ("Registration Statement"), including therein a prospectus/proxy statement ("Proxy Statement"), (b) receipt of the exemptive relief referenced in subparagraph 4.1.8, and (c) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.1.11. On the effective date of the Registration State- ment, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by PW Trust for use therein; 4.1.12. The Liabilities were incurred by Target in the ordinary course of its business; 4.1.13. Target qualified for treatment as a regulated investment company ("RIC") under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; and it has no earnings and prof- its accumulated in any taxable year in which the provisions of Subchapter M did not apply to it. The Assets shall be in- vested at all times through the Effective Time in a manner that ensures compliance with the foregoing; 4.1.14. Target is not under the jurisdiction of a court in a proceeding under Title 11 of the United States Code or similar case within the meaning of section 368(a)(3)(A) of the Code; 4.1.15. Not more than 25% of the value of Target's total assets (excluding cash, cash items, and U.S. government secu- rities) is invested in the stock or securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock or securities of five or fewer issuers; and B-8 4.1.16. Target will be liquidated as soon as reasonably practicable after the Reorganization, but in all events within six months after the Effective Time. 4.2. Acquiring Fund represents and warrants as follows: 4.2.1. PW Trust is an unincorporated voluntary associa- tion with transferable shares organized a as a business trust under a written instrument ("Business Trust"); it is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts; and a copy of its Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.2.2. PW Trust is duly registered as an open-end man- agement investment company under the 1940 Act, and such reg- istration will be in full force and effect at the Effective Time; 4.2.3. Acquiring Fund is a duly established and desig- nated series of PW Trust; 4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring Fund's assumption of the Liabilities) will be issued in exchange for the Assets in the Reorganization; 4.2.5. The Acquiring Fund Shares to be issued and deli- vered to Target hereunder will, at the Effective Time, have been duly authorized and, when issued and delivered as pro- vided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable, ex- cept to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obligations. Except as contemplated by this Agreement, Acquiring Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any of its shares, nor is there outstanding any secu- rity convertible into any of its shares; 4.2.6. Acquiring Fund's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.2.7. Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of PW Trust's B-9 Declaration of Trust or By-Laws or of any provision of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as previously disclosed in writing to and accepted by Target; 4.2.8. Except as otherwise disclosed in writing to and accepted by Target, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Acquiring Fund's knowledge) threatened against PW Trust with respect to Acquiring Fund or any of its properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund's finan- cial condition or the conduct of its business; Acquiring Fund knows of no facts that might form the basis for the institu- tion of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.2.9. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of PW Trust's board of trus- tees, which has made the determinations required by Rule 17a- 8(a) under the 1940 Act; and, subject to receipt of any neces- sary exemptive relief or no-action assurances requested from the SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganiza- tion, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.2.10. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for the execution or performance of this Agreement by PW Trust, except for (a) the filing with the SEC of the Registration Statement, (b) the filing with the SEC of a post-effective amendment to the registration statement of PW Trust ("PEA"), (c) receipt of the exemptive relief referenced in subparagraph 4.2.9, and (d) 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 State- ment, 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 B-10 provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Target for use therein; 4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of the Code; it qualified for treatment as a RIC under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current tax- able year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the pro- visions of Subchapter M did not apply to it; 4.2.13. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its busi- ness as a series of an open-end investment company; nor does Acquiring Fund have any plan or intention to redeem or other- wise reacquire any Acquiring Fund Shares issued to the Share- holders pursuant to the Reorganization, other than through redemptions arising in the ordinary course of that business; 4.2.14. Acquiring Fund (a) will actively continue Tar- get's business in substantially the same manner that Target conducted that business immediately before the Reorganization, (b) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordi- nary course of that business and dispositions necessary to maintain its status as a RIC under Subchapter M of the Code, and (c) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispo- sitions thereof to maintain such status; 4.2.15. There is no plan or intention for Acquiring Fund to be dissolved or merged into another corporation or business trust or any "fund" thereof (within the meaning of section 851(h)(2) of the Code) following the Reorganization; 4.2.16. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock or securities of any one issuer and (b) not more than 50% of the value of such assets will be B-11 invested in the stock or securities of five or fewer issuers; and 4.2.17. Acquiring fund does not own, directly or indi- rectly, nor at the Effective Time will it own, directly or indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target. 4.3. Each Fund represents and warrants as follows: 4.3.1. The fair market value of the Acquiring Fund Shares, when received by the Shareholders, will be approxi- mately equal to the fair market value of their Target Shares constructively surrendered in exchange therefor; 4.3.2. Its management (a) is unaware of any plan or intention of Shareholders to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization and (b) does not anticipate dis- positions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as an open-end investment company. Consequently, its management expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganiza- tion will be de minimis. Nor does its management anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganization; 4.3.3. The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization; 4.3.4. Immediately following consummation of the Reor- ganization, Acquiring Fund will hold substantially the same assets and be subject to substantially the same liabilities that Target held or was subject to immediately prior thereto, plus any liabilities and expenses of the parties incurred in connection with the Reorganization; 4.3.5. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 4.3.6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 4.3.7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, held by Target immediately before the Reorganization. For the B-12 purposes of this representation, any amounts used by Target to pay its Reorganization expenses and redemptions and distribu- tions made by it immediately before the Reorganization (except for (a) distributions made to conform to its policy of distri- buting all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 of the Code and (b) redemptions not made as part of the Reorganization) will be included as assets thereof held immediately before the Reorganization; 4.3.8. None of the compensation received by any Share- holder who is an employee of Target will be separate consider- ation for, or allocable to, any of the Target Shares held by such Shareholder-employee; none of the Acquiring Fund Shares received by any such Shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the consideration paid to any such Shareholder-employee will be for services actually rendered and will be commensur- ate with amounts paid to third parties bargaining at arm's- length for similar services; and 4.3.9. Immediately after the Reorganization, the Share- holders will not own shares constituting "control" of Acquir- ing Fund within the meaning of section 304(c) of the Code. 5. COVENANTS 5.1. Each Fund covenants to operate its respective business in the ordinary course between the date hereof and the Closing, it being understood that (a) such ordinary course will include declar- ing and paying customary dividends and other distributions and such changes in operations as are contemplated by each Fund's normal business activities and (b) each Fund will retain exclusive control of the composition of its portfolio until the Closing; provided that Target shall not dispose of more than an insignificant portion of its historic business assets during such period without Acquir- ing Fund's prior consent. 5.2. Target covenants to call a shareholders' meeting to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby. 5.3. Target covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of mak- ing any distribution thereof, other than in accordance with the terms hereof. 5.4. Target covenants that it will assist PW Trust in obtain- ing such information as PW Trust reasonably requests concerning the beneficial ownership of Target Shares. B-13 5.5. Target covenants that Target's books and records (in- cluding all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder) will be turned over to PW Trust at the Closing. 5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in compliance with applicable federal securities laws. 5.7. Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instru- ments, 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 Acquir- ing Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof. 5.8. PW Trust covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and such state securities laws it may deem appropri- ate in order to continue its operations after the Effective Time. 5.9. Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby. 6. CONDITIONS PRECEDENT Each Fund's obligations hereunder shall be subject to (a) per- formance by the other Fund of all the obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other Fund contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further condi- tions that, at or before the Effective Time: 6.1. This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by Target's board of directors and shall have been approved by Target's shareholders in accordance with applicable law. 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 and the PEA shall have become effective under the 1933 Act, no stop orders suspending the effec- B-14 tiveness 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 nec- essary by either Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on the assets or properties of either Fund, provided that either Fund may for itself waive any of such conditions. 6.3. At the Effective Time, no action, suit, or other pro- ceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or to obtain damages or other relief in connection with, the transactions contemplated hereby. 6.4. Target shall have received an opinion of Kirkpatrick & Lockhart LLP, counsel to PW Trust, substantially to the effect that: 6.4.1. Acquiring Fund is a duly established series of PW Trust, a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Declaration of Trust to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.4.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by PW Trust on behalf of Acquiring Fund and (b) assuming due authorization, execution, and delivery of this Agreement by Target, is a valid and legally binding obli- gation of PW Trust with respect to Acquiring Fund, enforceable in accordance with its terms, except as the same may be lim- ited by bankruptcy, insolvency, fraudulent transfer, reorgani- zation, 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 dis- tributed to the Shareholders under this Agreement, assuming their due delivery as contemplated by this Agreement, will be duly authorized and validly issued and outstanding and fully paid and non-assessable, except to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obli- gations, and no shareholder of Acquiring Fund has any preemp- tive right to subscribe for or purchase such shares; B-15 6.4.4. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate PW Trust's Declaration of Trust or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investiga- tion) to which PW Trust (with respect to Acquiring Fund) is a party or by which it is bound or (to the knowledge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposi- tion of any penalty, under any agreement, judgment, or decree to which PW Trust (with respect to Acquiring Fund) is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by Target; 6.4.5. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by PW Trust on behalf of Acquiring Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state secu- rities laws; 6.4.6. PW Trust is registered with the SEC as an invest- ment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such reg- istration; and 6.4.7. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to PW Trust (with respect to Acquiring Fund) or any of its prop- erties or assets attributable or allocable to Acquiring Fund and (b) PW Trust (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund's business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of docu- ments and copies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted sub- stantive attention to matters directly related to this Agreement and the Reorganization. B-16 6.5. PW Trust shall have received an opinion of Sullivan & Cromwell, counsel to Target, substantially to the effect that: 6.5.1. Target is a corporation duly organized and validly existing under the laws of the State of Maryland with power under its Articles of Incorporation to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.5.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by Target and (b) assuming due authoriza- tion, execution, and delivery of this Agreement by PW Trust on behalf of Acquiring Fund, is a valid and legally binding obli- gation 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; 6.5.3. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate Target's Articles of Incorporation or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which Target is a party or by which it is bound or (to the knowledge of such counsel, without any inde- pendent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by PW Trust; 6.5.4. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Target of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state securities laws; 6.5.5. Target is registered with the SEC as an invest- ment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and 6.5.6. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Target or any of its properties or assets and (b) Target is not a party to or subject to the provisions of any order, B-17 decree, or judgment of any court or governmental body that materially and adversely affects its business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by PW Trust. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the State of Maryland, on an opinion of competent Maryland counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and cop- ies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted substantive atten- tion to matters directly related to this Agreement and the Reorgan- ization. 6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart LLP, its counsel, addressed to and in form and substance satisfactory to PW Trust, and Target shall have received an opinion of Sullivan & Cromwell, its counsel, addressed to and in form and substance satisfactory to Target, each as to the federal income tax consequences mentioned below (each a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may rely as to factual matters, exclusively and without independent verification, on the represen- tations made in this Agreement (or in separate letters addressed to such counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax Opinion shall be substantially to the effect that, based on the facts and assumptions stated therein, for federal income tax purposes: 6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities, followed by Target's distribu- tion of those shares to the Shareholders constructively in exchange for the Shareholders' Target Shares, will constitute a reorganization within the meaning of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; 6.6.2. No gain or loss will be recognized to Target on the transfer to Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assump- tion of the Liabilities or on the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares; 6.6.3. No gain or loss will be recognized to Acquiring Fund on its receipt of the Assets in exchange solely for Acquiring Fund Shares and its assumption of the Liabilities; 6.6.4. Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before B-18 the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; 6.6.5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and 6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will in- clude its holding period for those Target Shares, provided they are held as capital assets by the Shareholder at the Effective Time. Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no opinion is expressed as to the effect of the Reorgan- ization on the Funds or any Shareholder with respect to any asset (including certain options, futures, and forward contracts included in the Assets) as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. At any time before the Closing, (a) Acquiring Fund may waive any of the foregoing conditions if, in the judgment of PW Trust's board of trustees, such waiver will not have a material adverse effect on its shareholders' interests, and (b) Target may waive any of the foregoing conditions if, in the judgment of its board of directors, such waiver will not have a material adverse effect on the Shareholders' interests. 7. BROKERAGE FEES AND EXPENSES 7.1. Each Investment Company represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 7.2. Except as otherwise provided herein, all expenses in- curred in connection with the transactions contemplated by this Agreement (whether or not they are consummated) will be borne by the Funds proportionately, as follows: each such expense will be borne by the Funds in proportion to their respective net assets as of the close of business on the last business day of the month in which such expense was incurred. Such expenses include: (a) ex- penses incurred in connection with entering into and carrying out the provisions of this Agreement; (b) expenses associated with the preparation and filing of the Registration Statement; (c) registra- tion or qualification fees and expenses of preparing and filing such forms as are necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection herewith in each state in which Target's shareholders are resident as of the date of the mailing of the Proxy Statement to such share- holders; (d) printing and postage expenses; (e) legal and account- ing fees; and (f) solicitation costs. B-19 8. ENTIRE AGREEMENT; SURVIVAL Neither party has made any representation, warranty, or cove- nant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warran- ties, and covenants contained herein or in any document delivered pursuant hereto or in connection herewith shall survive the Clos- ing. 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 con- tained 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, 1995; 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 sharehold- ers, in such manner as may be mutually agreed upon in writing by the parties; provided that following such approval no such amend- ment shall have a material adverse effect on the Shareholders' in- terests. B-20 11. MISCELLANEOUS 11.1. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachu- setts; 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 succes- sors and assigns any rights or remedies under or by reason of this Agreement. 11.3. The parties acknowledge that PW Trust is a Business Trust. Notice is hereby given that this instrument is executed on behalf of PW Trust's trustees solely in their capacity as trustees, and not individually, and that PW Trust's obligations under this instrument are not binding on or enforceable against any of its trustees, officers, or shareholders, but are only binding on and enforceable against Acquiring Fund's assets and property. Target agrees that, in asserting any rights or claims under this Agree- ment, it shall look only to Acquiring Fund's assets and property in settlement of such rights or claims and not to such trustees or shareholders. IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its duly authorized officer. ATTEST: PAINEWEBBER AMERICA FUND, on behalf of its series, PAINEWEBBER GROWTH AND INCOME FUND By: ________________________ __________________________________ Assistant Secretary Vice President ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. By: ________________________ __________________________________ Assistant Secretary Vice President B-21 PAINEWEBBER GROWTH AND INCOME FUND (a series of PaineWebber America Fund) MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. PAINEWEBBER GLOBAL ENERGY FUND (a series of PaineWebber Investment Series) 1285 Avenue of the Americas New York, New York 10019 STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information relates to two proposed reorganizations whereby PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of PaineWebber America Fund ("America Fund") would acquire the assets of each of PaineWebber Global Energy Fund ("Global Energy Fund"), a series of PaineWebber Investment Series ("Investment Series") and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Equity Income Fund") in exchange solely for shares of beneficial interest in Growth and Income Fund and the assumption by Growth and Income Fund of Global Energy Fund's and Equity Income Fund's liabilities. This Statement of Additional Information is not a prospectus and should be read only in conjunction with the prospectus\proxy statement dated __________, 1995 relating to the above described transactions. A copy of the prospectus\proxy statement may be obtained by calling any PaineWebber Incorporated ("PaineWebber") investment executive or correspondent firm or by calling toll-free 1-800-647-1568. This Statement of Additional Information is dated ___________, 1995. This Statement of Additional Information consists of this cover page and the following described documents each of which is incorporated by reference herein: (1) The Statement of Additional Information of Growth and Income Fund dated May 12, 1995 previously filed on EDGAR, under Accession Number: 0000950109-95-001701 (2) The Statement of Additional Information of Equity Income Fund dated [June 1, 1995] previously filed on EDGAR, under Accession Number: 0000950117-95-000173 (3) The Statement of Additional Information of Global Energy Fund dated March 1, 1995 previously filed on EDGAR, under Accession Number: 0000950109-95-000498 (4) The Annual Reports to Shareholders of Growth and Income Fund for fiscal year ended August 31, 1995 incorporated by reference from File No. 811-3502, Global Energy Fund for fiscal year ended October 31, 1994 incorporated by reference from File No. 811-5259 and Equity Income Fund for fiscal year ended January 31, 1995 incorporated by reference from File No. 811-4332 (5) The Semi-Annual Report to Shareholders of Growth and Income Fund for the six months ended February 28, 1995 previously filed on EDGAR, Accession Number: 0000703887-95-000001 (6) The Semi-Annual Report to Shareholders of Global Energy Fund for the six months ended April 30, 1995 previously filed on EDGAR, Accession Number: 0000889817-95-000377 (7) Pro Forma Financial Information The following pro forma financial information relates to Growth and Income Fund, Global Energy Fund and Equity Income Fund.
PORTFOLIO OF INVESTMENTS February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - 97.22% UNITED STATES - 97.11% Aerospace - 4.52% 1,200 Boeing Co. $55,350 $55,350 90,900 General Dynamics Corporation $4,283,663 4,283,663 1,800 Lockheed Corp. 139,725 139,725 134,100 Loral Corporation 5,481,337 5,481,337 169,500 Martin Marieta Corporation New 8,093,625 8,093,625 3,800 Northrop Grumman Corp. 168,625 168,625 84,300 Raytheon Company 5,943,150 5,943,150 4,600 Rockwell International Corp. 177,100 177,100 2,400 TRW Inc. 157,800 157,800 5,200 United Technologies Corp. 345,150 345,150 ----------- ----------- ----------- ------------ 23,801,775 1,043,750 24,845,525 ----------- ----------- ----------- ------------ Airlines - 0.95% 63,900 AMR Corporation Delaware 3,905,888 3,905,888 23,000 Delta Airlines Incorporated 1,334,000 1,334,000 ----------- ----------- ----------- ------------ 5,239,888 5,239,888 ----------- ----------- ----------- ------------ Apparel - 1.06% 80,000 Nike Incorporated 5,627,813 122,188 5,750,001 5,400 Stride Rite Corp. 69,525 69,525 ----------- ----------- ----------- ------------ 5,627,813 191,713 5,819,526 ----------- ----------- ----------- ------------ Automobiles - 1.70% 145,000 Donaldson Incorporated 3,643,125 3,643,125 6,600 Chrysler Corp. 287,100 287,100 173,600 Fleetwood Enterprises Incorporated 3,797,500 3,797,500 20,400 Ford Motor Company 532,950 532,950 7,900 General Motors Corp. 336,738 336,738 17,700 Paccar Inc. 778,800 778,800 ----------- ----------- ----------- ------------ 7,440,625 1,935,588 9,376,213 ----------- ----------- ----------- ------------ Banking - 4.17% 4,800 Amsouth Bancorporation 139,800 139,800 8,800 Banc One Corp. 258,500 258,500 5,200 BankAmerica Corp. 250,250 250,250 11,100 Bankers Trust New York Corp. 700,688 700,688 3,500 Chase Manhattan Corp. 125,563 125,563 4,100 Chemical Corp. 164,513 164,513 1,900 CitiCorp 85,500 85,500 4,500 Corestates Financial Corp. 135,563 135,563 26,100 First Empire State Corporation 4,319,550 4,319,550 1,800 First Chicago Corp. 91,125 91,125 1,100 First Interstate Bancorp 89,513 89,513 5,500 Fleet Financial Group Inc. 171,188 171,188 4,700 KeyCorp New 136,300 136,300 348,900 Marshall and Ilsley Corporation 7,239,685 7,239,685 3,400 MBNA Corp. 89,675 89,675 5,800 Mellon Bank Corp. 221,125 221,125 5,800 Morgan (J.P.) & Co., Inc. 374,100 374,100 4,300 National City Corp. 119,325 119,325 156,100 NationsBank Corporation 7,660,800 124,688 7,785,488 14,500 PNC Bank Corp. 369,750 369,750 3,100 Shawnut National Corp. 79,438 79,438 ----------- ----------- ----------- ------------ 19,220,035 3,726,600 22,946,635 ----------- ----------- ----------- ------------ Broadcasting - 0.03% 3,800 Viacom Inc. 170,050 170,050 ----------- ----------- ----------- ------------ Business Services - 1.54% 47,900 Computer Associates International Incorporated 2,730,300 2,730,300 22,100 De Luxe Corp. 618,800 618,800 185,900 Reynolds & Reynolds Company, Class A 5,135,488 5,135,488 ----------- ----------- ----------- ------------ 7,865,788 618,800 8,484,588 ----------- ----------- ----------- ------------ Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - (continued) Chemicals - 2.11% 15,800 Anco Chemical Co. $671,500 $671,500 19,400 Bordon Chemicals & Plastics Limited $339,500 339,500 2,800 Dexter Corp. 59,850 59,850 10,450 Dow Chemical Co. 700,150 700,150 15,800 Du Pont (E.I.) De Nemours 886,775 886,775 21,400 Ethyl Corp. 219,350 219,350 166,700 Lubrizol Corporation 5,584,450 5,584,450 1,900 Monsanto 150,575 150,575 5,100 Olin Corp. 259,463 259,463 4,100 PPG Industries, Inc. 150,675 150,675 132,900 R.P.M. Incorporated Ohio 2,442,037 2,442,037 4,600 Union Carbide Corp. 131,675 131,675 ----------- ----------- ----------- ------------ 8,365,987 3,230,013 11,596,000 ----------- ----------- ----------- ------------ Computers & Software - 5.82% 2,500 Apple Computer 98,750 98,750 177,100 Bay Networks Incorporated 5,556,512 5,556,512 55,700 BMC Software Incorporated 3,578,725 3,578,725 140,000 Cisco Systems Incorporated 4,637,250 87,750 4,725,000 1,700 Compaq Computer Corp.* 58,650 58,650 1,700 Computer Associates International Inc. 96,900 96,900 59,300 Concord Efs Incorporated 2,468,650 2,468,650 1,500 Dell Computers Corp. 62,250 62,250 26,950 Hewlett-Packard Co. 2,829,000 270,250 3,099,250 1,500 Informix Corp. 56,625 56,625 5,700 Intel Corp. 454,575 454,575 96,000 International Business Machines Corporation 6,426,350 797,650 7,224,000 116,900 Legent Corporation 3,390,100 3,390,100 5,800 Microsoft Corp. 365,400 365,400 4,000 Oracle Systems Corp. 125,500 125,500 1,900 Pitney Bowes Inc. 67,450 67,450 2,500 Shared Medical Systems 86,094 86,094 1,750 Texas Instruments Inc. 137,813 137,813 3,300 Xerox Corp. 365,888 365,888 ----------- ----------- ----------- ------------ 28,886,587 3,131,544 32,018,131 ----------- ----------- ----------- ------------ Conglomerates - 0.98% 80,200 General Electric Company 2,326,700 2,074,275 4,400,975 9,700 ITT Corporation 945,750 945,750 5,000 Terra Industries Inc. 55,000 55,000 ----------- ----------- ----------- ------------ 3,272,450 2,129,275 5,401,725 ----------- ----------- ----------- ------------ Consumer Durables - 0.11% 2,000 Clorox Co. 120,750 120,750 2,900 Colgate-Palmolive Co. 187,050 187,050 3,800 Dana Corp. 93,575 93,575 1,400 Gillette Co. 110,775 110,775 2,600 Stanley Works 104,975 104,975 ----------- ----------- ----------- ------------ 617,125 617,125 ----------- ----------- ----------- ------------ Cosmetics & Soaps - 1.63% 6,000 Avon Products Inc. 337,500 337,500 79,800 International Flavours 3,744,125 96,250 3,840,375 71,600 Procter & Gamble Company 3,990,000 771,400 4,761,400 ----------- ----------- ----------- ------------ 7,734,125 1,205,150 8,939,275 ----------- ----------- ----------- ------------ Drugs & Medical Products - 12.64% 122,500 Abbott Laboratories 3,865,950 482,800 4,348,750 44,000 Allergan Incorporated 1,270,500 1,270,500 85,500 American Home Products Corporation 5,362,500 750,750 6,113,250 75,200 Amgen Inc. 5,188,800 5,188,800 15,450 Baxter International Inc. 480,881 480,881 96,500 Becton Dickinson & Company 5,066,250 5,066,250 88,200 Bristol Myers Squibb Company 4,172,600 1,295,800 5,468,400 213,100 Johnson & Johnson 11,350,000 743,425 12,093,425 58,800 Lilly Eli & Company 3,939,600 3,939,600 8,300 Marion Merrell Dow Inc. 206,463 206,463 60,300 Medtronics, Incorporated 3,618,000 3,618,000 145,500 Merck & Company 5,190,937 974,625 6,165,562 Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - (continued) Drugs & Medical Products (concluded) 196,000 Mylan Labs Incorporated $6,125,000 $6,125,000 296,800 National Medical Enterprises Incorporated 4,600,400 4,600,400 6,100 Pfizer Inc. $504,775 504,775 2,900 Shering-Plough Corp. 227,288 227,288 8,500 Tambrands Inc. 367,625 367,625 11,200 Upjohn & Co. 394,800 394,800 136,600 Ventritex Incorporated 2,868,600 2,868,600 6,200 Warner-Lambert Co. 473,525 473,525 ----------- ----------- ----------- ------------ 62,619,137 6,902,756 69,521,893 ----------- ----------- ----------- ------------ Electronics & Electrical Products - 9.35% 1,300 Altera Corp. 73,938 73,938 33,900 AMP Incorporated 2,145,000 397,500 2,542,500 900 Andrew Corp. 52,200 52,200 148,200 Cadence Design Systems Incorporated 3,797,625 3,797,625 6,400 Cooper Industries, Inc. 251,200 251,200 58,100 Diebold, Incorporated 2,055,288 2,055,288 80,800 Dover Corporation 4,807,600 4,807,600 91,800 DSC Communications Corporation 3,247,200 57,600 3,304,800 51,200 Eastman Kodak Company 2,386,800 224,400 2,611,200 262,900 EMC Corporation Massachusetts 4,502,162 4,502,162 91,400 Emerson Electric Company 5,587,563 456,263 6,043,826 79,700 General Instruments Corporation* 2,530,475 2,530,475 8,400 Honeywell Inc. 305,550 305,550 2,100 Integrated Device Technology 80,063 80,063 146,400 Lam Research Corporation 5,856,000 5,856,000 3,700 LSI Logic Corp. 201,650 201,650 4,900 Micron Technology Inc. 303,800 303,800 10,600 Motorola Inc. 609,500 609,500 6,100 National Services Industries Inc. 163,938 163,938 70,900 Network Equipment Technologies 1,799,088 1,799,088 78,300 Newbridge Networks Corporation 2,652,413 2,652,413 3,100 Scientific Atlanta Inc. 72,463 72,463 2,400 Tecktronix Inc. 82,200 82,200 58,700 Tellabs Incorporated 2,953,600 98,800 3,052,400 68,045 United States Robotics Incorporated 3,674,430 3,674,430 105 Vishay Intertechnology Inc. 5,670 5,670 ----------- ----------- ----------- ------------ 47,995,244 3,436,733 51,431,977 ----------- ----------- ----------- ------------ Energy & Utilities - 3.47% 6,000 American Electric Power Inc. 203,250 203,250 3,500 Boston Edison Co. 85,750 85,750 5,500 Brooklyn Union Gas Co. 134,750 134,750 2,300 Central & Southwest Corp. 56,638 56,638 2,700 Cilcorp Inc. 95,513 95,513 81,300 Consolidated Edison Company New York Inc. 1,947,563 298,350 2,245,913 3,400 Consolidated Natural Gas Co. 125,800 125,800 69,900 DPL Incorporated 1,459,163 1,459,163 9,300 Dresser Industries Inc. 191,813 191,813 151,300 Duke Power Company 5,938,525 5,938,525 8,800 Eastern Enterprises 232,100 232,100 19,600 Entergy Corp. 438,550 438,550 4,400 Halliburton Co. 163,900 163,900 3,600 Ies Industries Inc. 98,550 98,550 9,100 Iowa Ill Gas & Electric Co. 197,925 197,925 16,000 Minnesota Power & Light Co. 414,000 414,000 6,100 Montana Power Co. 144,875 144,875 4,300 National Fuel Gas Co. NJ 117,175 117,175 2,700 Ohio Edison Co. 56,700 56,700 5,700 Oklahoma Gas & Electric Co. 201,638 201,638 60,000 KN Energy Inc. $1,290,000 1,290,000 6,100 Pacific Enterprises 149,450 149,450 27,600 Pacific Gas & Electric Co. 707,250 707,250 10,800 Potomac Electric Power Co. 209,250 209,250 11,400 Public Service Enterprise Group 332,025 332,025 214,400 SCE Corporation 3,510,800 3,510,800 Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - (continued) Energy & Utilities (concluded) 1,900 Washington Gas & Light Co. $72,438 $72,438 13,100 Washington Water Power Co. 196,500 196,500 ----------- ----------- ----------- ------------ $12,856,051 $1,290,000 4,924,188 19,070,239 ----------- ----------- ----------- ------------ Environmental Services - 2.13% 6,000 Browning Ferris Industries Inc. 186,750 186,750 35,000 Ogden Corp. 748,125 748,125 408,400 WMX Technologies, Inc. 10,399,662 371,888 10,771,550 ----------- ----------- ----------- ------------ 10,399,662 1,306,763 11,706,425 ----------- ----------- ----------- ------------ Exploration & Production - 2.05% 20,000 British Petroleum Plc Spons ADR 1,530,000 1,530,000 75,000 Cross Timbers Oil Co. 1,050,000 1,050,000 100,000 Louis Dreyfus Natural Gas Corp. 1,187,500 1,187,500 75,000 Newfield Exploration Co. 1,462,500 1,462,500 55,555 Norsk Hydro AS Sponsored ADR 2,097,201 2,097,201 50,000 Repsol Sponsored ADR 1,431,250 1,431,250 50,000 Total SA ADR 1,387,500 1,387,500 60,000 YPF SA Spon ADR Repr Cl D 1,140,000 1,140,000 ----------- ----------- ----------- ------------ 11,285,951 11,285,951 ----------- ----------- ----------- ------------ Financial Services - 0.32% 5,100 Beneficial Corp. 189,338 189,338 5,200 Block (H&R), Inc. 195,650 195,650 1,400 Federal Home Loan Mortgage Corp. 81,200 81,200 4,800 Federal National Mortgage Association 370,200 370,200 4,000 Household International Inc. 175,000 175,000 14,600 Paychex 598,600 598,600 3,700 Student Loan Marketing Association 136,438 136,438 ----------- ----------- ----------- ------------ 598,600 1,147,825 1,746,425 ----------- ----------- ----------- ------------ Food & Agriculture - 5.02% 2,100 Anheuser Busch Companies Inc. 118,388 118,388 283,600 Archer Daniels Midland Company 5,388,400 5,388,400 89,900 Campbell Soup Company 4,079,212 4,079,212 21,700 Coca - Cola Company 1,193,500 1,193,500 149,600 Con Agra, Inc. 4,899,400 4,899,400 3,300 General Mills Inc. 200,063 200,063 7,100 Heinz (H.J.) Co. 279,563 279,563 103,800 Pepsico, Incorporated 3,756,000 305,175 4,061,175 124,400 Potash Corporation of Saskatchewan Inc. 4,447,300 4,447,300 4,300 Quaker Oats Co. 140,288 140,288 103,000 Sara Lee Corporation 2,703,750 2,703,750 700 Unilever N.V. 85,050 85,050 ----------- ----------- ----------- ------------ 25,274,062 2,322,025 27,596,087 ----------- ----------- ----------- ------------ Forest Products - 0.06% 1,800 Georgia Pacific Corp. 134,775 134,775 4,300 Weyerhaeuser Co. 175,225 175,225 ----------- ----------- ----------- ------------ 310,000 310,000 ----------- ----------- ----------- ------------ Gold - 0.46% 49,700 Barrick Gold Corporation 1,080,975 1,080,975 155,000 Battle Mountain Gold Company 1,472,500 1,472,500 ----------- ----------- ----------- ------------ 2,553,475 2,553,475 ----------- ----------- ----------- ------------ Healthcare - 2.65% 101,200 Healthcare Compare Corporation 3,213,100 3,213,100 171,100 U.S. Healthcare, Inc. 7,150,900 206,400 7,357,300 102,800 Smithkline Beecham, PLC 3,996,350 3,996,350 ----------- ----------- ----------- ------------ 14,360,350 206,400 14,566,750 ----------- ----------- ----------- ------------ Hotels & Casinos - 0.01% 1,100 Hilton Hotels Corp. 77,275 77,275 ----------- ----------- ----------- ------------ Insurance - 4.44% 8,000 Aetna Life and Casualty Co. 430,000 430,000 112,600 AFLAC Incorporated 4,250,650 4,250,000 Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - (continued) Insurance (concluded) 6,900 American General Corp. $218,213 $218,213 56,800 American International Group Inc. $5,893,000 5,893,000 700 Cigna Corp. 53,025 53,025 100,600 Equitable of Iowa Companies 3,344,950 3,344,950 8,500 Hartford Steam Boiler Inspection Insurance 361,250 361,250 2,400 Marsh & McLennan 196,800 196,800 47,000 Reliance Group Holdings Inc. 258,500 258,500 115,700 St. Paul Companies, Inc. 5,625,912 5,625,912 97,000 The Progressive Corporation 3,770,875 3,770,875 ----------- ----------- ----------- ------------ 22,885,387 1,517,788 24,403,175 ----------- ----------- ----------- ------------ Materials-Construction - 0.01% 2,500 Masco Corp. 62,813 62,813 ----------- ----------- ----------- ------------ Machinery - Machine Tolls - 0.82% 2,750 Deere & Co. 210,719 210,719 2,600 Goulds Pumps Inc. 55,900 55,900 5,100 Keystone International Inc. 94,988 94,988 3,700 Pall Corp. 74,463 74,463 67,100 W.W. Grainger, Incorporated 4,101,488 4,101,488 ----------- ----------- ----------- ------------ 4,101,488 436,069 4,537,557 ----------- ----------- ----------- ------------ Mining - 0.19% 4,000 Cyprus Anax Minerals Co. 108,000 108,000 15,300 Minnesota Mining & Manufacturing Co. 837,675 837,675 1,900 Phelps Dodge Corp. 103,550 103,550 ----------- ----------- ----------- ------------ 1,049,225 1,049,225 ----------- ----------- ----------- ------------ Oil & Gas - 5.55% 9,700 Amoco Corp. 574,725 574,725 7,200 Atlantic Richfield Co. 789,300 789,300 50,000 Camco International Inc. $925,000 925,000 137,500 Chevron Corporation 6,265,250 266,000 6,531,250 26,600 Exxon Corp. 1,702,400 1,702,400 66,200 Mobil Corporation 5,263,500 495,900 5,759,400 30,000 Numar Corp. 277,500 277,500 50,000 Occidental Petroleum Corp. 993,750 993,750 59,500 Placer Dome Incorporated 1,212,313 1,212,313 3,600 Phillips Petroleum Co. 120,150 120,150 27,900 Royal Dutch Petroleum Co. 1,681,875 1,446,413 3,128,288 20,000 Shell Trans & Trading New ADR 1,340,000 1,340,000 70,200 Texaco Incorporated 4,060,875 414,375 4,475,250 48,500 Unocal Corporation 1,376,188 1,376,188 75,000 Vintage Petroleum Inc. 1,303,125 1,303,125 ----------- ----------- ----------- ------------ 18,178,126 6,521,250 5,809,263 30,508,639 ----------- ----------- ----------- ------------ Paper & Forest Products - 3.72% 83,700 Champion International Corporation 3,442,163 3,442,163 7,800 Federal Paper Brands Inc. 232,050 232,050 4,200 Kimberly Clark Corp. 218,400 218,400 208,600 Louisiana Pacific Corporation 5,892,950 5,892,950 139,400 Pentair Incorporated 5,985,488 5,985,488 2,800 Potlatch Corp. 120,750 120,750 234,200 Repap Enterprises Incorporated 1,646,719 1,646,719 29,200 Scott Paper Company 2,314,100 2,314,100 27,000 Stone Container Corporation 631,125 631,125 ----------- ----------- ----------- ------------ 19,912,545 571,200 20,483,745 ----------- ----------- ----------- ------------ Printing & Publishing - 1.49% 2,500 Banta Corporation 80,625 80,625 17,600 Dun & Bradstreet Corp. 908,600 908,600 116,300 Gannett Company, Incorporated 6,314,000 82,500 6,396,500 14,600 Harland (John H.) Co. 330,325 330,325 3,000 McGraw Hill Inc. 211,500 211,500 6,200 Readers Digest Association Inc. 285,200 285,200 ----------- ----------- ----------- ------------ 6,394,625 1,818,125 8,212,750 ----------- ----------- ----------- ------------ Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - (continued) Producer Goods - 1.77% 102,700 Caterpillar Incorporated 5,162,500 $139,388 $5,301,888 153,300 Federal Signal Corporation 3,142,650 3,142,650 73,500 Moltel Metal Technologies Inc. 1,304,625 1,304,625 ----------- ----------- ----------- ------------ 9,609,775 139,388 9,749,163 ----------- ----------- ----------- ------------ Railroads - 0.15% 1,200 Conrail Inc. 66,300 66,300 1,700 Illinois Central Corp. 57,588 57,588 4,700 Norfolk Southern Corp. 310,788 310,788 10,000 Railtex Inc. $235,000 235,000 3,400 Union Pacific Corp. 177,650 177,650 ----------- ----------- ----------- ------------ 235,000 612,325 847,325 ----------- ----------- ----------- ------------ Retail - 3.46% 123,100 American Stores Company 3,015,950 3,015,950 347,600 Bruno's Incorporated 3,541,175 3,541,175 1,500 Dayton Hudson Corp. 105,750 105,750 2,200 Home Depot Inc. 98,725 98,725 5,000 Limited Inc. 87,500 87,500 7,000 May Department Stores Co. 255,500 255,500 15,200 Melville Corporation 494,000 494,000 11,900 Penny (J.C.), Inc. 510,213 510,213 209,000 Rite Aid Corporation 5,172,750 5,172,750 96,200 Sears Roebuck and Company 4,166,550 571,300 4,737,850 13,900 TJX Companies Inc. 187,650 187,650 6,300 United States Shoe Corp. 119,700 119,700 27,300 Wal-Mart Stores Inc. 648,375 648,375 1,300 Winn Dixie Stores Inc. 72,800 72,800 ----------- ----------- ----------- ------------ 15,896,425 3,151,513 19,047,938 ----------- ----------- ----------- ------------ Retail Food Chains - 0.99% 176,300 Albertson's, Inc. 5,421,225 5,421,225 ----------- ----------- ----------- ------------ Specialty Chemicals - 0.58% 305,000 Methanex Corporation 3,202,500 3,202,500 ----------- ----------- ----------- ------------ Specialty Retail - 3.78% 63,200 Dayton Hudson Corporation 4,455,600 4,455,600 18,300 Leggett & Platt Inc. 748,013 748,013 80,400 Loctite Corporation 3,698,400 3,698,400 133,500 Nordstrom Inc. 5,640,375 5,640,375 85,100 The Home Depot, Inc. 3,818,863 3,818,863 72,800 The Sherwin-Williams Company 2,447,900 2,447,900 ----------- ----------- ----------- ------------ 20,809,151 20,809,151 ----------- ----------- ----------- ------------ Steel - 2.29% 2,700 Carpentar Technology Corp. 146,475 146,475 69,700 Inland Steel Industry Inc. 1,863,000 1,863,000 91,800 Nucor Corporation 5,152,275 5,152,275 269,450 Worthington Industries, Inc. 5,422,667 5,422,667 ----------- ----------- ----------- ------------ 12,437,942 146,475 12,584,417 ----------- ----------- ----------- ------------ Telecommunications - 1.93% 15,500 American Telephone & Telegraph Corp. 802,125 802,125 12,500 Ameritech Corp. 535,938 535,938 15,800 Bell Atlantic Corp. 847,275 847,275 8,000 Bellsouth Corp. 472,000 472,000 8,000 Comcast Corp. 142,000 142,000 37,400 GTE Corp. 1,248,225 1,248,225 4,100 Northern Telecom Ltd. 139,913 139,913 31,400 Pacific Telesis Group 942,000 942,000 1,500 Southwestern Bell Corp. 62,438 62,438 99,300 Telephone & Data Systems Incorporated 4,530,562 4,530,562 22,800 U.S. West Inc. 883,500 883,500 ----------- ----------- ----------- ------------ 4,530,562 6,075,413 10,605,975 ----------- ----------- ----------- ------------ Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ COMMON STOCKS - (concluded) Tobacco - 2.81% 136,200 American Brands Incorporated $4,470,050 $620,424 $5,090,474 170,400 Philip Morris Companies Inc. 8,796,600 1,555,200 10,351,800 ----------- ----------- ----------- ------------ 13,266,650 2,175,624 15,442,274 ----------- ----------- ----------- ------------ Travel & Recreation - 0.35% 43,800 American Express Company 1,147,500 330,750 1,478,250 9,400 Callaway Golf Company 317,250 317,250 2,300 Disney (Walt) Co. 122,763 122,763 ----------- ----------- ----------- ------------ 1,464,750 453,513 1,918,263 ----------- ----------- ----------- ------------ Total United States Common Stock 452,222,805 $19,332,201 62,652,301 534,207,307 ----------- ----------- ----------- ------------ HONG KONG - 0.03% Refining & Marketing - 0.03% 700,000 Zhenhai Refining & Chemical Corp. 162,970 162,970 ----------- ----------- ----------- ------------ ITALY - 0.08% Natural Gas Transmission - 0.08% 180,000 Italgas 435,572 435,572 ----------- ----------- ----------- ------------ Total Common Stocks (cost - $437,679,045, $21,156,575, $62,029,886 and $520,865,506, respectively) 452,222,805 19,930,743 62,652,301 534,805,849 ----------- ----------- ----------- ------------ PREFERRED STOCK - 0.22% UNITED STATES - 0.22% Retail - 0.22% 19,600 Sears Roebuck and Company (cost - $1,152,676) 1,210,300 1,210,300 ----------- ----------- ----------- ------------ Principal Amount Maturity Interest (000) Dates Rates ------------------------ -------- -------- LONG-TERM DEBT SECURITIES - 0.51% UNITED STATES - 0.51% $750 Cross Timbers Oil Co. Convertible 11/01/03 5.250% 585,000 585,000 2,400 Developers Diversified Realty Corp. 08/15/99 7.000 2,232,000 2,232,000 ----------- ----------- ----------- ------------ Total Long-Term Debt Securities (cost - $2,400,000, $750,000, $0 and $3,150,000, respectively 2,232,000 585,000 2,817,000 ----------- ----------- ----------- ------------ SHORT-TERM DEBT SECURITIES - 3.81% UNITED STATES - 3.81% United States Treasury Bills 3/9- 5.3- 998,820 8,752,920 9,751,740 4/6/95 5.350 Repurchase Agreements - 2.03% 7,444 Repurchase Agreement dated 2/28/95 with State Steet Bank, collateralized by $7,917,000 U.S. Treasury Notes, 7.250% due 08/15/22; proceeds: $7,445,247 03/01/95 6.030 7,444,000 7,444,000 985 Repurchase Agreement dated 2/28/95 with Brown Brothers Harriman & Co., collateralized by $1,001,650 U.S. Treasury Notes, 8.500% due 08/15/95; proceeds: $985,150 03/01/95 5.500 985,000 985,000 2,728 Repurchase Agreement dated 2/28/95 with CitiBank collateralized by $2,120,000 U.S. Treasury Bond, 13.375% due 8/15/01; proceeds: $2,728,461 03/01/95 6.080 2,728,000 2,728,000 ----------- ----------- ----------- ------------ Total Repurchase Agreements 7,444,000 985,000 2,728,000 11,157,000 ----------- ----------- ----------- ------------ Total Short-term Debt Securities (cost - $7,444,000, $1,983,820, $11,480,920 and $20,908,740 respectively) 7,444,000 1,983,820 11,480,920 20,908,740 ----------- ----------- ----------- ------------ Portfolio of Investments February 28, 1995 (unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity Pro forma Number of Income Fund Energy Fund Income Fund Combined Shares Value Value Value Value ----------------------- ----------- ----------- ----------- ------------ Total Investments 101.76% (cost - $448,675,721, $23,890,395, $73,510,807 and $546,076,923 respectively) $463,109,105 $22,499,563 $74,133,221 $559,741,888 Other liabilities in excess of other assets -1.76% 1,562,548 (470,007) (10,748,411) (9,655,869) ------------ ----------- ----------- ------------ Net Assets - 100.00% $464,671,653 $22,029,556 $63,384,810 $550,086,019 ============ =========== =========== ============
------------------------- * Non-income producing security ADR - American Depository Receipts + Security restricted as to resale. See accompanying notes to pro forma combined financial statements.
Pro forma Combined Statement of Assets and Liabilities February 28, 1995 (unaudited) PaineWebber PaineWebber Growth and Global Income Energy Pro forma Fund Fund Combined ------------- ------ --------- Assets Investments in securities, at value (cost -$448,675,721, $23,890,395, $463,109,105 $22,499,563 $485,608,668 and $472,566,116 respectively) Other assets 23,431,965 238,166 23,670,131 ------------ ----------- ------------ Total assets 486,541,070 22,737,729 509,278,799 ------------ ------------ ------------ Liabilities Total liabilities 21,869,417 708,173 22,577,590 ------------ ----------- ------------ Net Assets Beneficial interest, $0.001, $0.001, and $0.001 par value respectively (unlimited amount authorized) 448,788,925 25,841,790 474,630,715 Undistributed (distribution in excess of) net investment income (loss) 326,098 (93,710) 232,388 Accumulated net realized gains (losses) from investments, forward contracts, other assets and liabilities denominated in foreign currencies 1,123,246 (2,328,311) (1,205,065) Net unrealized appreciation/depreciation of investments, other assets, liabilities and forward contracts denominated in foreign currencies 14,433,384 (1,390,213) 13,043,171 ------------ ----------- ----------- Net assets $464,671,653 $22,029,556 $486,701,209 ============ =========== ============ Class A: Net assets $180,816,735 $ 8,951,715 $189,768,450 ------------ ----------- ------------ Shares outstanding 9,441,600 902,281 9,908,996 ------------ ----------- ------------ Net asset value and redemption value per share $19.15 $9.92 $19.15 ============ =========== ============ Maximum offering price per share (net asset value plus sales charges of 4.50%, 4.50%, and 4.50%, respectively) $20.05 $10.39 $20.05 ============ ============ ============ Class B: Net assets $239,383,165 $ 12,442,509 $251,825,674 ------------ ------------ ------------ Shares outstanding 12,533,576 1,254,095 13,184,917 ------------ ------------ ------------ Net asset value and offering price per share $19.10 $9.92 $19.10 ============ ============ ============ Class C: Net assets $ 14,543,879 $0 $ 14,543,879 ------------ ------------ ------------ Shares outstanding 759,803 0 759,803 ------------ ------------ ------------ Net asset value, offering price and redemption value per share $19.14 $0.00 $19.14 ============ ============ ============ Class D: Net assets $ 29,927,874 $635,332 $ 30,563,206 ------------ ------------ ------------ Shares outstanding 1,562,497 64,846 1,595,682 ------------ ------------ ------------ Net asset value, offering price and redemption value per share $19.15 $9.80 $19.15 ============ ============ ============
Pro forma Combined Statement of Assets and Liabilities February 28, 1995 (unaudited) PaineWebber MH/KP Growth and Equity Income Income Pro forma Fund Fund Combined ------------ ----------- ------------ Assets Investments in securities, at value (cost -$448,675,721, $73,510,807, $463,109,105 $74,133,221 $537,242,326 and $522,186,528 respectively) Other assets 23,431,965 44,463,760 67,895,725 ------------ ----------- ------------ Total assets 486,541,070 118,596,981 605,138,051 ------------ ----------- ------------ Liabilities Total liabilities 21,869,417 55,212,171 77,081,588 ------------ ----------- ------------ Net Assets Beneficial interest, $0.001, $0.01 and $0.001 par value respectively 448,788,925 59,490,330 508,279,255 (unlimited amount authorized) Undistributed net investment income 326,098 284,913 611,011 Accumulated net realized gains from investments, forward contracts, other assets and liabilities denominated in foreign currencies 1,123,246 2,987,153 4,110,399 Net unrealized appreciation/depreciation of investments, other assets, liabilities and forward contracts denominated in foreign currencies 14,433,384 622,414 15,055,798 ------------ ----------- ------------ Net assets $464,671,653 $63,384,810 $528,056,463 ============ =========== ============ Class A: Net assets $180,816,735 $58,224,548 $239,041,283 ------------ ----------- ------------ Shares outstanding 9,441,600 2,975,547 12,482,407 ------------ ----------- ------------ Net asset value and redemption value per share $19.15 $19.57 $19.15 ============ =========== ============ Maximum offering price per share (net asset value plus sales charges of 4.50%, 5.75%, and 4.50%, respectively) $20.05 $20.76 $20.05 ============ =========== ============ Class B: Net assets $239,383,165 $1,612,995 $239,383,165 ------------ ----------- ------------ Shares outstanding 12,533,576 82,939 12,533,576 ------------ ----------- ------------ Net asset value and offering price per share $19.10 $19.45 $19.10 ============ ========== ============= Class C: Net assets $14,543,879 $3,547,267 $18,091,146 ------------ ----------- ------------ Shares outstanding 759,803 181,359 945,142 ------------ ----------- ------------ Net asset value, offering price and redemption value per share $19.14 $19.56 $19.14 ============ ========= ============ Class D: Net assets $29,927,874 $0 $31,540,869 ------------ ----------- ------------ Shares outstanding 1,562,497 0 1,646,735 ------------ ----------- ------------ Net asset value, offering price and redemption value per share $19.15 $0.00 $19.15 ============ ========= ============
Pro forma Combined Statement of Assets and Liabilities February 28, 1995 (unaudited)
PaineWebber PaineWebber MH/KP Growth and Global Equity Income Energy Income Pro forma Fund Fund Fund Combined ------------- ----------- ----------- ------------ Assets Investments in securities, at value (cost-$448,675,721, $23,890,395, $73,510,807, and $546,076,923 respectively) $463,109,105 $22,499,563 $74,133,221 $559,741,889 Other assets 23,431,965 238,166 44,463,760 68,133,891 ------------ ----------- ----------- ------------ Total assets 486,541,070 22,737,729 118,596,981 627,875,780 ------------ ----------- ----------- ------------ Liabilities Total liabilities 21,869,417 708,173 55,212,171 77,789,761 ------------ ----------- ----------- ------------ Net Assets Beneficial interest, $0.001, $0.001, $0.01 and $0.001 par value respectively (unlimited amount authorized) 448,788,925 25,841,790 59,490,330 534,121,045 Undistributed net investment income (loss) 326,098 (93,710) 284,913 517,301 Accumulated net realized gains (losses) from investments, forward contracts, other assets and liabilities denominated in foreign currencies 1,123,246 (2,328,311) 2,987,153 1,782,088 Net unrealized appreciation/depreciation of investments, other assets, liabilities and forward contracts denominated in foreign currencies 14,433,384 (1,390,213) 622,414 13,665,585 ------------ ----------- ----------- ------------ Net assets $464,671,653 $22,029,556 $63,384,810 $550,086,019 ============ =========== =========== ============ Class A: Net assets $180,816,735 $ 8,951,715 $58,224,548 $247,992,998 ------------ ----------- ----------- ------------ Shares outstanding 9,441,600 902,281 2,975,547 12,949,803 ------------ ----------- ----------- ------------ Net asset value and redemption value per share $19.15 $9.92 $19.57 $19.15 ============ =========== =========== ============ Maximum offering price per share (net asset value plus sales charges of 4.50%, 4.50%, 5.75%, and 4.50%, respectively) $20.05 $10.39 $20.76 $20.05 ============ =========== =========== ============ Class B: Net assets $239,383,165 $12,442,509 $ 1,612,995 $251,825,674 ------------ ----------- ----------- ------------ Shares outstanding 12,533,576 1,254,095 82,939 13,184,917 ------------ ----------- ----------- ------------ Net asset value and offering price per share $19.10 $9.92 $19.45 $19.10 ============ =========== =========== ============ Class C: Net assets $ 14,543,879 $0 $ 3,547,267 $ 18,091,146 ------------ ----------- ----------- ------------ Shares outstanding 759,803 0 181,359 945,142 ------------ ----------- ----------- ------------ Net asset value, offering price and redemption value per share $19.14 $0.00 $19.56 $19.14 ============ =========== =========== ============ Class D: Net assets $ 29,927,874 $ 635,332 $0 $ 32,176,201 ------------ ----------- ----------- ------------ Shares outstanding 1,562,497 64,846 0 1,679,920 ------------ ----------- ----------- ------------ Net asset value, offering price and redemption value per share $19.15 $9.80 $0.00 $19.15 ============ =========== =========== ============
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED) PAINEWEBBER PAINEWEBBER GROWTH AND GLOBAL INCOME ENERGY PRO FORMA FUND FUND ADJUSTMENT COMBINED ----------- ----------- ---------- --------- INVESTMENT INCOME Interest and dividends (net of foreign withholding taxes) $12,758,061 $ 536,409 $ 0 $13,294,470 EXPENSES Investment advisory and administration fees 3,831,591 255,911 (45,160) 4,042,342 Distribution fees 3,673,902 215,614 0 3,889,516 Transfer agency and service fees 697,288 49,414 (5,884) 740,818 Custody fees 163,433 90,392 (88,621) 165,204 Other 651,663 166,373 (134,437) 683,599 ----------- ---------- -------- ----------- 9,017,877 777,704 (274,102) 9,521,479 ----------- ---------- -------- ----------- NET INVESTMENT INCOME (LOSS) 3,740,184 (241,295) 274,102 3,772,991 ----------- ---------- -------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES: Net realized gains (losses) from: Investment transactions 25,410,528 (1,430,466) 0 23,980,062 Forward contracts, other assets and liabilities denominated in foreign currencies 0 (3,011) 0 (3,011) Net change in unrealized appreciation/depreciation on: Investments (47,463,990) (2,779,876) 0 (50,243,866) Forward contracts, other assets and liabilities denominated in foreign currencies 0 9,858 0 9,858 ----------- ---------- -------- ----------- NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES (22,053,462) (4,203,495) 0 (26,256,957) ----------- ---------- -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($18,313,278) ($4,444,790) $274,102 ($22,483,966) ----------- ---------- -------- ----------- ----------- ---------- -------- -----------
See Notes to Pro Forma Combined Financial Statements
Pro Forma Capitalization as of February 28, 1995 (Unaudited) PaineWebber PaineWebber Growth and Global PW Growth and Income Energy Income Fund Fund Fund (As Adjusted)(1) ----------- ----------- --------------- Shareholders' Equity: Beneficial interest shares of $0.001 par value per share (unlimited amount authorized): 24,297,476 shares outstanding for PW Growth and Income Fund (Actual) ................................................ 2,221,222 shares outstanding for PW Global Energy Fund (Actual)........ 25,449,398 shares outstanding for PW Growth and Income Fund (As Adjusted)........................................................ $448,788,925 $25,841,790 $474,630,715 (2)(3) Undistributed net investment income (loss)............................. 326,098 (93,710) 232,388 Accumulated net realized gains (losses) from investments, forward contracts, other assets and liabilities denominated in foreign currencies................................................... 1,123,246 (2,328,311) (1,205,065)(4) Net unrealized appreciation/depreciation of investments, other assets, liabilities and forward contracts denominated in foreign currencies.. 14,433,384 (1,390,213) 13,043,171 ----------- ----------- ------------ Net Assets......................................................... $464,671,653 $22,029,556 $486,701,209 ============ =========== ============
(1) The adjusted balances are presented as if the Reorganization involving all Funds was effective as of February 28, 1995 for information purposes only. The actual effective time of the Reorganization is expected to be August, 1995, at which time the results would be reflective of the actual composition of shareholders' equity at that date. (2) Assumes the issuance of 1,151,922 shares in exchange for the net assets applicable to beneficial interest holders of Global Energy. The exchange is based on the net asset values for Growth and Income Class A, B, C and D, and the net assets applicable to beneficial interest holders of Global Energy as of February 28, 1995. (3) Does not include the impact of estimated Reorganization costs of $250,000 (4) Assumes Global Energy's net realized gains(losses) from investment transactions carry forward into Growth and Income.
Pro Forma Combined Statement of Operations (Unaudited) For the Twelve Months Ended February 28, 1995 PaineWebber MH/KP Growth and Equity Income Income Pro Forma Fund Fund Adjustments Combined ------------ ----------- ------------ ------------ Investment Income Interest and dividends (net of foreign withholding taxes) $12,758,061 $2,673,782 $0 $15,431,843 ------------ ----------- --------- ------------ Expenses Investment advisory and administration fees 3,831,591 560,997 (120,214) 4,272,374 Distribution fees 3,673,902 389,377 (190,333) 3,872,946 Transfer agency and service fees 697,288 95,858 (4,336) 788,810 Custody fees 163,433 46,944 (24,335) 186,042 Other 651,663 198,741 (138,709) 711,695 ------------ ----------- --------- ------------ 9,017,877 1,291,917 (477,927) 9,831,867 ------------ ----------- --------- ------------ Net Investment Income (Loss) 3,740,184 1,381,865 477,927 5,599,976 ------------ ----------- --------- ------------ Realized and unrealized gains (losses) from investment activities: Net realized gains (losses) from: Investment transactions 25,410,528 (1,332,388) 0 24,078,140 Forward contracts, other assets and liabilities denominated in foreign currencies 0 0 0 0 Net change in unrealized appreciation/depreciation on: Investments (47,463,990) 299,183 0 (47,164,807) Forward contracts, other assets and liabilities denominated in foreign currencies 0 0 0 0 ------------ ----------- --------- ------------ Net realized and unrealized losses from investment activities (22,053,462) (1,033,205) 0 (23,086,667) ------------ ----------- --------- ------------ Net increase (decrease) in net assets resulting from operations ($18,313,278) $348,660 $477,927 ($17,486,691) ============ =========== ========= ============
See Notes to Pro Forma Combined Financial Statements
Pro Forma Capitalization as of February 28, 1995 (Unaudited) PaineWebber MH/KP Growth and Equity PW Growth and Income Income Income Fund Fund Fund (As Adjusted) (1) ----------- ---------- ----------------- Shareholders' Equity: Beneficial interest shares of $0.001 par value per share (unlimited amount authorized) : 24,297,476 shares outstanding for PW Growth and Income Fund (Actual) 3,239,845 shares outstanding for MH/KP Equity Income Fund (Actual) 27,607,763 shares outstanding for PW Growth and Income Fund (As Adjusted) 448,788,925 59,490,330 508,279,255(2)(3) Undistributed net investment income (loss) 326,098 284,913 611,011 Accumulated net realized gains (losses) from investments, forward contracts, other assets and liabilities denominated in foreign currencies 1,123,246 2,987,153 4,110,399(4) Net unrealized appreciation/depreciation of investments, other assets, liabilities and forward contracts denominated in foreign currencies 14,433,384 622,414 15,055,798 ------------ ----------- ------------ Net Assets $464,671,653 $63,384,810 $528,056,463 ============ =========== ============
(1) The adjusted balances are presented as if the Reorganization involving all Funds was effective as of February 28, 1995 for information purposes only. The actual effective time of the Reorganization is expected to be August, 1995, at which time the results would be reflective of the actual composition of shareholders' equity at that date. (2) Assumes the issuance of 3,310,384 shares in exchange for the net assets applicable to beneficial interest holders of Equity Income. The exchange is based on the net asset values for Growth and Income Class A,B, C and D, and the net assets applicable to beneficial interest holders of Equity Income as of February 28, 1995. (3) Does not include the impact of estimated Reorganization costs of $250,000 (4) Assumes Equity Income's net realized gains(losses) from investment transactions carry forward into Growth and Income.
Pro Forma Combined Statement of Operations (Unaudited) For the Twelve Months Ended February 28, 1995 --------------------------------------------------------------- PaineWebber PaineWebber MH/KP Growth and Global Equity Income Energy Income Pro Forma Fund Fund Fund Adjustments Combined ------------ ----------- ---------- ------------ ----------- Investment Income Interest and dividends (net of foreign withholding taxes)... $12,758,061 $ 536,409 $2,673,782 $0 $15,968,252 ----------- ---------- ---------- -------- ----------- Expenses Investment advisory and administration fees................. 3,831,591 255,911 560,997 (45,161) 4,603,338 Distribution fees........................................... 3,673,902 215,614 389,377 (192,621) 4,086,272 Transfer agency and service fees............................ 697,288 49,414 95,858 (15,580) 826,980 Custody fees................................................ 163,433 90,392 46,944 (113,813) 186,956 Other....................................................... 651,663 166,373 198,741 (267,022) 749,755 ----------- ---------- ---------- -------- ----------- 9,017,877 777,704 1,291,917 (634,197) 10,453,301 ----------- ---------- ---------- -------- ----------- Net Investment Income (Loss)................................... 3,740,184 (241,295) 1,381,865 634,197 5,514,951 ----------- ---------- ---------- -------- ----------- Realized and unrealized gains (losses) from investment activities: Net realized gains (losses) from: Investment transactions................................... 25,410,528 (1,430,466) (1,332,388) 0 22,647,674 Forward contracts, other assets and liabilities denominated in foreign currencies................................... 0 (3,011) 0 0 (3,011) Net change in unrealized appreciation/depreciation on: Investments............................................... (47,463,990) (2,779,876) 299,183 0 (49,944,683) Forward contracts, other assets and liabilities denominated in foreign currencies....................... 0 9,858 0 0 9,858 ----------- ---------- ---------- -------- ----------- Net realized and unrealized losses from investment activities.. (22,053,462) (4,203,495) (1,033,205) 0 (27,290,162) ----------- ---------- ---------- -------- ----------- Net increase (decrease) in net assets resulting from operations ($18,313,278) ($4,444,790) $348,660 $634,197 ($21,775,211) ============ ========== ========== ======== ===========
See Notes to Pro Forma Combined Financial Statements
Pro Forma Capitalization as of February 28, 1995 (Unaudited) PaineWebber PaineWebber MH/KP Growth and Global Equity PW Growth and Income Energy Income Income Fund Fund Fund Fund (As Adjusted) (1) ------------ ----------- ---------- ------------------ Shareholders' Equity: Beneficial interest shares of $0.001 par value per share (unlimited amount authorized): 24,297,476 shares outstanding for PW Growth and Income Fund (Actual) 2,221,222 shares outstanding for PW Global Energy Fund (Actual) 3,239,845 shares outstanding for MH/KP Equity Income Fund (Actual) 28,759,782 shares outstanding for PW Growth and Income Fund (As Adjusted) 448,788,925 25,841,790 59,490,330 534,121,045(2)(3) Undistributed net investment income (loss) 326,098 (93,710) 284,913 517,301 Accumulated net realized gains (losses) from investments, forward contracts, other assets and liabilities denominated in foreign currencies 1,123,246 (2,328,311) 2,987,153 1,782,088(4) Net unrealized appreciation/depreciation of investments, other assets, liabilities and forward contracts denominated in foreign currencies 14,433,384 (1,390,213) 622,414 13,665,585 ------------ ----------- ---------- ------------ Net Assets $464,671,653 $22,029,556 $63,384,810 $550,086,019 ============ =========== =========== ============
(1) The adjusted balances are presented as if the Reorganization involving all Funds was effective as of February 28, 1995 for information purposes only. The actual effective time of the Reorganization is expected to be August __, 1995, at which time the results would be reflective of the actual composition of shareholders' equity at that date. (2) Assumes the issuance of 1,151,922 shares in exchange for the net assets applicable to beneficial interest holders of Global Energy. Assumes the issuance of 3,310,384 shares in exchange for the net assets applicable to beneficial interest holders of Equity Income. The exchange is based on the net asset values for Growth and Income Class A,B, C and D, and the net assets applicable to beneficial interest holders of Global Energy and Equity Income as of February 28, 1995. (3) Does not include the impact of estimated Reorganization costs of $250,000. (4) Assumes Global Energy's and Equity Income's net realized gains(losses) from investment transactions carry forward into Growth and Income. Notes To Pro Forma Combined Financial Statements (unaudited) Basis of Presentation: Subject to approval of the Plan of Reorganization by the shareholders of PaineWebber Global Energy Fund ("Global Energy") and Mitchell Hutchins/Kidder, Peabody Equity Income Fund ("Equity Income"), PaineWebber Growth and Income Fund ("Growth and Income") would acquire the assets of Global Energy and Equity Income in exchange solely for the assumption by Growth and Income of Global Energy and Equity Income's liabilities and Class A, Class B, Class D (for Global Energy only) and Class C (for Equity Income Fund only) shares of Growth and Income that correspond, in aggregate net asset value per class, to the outstanding Class A, Class B, Class C and Class D shares of Global Energy and Equity Income. Shares of Growth and Income will be distributed to Global Energy and Equity Income's shareholders, at the net asset value per share of Growth and Income for the value acquired, and Global Energy and Equity Income will be terminated as soon as practicable thereafter. Each Global Energy and Equity Income shareholder will receive the number of full and fractional shares of each Class of shares of Growth and Income equal in value to such shareholder's holdings in the Corresponding Class of shares of Global Energy and Equity Income as of the closing date of the merger. The pro forma combined financial statements reflect the financial position of Growth and Income, Global Energy and Equity Income at February 28, 1995 and the combined results of operations of Growth and Income, Global Energy and Equity income for the twelve months ended February 28, 1995. Certain expenses have been adjusted to reflect the expected expenses of the combined entity. Pro forma operating expenses include the actual expenses of the funds and the combined fund adjusted for certain items. Due to differences in class structure, the Equity Income Class B is considered Class D for combined pro forma results. As a result of the Reorganization, the investment advisory and administration fee will decrease due to the lower fee schedule applicable to Growth and Income. Other fixed expenses will be reduced due to duplication of expenses. In addition, the pro forma combined statement of assets and liabilities has not been adjusted as a result of the proposed transaction because such adjustment would not be material. It is estimated that costs of approximately $250,000 associated with the merger will be charged to each fund proportionately to its net assets at the date of merger. The pro forma combined financial statements are presented for the information of the reader and may not necessarily be representative of what the actual combined financial statements would have been had the Reorganization occurred at February 28, 1995. The pro forma combined financial statements should be read in conjunction with the historical financial statements of the constituent Funds included in the statement of additional information. PERFORMANCE INFORMATION Growth and Income Fund's performance data quoted in advertising and other promotional materials ("Performance Advertisements") represents past performance and is not intended to indicate future performance. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total Return Calculations. Average annual total return quotes ("Standardized Return") used in a Fund's Performance Advertisements are calculated according to the following formula: P(l + T)n = ERV where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified Class T = average annual total return of shares of that Class n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment at the beginning of that period. Under the foregoing formula, the time periods used in Performance Advertisements will be based on rolling calendar quarters, updated to the last day of the most recent quarter prior to submission of the advertisement for publication. Total return, or "T" in the formula above, is computed by finding the average annual change in the value of an initial $1,000 investment over the period. In calculating the ending redeemable value, for Class A shares, the maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for Class B shares, the applicable contingent deferred sales charge imposed on a redemption of Class B shares held for the period is deducted. All dividends and other distributions are assumed to have been reinvested at net asset value. A Fund also may refer in Performance Advertisements to total return performance data that are not calculated according to the formula set forth above ("Non-Standardized Return"). A Fund calculates Non-Standardized Return for specified periods of time by assuming an investment of $1,000 in Fund shares and assuming the reinvestment of all dividends and other distributions. The rate of return is determined by subtracting the initial value of the investment from the ending value and by dividing the remainder by the initial value. Neither initial nor contingent deferred sales charges are taken into account in calculating Non-Standardized Return; the inclusion of those charges would reduce the return. Both Standardized Return and Non-Standardized Return for Class B shares for periods of over six years will reflect conversion of the Class B shares to Class A shares at the end of the sixth year. The following table shows performance information for the Class A, Class B, Class C and Class D shares of Growth and Income Fund for the periods indicated. All returns for periods of more than one year are expressed as an average return.
Growth and Income Fund -------------------------------------------------------- Class A Class B Class C Class D ------- ------- ------- ------- Fiscal year ended August 31, 1994: Standardized Return* (5.04)% (6.31)% (0.31)% (1.29)% Non-Standardized Return (0.58)% (1.31)% (0.31)% (1.29)% Five years ended August 31, 1994: Standardized Return* 5.32% NA NA NA Non-Standardized Return 6.30% NA NA NA Ten years ended August 31, 1994: Standardized Return* 10.25% NA NA NA Non-Standardized Return 10.76% NA NA NA Inception** to August 31, 1994: Standardized Return* 10.25% 3.40% 0.58% 1.79% Non-Standardized Return 10.74% 4.56% 0.58% 1.79%
------------ * All Standardized Return figures for Class A shares reflect deduction of the current maximum sales charge of 4.5%. Until December 2, 1988, the maximum sales charge imposed on purchases of Class A shares of the Funds was 8.5%. This higher sales charge is not reflected in the Standardized Return set forth above. All Standardized Return figures for Class B shares reflect deduction of the applicable contingent deferred sales charges imposed on a redemption of shares held for the period. Class C and Class D shares do not impose an initial or contingent deferred sales charge; therefore, Non-Standardized Return is identical to Standardized Return. ** The inception date for the Class A shares of the Growth and Income Fund was December 30, 1983. The inception date for the Class B shares of Growth and Income Fund was July 1, 1991. The inception date for the Class C shares of Growth and Income Fund was February 12, 1992. The inception date for Class D shares of Growth and Income Fund was July 2, 1992. PAINEWEBBER AMERICA FUND PART C OTHER INFORMATION Item 15. Indemnification Section 2 of "Indemnification" in Article X of the Declaration of Trust provides that the appropriate series of the Registrant will indemnify the trustees and officers of the Registrant to the fullest extent permitted by law against claims and expenses asserted against or incurred by them by virtue of being or having been a trustee or officer; provided that no such person shall be indemnified where there has been an adjudication or other determination, as described in Article X, that such person is liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office or did not act in good faith in the reasonable belief that his action was in the best interest of the Registrant. Section 2 of "Indemnification" in Article X also provides that the Registrant may maintain insurance policies covering such rights of indemnification. Additionally, "Limitation of Liability" in Article X of the Declaration of Trust provides that the trustees or officers of the Registrant shall not be personally liable to any person extending credit to, contracting with or having a claim against the Registrant or a particular series; and that, provided that their actions are in the best interest of the Registrant, the trustees and officers shall not be liable for neglect or wrongdoing by them or any officer, agent, employee or investment adviser of the Registrant. Section 2 of Article XI of the Declaration of Trust additionally provides that, subject to the provisions of Section 1 of Article XI and to Article X, trustees shall not be liable for errors of judgment or mistakes of fact or law, for any act or omission in accordance with advice of counsel or other experts, or for failing to follow such advice, with respect to the meaning and operation of the Declaration of Trust. Article IX of the By-Laws provides that the Registrant may purchase and maintain insurance on behalf of any person who is or was a trustee, officer or employee of the Registrant, or is or was serving at the request of the Registrant as a trustee, officers or employee of a corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Registrant would have the power to indemnify him against such liability to the Registrant or its shareholders, provided that the Registrant may not purchase or maintain insurance that protects any such person against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. Section 9 of the Investment Advisory and Administration Contract ("Contract") provides that Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") shall not be liable for any error of judgement or mistake of law or for any loss suffered by any series of the Registrant in connection with the matters to which the Contract relates, except for a loss resulting from the willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the performance of its duties or from its reckless disregard of its obligations and duties under the Contract. Section 10 of the Contract provides that the trustees shall not be liable for any obligations of any series or the Registrant under the Contract and that Mitchell Hutchins shall look only to the assets and property of the Registrant or appropriate series in settlement of such right or claim and not to the assets and property of the trustees. Section 9 of each Distribution Contract provides that the Registrant will indemnify Mitchell Hutchins and its officers, directors and controlling persons against all liabilities arising from any alleged untrue statement of material fact in the Registration Statement or from any alleged omission to state in the Registration Statement a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading, except insofar as liability arises from untrue statements or omissions made in reliance upon and in conformity with information furnished by Mitchell Hutchins to the Registrant for use in the Registration Statement; and provided that this indemnity agreement shall not protect any such persons against liabilities arising by reason of their bad faith, gross negligence or willful misfeasance; and shall not inure to the benefit of any such persons unless a court of competent jurisdiction or controlling precedent determines that such result is not against public policy as expressed in the Securities Act of 1933. Section 9 of each Distribution Contract also provides that Mitchell Hutchins agrees to indemnify, defend and hold the Registrant, its officers and trustees free and harmless of any claims arising out of any alleged untrue statement or any alleged omission of material fact contained in information furnished by Mitchell Hutchins for use in the Registration Statement or arising out of an agreement between Mitchell Hutchins and any retail dealer, or arising out of supplementary literature or advertising used by Mitchell Hutchins in connection with each Distribution Contract. Section 9 of each Exclusive Dealer Agreement contains provisions similar to Section 9 of the relevant Distribution Contract, with respect to PaineWebber Incorporated ("PaineWebber"). Section 6 of the Service Contract provides that PaineWebber shall be indemnified and held harmless by the Registrant against all liabilities, except those arising out of bad faith, gross negligence, willful misfeasance or reckless disregard of its duties under the Service Contract. Section 10 of each Distribution Contract and Section 7 of the Service Contract contain provisions similar to Section 10 of the Investment Advisory and Administration Contract, applicable to Mitchell Hutchins and PaineWebber, respectively. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be provided to trustees, officers and controlling persons of the Registrant, pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding or payment pursuant to any insurance policy) is asserted against the Registrant by trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 16. Exhibits Page ---- (1) (a) Declaration of Trust 1/ (b) Amendment effective January 28, 1988 4/ (c) Amendment effective January 23, 1990 6/ (d) Amendment effective December 21, 1990 8/ (e) Amendment effective May 17, 1991 9/ (f) Amendment effective July 1, 1991 9/ (g) Amendment effective August 31, 1991 9/ (h) Amendment effective July 1, 1992 10/ (2) (a) By-laws 1/ (b) Amendment to By-Laws dated March 19, 1991 8/ (c) Amendment to By-Laws dated September 28, 1994 13/ (3) Voting trust agreement - none (4) (a) Amended and Restated Agreement and Plan of Reorganization and Termination (with respect to Global Energy Fund) - filed herewith (b) Amended and Restated Agreement and Plan of Reorganization and Liquidation (with respect to Equity Income Fund) - filed herewith (5) All instruments defining the rights of holders - none (6) (a) Investment Advisory and Administration Contract 5/ (b) Sub-Advisory Contract 12/ (7) (a) Distribution Contract with respect to Class A shares 11/ (b) Distribution Contract with respect to Class B shares 11/ (c) Distribution Contract with respect to Class C shares 9/ (d) Distribution Contract with respect to Class D shares 11/ (e) Exclusive Dealer Agreement with respect to Class A shares 11/ (f) Exclusive Dealer Agreement with respect to Class B shares 11/ (g) Exclusive Dealer Agreement with respect to Class C shares 9/ (h) Exclusive Dealer Agreement with respect to Class D shares 11/ (8) Bonus, profit sharing or pension plans - none (9) Custodian Agreement 2/ (10) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A shares 9/ (b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B shares 9/ (c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class D shares 10/ (d) Multiple Class Plan Pursuant to Rule 18f-3 - filed herewith (11) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the legality of securities being registered - filed herewith (12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding certain tax matters - filed herewith (b) Opinion and consent of Sullivan & Cromwell regarding certain tax matters - filed herewith (c) Opinion of Kirkpatrick & Lockhart LLP regarding certain tax matters - filed herewith (13) (a) Transfer Agency and Service Contract 7/ (b) Service Contract 5/ (14) (a) Consent of Price Waterhouse LLP - filed herewith (b) Consent of Deloitte & Touche LLP - filed herewith (c) Consent of Ernst & Young LLP - filed herewith (15) Financial statements omitted from Part B - none (16) Copies of manually signed Powers of Attorney (17) Additional Exhibits (a) Declaration of Rule 24f-2 - filed herewith (b) Proxy cards - filed herewith ------------ 1/ Incorporated by reference from Post-Effective Amendment No. 10 to the registration statement, SEC File No. 2-78626, filed February 25, 1987. 2/ Incorporated by reference from Post-Effective Amendment No. 11 to the registration statement, SEC File No. 2-78626, filed December 22, 1987. 3/ Incorporated by reference from Pre-Effective Amendment No. 2 to the registration statement, SEC File No. 2-78626, filed September 26, 1983. 4/ Incorporated by reference from Post-Effective Amendment No. 12 to the registration statement, SEC File No. 2-78626, filed November 3, 1988. 5/ Incorporated by reference from Post-Effective Amendment No. 16 to the registration statement, SEC File No. 2-78626, filed December 29, 1989. 6/ Incorporated by reference from Post-Effective Amendment No. 18 to the registration statement, SEC File No. 2-78626, filed August 30, 1990. 7/ Incorporated by reference from Post-Effective Amendment No. 19 to the registration statement, SEC File No. 2-78626, filed November 2, 1990. 8/ Incorporated by reference from Post-Effective Amendment No. 21 to the registration statement, SEC File No. 2-78626, filed May 3, 1991. 9/ Incorporated by reference from Post-Effective Amendment No. 23 to the registration statement, SEC File No. 2-78626, filed December 24, 1991. 10/ Incorporated by reference from Post-Effective Amendment No. 27 to the registration statement, SEC File No. 2-78626, filed December 21, 1992. 11/ Incorporated by reference from Post-Effective Amendment No. 28 to the registration statement, SEC File No. 2-78626, filed December 29, 1993. 12/ Incorporated by reference from Post-Effective Amendment No. 29 to the registration statement, SEC File No. 2-78626, filed November 2, 1994. 13/ Incorporated by reference from Post-Effective Amendment No. 31 to the registration statement, SEC File No. 2-78626, filed December 28, 1994. Item 17. Undertakings (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of the prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for reoffering by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new Registration Statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES As required by the Securities Act of 1933, as amended, this Registration Statement has been signed on behalf of the Registrant, in the City of New York and the State of New York, on the 20th day of July, 1995. PAINEWEBBER AMERICA FUND By: Dianne E. O'Donnell Vice President, Secretary Each of the undersigned trustees and officers of PaineWebber America Fund ("Fund") hereby severally constitutes and appoints Victoria E. Schonfeld, Dianne E. O'Donnell, Gregory K. Todd, Elinor W. Gammon and Robert A. Wittie, and each of them singly, our true and lawful attorneys, with full power to them to sign for each of us, and in each of our names and in the capacities indicated below, any and all amendments to the Registration Statement of the Fund, and all instruments necessary or desirable in connection therewith, filed with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by said attorney to any and all amendments to said Registration Statement. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- /s/ President July 20, 1995 Margo N. Alexander (Chief Executive Officer) /s/ Trustee and Chairman July 20, 1995 E. Garrett Bewkes, Jr. of the Board of Trustees /s/ Trustee July 20, 1995 Meyer Feldberg /s/ Trustee July 20, 1995 George W. Gowen /s/ Trustee July 20, 1995 Frederic V. Malek /s/ Trustee July 20, 1995 Frank P.L. Minard /s/ Trustee July 20, 1995 Judith Davidson Moyers /s/ Trustee July 20, 1995 Thomas F. Murray /s/ Vice President and July 20, 1995 Julian F. Sluyters Treasurer (Principal Financial and Accounting Officer) EX-99.4(A) 2 AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION EXHIBIT 4(a) AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is made as of July 25, 1995, between PaineWebber America Fund, a Massachusetts business trust ("America Trust"), on behalf of PaineWebber Growth and Income Fund, a segre- gated portfolio of assets ("series") thereof ("Acquiring Fund"), and PaineWebber Investment Series, a Massachusetts business trust ("Investment Series"), on behalf of its PaineWebber Global Energy Fund series ("Target"). (Acquiring Fund and Target are sometimes referred to herein individually as a "Fund" and collectively as the "Funds," and America Trust and Investment Series are sometimes referred to herein collectively as the "Investment Companies.") RECITAL The parties entered into an Agreement and Plan of Reorganiza- tion and Liquidation dated as of May 30, 1995 ("Original Agree- ment"), which provided, inter alia, for Target shareholders to receive Acquiring Fund shares pursuant to the transactions con- templated thereby. The parties now desire to amend and restate the Original Agreement to reflect a change in the class of Acquiring Fund shares to be distributed to holders of Class C Target Shares (as defined below). Therefore, the Original Agreement is hereby amended and restated to read in its entirety as follows: AMENDED AND RESTATED PROVISIONS This Agreement is intended to be, and is adopted as, a plan of a reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). The reorganization will involve the transfer to Acquiring Fund of Target's assets solely in exchange for voting shares of beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the assumption by Acquiring Fund of Target's liabilities, followed by the constructive distribution of the Acquiring Fund Shares to the holders of shares of beneficial interest in Target ("Target Shares") in exchange therefor, all upon the terms and conditions set forth herein. The foregoing transac- tions are referred to herein as the "Reorganization." All agree- ments, representations, actions, and obligations described herein made or to be taken or undertaken by either Fund are made and shall be taken or undertaken by America Trust on behalf of Acquiring Fund and by Investment Series on behalf of Target. Acquiring Fund's shares are divided into four classes, desig- nated Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring Fund Shares," respectively). Except as noted in the following sentence, these classes differ only with respect to the sales charges imposed on the purchase of shares and the fees ("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1 promulgated under the Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are offered at net asset value ("NAV") plus a sales charge, if applicable, and are subject to a 12b-1 service fee at the annual rate of 0.25% of the average daily net assets attributable to the class ("class assets"); (2) Class B Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to a contingent deferred sales charge and 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently only to the trustee of the PaineWebber Savings Investment Plan on behalf of that plan, at NAV without imposition of any sales charge and are not subject to any 12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.50% of class assets. These classes also may differ from one another with respect to the allocation of certain class- specific expenses other than 12b-1 fees. Only Classes A, B, and D Acquiring Fund Shares are involved in the Reorganization. Target's shares are divided into three classes, designated Class A, Class B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and "Class D Target Shares," respec- tively). These classes are identical to the correspondingly let- tered classes of Acquiring Fund Shares, except that the Class A Target Shares are subject to a 12b-1 service fee at the annual rate of 0.25%, rather than 0.23%, of class assets. In consideration of the mutual promises herein, the parties covenant and agree as follows: 1. PLAN OF REORGANIZATION AND TERMINATION OF TARGET 1.1. Target agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring Fund agrees in exchange therefor -- (a) to issue and deliver to Target the number of full and fractional (i) Class A Acquiring Fund Shares determined by dividing the net value of Target (computed as set forth in paragraph 2.1) ("Target Value") attributable to the Class A Target Shares by the NAV (computed as set forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class B Acquiring A-2 Fund Shares determined by dividing the Target Value attribut- able to the Class B Target Shares by the NAV (as so computed) of a Class B Acquiring Fund Share, and (iii) Class D Acquiring Fund Shares determined by dividing the Target Value attribut- able to the Class D Target Shares by the NAV (as so computed) of a Class D Acquiring Fund Share; and (b) to assume all of Target's liabilities described in paragraph 1.3 ("Liabilities"). Such transactions shall take place at the Closing (as defined in paragraph 3.1). 1.2. The Assets shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and rec- ords, deferred and prepaid expenses shown as assets on Target's books, and other property owned by Target at the Effective Time (as defined in paragraph 3.1). 1.3. The Liabilities shall include (except as otherwise pro- vided herein) all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, con- tingent, 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 Agree- ment, including without limitation Target's share of the expenses described in paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best efforts to discharge all of its known Lia- bilities prior to the Effective Time. 1.4. At or immediately before the Effective Time, Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distri- buted substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Effective Time. 1.5. At the Effective Time (or as soon thereafter as is rea- sonably practicable), Target shall constructively distribute the Acquiring Fund Shares received by it pursuant to paragraph 1.1 to Target's shareholders of record, determined as of the Effective Time (collectively "Shareholders" and individually a "Share- holder"), in exchange for their Target Shares. Such distribution shall be accomplished by the Funds' transfer agent ("Transfer Agent") opening accounts on Acquiring Fund's share transfer books in the Shareholders' names and transferring such Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Share- holder, 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 A-3 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, and the account for a Shareholder of Class D Target Shares shall be credited with the respective pro rata number of Class D Acquiring Fund Shares due that Shareholder). All out- standing Target Shares, including any represented by certificates, shall simultaneously be canceled on Target's share transfer re- cords. Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares in connection with the Reorganization. 1.6. As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be terminated as a series of Investment Series and any further ac- tions shall be taken in connection therewith as required by appli- cable law. 1.7. Any reporting responsibility of Target to a public authority is and shall remain its responsibility up to and includ- ing the date on which it is terminated. 1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target's books of the Target Shares constructively exchanged there- for shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer. 2. VALUATION 2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the value of the Assets computed as of the close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"), using the valuation procedures set forth in Target's then-current prospectus and state- ment of additional information less (b) the amount of the Liabili- ties as of the Valuation Time. 2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund Share, a Class B Acquiring Fund Share, and a Class D Acquiring Fund Share shall be computed as of the Valuation Time, using the valuation procedures set forth in Acquiring Fund's then- current prospectus and statement of additional information. 2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of Mitchell Hutchins Asset Management Inc. A-4 3. CLOSING AND EFFECTIVE TIME 3.1. The Reorganization, together with related acts necessary to consummate the same ("Closing"), shall occur at the Funds' prin- cipal office on October 13, 1995, or at such other place and/or on such other date as the parties may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time as the parties may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the net value of Target and the NAV per Acquiring Fund Share is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading shall have been fully resumed and such reporting shall have been restored. 3.2. Investment Series shall deliver to America Trust at the Closing a schedule of the Assets as of the Effective Time, which shall set forth for all portfolio securities included therein their adjusted tax basis and holding period by lot. Target's custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be trans- ferred to Acquiring Fund at the Effective Time and (b) all neces- sary taxes in conjunction with the delivery of the Assets, includ- ing all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. 3.3. Investment Series shall deliver to America Trust at the Closing a list of the names and addresses of the Shareholders and the number (by class) of outstanding Target Shares owned by each Shareholder, all as of the Effective Time, certified by the Secre- tary or Assistant Secretary of Target. The Transfer Agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund's share transfer books of accounts in the Shareholders' names. America Trust shall issue and deliver a confirmation to Investment Series evidencing the Acquiring Fund Shares (by class) to be cre- dited to Target at the Effective Time or provide evidence satisfac- tory to Investment Series that such Acquiring Fund Shares have been credited to Target's account on Acquiring Fund's books. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts, or other docu- ments as the other party or its counsel may reasonably request. 3.4. Each Investment Company shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipi- ent and dated the Effective Time, to the effect that the represen- tations and warranties it made in this Agreement are true and cor- rect at the Effective Time except as they may be affected by the transactions contemplated by this Agreement. A-5 4. REPRESENTATIONS AND WARRANTIES 4.1. Target represents and warrants as follows: 4.1.1. Investment Series is an unincorporated voluntary association with transferable shares organized as a business trust under a written instrument ("Business Trust"); it is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts; and a copy of its Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.1.2. Investment 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; 4.1.3. Target is a duly established and designated series of Investment Series; 4.1.4. At the Closing, Target will have good and market- able title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and upon delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto; 4.1.5. Target's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules and regulations there- under 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 mislead- ing; 4.1.6. Target is not in violation of, and the execution and delivery of this Agreement and consummation of the trans- actions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of Investment Series's Dec- laration of Trust or By-Laws or of any agreement, instrument, lease, or other undertaking to which Target is a party or by which it is bound or result in the acceleration of any obli- gation, 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 America Trust; 4.1.7. Except as disclosed in writing to and accepted by America Trust, all material contracts and other commitments of or applicable to Target (other than this Agreement and invest- A-6 ment contracts, including options, futures, and forward con- tracts) 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 lia- bility or penalty with respect thereto and without diminishing or releasing any rights Target may have had with respect to actions taken or omitted to be taken by any other party thereto prior to the Closing; 4.1.8. Except as otherwise disclosed in writing to and accepted by America Trust, no litigation, administrative pro- ceeding, or investigation of or before any court or govern- mental body is presently pending or (to Target's knowledge) threatened against Investment Series with respect to Target or any of its properties or assets that, if adversely determined, would materially and adversely affect Target's financial con- dition or the conduct of its business; Target knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.1.9. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of Investment Series's board of trustees, which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by Target's shareholders and receipt of any necessary exemptive relief or no-action assurances requested from the Securities and Exchange Commission ("SEC") or its staff with respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.1.10. At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target's shareholders; 4.1.11. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the Secu- rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for the execution or performance of this Agreement by Investment Series, except for (a) the filing with the SEC of a registra- tion statement by America Trust on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto ("Registration Statement"), including A-7 therein a prospectus/proxy statement ("Proxy Statement"), (b) receipt of the exemptive relief referenced in subparagraph 4.1.9, and (c) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.1.12. On the effective date of the Registration State- ment, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by America Trust for use therein; 4.1.13. The Liabilities were incurred by Target in the ordinary course of its business; 4.1.14. Target is a "fund" as defined in section 851(h)(2) of the Code; it qualified for treatment as a regu- lated investment company ("RIC") under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such quali- fication for its current taxable year; and it has no earnings and profits accumulated in any taxable year in which the pro- visions of Subchapter M did not apply to it. The Assets shall be invested at all times through the Effective Time in a man- ner 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 secu- rities) is invested in the stock or securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock or securities of five or fewer issuers; and 4.1.17. Target will be terminated as soon as reasonably practicable after the Reorganization, but in all events within six months after the Effective Time. A-8 4.2. Acquiring Fund represents and warrants as follows: 4.2.1. America Trust is a Business Trust; it is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts; and a copy of its Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.2.2. America Trust is duly registered as an open-end management investment company under the 1940 Act, and such registration will be in full force and effect at the Effective Time; 4.2.3. Acquiring Fund is a duly established and desig- nated series of America Trust; 4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring Fund's assumption of the Liabilities) will be issued in exchange for the Assets in the Reorganization; 4.2.5. The Acquiring Fund Shares to be issued and deli- vered to Target hereunder will, at the Effective Time, have been duly authorized and, when issued and delivered as pro- vided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable, ex- cept to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obligations. Except as contemplated by this Agreement, Acquiring Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any of its shares, nor is there outstanding any secu- rity convertible into any of its shares; 4.2.6. Acquiring Fund's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.2.7. Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of America Trust's Declaration of Trust or By-Laws or of any provision of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as A-9 previously disclosed in writing to and accepted by Investment Series; 4.2.8. Except as otherwise disclosed in writing to and accepted by Investment Series, no litigation, administrative proceeding, or investigation of or before any court or govern- mental body is presently pending or (to Acquiring Fund's knowledge) threatened against America Trust with respect to Acquiring Fund or any of its properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund's financial condition or the conduct of its business; Acquiring Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the pro- visions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contem- plated hereby; 4.2.9. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of America Trust's board of trustees, which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and, subject to receipt of any necessary exemptive relief or no-action assurances requested from the SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be lim- ited by bankruptcy, insolvency, fraudulent transfer, reorgan- ization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.2.10. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for the execution or performance of this Agreement by America Trust, except for (a) the filing with the SEC of the Registration Statement, (b) receipt of the exemp- tive relief referenced in subparagraph 4.2.9, and (c) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.2.11. On the effective date of the Registration State- ment, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such A-10 statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Investment Series for use therein; 4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of the Code; it qualified for treatment as a RIC under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current tax- able year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the pro- visions of Subchapter M did not apply to it; 4.2.13. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its busi- ness as a series of an open-end investment company; nor does Acquiring Fund have any plan or intention to redeem or other- wise reacquire any Acquiring Fund Shares issued to the Share- holders pursuant to the Reorganization, other than through redemptions arising in the ordinary course of that business; 4.2.14. Acquiring Fund (a) will actively continue Tar- get's business in substantially the same manner that Target conducted that business immediately before the Reorganization, (b) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordi- nary course of that business and dispositions necessary to maintain its status as a RIC under Subchapter M of the Code, and (c) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispo- sitions thereof to maintain such status; 4.2.15. There is no plan or intention for Acquiring Fund to be dissolved or merged into another corporation or business trust or any "fund" thereof (within the meaning of section 851(h)(2) of the Code) following the Reorganization; 4.2.16. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock or securities of any one issuer and (b) not more than 50% of the value of such assets will be invested in the stock or securities of five or fewer issuers; and 4.2.17. Acquiring fund does not own, directly or indi- rectly, nor at the Effective Time will it own, directly or A-11 indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target. 4.3. Each Fund represents and warrants as follows: 4.3.1. The fair market value of the Acquiring Fund Shares, when received by the Shareholders, will be approxi- mately equal to the fair market value of their Target Shares constructively surrendered in exchange therefor; 4.3.2. Its management (a) is unaware of any plan or intention of Shareholders to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization and (b) does not anticipate dis- positions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as a series of an open-end investment company. Consequently, its management expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be de minimis. Nor does its management anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganiza- tion; 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 Reor- ganization, Acquiring Fund will hold substantially the same assets and be subject to substantially the same liabilities that Target held or was subject to immediately prior thereto, plus any liabilities and expenses of the parties incurred in connection with the Reorganization; 4.3.5. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 4.3.6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 4.3.7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, held by Target immediately before the Reorganization. For the purposes of this representation, any amounts used by Target to pay its Reorganization expenses and redemptions and distribu- tions made by it immediately before the Reorganization (except for (a) distributions made to conform to its policy of distri- A-12 buting all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 of the Code and (b) redemptions not made as part of the Reorganization) will be included as assets thereof held immediately before the Reorganization; 4.3.8. None of the compensation received by any Share- holder who is an employee of Target will be separate consider- ation for, or allocable to, any of the Target Shares held by such Shareholder-employee; none of the Acquiring Fund Shares received by any such Shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the consideration paid to any such Shareholder-employee will be for services actually rendered and will be commensur- ate with amounts paid to third parties bargaining at arm's- length for similar services; and 4.3.9. Immediately after the Reorganization, the Share- holders will not own shares constituting "control" of Acquir- ing Fund within the meaning of section 304(c) of the Code. 5. COVENANTS 5.1. Each Fund covenants to operate its respective business in the ordinary course between the date hereof and the Closing, it being understood that (a) such ordinary course will include declar- ing and paying customary dividends and other distributions and such changes in operations as are contemplated by each Fund's normal business activities and (b) each Fund will retain exclusive control of the composition of its portfolio until the Closing; provided that Target shall not dispose of more than an insignificant portion of its historic business assets during such period without Acquir- ing Fund's prior consent. 5.2. Target covenants to call a shareholders' meeting to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby. 5.3. Target covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of mak- ing any distribution thereof, other than in accordance with the terms hereof. 5.4. Target covenants that it will assist America Trust in obtaining such information as America Trust reasonably requests concerning the beneficial ownership of Target Shares. 5.5. Target covenants that Target's books and records (in- cluding all books and records required to be maintained under the A-13 1940 Act and the rules and regulations thereunder) will be turned over to America Trust at the Closing. 5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in compliance with applicable federal securities laws. 5.7. Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instru- ments, 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 Acquir- ing Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof. 5.8. America Trust covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and such state securities laws it may deem appropri- ate in order to continue its operations after the Effective Time. 5.9. Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby. 6. CONDITIONS PRECEDENT Each Fund's obligations hereunder shall be subject to (a) per- formance by the other Fund of all the obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other Fund contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further condi- tions that, at or before the Effective Time: 6.1. This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by Investment Series's board of trustees and shall have been approved by Target's share- holders in accordance with applicable law. 6.2. All necessary filings shall have been made with the SEC and state securities authorities, and no order or directive shall have been received that any other or further action is required to permit the parties to carry out the transactions contemplated hereby. The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued, and the SEC shall not have issued an unfavorable report with respect to the Reorganization under sec- A-14 tion 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 (in- cluding the SEC and state securities authorities) deemed necessary by either Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on the assets or properties of either Fund, provided that either Fund may for itself waive any of such condi- tions. 6.3. At the Effective Time, no action, suit, or other pro- ceeding 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. Investment Series shall have received an opinion of Kirkpatrick & Lockhart LLP, counsel to America Trust, substantially to the effect that: 6.4.1. Acquiring Fund is a duly established series of America Trust, a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Declaration of Trust to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.4.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by America Trust on behalf of Acquiring Fund and (b) assuming due authorization, execution, and deli- very of this Agreement by Investment Series on behalf of Tar- get, is a valid and legally binding obligation of America Trust with respect to Acquiring Fund, enforceable in accor- dance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting cre- ditors' rights and by general principles of equity; 6.4.3. The Acquiring Fund Shares to be issued and dis- tributed to the Shareholders under this Agreement, assuming their due delivery as contemplated by this Agreement, will be duly authorized and validly issued and outstanding and fully paid and non-assessable, except to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obli- gations, and no shareholder of Acquiring Fund has any preemp- tive right to subscribe for or purchase such shares; 6.4.4. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated A-15 hereby will not, materially violate America Trust's Declara- tion of Trust or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which America Trust (with respect to Acquir- ing Fund) is a party or by which it is bound or (to the knowl- edge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judg- ment, or decree to which America Trust (with respect to Ac- quiring Fund) is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writ- ing to and accepted by Investment Series; 6.4.5. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by America Trust on behalf of Acquiring Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state securities laws; 6.4.6. America Trust is registered with the SEC as an investment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and 6.4.7. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to America Trust (with respect to Acquiring Fund) or any of its properties or assets attributable or allocable to Acquiring Fund and (b) America Trust (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund's business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Investment Series. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of docu- ments and copies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted sub- stantive attention to matters directly related to this Agreement and the Reorganization. A-16 6.5. America Trust shall have received an opinion of Kirk- patrick & Lockhart LLP, counsel to Investment Series, substantially to the effect that: 6.5.1. Target is a duly established series of Investment Series, a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Declaration of Trust to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.5.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by Investment Series on behalf of Target and (b) assuming due authorization, execution, and delivery of this Agreement by America Trust on behalf of Acquiring Fund, is a valid and legally binding obligation of Investment Series with respect to Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insol- vency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 6.5.3. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate Investment Series's Decla- ration of Trust or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which Investment Series (with respect to Target) is a party or by which it is bound or (to the knowl- edge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judg- ment, or decree to which Investment Series (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 America Trust; 6.5.4. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Investment Series on be- half of Target of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state secu- rities laws; 6.5.5. Investment Series is registered with the SEC as an investment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and A-17 6.5.6. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Investment Series (with respect to Target) or any of its properties or assets attributable or allocable to Target and (b) Investment Series (with respect to Target) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by America Trust. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of docu- ments and copies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted sub- stantive attention to matters directly related to this Agreement and the Reorganization. 6.6. Each Investment Company shall have received an opinion of Kirkpatrick & Lockhart LLP, its 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, such counsel may rely as to factual matters, exclusively and without independent verification, on the representations made in this Agreement (or in separate letters addressed to such coun- sel) 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, for federal income tax pur- poses: 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 distribu- tion of those shares to the Shareholders constructively in exchange for the Shareholders' Target Shares, will constitute a reorganization within the meaning of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; 6.6.2. No gain or loss will be recognized to Target on the transfer to Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assump- tion of the Liabilities or on the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares; A-18 6.6.3. No gain or loss will be recognized to Acquiring Fund on its receipt of the Assets in exchange solely for Acquiring Fund Shares and its assumption of the Liabilities; 6.6.4. Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; 6.6.5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and 6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will in- clude its holding period for those Target Shares, provided they are held as capital assets by the Shareholder at the Effective Time. Notwithstanding paragraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no opinion is expressed as to the effect of the Reorgan- ization on the Funds or any Shareholder with respect to any asset (including certain options, futures, and forward contracts included in the Assets) as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. At any time before the Closing, (a) Acquiring Fund may waive any of the foregoing conditions if, in the judgment of America Trust's board of trustees, such waiver will not have a material adverse effect on its shareholders' interests, and (b) Target may waive any of the foregoing conditions if, in the judgment of Investment Series's board of trustees, such waiver will not have a material adverse effect on the Shareholders' interests. 7. BROKERAGE FEES AND EXPENSES 7.1. Each Investment Company represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 7.2. Except as otherwise provided herein, all expenses incurred in connection with the transactions contemplated by this Agreement (whether or not they are consummated) will be borne by the Funds proportionately, as follows: each such expense will be borne by the Funds in proportion to their respective net assets as of the close of business on the last business day of the month in A-19 which such expense was incurred. Such expenses include: (a) ex- penses incurred in connection with entering into and carrying out the provisions of this Agreement; (b) expenses associated with the preparation and filing of the Registration Statement; (c) registra- tion or qualification fees and expenses of preparing and filing such forms as are necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection herewith in each state in which Target's shareholders are resident as of the date of the mailing of the Proxy Statement to such share- holders; (d) printing and postage expenses; (e) legal and account- ing fees; and (f) solicitation costs. 8. ENTIRE AGREEMENT; SURVIVAL Neither party has made any representation, warranty, or cove- nant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warran- ties, and covenants contained herein or in any document delivered pursuant hereto or in connection herewith shall survive the Clos- ing. 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 con- tained 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, 1995; or 9.2. By the parties' mutual agreement. In the event of termination under paragraphs 9.1.(c) or 9.2, there shall be no liability for damages on the part of either Fund, or the trustees or officers of either Investment Company, to the other Fund. 10. AMENDMENT This Agreement may be amended, modified, or supplemented at any time, notwithstanding approval thereof by Target's sharehold- ers, in such manner as may be mutually agreed upon in writing by the parties; provided that following such approval no such amend- A-20 ment shall have a material adverse effect on the Shareholders' in- terests. 11. MISCELLANEOUS 11.1. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachu- setts; 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 succes- sors and assigns any rights or remedies under or by reason of this Agreement. 11.3. The parties acknowledge that each Investment Company is a Business Trust. Notice is hereby given that this instrument is executed on behalf of each Investment Company's trustees solely in their capacity as trustees, and not individually, and that each In- vestment Company's obligations under this instrument are not bind- ing on or enforceable against any of its trustees, officers, or shareholders, but are only binding on and enforceable against the respective Funds' assets and property. Each Fund agrees that, in asserting any rights or claims under this Agreement, it shall look only to the other Fund's assets and property in settlement of such rights or claims and not to such trustees or shareholders. A-21 IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its duly authorized officer. ATTEST: PAINEWEBBER AMERICA FUND, on behalf of its series, PAINEWEBBER GROWTH AND INCOME FUND By: ________________________ __________________________________ Assistant Secretary Vice President ATTEST: PAINEWEBBER INVESTMENT SERIES, on behalf of its series, PAINEWEBBER GLOBAL ENERGY FUND By: ________________________ __________________________________ Assistant Secretary Vice President A-22 EX-99.4(B) 3 AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION EXHIBIT 4(b) AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION ("Agreement") is made as of July 25, 1995, between PaineWebber America Fund, a Massachusetts business trust ("PW Trust"), on behalf of PaineWebber Growth and Income Fund, a segre- gated portfolio of assets ("series") thereof ("Acquiring Fund"), and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc., a Maryland corporation ("Target"). (Acquiring Fund and Target are sometimes referred to herein individually as a "Fund" and collec- tively as the "Funds," and PW Trust and Target are sometimes referred to herein collectively as the "Investment Companies.") RECITAL The parties entered into an Agreement and Plan of Reorganiza- tion and Liquidation dated as of May 30, 1995 ("Original Agree- ment"), which provided, inter alia, for Target shareholders to receive Acquiring Fund shares pursuant to the transactions con- templated thereby. The parties now desire to amend and restate the Original Agreement to reflect a change in the class of Acquiring Fund shares to be distributed to holders of Class C Target Shares (as defined below). Therefore, the Original Agreement is hereby amended and restated to read in its entirety as follows: AMENDED AND RESTATED PROVISIONS This Agreement is intended to be, and is adopted as, a plan of a reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). The reorganization will involve the transfer to Acquiring Fund of Target's assets solely in exchange for voting shares of beneficial interest in Acquiring Fund ("Acquiring Fund Shares") and the assumption by Acquiring Fund of Target's liabilities, followed by the constructive distribution of the Acquiring Fund Shares to the holders of shares of common stock in Target ("Target Shares") in exchange therefor, all upon the terms and conditions set forth herein. The foregoing transactions are referred to herein as the "Reorganization." All agreements, representations, actions, and obligations described herein made or to be taken or undertaken by Acquiring Fund are made and shall be taken or undertaken by PW Trust on its behalf. Acquiring Fund's shares are divided into four classes, desig- nated Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring Fund Shares," re- spectively). Except as noted in the following sentence, these classes differ only with respect to the sales charges imposed on the purchase of shares and the fees ("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1 promulgated under the Investment Company Act of 1940 ("1940 Act"), as follows: (1) Class A Acquiring Fund Shares are offered at net asset value ("NAV") plus a sales charge, if applicable, and are subject to a 12b-1 service fee at the annual rate of 0.23% of the average daily net assets attributable to the class ("class assets"); (2) Class B Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to a contingent deferred sales charge and 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class assets; (3) Class C Acquiring Fund Shares are offered, currently only to the trustee of the PaineWebber Savings Investment Plan on behalf of that plan, at NAV without imposition of any sales charge and are not subject to any 12b-1 fee; and (4) Class D Acquiring Fund Shares are offered at NAV without imposition of any sales charge and are subject to 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class assets. These classes also may differ from one another with respect to the allocation of certain class- specific expenses other than 12b-1 fees. Only Classes A, C and D Acquiring Fund Shares are involved in the Reorganization. Target's shares are divided into three classes, designated Class A, Class B, and Class C shares ("Class A Target Shares," "Class B Target Shares," and "Class C Target Shares," respec- tively). Apart from differences in certain ancillary class-speci- fic expenses, these classes differ only with respect to the sales charges imposed on the purchase of shares and the 12b-1 fees, as follows: (1) Class A Target Shares are offered at NAV plus a sales charge, if applicable, and are subject to 12b-1 service and distri- bution fees at the annual rate for each of 0.25% of class assets; (2) Class B Target Shares are offered at NAV without imposition of any sales charge and are subject to 12b-1 service and distribution fees at the respective annual rates of 0.25% and 0.75% of class as- sets; and (3) Class C Target Shares are offered, currently to a limited group of investors (consisting of former employees of Kid- der, Peabody & Co. Incorporated ("Kidder") and their associated ac- counts, directors and trustees of mutual funds formerly distributed by Kidder (now known as Mitchell Hutchins/Kidder, Peabody Funds and PaineWebber/Kidder, Peabody Funds), Kidder's employee benefit plans, and participants in a certain portfolio asset allocation program), at NAV without imposition of any sales charge and are not subject to any 12b-1 fee. In consideration of the mutual promises herein, the parties covenant and agree as follows: B-2 1. PLAN OF REORGANIZATION AND LIQUIDATION OF TARGET 1.1. Target agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring Fund agrees in exchange therefor -- (a) to issue and deliver to Target the number of full and fractional (i) Class A Acquiring Fund Shares determined by dividing the net value of Target (computed as set forth in paragraph 2.1) ("Target Value") attributable to the Class A Target Shares by the NAV (computed as set forth in paragraph 2.2) of a Class A Acquiring Fund Share, (ii) Class D Acquiring Fund Shares determined by dividing the Target Value attribut- able to the Class B Target Shares by the NAV (as so computed) of a Class D Acquiring Fund Share, and (iii) Class C Acquiring Fund Shares determined by dividing the Target Value attribut- able to the Class C Target Shares by the NAV (as so computed) of a Class C Acquiring Fund Share; and (b) to assume all of Target's liabilities described in paragraph 1.3 ("Liabilities"). Such transactions shall take place at the Closing (as defined in paragraph 3.1). 1.2. The Assets shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and rec- ords, deferred and prepaid expenses shown as assets on Target's books, and other property owned by Target at the Effective Time (as defined in paragraph 3.1). 1.3. The Liabilities shall include (except as otherwise pro- vided herein) all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, con- tingent, 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 Agree- ment, including without limitation Target's share of the expenses described in paragraph 7.2. Notwithstanding the foregoing, Target agrees to use its best efforts to discharge all of its known Lia- bilities prior to the Effective Time. 1.4. At or immediately before the Effective Time, Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distri- buted substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Effective Time. B-3 1.5. At the Effective Time (or as soon thereafter as is rea- sonably practicable), Target shall constructively distribute the Acquiring Fund Shares received by it pursuant to paragraph 1.1 to Target's shareholders of record, determined as of the Effective Time (collectively "Shareholders" and individually a "Share- holder"), in exchange for their Target Shares. Such distribution shall be accomplished by the Funds' transfer agent ("Transfer Agent") opening accounts on Acquiring Fund's share transfer books in the Shareholders' names and transferring such Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Share- holder, by class (i.e., the account for a Shareholder of Class A Target Shares shall be credited with the respective pro rata number of Class A Acquiring Fund Shares due that Shareholder, the account for a Shareholder of Class B Target Shares shall be credited with the respective pro rata number of Class D Acquiring Fund Shares due that Shareholder, and the account for a Shareholder of Class C Tar- get Shares shall be credited with the respective pro rata number of Class C Acquiring Fund Shares due that Shareholder). All outstand- ing Target Shares, including any represented by certificates, shall simultaneously be canceled on Target's share transfer records. Ac- quiring Fund shall not issue certificates representing the Acquir- ing Fund Shares in connection with the Reorganization. 1.6. As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, Target shall be liquidated 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 includ- ing the date on which it is liquidated. 1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target's books of the Target Shares constructively exchanged there- for shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer. 2. VALUATION 2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the value of the Assets computed as of the close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on the date of the Closing ("Valuation Time"), using the valuation procedures set forth in Target's then-current prospectus and state- ment of additional information less (b) the amount of the Liabili- ties as of the Valuation Time. B-4 2.2. For purposes of paragraph 1.1(a), the NAV of a Class A Acquiring Fund Share, a Class C Acquiring Fund Share, and a Class D Acquiring Fund Share shall be computed as of the Valuation Time, using the valuation procedures set forth in Acquiring Fund's then- current prospectus and statement of additional information. 2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of Mitchell Hutchins Asset Management Inc. 3. CLOSING AND EFFECTIVE TIME 3.1. The Reorganization, together with related acts necessary to consummate the same ("Closing"), shall occur at the Funds' prin- cipal office on October 13, 1995, or at such other place and/or on such other date as the parties may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time as the parties may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the net value of Target and the NAV per Acquiring Fund Share is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading shall have been fully resumed and such reporting shall have been restored. 3.2. Target shall deliver to PW Trust at the Closing a sched- ule of the Assets as of the Effective Time, which shall set forth for all portfolio securities included therein their adjusted tax basis and holding period by lot. Target's custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be transferred to Acquir- ing Fund at the Effective Time and (b) all necessary taxes in con- junction with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. 3.3. Target shall deliver to PW Trust at the Closing a list of the names and addresses of the Shareholders and the number (by class) of outstanding Target Shares owned by each Shareholder, all as of the Effective Time, certified by the Secretary or Assistant Secretary of Target. The Transfer Agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund's share transfer books of accounts in the Shareholders' names. PW Trust shall issue and deliver a confirmation to Target evidencing the Acquiring Fund Shares (by class) to be credited to Target at the Effective Time or provide evidence satisfactory to Target that such Acquiring Fund Shares have been credited to Target's account on Acquiring Fund's books. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certi- B-5 ficates, receipts, or other documents as the other party or its counsel may reasonably request. 3.4. Each Investment Company shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipi- ent and dated the Effective Time, to the effect that the represen- tations and warranties it made in this Agreement are true and cor- rect at the Effective Time except as they may be affected by the transactions contemplated by this Agreement. 4. REPRESENTATIONS AND WARRANTIES 4.1. Target represents and warrants as follows: 4.1.1. Target is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland, and a copy of its Articles of Incorporation is on file with the Department of Assessments and Taxation of Maryland; 4.1.2. Target is duly registered as an open-end manage- ment investment company under the 1940 Act, and such registra- tion will be in full force and effect at the Effective Time; 4.1.3. At the Closing, Target will have good and market- able title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and upon delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto; 4.1.4. Target's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the Securities Act of 1933 ("1933 Act") and the 1940 Act and the rules and regulations there- under 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 mislead- ing; 4.1.5. Target is not in violation of, and the execution and delivery of this Agreement and consummation of the trans- actions contemplated hereby will not conflict with or violate, Maryland law or any provision of Target's Articles of Incorpo- ration or By-Laws or of any agreement, instrument, lease, or other undertaking to which Target is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound, B-6 except as previously disclosed in writing to and accepted by PW Trust; 4.1.6. Except as disclosed in writing to and accepted by PW Trust, all material contracts and other commitments of or applicable to Target (other than this Agreement and investment contracts, including options, futures, and forward contracts) will be terminated, or provision for discharge of any liabili- ties 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 re- leasing any rights Target may have had with respect to actions taken or omitted to be taken by any other party thereto prior to the Closing; 4.1.7. Except as otherwise disclosed in writing to and accepted by PW Trust, no litigation, administrative proceed- ing, or investigation of or before any court or governmental body is presently pending or (to Target's knowledge) threat- ened against Target or any of its properties or assets that, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business; Target knows of no facts that might form the basis for the institu- tion of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.1.8. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of Target's board of direc- tors, which has made the determinations required by Rule 17a- 8(a) under the 1940 Act; and, subject to approval by Target's shareholders and receipt of any necessary exemptive relief or no-action assurances requested from the Securities and Ex- change Commission ("SEC") or its staff with respect to sec- tions 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.1.9. At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target's shareholders; 4.1.10. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the Secu- rities Exchange Act of 1934 ("1934 Act"), or the 1940 Act for B-7 the execution or performance of this Agreement by Target, except for (a) the filing with the SEC of a registration statement by PW Trust on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amend- ment thereto ("Registration Statement"), including therein a prospectus/proxy statement ("Proxy Statement"), (b) receipt of the exemptive relief referenced in subparagraph 4.1.8, and (c) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.1.11. On the effective date of the Registration State- ment, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by PW Trust for use therein; 4.1.12. The Liabilities were incurred by Target in the ordinary course of its business; 4.1.13. Target qualified for treatment as a regulated investment company ("RIC") under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; and it has no earnings and prof- its accumulated in any taxable year in which the provisions of Subchapter M did not apply to it. The Assets shall be in- vested at all times through the Effective Time in a manner that ensures compliance with the foregoing; 4.1.14. Target is not under the jurisdiction of a court in a proceeding under Title 11 of the United States Code or similar case within the meaning of section 368(a)(3)(A) of the Code; 4.1.15. Not more than 25% of the value of Target's total assets (excluding cash, cash items, and U.S. government secu- rities) is invested in the stock or securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock or securities of five or fewer issuers; and B-8 4.1.16. Target will be liquidated as soon as reasonably practicable after the Reorganization, but in all events within six months after the Effective Time. 4.2. Acquiring Fund represents and warrants as follows: 4.2.1. PW Trust is an unincorporated voluntary associa- tion with transferable shares organized a as a business trust under a written instrument ("Business Trust"); it is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts; and a copy of its Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.2.2. PW Trust is duly registered as an open-end man- agement investment company under the 1940 Act, and such reg- istration will be in full force and effect at the Effective Time; 4.2.3. Acquiring Fund is a duly established and desig- nated series of PW Trust; 4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring Fund's assumption of the Liabilities) will be issued in exchange for the Assets in the Reorganization; 4.2.5. The Acquiring Fund Shares to be issued and deli- vered to Target hereunder will, at the Effective Time, have been duly authorized and, when issued and delivered as pro- vided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable, ex- cept to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obligations. Except as contemplated by this Agreement, Acquiring Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any of its shares, nor is there outstanding any secu- rity convertible into any of its shares; 4.2.6. Acquiring Fund's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.2.7. Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of PW Trust's B-9 Declaration of Trust or By-Laws or of any provision of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as previously disclosed in writing to and accepted by Target; 4.2.8. Except as otherwise disclosed in writing to and accepted by Target, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Acquiring Fund's knowledge) threatened against PW Trust with respect to Acquiring Fund or any of its properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund's finan- cial condition or the conduct of its business; Acquiring Fund knows of no facts that might form the basis for the institu- tion of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.2.9. The execution, delivery, and performance of this Agreement has been duly authorized as of the date hereof by all necessary action on the part of PW Trust's board of trus- tees, which has made the determinations required by Rule 17a- 8(a) under the 1940 Act; and, subject to receipt of any neces- sary exemptive relief or no-action assurances requested from the SEC or its staff with respect to sections 17(a) and 17(d) of the 1940 Act, this Agreement will constitute a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganiza- tion, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.2.10. No governmental consents, approvals, authoriza- tions, or filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for the execution or performance of this Agreement by PW Trust, except for (a) the filing with the SEC of the Registration Statement, (b) the filing with the SEC of a post-effective amendment to the registration statement of PW Trust ("PEA"), (c) receipt of the exemptive relief referenced in subparagraph 4.2.9, and (d) 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 State- ment, 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 B-10 provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the state- ments therein, in light of the circumstances under which such statements were made, not misleading; provided that the fore- going shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Target for use therein; 4.2.12. Acquiring Fund is a "fund" as defined in section 851(h)(2) of the Code; it qualified for treatment as a RIC under Subchapter M of the Code for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current tax- able year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the pro- visions of Subchapter M did not apply to it; 4.2.13. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its busi- ness as a series of an open-end investment company; nor does Acquiring Fund have any plan or intention to redeem or other- wise reacquire any Acquiring Fund Shares issued to the Share- holders pursuant to the Reorganization, other than through redemptions arising in the ordinary course of that business; 4.2.14. Acquiring Fund (a) will actively continue Tar- get's business in substantially the same manner that Target conducted that business immediately before the Reorganization, (b) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordi- nary course of that business and dispositions necessary to maintain its status as a RIC under Subchapter M of the Code, and (c) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispo- sitions thereof to maintain such status; 4.2.15. There is no plan or intention for Acquiring Fund to be dissolved or merged into another corporation or business trust or any "fund" thereof (within the meaning of section 851(h)(2) of the Code) following the Reorganization; 4.2.16. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock or securities of any one issuer and (b) not more than 50% of the value of such assets will be B-11 invested in the stock or securities of five or fewer issuers; and 4.2.17. Acquiring fund does not own, directly or indi- rectly, nor at the Effective Time will it own, directly or indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target. 4.3. Each Fund represents and warrants as follows: 4.3.1. The fair market value of the Acquiring Fund Shares, when received by the Shareholders, will be approxi- mately equal to the fair market value of their Target Shares constructively surrendered in exchange therefor; 4.3.2. Its management (a) is unaware of any plan or intention of Shareholders to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization and (b) does not anticipate dis- positions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as an open-end investment company. Consequently, its management expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganiza- tion will be de minimis. Nor does its management anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganization; 4.3.3. The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization; 4.3.4. Immediately following consummation of the Reor- ganization, Acquiring Fund will hold substantially the same assets and be subject to substantially the same liabilities that Target held or was subject to immediately prior thereto, plus any liabilities and expenses of the parties incurred in connection with the Reorganization; 4.3.5. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 4.3.6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 4.3.7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, held by Target immediately before the Reorganization. For the B-12 purposes of this representation, any amounts used by Target to pay its Reorganization expenses and redemptions and distribu- tions made by it immediately before the Reorganization (except for (a) distributions made to conform to its policy of distri- buting all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 of the Code and (b) redemptions not made as part of the Reorganization) will be included as assets thereof held immediately before the Reorganization; 4.3.8. None of the compensation received by any Share- holder who is an employee of Target will be separate consider- ation for, or allocable to, any of the Target Shares held by such Shareholder-employee; none of the Acquiring Fund Shares received by any such Shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the consideration paid to any such Shareholder-employee will be for services actually rendered and will be commensur- ate with amounts paid to third parties bargaining at arm's- length for similar services; and 4.3.9. Immediately after the Reorganization, the Share- holders will not own shares constituting "control" of Acquir- ing Fund within the meaning of section 304(c) of the Code. 5. COVENANTS 5.1. Each Fund covenants to operate its respective business in the ordinary course between the date hereof and the Closing, it being understood that (a) such ordinary course will include declar- ing and paying customary dividends and other distributions and such changes in operations as are contemplated by each Fund's normal business activities and (b) each Fund will retain exclusive control of the composition of its portfolio until the Closing; provided that Target shall not dispose of more than an insignificant portion of its historic business assets during such period without Acquir- ing Fund's prior consent. 5.2. Target covenants to call a shareholders' meeting to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby. 5.3. Target covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of mak- ing any distribution thereof, other than in accordance with the terms hereof. 5.4. Target covenants that it will assist PW Trust in obtain- ing such information as PW Trust reasonably requests concerning the beneficial ownership of Target Shares. B-13 5.5. Target covenants that Target's books and records (in- cluding all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder) will be turned over to PW Trust at the Closing. 5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in compliance with applicable federal securities laws. 5.7. Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instru- ments, 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 Acquir- ing Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof. 5.8. PW Trust covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and such state securities laws it may deem appropri- ate in order to continue its operations after the Effective Time. 5.9. Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby. 6. CONDITIONS PRECEDENT Each Fund's obligations hereunder shall be subject to (a) per- formance by the other Fund of all the obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other Fund contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further condi- tions that, at or before the Effective Time: 6.1. This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by Target's board of directors and shall have been approved by Target's shareholders in accordance with applicable law. 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 and the PEA shall have become effective under the 1933 Act, no stop orders suspending the effec- B-14 tiveness 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 nec- essary by either Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on the assets or properties of either Fund, provided that either Fund may for itself waive any of such conditions. 6.3. At the Effective Time, no action, suit, or other pro- ceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or to obtain damages or other relief in connection with, the transactions contemplated hereby. 6.4. Target shall have received an opinion of Kirkpatrick & Lockhart LLP, counsel to PW Trust, substantially to the effect that: 6.4.1. Acquiring Fund is a duly established series of PW Trust, a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Declaration of Trust to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.4.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by PW Trust on behalf of Acquiring Fund and (b) assuming due authorization, execution, and delivery of this Agreement by Target, is a valid and legally binding obli- gation of PW Trust with respect to Acquiring Fund, enforceable in accordance with its terms, except as the same may be lim- ited by bankruptcy, insolvency, fraudulent transfer, reorgani- zation, 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 dis- tributed to the Shareholders under this Agreement, assuming their due delivery as contemplated by this Agreement, will be duly authorized and validly issued and outstanding and fully paid and non-assessable, except to the extent that under Massachusetts law shareholders of a Business Trust may, under certain circumstances, be held personally liable for its obli- gations, and no shareholder of Acquiring Fund has any preemp- tive right to subscribe for or purchase such shares; B-15 6.4.4. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate PW Trust's Declaration of Trust or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investiga- tion) to which PW Trust (with respect to Acquiring Fund) is a party or by which it is bound or (to the knowledge of such counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposi- tion of any penalty, under any agreement, judgment, or decree to which PW Trust (with respect to Acquiring Fund) is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by Target; 6.4.5. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by PW Trust on behalf of Acquiring Fund of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state secu- rities laws; 6.4.6. PW Trust is registered with the SEC as an invest- ment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such reg- istration; and 6.4.7. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to PW Trust (with respect to Acquiring Fund) or any of its prop- erties or assets attributable or allocable to Acquiring Fund and (b) PW Trust (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund's business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of docu- ments and copies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted sub- stantive attention to matters directly related to this Agreement and the Reorganization. B-16 6.5. PW Trust shall have received an opinion of Sullivan & Cromwell, counsel to Target, substantially to the effect that: 6.5.1. Target is a corporation duly organized and validly existing under the laws of the State of Maryland with power under its Articles of Incorporation to own all of its properties and assets and, to the knowledge of such counsel, to carry on its business as presently conducted; 6.5.2. This Agreement (a) has been duly authorized, exe- cuted, and delivered by Target and (b) assuming due authoriza- tion, execution, and delivery of this Agreement by PW Trust on behalf of Acquiring Fund, is a valid and legally binding obli- gation 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; 6.5.3. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate Target's Articles of Incorporation or By-Laws or any provision of any agreement (known to such counsel, without any independent inquiry or investigation) to which Target is a party or by which it is bound or (to the knowledge of such counsel, without any inde- pendent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by PW Trust; 6.5.4. To the knowledge of such counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Target of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be required under state securities laws; 6.5.5. Target is registered with the SEC as an invest- ment company, and to the knowledge of such counsel no order has been issued or proceeding instituted to suspend such registration; and 6.5.6. To the knowledge of such counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Target or any of its properties or assets and (b) Target is not a party to or subject to the provisions of any order, B-17 decree, or judgment of any court or governmental body that materially and adversely affects its business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by PW Trust. In rendering such opinion, such counsel may (i) rely, as to matters governed by the laws of the State of Maryland, on an opinion of competent Maryland counsel, (ii) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and cop- ies thereof without independent verification thereof, (iii) limit such opinion to applicable federal and state law, and (iv) define the word "knowledge" and related terms to mean the knowledge of attorneys then with such firm who have devoted substantive atten- tion to matters directly related to this Agreement and the Reorgan- ization. 6.6. PW Trust shall have received an opinion of Kirkpatrick & Lockhart LLP, its counsel, addressed to and in form and substance satisfactory to PW Trust, and Target shall have received an opinion of Sullivan & Cromwell, its counsel, addressed to and in form and substance satisfactory to Target, each as to the federal income tax consequences mentioned below (each a "Tax Opinion"). In rendering its Tax Opinion, each such counsel may rely as to factual matters, exclusively and without independent verification, on the represen- tations made in this Agreement (or in separate letters addressed to such counsel) and the certificates delivered pursuant to paragraph 3.4. Each Tax Opinion shall be substantially to the effect that, based on the facts and assumptions stated therein, for federal income tax purposes: 6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities, followed by Target's distribu- tion of those shares to the Shareholders constructively in exchange for the Shareholders' Target Shares, will constitute a reorganization within the meaning of section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; 6.6.2. No gain or loss will be recognized to Target on the transfer to Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assump- tion of the Liabilities or on the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares; 6.6.3. No gain or loss will be recognized to Acquiring Fund on its receipt of the Assets in exchange solely for Acquiring Fund Shares and its assumption of the Liabilities; 6.6.4. Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before B-18 the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; 6.6.5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and 6.6.6. A Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will in- clude its holding period for those Target Shares, provided they are held as capital assets by the Shareholder at the Effective Time. Notwithstanding paragraphs 6.6.2 and 6.6.4, each Tax Opinion may state that no opinion is expressed as to the effect of the Reorgan- ization on the Funds or any Shareholder with respect to any asset (including certain options, futures, and forward contracts included in the Assets) as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. At any time before the Closing, (a) Acquiring Fund may waive any of the foregoing conditions if, in the judgment of PW Trust's board of trustees, such waiver will not have a material adverse effect on its shareholders' interests, and (b) Target may waive any of the foregoing conditions if, in the judgment of its board of directors, such waiver will not have a material adverse effect on the Shareholders' interests. 7. BROKERAGE FEES AND EXPENSES 7.1. Each Investment Company represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 7.2. Except as otherwise provided herein, all expenses in- curred in connection with the transactions contemplated by this Agreement (whether or not they are consummated) will be borne by the Funds proportionately, as follows: each such expense will be borne by the Funds in proportion to their respective net assets as of the close of business on the last business day of the month in which such expense was incurred. Such expenses include: (a) ex- penses incurred in connection with entering into and carrying out the provisions of this Agreement; (b) expenses associated with the preparation and filing of the Registration Statement; (c) registra- tion or qualification fees and expenses of preparing and filing such forms as are necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection herewith in each state in which Target's shareholders are resident as of the date of the mailing of the Proxy Statement to such share- holders; (d) printing and postage expenses; (e) legal and account- ing fees; and (f) solicitation costs. B-19 8. ENTIRE AGREEMENT; SURVIVAL Neither party has made any representation, warranty, or cove- nant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warran- ties, and covenants contained herein or in any document delivered pursuant hereto or in connection herewith shall survive the Clos- ing. 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 con- tained 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, 1995; 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 sharehold- ers, in such manner as may be mutually agreed upon in writing by the parties; provided that following such approval no such amend- ment shall have a material adverse effect on the Shareholders' in- terests. B-20 11. MISCELLANEOUS 11.1. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachu- setts; 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 succes- sors and assigns any rights or remedies under or by reason of this Agreement. 11.3. The parties acknowledge that PW Trust is a Business Trust. Notice is hereby given that this instrument is executed on behalf of PW Trust's trustees solely in their capacity as trustees, and not individually, and that PW Trust's obligations under this instrument are not binding on or enforceable against any of its trustees, officers, or shareholders, but are only binding on and enforceable against Acquiring Fund's assets and property. Target agrees that, in asserting any rights or claims under this Agree- ment, it shall look only to Acquiring Fund's assets and property in settlement of such rights or claims and not to such trustees or shareholders. IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its duly authorized officer. ATTEST: PAINEWEBBER AMERICA FUND, on behalf of its series, PAINEWEBBER GROWTH AND INCOME FUND By: ________________________ __________________________________ Assistant Secretary Vice President ATTEST: MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC. By: ________________________ __________________________________ Assistant Secretary Vice President B-21 EX-99.10(D) 4 MULTIPLE CLASS PLAN EXHIBIT 10(d) PAINEWEBBER AMERICA FUND MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3 PaineWebber America Fund, and its sole operating series: PaineWebber Growth and Income Fund (the "Fund"), hereby adopt this Multiple Class Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"). A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED: 1. Class A Shares. Class A shares of the Fund are sold to the general public subject to an initial sales charge. The initial sales charge for the Fund is waived for certain eligible purchasers and reduced or waived for certain large volume purchases. The maximum sales charge is 4.5% of the public offering price for Class A shares of the Fund. Class A shares of the Fund are subject to an annual service fee based on a percentage of the average daily net assets of the Class A shares of the Fund paid pursuant to a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The percentage is calculated at a blended annual rate of 0.25% of the average daily net assets of Class A shares sold on or after December 2, 1988 and 0.15% of the average daily net assets of Class A shares sold prior to that date. Class A shares of the Fund issued on or after November 1, 1995 will be subject to a contingent deferred sales charge ("CDSC") on redemptions of shares (i) purchased without an initial sales charge due to a sales charge waiver for purchases of $1 million or more and (ii) held less than one year. The Class A CDSC is equal to 1% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class A shares of the Fund held one year or longer and Class A shares of the Fund acquired through reinvestment of dividends or capital gains distributions on shares otherwise subject to a Class A CDSC are not subject to the CDSC. The CDSC for Class A shares of the Fund will be waived under certain circumstances. 2. Class B Shares. Class B shares of the Fund are sold to the general public subject to a CDSC, but without imposition of an initial sales charge. The maximum CDSC for Class B shares of the Fund is equal to 5% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class B shares of the Fund held six years or longer and Class B shares of the Fund acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. Class B shares of the Fund are subject to an annual service fee of .25% of average daily net assets and a distribution fee of .75% of average daily net assets of the Class B shares of the Fund, each paid pursuant to a plan of distribution adopted pursuant to Rule 12b- 1 under the 1940 Act. Class B shares of the Fund convert to Class A shares approximately six years after issuance at relative net asset value. 3. Class C Shares. Class C shares are sold without imposition of an initial sales charge or CDSC and are not subject to any service or distribution fees. Class C shares of the Fund are available for purchase only by: (i) employee benefit and retirement plans, other than individual retirement accounts and self-employed retirement plans, of Paine Webber Group Inc. and its affiliates; (ii) certain unit investment trusts sponsored by PaineWebber Incorporated; (iii) participants in certain wrap fee investment advisory programs that are currently or in the future sponsored by PaineWebber Incorporated and that may invest in PaineWebber proprietary funds, provided that shares are purchased through or in connection with those programs; and (iv) the holders of Class C shares of any Mitchell Hutchins/Kidder Peabody ("MH/KP") mutual fund provided that such shares are issued in connection with the reorganization of a MH/KP mutual fund into that Fund. 4. Class D Shares. Class D shares of the Fund are sold to the general public without imposition of a sales charge. Class D shares of the Fund are subject to an annual service fee of .25% of average daily net assets and a distribution fee of .75% of average daily net assets of Class D shares of the Fund, each pursuant to a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. Class D shares of the Fund issued on or after November 1, 1995 will be subject to a CDSC on redemptions of Class D shares held less than one year equal to 1% of the lower of: (i) the net asset value of the shares at the time of purchase or (ii) the net asset value of the shares at the time of redemption. Class D shares of the Fund held one year or longer and Class D shares of the Fund acquired through reinvestment of dividends or capital gains distributions are not subject to the CDSC. The CDSC for Class D shares of the Fund will be waived under certain circumstances. B. EXPENSE ALLOCATIONS OF EACH CLASS: Certain expenses may be attributable to a particular Class of shares of the Fund ("Class Expenses"). Class Expenses are charged directly to the net assets of the particular Class and, thus, are borne on a pro rata basis by the outstanding shares of that Class. In addition to the distribution and service fees described above, each Class may also pay a different amount of the following other expenses: (1) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders of a specific Class; (2) Blue Sky registration fees incurred by a specific Class of shares; (3) SEC registration fees incurred by a specific Class of shares; (4) expenses of administrative personnel and services required to support the shareholders of a specific Class of shares; (5) Trustees' fees incurred as a result of issues relating to a specific Class of shares; (6) litigation expenses or other legal expenses relating to a specific Class of shares; and (7) transfer agent fees identified as being attributable to a specific Class. C. EXCHANGE PRIVILEGES: Class A, Class B and Class D shares of the Fund may be exchanged for shares of the corresponding Class of other PaineWebber mutual funds and Mitchell Hutchins/Kidder, Peabody ("MH/KP") mutual funds, or may be acquired through an exchange of shares of the corresponding Class of those funds. Class C shares of the Fund are not exchangeable. These exchange privileges may be modified or terminated by the Fund, and exchanges may only be made into funds that are legally registered for sale in the investor's state of residence. D. CLASS DESIGNATION: Subject to approval by the Board of Trustees of PaineWebber America Fund, the Fund may alter the nomenclature for the designations of one or more of its classes of shares. E. ADDITIONAL INFORMATION: This Multiple Class Plan is qualified by and subject to the terms of the then current prospectus for the applicable Class; provided, however, that none of the terms set forth in any such prospectus shall be inconsistent with the terms of the Classes contained in this Plan. The prospectus for each Class contains additional information about that Class and the Fund's multiple class structure. F. DATE OF EFFECTIVENESS: This Multiple Class Plan is effective as of the date hereof, provided that the CDSC imposed on the Class A shares and Class D shares of the Fund shall apply only to Class A shares and Class D shares issued on or after November 1, 1995. July 20, 1995 EX-99.11(A) 5 OPINION OF KIRKPATRICK & LOCKHART LLP EXHIBIT 11(a) July 26, 1995 PaineWebber America Fund 1285 Avenue of the Americas New York, New York 10019 Ladies and Gentlemen: You have requested our opinion as to certain matters regarding the issuance by PaineWebber America Fund ("Trust") of Class A, Class B, Class C and Class D shares of beneficial interest (the "Shares") of PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of the Trust, pursuant to (i) an Amended and Restated Agreement and Plan of Reorganization and Termination between the Trust, on behalf of Growth and Income Fund, and PaineWebber Investment Series, on behalf of its series PaineWebber Global Energy Fund ("Global Energy Fund"), and (ii) an Amended and Restated Agreement and Plan of Reorganization and Liquidation between the Trust, on behalf of Growth and Income Fund, and Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("MH/KP Fund") (referred to collectively as "Plans"). Under the Plans, Growth and Income Fund would acquire the assets of MH/KP Fund and Global Energy Fund in exchange for the Shares and the assumption by Growth and Income Fund of MH/KP Fund's and Global Energy Fund's liabilities. In connection with the Plans, the Trust is about to file a Registration Statement on Form N-14 (the "N-14") for the purpose of registering the Shares under the Securities Act of 1933, as amended ("1933 Act") to be issued pursuant to the Plan. We have examined originals or copies believed by us to be genuine of the Trust's Declaration of Trust and By-Laws, minutes of meetings of the Trust's board of trustees, each Plan, and such other documents relating to the authorization and issuance of the Shares as we have deemed relevant. Based upon that examination, we are of the opinion that the Shares being registered by the N-14 may be issued in accordance with the Plans and the Trust's Declaration of Trust and By-Laws, subject to compliance with the 1933 Act, the Investment Company Act of 1940, as amended, and applicable state laws regulating the distribution of securities, and when so issued, those Shares will be legally issued, fully paid and non-assessable. The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, Trust shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust or a series of the Trust, including Growth and Income Fund (each, a "Series"). The Declaration of Trust states that the creditors of, contractors with, and claimants against, the Trust or a Series shall look only to the assets of the Trust or such Series for payment. It also requires that notice of such disclaimer be given in each note, bond, contract, certificate, undertaking or instrument made or issued by the officers or the trustees of the Trust on behalf of the Trust or a Series. The Declaration of Trust further provides: (i) for indemnification from Trust or Series assets, as appropriate, for all losses and expenses of any shareholder held personally liable for the obligations of the Trust or Series solely by virtue of ownership of Shares of a Series; and (ii) for a Series to assume the defense of any claim against the shareholder for any act or obligation of the Series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust or a Series would be unable to meet its obligations. We hereby consent to this opinion accompanying the Form N-14 that the Trust plans to file with the Securities and Exchange Commission and to the reference to our firm under the caption "Miscellaneous -- Legal Matters" in the Prospectus/Proxy Statement filed as part of the Form N-14. Sincerely yours, KIRKPATRICK & LOCKHART LLP By: /s/ Elinor W. Gammon EX-99.12(A) 6 OPINION AND CONSENT OF KIRKPATRICK & LOCKHART LLP EXHIBIT 12(a) July 28, 1995 PaineWebber America Fund 1285 Avenue of the Americas New York, NY 10019 Ladies and Gentlemen: PaineWebber America Fund ("PW Trust"), on behalf of PaineWebber Growth and Income Fund, a segregated portfolio of assets ("series") of PW Trust ("Acquiring Fund"), has requested our opinion as to certain federal income tax consequences of the proposed acquisition by Acquiring Fund of Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. ("Target"),1/ pursuant to an Amended and Restated Agreement and Plan of Reorganization and Liquidation between them dated as of July 25, 1995 ("Plan"), attached as an exhibit to the prospectus/proxy statement to be furnished in connection with the solicitation of proxies by Target's board of directors for use at a special meeting of Target shareholders ("Special Meeting") to be held on October 6, 1995 ("Proxy"), included in the registration statement on Form N-14 to be filed with the Securities and Exchange Commission ("SEC") on or about the datehereof ("Registration Statement").2/ Specifically, PW Trust has requested our opinion: (1) that the acquisition by Acquiring Fund of Target's assets in exchange solely for voting shares of beneficial interest in Acquiring Fund and the assumption by Acquiring Fund of Target's liabilities, followed by the distribution of those shares by Target pro rata to its shareholders of record as of the close of regular trading on the New York Stock Exchange, Inc. on the date of the Closing (as hereinafter defined) ("Shareholders") constructively in exchange for their shares of common stock in Target ("Target Shares") (such transaction sometimes being referred to herein as the "Reorganization"), will constitute a "reorganization" within the meaning of --------------------- 1/ Acquiring Fund and Target are referred to herein individually either by such names or as a "Fund" and collectively as the "Funds," and PW Trust and Target are referred to herein individually either by such names or as an "Investment Company" and collectively as the "Investment Companies". 2/ This letter supersedes and replaces our previous letter addressed to PW Trust dated May 30, 1995 which is hereby withdrawn and may not be relied on for any purpose. PaineWebber America Fund July 28, 1995 Page 2 section 368(a)(1)(C)3/ and that each Fund will be a "party to a reorganization" within the meaning of section 368(b), (2) that Target, the Shareholders, and Acquiring Fund will recognize no gain or loss upon the Reorganization, and (3) regarding the basis and holding period after the Reorganization of the transferred assets and the shares of Acquiring Fund issued pursuant thereto. In rendering this opinion, we have examined (1) Target's currently effective prospectus and statement of additional information ("SAI"), both dated June 1, 1995, and Acquiring Fund's with the SEC (both expected to be effective June 1, 1995), and the currently effective prospectus and SAI, both dated May 12, 1995, (2) the Proxy, (3) the Plan, and (4) such other documents as we have deemed necessary or appropriate for the purposes hereof. As to various matters of fact material to this opinion, we have relied, exclusively and without independent verification, on statements of responsible officers of each Investment Company and Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), each Fund's administrator, and the representations described below and made in the Plan (as contemplated in paragraph 6.6 thereof) (collectively "Representations"). FACTS PW Trust is as an unincorporated voluntary association with transferable shares formed as a business trust under the laws of the Commonwealth of Massachusetts (commonly referred to as a "Massachusetts business trust") pursuant to a Declaration of Trust dated October 31, 1986, and is the successor to PaineWebber America Fund, Inc., a Maryland corporation; Acquiring Fund commenced operations as a series thereof on December 20, 1983. Target was formed as a Maryland corporation pursuant to Articles of Incorporation dated June 20, 1985. Each Investment Company is registered with the SEC as an open-end management investment company under the Investment Company Act of 1940 ("1940 Act"). In addition to serving as each Fund's administrator, Mitchell Hutchins, a wholly owned subsidiary of PaineWebber Incorporated, serves as investment manager to Target and investment adviser to Acquiring Fund and is the distributor of each Fund's shares. --------------------- 3/ All section references are to the Internal Revenue Code of 1986, as amended ("Code"), and all "Treas. Reg. Section" References are to the regulations under the Code ("Regulations"). PaineWebber America Fund July 28, 1995 Page 3 Target currently offers for sale three classes of shares, designated Class A, Class B, and Class C shares ("Class A Target Shares," "Class B Target Shares," and "Class C Target Shares," respectively). Apart from differences in certain ancillary class-specific expenses, these classes differ only with respect to the sales charges imposed on the purchase of shares and the fees ("12b-1 fees") payable by each class pursuant to plans adopted under Rule 12b-1 promulgated under the 1940 Act. Acquiring Fund's shares are divided into four classes, designated Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring Fund Shares," respectively). Except for possible differences with respect to the allocation of class-specific expenses other than 12b-1 fees, these classes differ only with respect to the sales charges imposed on the purchase of shares and the 12b-1 fees payable by each class. Only Classes A, C, and D Acquiring Fund Shares are involved in the Reorganization. At or immediately before the close of business on the date on which the Reorganization, together with all related acts necessary to consummate the same ("Closing") occurs, scheduled for October 13, 1995 (or on such other date or at such other time as the parties may agree) ("Effective Time"), Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distributed substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Effective Time. PaineWebber America Fund July 28, 1995 Page 4 The Funds' investment objectives, which are substantively identical, and their investment policies are described in the Proxy and their respective prospectuses and SAIs. Although there are differences in some of those investment policies, it is not expected that Acquiring Fund will revise its investment objective or those of Target policies following the Reorganization to reflect objective or those of Target. Since Target is permitted to invest in securities having characteristics different from those permitted for Acquiring Fund, certain of the securities currently held in Target's portfolio may need to be sold, rather than transferred to Acquiring Fund. If the Reorganization is approved, Target will sell any assets that are inconsistent with Acquiring Fund's investment policies prior to the Effective Time, and the proceeds thereof will be held in temporary investments or reinvested in assets that qualify to be held by Acquiring Fund. The Reorganization was recommended by Mitchell Hutchins to Target's board of directors and PW Trust's board of trustees (each a "board") at meetings thereof held on April 26 and April 28, 1995, respectively, and at separate meetings of each board held on July 20, 1995. In considering the Reorganization, each board made an extensive inquiry into a number of factors (which are described in the Proxy, together with Mitchell Hutchin's advice and recommendations to the boards and the purposes of the Reorganization). Pursuant thereto, each board approved the Plan, subject to approval of Target's shareholders. In doing so, each board, including a majority of its members who are not "interested persons" (as that term is defined in the 1940 Act) of Target or PW Trust, as applicable, determined that the Reorganization is in its Fund's best interests, that the terms of the Reorganization are fair and reasonable, and that its Fund's shareholders' interests will not be diluted as a result of the Reorganization. Similarly, PW Trust's board of trustees, including a majority of its members who are not "interested persons" (as so defined) of PW Trust, has concluded that the Reorganization is in Acquiring Fund's best interests, that the terms of the Reorganization are fair and reasonable, and that the interests of Acquiring Fund's shareholders will not be diluted as a result of the Reorganization. PaineWebber America Fund July 28, 1995 Page 5 The Plan, which specifies that it is intended to be, and is adopted as, a plan of a reorganization described in section 368(a)(1)(C), provides in relevant part for the following: (1) The acquisition by Acquiring Fund of all the Assets (as defined below) in exchange solely for (a) the number of full and fractional (i) Class A Acquiring Fund Shares determined by dividing the net value of Target ("Target Value") attributable to the Class A Target Shares by the net asset value ("NAV") of a Class A Acquiring Fund Share, (ii) Class D Acquiring Fund Shares determined by dividing the Target Value attributable to the Class B Target Shares by the NAV of a Class D Acquiring Fund Share, and (iii) Class C Acquiring Fund Shares determined by dividing the Target Value attributable to the Class C Target Shares by the NAV of a Class C Acquiring Fund Share, and (b) Acquiring Fund's assumption of the Liabilities (as defined below), (2) The constructive distribution of such Acquiring Fund Shares to the Shareholders, and (3) The subsequent liquidation of Target. The distribution described in (2) will be accomplished by transferring the Acquiring Fund Shares then credited to Target's account on Acquiring Fund's share transfer records to open accounts on those records established in the Shareholders' names, with each PaineWebber America Fund July 28, 1995 Page 6 Shareholder's account being credited with the respective pro rata number of full and fractional (rounded to three decimal places) Acquiring Fund Shares due such Shareholder, by class. All outstanding Target Shares, including any represented by certificates, simultaneously will be canceled on Target's share transfer records. The Target assets to be acquired by Acquiring Fund 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 Target's books, and other property owned by Target at the Effective Time (collectively "Assets"). Acquiring Fund will assume all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Effective Time, and whether or not specifically referred to in the Plan, including without limitation Target's share of the expenses incurred in connection with the Reorganization (collectively "Liabilities"). Target agreed in the Plan to use its best efforts to discharge all of its known liabilities and obligations prior to the Effective Time. REPRESENTATIONS The representations enumerated below have been made to us by appropriate officers of each Investment Company. Each of PW Trust, on behalf of Acquiring Fund, and Target has represented and warranted to us as follows: 1. The fair market value of the Acquiring Fund Shares, when received by the Shareholders, will be approximately equal to the fair market value of their Target Shares constructively surrendered in exchange therefor; 2. Its management (a) is unaware of any plan or intention of Shareholders to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be received by them in PaineWebber America Fund July 28, 1995 Page 7 the Reorganization and (b) does not anticipate dispositions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as an open-end investment company. Consequently, its management expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be de minimis. Nor does its management anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganization; 3. The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization; 4. Immediately following consummation of the Reorganization, Acquiring Fund will hold substantially the same assets and be subject to substantially the same liabilities that Target held or was subject to immediately prior thereto, plus any liabilities and expenses of the parties incurred in connection with the Reorganization; 5. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, held by Target immediately before the Reorganization. For the purposes of this representation, any amounts used by Target to pay its Reorganization expenses and redemptions and distributions made by it immediately before the Reorganization (except for (a) distributions made to conform to its policy of distributing all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 and (b) redemptions not made as part of the Reorganization) will be included as assets thereof held immediately before the Reorganization; 8. None of the compensation received by any Shareholder who is an employee of Target will be separate consideration for, or allocable to, any of the Target Shares held by such Shareholder-employee; none of the Acquiring Fund Shares received by any such Shareholder-employee will be separate consideration for, or allocable to, any employment agreement; PaineWebber America Fund July 28, 1995 Page 8 and the consideration paid to any such Shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services; and 9. Immediately after the Reorganization, the Shareholders will not own shares constituting "control" of Acquiring Fund within the meaning of section 304(c). Target also has represented and warranted to us as follows: 1. The Liabilities were incurred by Target in the ordinary course of its business; 2. Target qualified for treatment as a regulated investment company ("RIC") under Subchapter M of the Code ("Subchapter M") for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Sub-chapter M did not apply to it; 3. Target is not under the jurisdiction of a court in a proceeding under Title 11 of the United States Code or similar case within the meaning of section 368(a)(3)(A); 4. Not more than 25% of the value of Target's total assets (excluding cash, cash items, and U.S. government securities) is invested in the stock or securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock or securities of five or fewer issuers; and 5. Target will be liquidated as soon as reasonably practicable after the Reorganization, but in all events within six months after the Effective Time. PW Trust also has represented and warranted to us on behalf of Acquiring Fund as follows: 1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it qualified for treatment as a RIC under Subchapter M for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; PaineWebber America Fund July 28, 1995 Page 9 2. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its business as a series of an open-end investment company; nor does Acquiring Fund have any plan or intention to redeem or otherwise reacquire any Acquiring Fund Shares issued to the Shareholders pursuant to the Reorganization, other than through redemptions arising in the ordinary course of that business; 3. Acquiring Fund (a) will actively continue Target's business in substantially the same manner that Target conducted that business immediately before the Reorganization, (b) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordinary course of that business and dispositions necessary to maintain its status as a RIC under Subchapter M, and (c) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispositions thereof to maintain such status; 4. There is no plan or intention for Acquiring Fund to be dissolved or merged into another corporation or business trust or any "fund" thereof (within the meaning of section 851(h)(2)) following the Reorganization; 5. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock or securities of any one issuer and (b) not more than 50% of the value of such assets will be invested in the stock or securities of five or fewer issuers; and 6. Acquiring fund does not own, directly or indirectly, nor at the Effective Time will it own, directly or indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target. OPINION Based solely on the facts set forth above, and conditioned on (1) the Representations being true at the time of Closing and (2) the Reorganization being consummated in accordance with the Plan, our opinion (as explained more fully in the next section of this letter) is as follows: PaineWebber America Fund July 28, 1995 Page 10 1. Acquiring Fund's acquisition of the Assets solely in exchange for the Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities, followed by Target's distribution of those shares pro rata to the Shareholders constructively in exchange for their Target Shares, will constitute a reorganization within the meaning of section 368(a)(1)(C), and each Fund will be "a party to a reorganization" within the meaning of section 368(b); 2. No gain or loss will be recognized to Target on the transfer of the Assets to Acquiring Fund solely in exchange for the Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities or upon the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares (section 361); 3. No gain or loss will be recognized to Acquiring Fund on its receipt of the Assets solely in exchange for the Acquiring Fund Shares and its assumption of the Liabilities (section 1032(a)); 4. Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before the Reorganization (section 362(b)), and Acquiring Fund's holding period for the Assets will include Target's holding period therefor (section 1223(2)); 5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization (section 354(a)); and 6. A Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares (section 358(a)), and its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares, provided they are held as capital assets by the Shareholder on the Closing Date (section 1223(1)). The foregoing opinion (1) is based on, and is conditioned on the continued applicability of, the provisions of the Code and the Regulations, judicial decisions, and rulings and other pronouncements of the Internal Revenue Service ("Service") in existence on the date hereof and (2) is applicable only to the extent each Fund is solvent. We express no opinion about the tax treatment of the transactions described herein if either Fund is insolvent. PaineWebber America Fund July 28, 1995 Page 11 ANALYSIS I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C), and Each Fund Will Be a Party to a Reorganization. A. Each Fund Is a Separate Corporation. A reorganization under section 368(a)(1)(C) (a "C reorganization") involves the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of substantially all of the properties of another corporation. For the transaction to qualify under that section, therefore, both entities involved therein must be corporations (or associations taxable as corporations). PW Trust, however, is a Massachusetts business trust, not a corporation, and Acquiring Fund is a separate series of PW Trust. Treasury Regulation section 301.7701-4(b) provides that certain arrangements known as trusts (because legal title is conveyed to trustees for the benefit of beneficiaries) will not be classified as trusts for purposes of the Code because they are not simply arrangements to protect or conserve the property for the beneficiaries. These "business or commercial trusts" are created simply as devices to carry on profit-making businesses that normally would have been carried on through corporations or partnerships. Treasury Regulation section 301.7701-4(c) further provides that an "`investment' trust will not be classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders." See Commissioner v. North American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942). Based on these criteria, PW Trust does not qualify as a trust for federal income tax purposes. While PW Trust is an "investment trust," it does not have a fixed pool of assets -- Acquiring Fund has been a managed portfolio of securities, and its investment adviser has had the authority to buy and sell securities for it. PW Trust is not simply an arrangement to protect or conserve property for the beneficiaries, but is designed to carry on a profit-making business. In addition, the word "association" has long been held to include "Massachusetts business trusts," such as PW Trust. See Hecht v. Malley, 265 U.S. 144 (1924). Accordingly, we believe that PW Trust will be treated as a corporation for federal income tax purposes. PW Trust as such, however, is not participating in the Reorganization, but rather a series thereof 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 corporation. Under section 851(h), how- PaineWebber America Fund July 28, 1995 Page 12 ever, 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 PW Trust). Thus, we believe that Acquiring Fund will be a separate corporation, and its shares will be treated as shares of corporate stock, for purposes of section 368(a)(1)(C). B. Satisfaction of Section 368(a)(2)(F). Under section 368(a)(2)(F), if two or more parties to a transaction described in section 368(a)(1) (other than subparagraph (E) thereof) are "investment companies," the transaction will not be considered a reorgan- ization with respect to any such investment company or its shareholders unless, among other things, the investment company is a RIC or -- (1) not more than 25% of the value of its total assets is invested in the stock or securities of any one issuer and (2) not more than 50% of the value of its total assets is invested in the stock or securities of five or fewer issuers. Each Fund will meet the requirements for qualification and treatment as a RIC for its respective current taxable year, and the foregoing percentage tests will be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F) will not cause the Reorganization to fail to qualify as a C reorganization with respect to either Fund. C. Transfer of "Substantially All" of the Properties. For an acquisition to qualify as a C reorganization, the acquiring corporation must acquire "substantially all of the properties" of the transferor corporation solely in exchange for all or part of the acquiring corporation's stock. For purposes of issuing private letter rulings, the Service considers the transfer of at least 70% of the transferor's gross assets, and at least 90% of its net assets, held immediately before the reorganization to satisfy the "substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will involve such a transfer. Accordingly, we believe that the Reorganization will involve the transfer to Acquiring Fund of substantially all of Target's properties. D. Qualifying Consideration. For an acquisition to qualify as a C reorganization, the acquiring corporation must acquire at least 80% (by fair market value) of the transferor's property solely in exchange for voting PaineWebber America Fund July 28, 1995 Page 13 stock. Section 368(a)(2)(B)(iii). The assumption of liabilities by the acquiring corporation or its acquisition of property subject to liabilities normally are disregarded (section 368(a)(1)(C)), but the amount of any such liabilities will be treated as money paid for the transferor's property if the acquiring corporation exchanges any money or property (other than its voting stock) therefor. Section 368(a)(2)(B). Because Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or other property, for the Assets, we believe that the Reorganization will satisfy the solely-for-voting-stock requirement to qualify as a C reorganization. E. Requirements of Continuity. Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a valid reorganization: (1) a continuity of the business enterprise under the modified corporate form ("continuity of business") and (2) a continuity of interest therein on the part of those persons who, directly or indirectly, were the owners of the enterprise prior to the reorganization ("continuity of interest"). 1. Continuity of Business. The continuity of business enterprise test as set forth in Treas. Reg. Section 1.368-1(d)(2) requires that the acquiring corporation must either (i) continue the acquired corporation's historic business ("business continuity") or (ii) use a significant portion of the acquired corporation's historic business assets in a business ("asset continuity"). While there is no authority that deals directly with the requirement of continuity of business in the context of a transaction such as the 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 securities. P acquired the assets of T in exchange for P common stock in a transaction that was intended to qualify as a C reorganization. Prior to the exchange, T sold its entire portfolio of corporate securities and purchased a portfolio of municipal bonds. The Service held that this transaction did not qualify as a reorganization for the following reasons: (1) because T had sold its historic assets prior to the exchange, there was no asset continuity; and (2) the failure of P to engage in the business of investing in corporate securities after the exchange caused the transaction to lack business continuity as well. The Funds' investment objectives are substantively identical, and their investment policies are similar. Furthermore, Acquiring Fund will actively continue Target's business in the same manner that Target PaineWebber America Fund July 28, 1995 Page 14 conducted it immediately before the Reorganization. Accordingly, there will be business continuity. Acquiring Fund not only will continue Target's historic business, but Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordinary course of its business and dispositions necessary to maintain its status as a RIC, and (2) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispositions thereof to maintain such status. Accordingly, there will be asset continuity as well. For all the foregoing reasons, we believe that the Reorganization will meet the continuity of business requirement. 2. Continuity of Interest. For purposes of issuing private letter rulings, the Service considers the continuity of interest requirement of Treas. Reg. Section 1.368-1(b) satisfied if ownership in an acquiring corporation on the part of a transferor corporation's former shareholders is equal in value to at least 50% of the value of all the formerly outstanding shares of the transferor corporation. Rev. Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continuity of interest was held to exist in a reorganization of two RICs where immediately after the reorganization 26% of the shares were redeemed in order to allow investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor corporation's stock was not a sufficient shift in proprietary interest to disqualify a transaction as a reorganization under section 368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's shareholders would hold all the transferee's stock); Aetna Casualty and Surety Co. v. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a 38.39% minority interest did not prevent a transaction from qualifying as an F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an F Reorganization even though the transferor's shareholders acquired only 45% of the transferee's stock, while the remaining 55% of that stock was issued to new shareholders in a public underwriting immediately after the transfer). No minimum holding period for shares of an acquiring corporation is imposed under the Code on the acquired corporation's shareholders. Rev. Rul. 66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership for a period of time sufficient to warrant the conclusion that such ownership is definite and substantial" will suffice and that "ordinarily, the Service will treat PaineWebber America Fund July 28, 1995 Page 15 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. Neither Fund (1) is aware of any plan or intention of Shareholders to dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization or (2) anticipates dispositions thereof at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as an open-end investment company. Consequently, each Fund expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be de minimis. Accordingly, we believe that the Reorganization will meet the continuity of interest requirement of Treas. Reg. Section 1.368-1(b). F. Distribution by Target. Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a C reorganization unless the corporation whose properties are acquired distributes the stock it receives and its other property in pursuance of the plan of reorganization. Under the Plan -- which we believe constitutes a "plan of reorganization" within the meaning of Treas. Reg. Section 1.368-2(g) -- Target will distribute all the Acquiring Fund Shares to its shareholders in constructive exchange for their Target Shares; as soon as is reasonably practicable thereafter, Target will be liquidated. Accordingly, we believe that the requirements of section 368(a)(2)(G)(i) will be satisfied. G. Business Purpose. All reorganizations must meet the judicially imposed requirements of the "business purpose doctrine," which was established in Gregory v. Helvering, 293 U.S. 465 (1935), and is now set forth in Treas. Reg. Section 1.368-1(b), -1(c), and -2(g) (the last of which provides that, to qualify as a reorganization, a transaction must be "undertaken for reasons germane to the continuance of the business of a corporation a party to the reorganization"). Under that doctrine, a transaction must have a bona fide business purpose (and not a purpose to avoid federal income tax) to constitute a valid reorganization. The substantial business purposes of the Reorgan- PaineWebber America Fund July 28, 1995 Page 16 ization are described in the Proxy. Accordingly, we believe that the Reorganization is being undertaken for bona fide business purposes (and not a purpose to avoid federal income tax) and therefore meets the requirements of the business purpose doctrine. For all the foregoing reasons, we believe that the Reorganization will constitute a reorganization within the meaning of section 368(a)(1)(C). H. Both Funds are Parties to the Reorganization. Section 368(b)(2) and Treas. Reg. Section 1.368-1(f) provide that if one corporation transfers substantially all of its properties to a second corporation in exchange for all or a part of the voting stock of the second corporation, then both corporations are parties to a reorganization. Target is transferring substantially all of its properties to Acquiring Fund in exchange for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a party to a reorganization." II. No Gain or Loss Will Be Recognized to Target. Under sections 361(a) and (c), no gain or loss will be recognized to a corporation that is a party to a reorganization (1) on the exchange of property, pursuant to the plan of reorganization, solely for stock or securities in another corporate party to the reorganization or (2) on the distribution to its shareholders, pursuant to that plan, of stock in such other corporation that was received by the distributing corporation in the exchange. (Such a distribution is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C reorganization.) Section 361(c)(4) provides that specified provisions requiring recognition of gain on certain distributions shall not apply to a distribution described in (2) above. Section 357(a) provides in pertinent part that, except as provided in section 357(b), if a taxpayer receives property that would be permitted to be received under section 361 without recognition of gain if it were the sole consideration and, as part of the consideration, another party to the exchange assumes a liability of the taxpayer or acquires from the taxpayer property subject to a liability, then that assumption or acquisition shall not be treated as money or other property and shall not prevent the exchange from being within section 361. Section 357(b) applies where the principal purpose of the assumption or acquisition was a tax avoidance purpose or not a bona fide business purpose. As noted above, the Reorganization will constitute a C reorganization, each Fund will be a party to a reorganization, and the PaineWebber America Fund July 28, 1995 Page 17 Plan constitutes a plan of reorganization. Target will exchange the Assets solely for the Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities and then will terminate pursuant to the Plan, distributing those shares to its shareholders in constructive exchange for their Target Shares. As also noted above, we believe that the Reorganization is being undertaken for bona fide business purposes (and not a purpose to avoid federal income tax); we also do not believe that the principal purpose of Acquiring Fund's assumption of the Liabilities is avoidance of federal income tax on the proposed transaction. Accordingly, we believe that no gain or loss will be recognized to Target on the Reorganization.4/ III. No Gain or Loss Will Be Recognized to Acquiring Fund. Section 1032(a) provides that no gain or loss will be recognized to a corporation on the receipt by it of money or other property in exchange for its shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in exchange for the Assets, which consist of money and securities. Accordingly, we believe that no gain or loss will be recognized to Acquiring Fund on the Reorganization. IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its Holding Period Will Include Target's Holding Period. Section 362(b) provides that property acquired by a corporation in connection with a reorganization will have the same basis in that corporation's hands as the basis of the property in the transferor corporation's hands immediately before the exchange, increased by any gain recognized to the transferor on the transfer. As noted above, the Reorganization will constitute a C reorganization and Target will recognize no gain on the Reorganization under section 361(a). Accordingly, we believe that Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before the Reorganization. -------------------- 4/ Notwithstanding anything herein to the contrary, no opinion is expressed as to the effect of the Reorganization on the Funds or any Shareholder (regarding the recognition of gain or loss and/or the determination of the basis or holding period) with respect to any asset (including certain options, futures, and forward contracts included in the Assets) as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. PaineWebber America Fund July 28, 1995 Page 18 Section 1223(2) provides that where property acquired in an exchange has a carryover basis, the property will have a holding period in the hands of the acquiror that includes the holding period of the property in the transferor's hands. As stated above, Acquiring Fund's basis for the Assets will be a carryover basis. Accordingly, we believe that Acquiring Fund's holding period for the Assets will include Target's holding period therefor. V. No Gain or Loss Will Be Recognized to a Shareholder. Under section 354(a), no gain or loss is recognized to a shareholder who exchanges shares for other shares pursuant to a plan of reorganization, wherethe shares exchanged, as well as the shares received, are those of a corporation that is a party to the reorganization. As stated above, the Reorganization will constitute a C reorganization, the Plan constitutes a plan of reorganization, and each Fund will be a party to a reorganization. Accordingly, we believe that under section 354 a Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization. VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted Basis, and its Holding Period therefor Will Include its Holding Period for its Target Shares. Section 358(a)(1) provides, in part, that in the case of an exchange to which section 354 applies, the basis of any shares received in the transaction without the recognition of gain is the same as the basis of the property transferred in exchange therefor, decreased by, among other things, the fair market value of any other property and the amount of any money received in the transaction and increased by the amount of any gain recognized on the exchange by the shareholder. As noted above, the Reorganization will constitute a C reorganization and under section 354 no gain or loss will be recognized to a Shareholder on the constructive exchange of its Target Shares for Acquiring Fund Shares in the Reorganization. No property will be distributed to the Shareholders other than the Acquiring Fund Shares, and no money will be distributed to them pursuant to the Reorganization. Accordingly, we believe that a Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares. PaineWebber America Fund July 28, 1995 Page 19 Under section 1223(1), the holding period of property received in an exchange includes the holding period of the property exchanged therefor if the acquired property has, for the purpose of determining gain or loss, the same basis in the holder's hands as the property exchanged therefor ("substituted basis") and such property was a capital asset. As noted above, a Shareholder will have a substituted basis for the Acquiring Fund Shares it receives in the Reorganization; accordingly, provided that the Shareholder held its Target Shares as capital assets on the Closing Date, we believe its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares. We hereby consent to this opinion accompanying the Registration Statement and to the references to our firm under the captions "Approval of the Reorganizations -- Synopsis -- Federal Income Tax Consequences of the Reorganizations" and "The Proposed Transactions -- Federal Income Tax Considerations" in the Proxy. Very truly yours, KIRKPATRICK & LOCKHART LLP By: /s/ ---------------------------- Theodore L. Press EX-99.12(B) 7 OPINION OF SULLIVAN & CROMWELL EXHIBIT 12(b) [LETTERHEAD OF SULLIVAN & CROMWELL] JULY 31, 1995 Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. 1285 Avenue of the Americas New York, New York 10019 Ladies and Gentlemen: We have acted as counsel to Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc., a Maryland corporation ("Target"), in connection with the Amended and Restated Agreement and Plan of Reorganization and Liquidation date as of July 25, 1995 (the "Agreement"), between PaineWebber America Fund, a Massachusetts business trust ("PW Trust") on behalf of PaineWebber Growth and Income Fund, a series thereof ("Acquiring Fund") and Target, and we render this opinion to you pursuant to paragraph 6.6 of the Agreement. Capitalized terms used but not defined herein have the meanings ascribed to them in the Agreement. For the purposes of the opinion set forth below, we have relied in part, with your consent, upon the representations set forth in letters dated May 30, 1995 from Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. -2- each of PW Trust and Target, and upon the accuracy and completeness of the statements and representations contained in the Agreement and in the Prospectus/Proxy Statement which will be distributed to the shareholders of Target in connection with the Reorganization. With your consent we have not attempted to verify independently the accuracy of any information in these documents and have assumed that the statements and representations contained therein will be true at the Effective Time. In connection with this opinion we have also assumed, with your consent, that the Reorganization will be effected in accordance with the terms of the Agreement. On the basis of the foregoing, and our consideration of such other matters as we have considered relevant, we advise you that, in our opinion: 1. The Reorganization will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of Section 368(b) of the Code; 2. Target will not recognize any gain or loss on the transfer to Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. -3- 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 not recognize any 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 the basis thereof to Target immediately before the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; 5. A Shareholder will not recognize any 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 basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares, provided they are held as capital assets by the Shareholder at the Effective Time. Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. -4- We express no opinion as to the effect of the Reorganization on the Funds or any Shareholder in respect of any asset as to which unrealized gain or loss is required to be recognized for U.S. Federal income tax purposes at the end of each year under a mark-to-market system of accounting. The tax consequences described above may not be applicable to a Target Shareholder who acquired Target Shares pursuant to the exercise of an employee stock option or otherwise as compensation. We hereby consent to the reference to us under the heading "Federal Income Tax Consequences of the Reorganizations" and "The Proposed Transactions - Federal Income Tax Considerations" in the Prospectus/Proxy Statement of Acquiring Fund and Target and to the filing of this opinion as an Exhibit to the Registration Statement on Form N-14 of Target including the Prospectus/Proxy Statement filed with the Securities and Exchange Commission. In giving this consent we do not thereby admit that we are within the category of persons whose consent is required Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. -5- under Section 7 of the Securities Act of 1933, as amended, or the rules or regulations of the Securities and Exchange Commission thereunder. Very truly yours, SULLIVAN & CROMWELL EX-99.12(C) 8 OPINION OF KIRKPATRICK & LOCKHART LLP EXHIBIT 12(c) July 28, 1995 PaineWebber America Fund PaineWebber Investment Series 1285 Avenue of the Americas New York, NY 10019 Ladies and Gentlemen: PaineWebber America Fund ("America Fund"), on behalf of PaineWebber Growth and Income Fund, a segregated portfolio of assets ("series") of America Fund ("Acquiring Fund"), and PaineWebber Investment Series ("Investment Series"), on behalf of PaineWebber Global Energy Fund, a series of Investment Series ("Target"),1/ have requested our opinion as to certain federal income tax consequences of the proposed acquisition of Target by Acquiring Fund, pursuant to an Amended and Restated Agreement and Plan of Reorganization and Termination between them dated as of July 25, 1995 ("Plan"), attached as an exhibit to the prospectus/proxy statement to be furnished in connection with the solicitation of proxies by Investment Series's board of trustees for use at a special meeting of Target shareholders ("Special Meeting") to be held on October 6, 1995 ("Proxy"), included in the registration statement on Form N-14 to be filed with the Securities and Exchange Commission ("SEC") on or about the date hereof ("Registration Statement").2/ Specifically, each Investment Company has requested our opinion: (1) that the acquisition by Acquiring Fund of Target's assets in exchange solely for voting shares of beneficial interest in Acquiring Fund and the assumption by Acquiring Fund of Target's liabilities, followed by the distribution of those shares by Target pro rata to its shareholders of record as of the close of regular trading on the New York Stock Exchange, Inc. on the date of the Closing (as hereinafter defined) ("Shareholders") constructively in exchange for their shares of beneficial interest in Target ("Target Shares") (such transaction sometimes being referred to herein as the "Reorganization"), will constitute a "reorganization" within the meaning of section 368(a)(1)(C)3/ and that each Fund will be a "party to a reorganization" within the meaning of section 368(b), (2) that Target, the Shareholders, and Acquiring Fund will recognize no gain or loss upon the Reorganization, and --------------------- 1/ Target and Acquiring Fund are referred to herein individually either by such names or as a "Fund" and collectively as the "Funds," and America Fund and Investment Series are referred to herein individually either by such names or as an "Investment Company" and collectively as the "Investment Companies." 2/ This letter supersedes and replaces our previous letter _______ ______ ____ ____ ______. 3/ All section references are to the Internal Revenue Code of 1986, as amended ("Code"), and all "Treas. Reg. Section" references are to the regulations under the Code ("Regulations"). PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 2 (3) regarding the basis and holding period after the Reorganization of the transferred assets and the shares of Acquiring Fund issued pursuant thereto. In rendering this opinion, we have examined (1) Target's currently effective prospectus and statement of additional information ("SAI"), both dated March 1, 1995, and Acquiring Fund's currently effective prospectus and SAI, both dated May 12, 1995, (2) the Proxy, (3) the Plan, and (4) such other documents as we have deemed necessary or appropriate for the purposes hereof. As to various matters of fact material to this opinion, we have relied, exclusively and without independent verification, on statements of responsible officers of each Investment Company and Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), each Fund's investment adviser, and the representations described below and made in the Plan (as contemplated in paragraph 6.6 thereof) (collectively "Representations"). FACTS America Fund is as an unincorporated voluntary association with transferable shares formed as a business trust under the laws of the Commonwealth of Massachusetts (commonly referred to as a "Massachusetts business trust") pursuant to a Declaration of Trust dated October 31, 1986, and is the successor to PaineWebber America Fund, Inc., a Maryland corporation; Acquiring Fund commenced operations as a series thereof on December 20, 1983. Investment Series was formed as a Massachusetts business trust pursuant to a Declaration of Trust dated December 22, 1986; Target commenced operations as a series thereof on September 18, 1987. Each Investment Company is registered with the SEC as an open-end management investment company under the Investment Company Act of 1940 ("1940 Act"). In addition to serving as each Fund's investment adviser, Mitchell Hutchins, a wholly owned subsidiary of PaineWebber Incorporated, serves as investment adviser to each Fund and is the distributor of each Fund's shares. Target currently offers for sale three classes of shares, designated Class A, Class B, and Class D shares ("Class A Target Shares," "Class B Target Shares," and "Class D Target Shares," respectively). These classes differ only with respect to the sales charges imposed on the purchase of shares and the fees payable by each class pursuant to plans adopted under Rule 12b-1 promulgated under the 1940 Act ("12b-1 fees") and possible differences with respect to the allocation of class-specific expenses other than 12b-1 fees. Acquiring Fund's shares are divided into four classes, designated Class A, Class B, Class C, and Class D shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," "Class C Acquiring Fund Shares," and "Class D Acquiring Fund Shares," respectively). The Reorganization only involves Classes A, C, and D Acquiring Fund Shares, which are identical to the correspondingly lettered classes of Target Shares, except that the Class A Target Shares are subject to a slightly higher 12b-1 service fee than the Class A Acquiring Fund Shares (imposed at the annual rate of 0.25%, as compared to 0.23%, of the average daily net assets attributable to the class). At or immediately before the close of business on the date on which the Reorganization, together with all related acts necessary to consummate the same ("Closing") occurs, scheduled for October 13, 1995 (or on such other date or at such other time as the parties may agree) ("Effective Time"), Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distributed substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Effective Time. PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 3 The Funds' investment objectives, which are generally similar, and their investment policies are described in the Proxy and their respective prospectuses and SAIs. Although there are differences in some of those investment policies, it is not expected that Acquiring Fund will revise its investment objective or policies following the Reorganization to reflect those of Target. Since Target is permitted to invest in securities having characteristics different from those permitted for Acquiring Fund, certain of the securities currently held in Target's portfolio may need to be sold, rather than transferred to Acquiring Fund. If the Reorganization is approved, Target will sell any assets that are inconsistent with Acquiring Fund's investment policies prior to the Effective Time, and the proceeds thereof will be held in temporary investments or reinvested in assets that qualify to be held by Acquiring Fund. The Reorganization was recommended by Mitchell Hutchins to each Investment Company's board of trustees (each a "board") at joint meetings thereof held on April 28, 1995 and July 20, 1995. In considering the Reorganization, each board made an extensive inquiry into a number of factors (which are described in the Proxy, together with Mitchell Hutchins's advice and recommendations to the boards and the purposes of the Reorganization). Pursuant thereto, each board approved the Plan, subject to approval of Target's shareholders. In doing so, each board, including a majority of its members who are not "interested persons" (as that term is defined in the 1940 Act) of Investment Series or America Fund, as applicable, _______ ________ _____ that the Reorganization is in its Fund's best interests, that the terms of the Reorganization are fair and reasonable, and that the interests of its Fund's shareholders will not be diluted as a result of the Reorganization. PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 4 The Plan, which specifies that it is intended to be, and is adopted as, a plan of a reorganization described in section 368(a)(1)(C), provides in relevant part for the following: (1) The acquisition by Acquiring Fund of all the Assets (as defined below) in exchange solely for (a) the number of full and fractional (i) Class A Acquiring Fund Shares determined by dividing the net value of Target ("Target Value") attributable to the Class A Target Shares by the net asset value ("NAV") of a Class A Acquiring Fund Share, (ii) Class 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, and (iii) Class D Acquiring Fund Shares determined by dividing the Target Value attributable to the Class D Target Shares by the NAV of a Class D Acquiring Fund Share, and (b) Acquiring Fund's assumption of the Liabilities (as defined below), (2) The constructive distribution of such Acquiring Fund Shares to the Shareholders, and (3) The subsequent termination of Target. PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 5 The distribution described in (2) will be accomplished by transferring the Acquiring Fund Shares then credited to Target's account on Acquiring Fund's share transfer records to open accounts on those records established in the Shareholders' names, with each Shareholder's account being credited with the respective pro rata number of full and fractional (rounded to three decimal places) Acquiring Fund Shares due such Shareholder, by class. All outstanding Target Shares, including any represented by certificates, simultaneously will be canceled on Target's share transfer records. The Target assets to be acquired by Acquiring Fund 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 Target's books, and other property owned by Target at the Effective Time (collectively "Assets"). Acquiring Fund will assume all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Effective Time, and whether or not specifically referred to in the Plan, including without limitation Target's share of the expenses incurred in connection with the Reorganization (collectively "Liabilities"). Target agreed in the Plan to use its best efforts to discharge all of its known liabilities and obligations prior to the Effective Time. REPRESENTATIONS The representations enumerated below have been made to us by appropriate officers of each Investment Company. Each of America Fund, on behalf of Acquiring Fund, and Investment Series, on behalf of Target, has represented and warranted to us as follows: 1. The fair market value of the Acquiring Fund Shares, when received by the Shareholders, will be approximately equal to the fair market value of their Target Shares constructively surrendered in exchange therefor; 2. Its management (a) is unaware of any plan or intention of Shareholders to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization and (b) does not anticipate dispositions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as a series of an open-end investment company. Consequently, its management expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be de minimis. Nor does its management anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganization; 3. The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization; PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 6 4. Immediately following consummation of the Reorganization, Acquiring Fund will hold substantially the same assets and be subject to substantially the same liabilities that Target held or was subject to immediately prior thereto, plus any liabilities and expenses of the parties incurred in connection with the Reorganization; 5. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, held by Target immediately before the Reorganization. For the purposes of this representation, any amounts used by Target to pay its Reorganization expenses and redemptions and distributions made by it immediately before the Reorganization (except for (a) distributions made to conform to its policy of distributing all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 and (b) redemptions not made as part of the Reorganization) will be included as assets thereof held immediately before the Reorganization; 8. None of the compensation received by any Shareholder who is an employee of Target will be separate consideration for, or allocable to, any of the Target Shares held by such Shareholder-employee; none of the Acquiring Fund Shares received by any such Shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the consideration paid to any such Shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services; and 9. Immediately after the Reorganization, the Shareholders will not own shares constituting "control" of Acquiring Fund within the meaning of section 304(c). Investment Series also has represented and warranted to us on behalf of Target as follows: 1. The Liabilities were incurred by Target in the ordinary course of its business; 2. Target is a "fund" as defined in section 851(h)(2); it qualified for treatment as a regulated investment company ("RIC") under Subchapter M of the Code ("Subchapter M") for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; 3. Target is not under the jurisdiction of a court in a proceeding under Title 11 of the United States Code or similar case within the meaning of section 368(a)(3)(A); 4. Not more than 25% of the value of Target's total assets (excluding cash, cash items, and U.S. government securities) is invested in the stock or securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock or securities of five or fewer issuers; and 5. Target will be terminated as soon as reasonably practicable after the Reorganization, but in all events within six months after the Effective Time. PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 7 America Fund also has represented and warranted to us on behalf of Acquiring Fund as follows: 1. Acquiring Fund is a "fund" as defined in section 851(h)(2); it qualified for treatment as a RIC under Subchapter M for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; 2. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its business as a series of an open- end investment company; nor does Acquiring Fund have any plan or intention to redeem or otherwise reacquire any Acquiring Fund Shares issued to the Shareholders pursuant to the Reorganization, other than through redemptions arising in the ordinary course of that business; 3. Acquiring Fund (a) will actively continue Target's business in substantially the same manner that Target conducted that business immediately before the Reorganization, (b) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordinary course of that business and dispositions necessary to maintain its status as a RIC under Subchapter M, and (c) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispositions thereof to maintain such status; 4. There is no plan or intention for Acquiring Fund to be dissolved or merged into another corporation or business trust or any "fund" thereof (within the meaning of section 851(h)(2)) following the Reorganization; 5. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock or securities of any one issuer and (b) not more than 50% of the value of such assets will be invested in the stock or securities of five or fewer issuers; and 6. Acquiring fund does not own, directly or indirectly, nor at the Effective Time will it own, directly or indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target. OPINION Based solely on the facts set forth above, and conditioned on (1) the Representations being true at the time of Closing and (2) the 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 solely in exchange for the Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities, followed by Target's distribution of those shares pro rata to the Shareholders constructively in exchange for their Target Shares, will constitute a reorganization within the meaning of section 368(a)(1)(C), and each Fund will be "a party to a reorganization" within the meaning of section 368(b); PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 8 2. No gain or loss will be recognized to Target on the transfer of the Assets to Acquiring Fund solely in exchange for the Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities or upon the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares (section 361); 3. No gain or loss will be recognized to Acquiring Fund on its receipt of the Assets solely in exchange for the Acquiring Fund Shares and its assumption of the Liabilities (section 1032(a)); 4. Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before the Reorganization (section 362(b)), and Acquiring Fund's holding period for the Assets will include Target's holding period therefor (section 1223(2)); 5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization (section 354(a)); and 6. A Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares (section 358(a)), and its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares, provided they are held as capital assets by the Shareholder on the Closing Date (section 1223(1)). The foregoing opinion (1) is based on, and is conditioned on the continued applicability of, the provisions of the Code and the Regulations, judicial decisions, and rulings and other pronouncements of the Internal Revenue Service ("Service") in existence on the date hereof and (2) is applicable only to the extent each Fund is solvent. We express no opinion about the tax treatment of the transactions described herein if either Fund is insolvent. ANALYSIS I. The Reorganization Will Be a Reorganization under Section 368(a)(1)(C), and Each Fund Will Be a Party to a Reorganization. A. Each Fund Is a Separate Corporation. A reorganization under section 368(a)(1)(C) (a "C reorganization") involves the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of substantially all of the properties of another corporation. For the transaction to qualify under that section, therefore, both entities involved therein must be corporations (or associations taxable as corporations). Each Investment Company, however, is a Massachusetts business trust, not a corporation, and each Fund is a separate series of an Investment Company. Treasury Regulation section 301.7701-4(b) provides that certain arrangements known as trusts (because legal title is conveyed to trustees for the benefit of beneficiaries) will not be classified as trusts for purposes of the Code because they are not simply arrangements to protect or conserve the property for the beneficiaries. These "business or commercial trusts" are created simply as devices to carry on profit-making businesses that normally would have been carried on through corporations or partnerships. Treasury Regulation section 301.7701-4(c) further provides that an "`investment' trust will not be classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders." See Commissioner v. North American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942). PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 9 Based on these criteria, neither Investment Company qualifies as a trust for federal income tax purposes. While each Investment Company is an "investment trust," it does not have a fixed pool of assets -- each Fund has been a managed portfolio of securities, and its investment adviser has had the authority to buy and sell securities for it. Neither Investment Company is simply an arrangement to protect or conserve property for the beneficiaries, but each is designed to carry on a profit-making business. In addition, the word "association" has long been held to include "Massachusetts business trusts," such as the Investment Companies. See Hecht v. Malley, 265 U.S. 144 (1924). Accordingly, we believe that each Investment Company will be treated as a corporation for federal income tax purposes. Neither Investment Company as such, however, is participating in the Reorganization, but rather series of each of them are the participants. Ordinarily, a transaction involving segregated pools of assets (such as the Funds) could not qualify as a reorganization, because the pools would not be corporations. Under section 851(h), however, each Fund is treated as a separate corporation for all purposes of the Code save the definitional requirement of section 851(a) (which is satisfied by each Investment Company). Thus, we believe that each Fund will be a separate corporation, and each Fund's shares will be treated as shares of corporate stock, for purposes of section 368(a)(1)(C). B. Satisfaction of Section 368(a)(2)(F). Under section 368(a)(2)(F), if two or more parties to a transaction described in section 368(a)(1) (other than subparagraph (E) thereof) are "investment companies," the transaction will not be considered a reorgan- ization with respect to any such investment company or its shareholders unless, among other things, the investment company is a RIC or -- (1) not more than 25% of the value of its total assets is invested in the stock or securities of any one issuer and (2) not more than 50% of the value of its total assets is invested in the stock or securities of five or fewer issuers. Each Fund will meet the requirements for qualification and treatment as a RIC for its respective current taxable year, and the foregoing percentage tests will be satisfied by each Fund. Accordingly, we believe that section 368(a)(2)(F) will not cause the Reorganization to fail to qualify as a C reorganization with respect to either Fund. C. Transfer of "Substantially All" of the Properties. For an acquisition to qualify as a C reorganization, the acquiring corporation must acquire "substantially all of the properties" of the transferor corporation solely in exchange for all or part of the acquiring corporation's stock. For purposes of issuing private letter rulings, the Service considers the transfer of at least 70% of the transferor's gross assets, and at least 90% of its net assets, held immediately before the reorganization to satisfy the "substantially all" requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will involve such a transfer. Accordingly, we believe that the Reorganization will involve the transfer to Acquiring Fund of substantially all of Target's properties. D. Qualifying Consideration. For an acquisition to qualify as a C reorganization, the acquiring corporation must acquire at least 80% (by fair market value) of the transferor's property solely in exchange for voting stock. Section 368(a)(2)(B)(iii). The assumption of liabilities by the acquiring corporation or its acquisition of property subject to liabilities normally are PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 10 disregarded (section 368(a)(1)(C)), but the amount of any such liabilities will be treated as money paid for the transferor's property if the acquiring corporation exchanges any money or property (other than its voting stock) therefor. Section 368(a)(2)(B). Because Acquiring Fund will exchange only the Acquiring Fund Shares, and no money or other property, for the Assets, we believe that the Reorganization will satisfy the solely-for-voting-stock requirement to qualify as a C reorganization. E. Requirements of Continuity. Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a valid reorganization: (1) a continuity of the business enterprise under the modified corporate form ("continuity of business") and (2) a continuity of interest therein on the part of those persons who, directly or indirectly, were the owners of the enterprise prior to the reorganization ("continuity of interest"). 1. Continuity of Business. The continuity of business enterprise test as set forth in Treas. Reg. Section 1.368-1(d)(2) requires that the acquiring corporation must either (i) continue the acquired corporation's historic business ("business continuity") or (ii) use a significant portion of the acquired corporation's historic business assets in a business ("asset continuity"). While there is no authority that deals directly with the requirement of continuity of business in the context of a transaction such as the 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 securities. P acquired the assets of T in exchange for P common stock in a transaction that was intended to qualify as a C reorganization. Prior to the exchange, T sold its entire portfolio of corporate securities and purchased a portfolio of municipal bonds. The Service held that this transaction did not qualify as a reorganization for the following reasons: (1) because T had sold its historic assets prior to the exchange, there was no asset continuity; and (2) the failure of P to engage in the business of investing in corporate securities after the exchange caused the transaction to lack business continuity as well. The Funds' investment objectives and policies are similar. Furthermore, Acquiring Fund will actively continue Target's business in the same manner that Target conducted it immediately before the Reorganization. Accordingly, there will be business continuity. Acquiring Fund not only will continue Target's historic business, but Acquiring Fund also (1) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordinary course of its business and dispositions necessary to maintain its status as a RIC, and (2) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispositions thereof to maintain such status. Accordingly, there will be asset continuity as well. For all the foregoing reasons, we believe that the Reorganization will meet the continuity of business requirement. 2. Continuity of Interest. For purposes of issuing private letter rulings, the Service considers the continuity of interest requirement of Treas. Reg. Section 1.368-1(b) satisfied if ownership in an acquiring corporation on the part of a transferor corporation's former shareholders is equal in value to at least 50% of the value of all the formerly outstanding shares of the transferor corporation. Rev. Proc. 77-37, supra; but see Rev. Rul. 56-345, 1956-2 C.B. 206 (continu- PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 11 ity of interest was held to exist in a reorganization of two RICs where immediately after the reorganization 26% of the shares were redeemed in order to allow investment in a third RIC); also see Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966), cert. denied, 386 U.S. 1018 (1967) (a redemption of 48% of a transferor corporation's stock was not a sufficient shift in proprietary interest to disqualify a transaction as a reorganization under section 368(a)(2)(F) ("F Reorganization"), even though only 52% of the transferor's shareholders would hold all the transferee's stock); Aetna Casualty and Surety Co. v. U.S., 568 F.2d 811, 822- 23 (2d Cir. 1976) (redemption of a 38.39% minority interest did not prevent a transaction from qualifying as an F Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an F Reorganization even though the transferor's shareholders acquired only 45% of the transferee's stock, while the remaining 55% of that stock was issued to new shareholders in a public underwriting immediately after the transfer). No minimum holding period for shares of an acquiring corporation is imposed under the Code on the acquired corporation's shareholders. Rev. Rul. 66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership for a period of time sufficient to warrant the conclusion that such ownership is definite and substantial" will suffice and that "ordinarily, the Service will treat five years of unrestricted . . . ownership as a sufficient period" for continuity of interest purposes. A preconceived plan or arrangement by or among an acquired 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. Neither Fund (1) is aware of any plan or intention of Shareholders to dispose of any portion of the Acquiring Fund Shares to be received by them in the Reorganization or (2) anticipates dispositions thereof at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as a series of an open-end investment company. Consequently, each Fund expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be de minimis. Accordingly, we believe that the Reorganization will meet the continuity of interest requirement of Treas. Reg. Section 1.368-1(b). F. Distribution by Target. Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a C reorganization unless the corporation whose properties are acquired distributes the stock it receives and its other property in pursuance of the plan of reorganization. Under the Plan -- which we believe constitutes a "plan of reorganization" within the meaning of Treas. Reg. Section 1.368-2(g) -- Target will distribute all the Acquiring Fund Shares to its shareholders in constructive exchange for their Target Shares; as soon as is reasonably practicable thereafter, Target will be terminated. Accordingly, we believe that the requirements of section 368(a)(2)(G)(i) will be satisfied. G. Business Purpose. All reorganizations must meet the judicially imposed requirements of the "business purpose doctrine," which was established in Gregory v. Helvering, 293 U.S. 465 (1935), and is now set forth in Treas. Reg. Section 1.368-1(b), -1(c), and -2(g) (the last of which provides that, to qualify as a reorganization, a transaction must be "undertaken for reasons germane to the continuance of the business of a corporation a party to the reorganization"). Under that doctrine, a transaction must have a bona fide business purpose (and not a purpose to avoid federal income tax) to constitute a valid reorganization. The substantial business purposes of the Reorganization are PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 12 described in the Proxy. Accordingly, we believe that the Reorganization is being undertaken for bona fide business purposes (and not a purpose to avoid federal income tax) and therefore meets the requirements of the business purpose doctrine. For all the foregoing reasons, we believe that the Reorganization will constitute a reorganization within the meaning of section 368(a)(1)(C). H. Both Funds are Parties to the Reorganization. Section 368(b)(2) and Treas. Reg. Section 1.368-1(f) provide that if one corporation transfers substantially all of its properties to a second corporation in exchange for all or a part of the voting stock of the second corporation, then both corporations are parties to a reorganization. Target is transferring substantially all of its properties to Acquiring Fund in exchange for Acquiring Fund Shares. Accordingly, we believe that each Fund will be "a party to a reorganization." II. No Gain or Loss Will Be Recognized to Target. Under sections 361(a) and (c), no gain or loss will be recognized to a corporation that is a party to a reorganization (1) on the exchange of property, pursuant to the plan of reorganization, solely for stock or securities in another corporate party to the reorganization or (2) on the distribution to its shareholders, pursuant to that plan, of stock in such other corporation that was received by the distributing corporation in the exchange. (Such a distribution is required by section 368(a)(2)(G)(i) for a reorganization to qualify as a C reorganization.) Section 361(c)(4) provides that specified provisions requiring recognition of gain on certain distributions shall not apply to a distribution described in (2) above. Section 357(a) provides in pertinent part that, except as provided in section 357(b), if a taxpayer receives property that would be permitted to be received under section 361 without recognition of gain if it were the sole consideration and, as part of the consideration, another party to the exchange assumes a liability of the taxpayer or acquires from the taxpayer property subject to a liability, then that assumption or acquisition shall not be treated as money or other property and shall not prevent the exchange from being within section 361. Section 357(b) applies where the principal purpose of the assumption or acquisition was a tax avoidance purpose or not a bona fide business purpose. As noted above, the Reorganization will constitute a C reorganization, each Fund will be a party to a reorganization, and the Plan constitutes a plan of reorganization. Target will exchange the Assets solely for the Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities and then will terminate pursuant to the Plan, distributing those shares to its shareholders in constructive exchange for their Target Shares. As also noted above, we believe that the Reorganization is being undertaken for bona fide business purposes (and not a purpose to avoid federal income tax); we also do not believe that the principal purpose of Acquiring Fund's assumption of the Liabilities is avoidance of federal income tax on the proposed transaction. Accordingly, we believe that no gain or loss will be recognized to Target on the Reorganization.4/ ------------------- 4/ Notwithstanding anything herein to the contrary, no opinion is expressed as to the effect of the Reorganization on the Funds or any Shareholder (regarding the recognition of gain or loss and/or the determination of the basis or holding period) with respect to any asset (including certain options, futures, and forward contracts included in the Assets) as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 13 III. No Gain or Loss Will Be Recognized to Acquiring Fund. Section 1032(a) provides that no gain or loss will be recognized to a corporation on the receipt by it of money or other property in exchange for its shares. Acquiring Fund will issue the Acquiring Fund Shares to Target in exchange for the Assets, which consist of money and securities. Accordingly, we believe that no gain or loss will be recognized to Acquiring Fund on the Reorganization. IV. Acquiring Fund's Basis for the Assets Will Be a Carryover Basis, and Its Holding Period Will Include Target's Holding Period. Section 362(b) provides that property acquired by a corporation in connection with a reorganization will have the same basis in that corporation's hands as the basis of the property in the transferor corporation's hands immediately before the exchange, increased by any gain recognized to the transferor on the transfer. As noted above, the Reorganization will constitute a C reorganization and Target will recognize no gain on the Reorganization under section 361(a). Accordingly, we believe that Acquiring Fund's basis for the Assets will be the same as the basis thereof in Target's hands immediately before the Reorganization. Section 1223(2) provides that where property acquired in an exchange has a carryover basis, the property will have a holding period in the hands of the acquiror that includes the holding period of the property in the transferor's hands. As stated above, Acquiring Fund's basis for the Assets will be a carryover basis. Accordingly, we believe that Acquiring Fund's holding period for the Assets will include Target's holding period therefor. V. No Gain or Loss Will Be Recognized to a Shareholder. Under section 354(a), no gain or loss is recognized to a shareholder who exchanges shares for other shares pursuant to a plan of reorganization, wherethe shares exchanged, as well as the shares received, are those of a corporation that is a party to the reorganization. As stated above, the Reorganization will constitute a C reorganization, the Plan constitutes a plan of reorganization, and each Fund will be a party to a reorganization. Accordingly, we believe that under section 354 a Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization. VI. A Shareholder's Basis for Acquiring Fund Shares Will Be a Substituted Basis, and its Holding Period therefor Will Include its Holding Period for its Target Shares. Section 358(a)(1) provides, in part, that in the case of an exchange to which section 354 applies, the basis of any shares received in the transaction without the recognition of gain is the same as the basis of the property transferred in exchange therefor, decreased by, among other things, the fair market value of any other property and the amount of any money received in the transaction and increased by the amount of any gain recognized on the exchange by the shareholder. PaineWebber America Fund PaineWebber Investment Series July 28, 1995 Page 14 As noted above, the Reorganization will constitute a C reorganization and under section 354 no gain or loss will be recognized to a Shareholder on the constructive exchange of its Target Shares for Acquiring Fund Shares in the Reorganization. No property will be distributed to the Shareholders other than the Acquiring Fund Shares, and no money will be distributed to them pursuant to the Reorganization. Accordingly, we believe that a Shareholder's basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares. Under section 1223(1), the holding period of property received in an exchange includes the holding period of the property exchanged therefor if the acquired property has, for the purpose of determining gain or loss, the same basis in the holder's hands as the property exchanged therefor ("substituted basis") and such property was a capital asset. As noted above, a Shareholder will have a substituted basis for the Acquiring Fund Shares it receives in the Reorganization; accordingly, provided that the Shareholder held its Target Shares as capital assets on the Closing Date, we believe its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares. We hereby consent to this opinion accompanying the Registration Statement and to the references to our firm under the captions "Approval of the Reorganizations -- Synopsis -- Federal Income Tax Consequences of the Reorganizations" and "The Proposed Transactions -- Federal Income Tax Considerations" in the Proxy. Very truly yours, KIRKPATRICK & LOCKHART LLP By: /s/ ----------------------------- Theodore L. Press EX-99.14(A) 9 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 14(a) Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus/Proxy Statement constituting part of this registration statement on Form N-14 (the "N-14 Registration Statement") of our report dated December 13, 1994, relating to the financial statements and financial highlights of PaineWebber Global Energy Fund appearing in the October 31, 1994 Annual Report to Shareholders, which is incorporated by reference in the Statement of Additional Information constituting part of Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of such Fund, which is incorporated by reference in such Prospectus/Proxy Statement. We also consent to the reference to us under the heading "Miscellaneous - Experts" in such Prospectus/Proxy Statement of the N-14 Registration Statement. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 July 26, 1995 EX-99.14(B) 10 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 14(b) CONSENT OF INDEPENDENT AUDITORS PaineWebber America Fund: We consent to the incorporation by reference in this Registration Statement on Form N-14 of our report on the Mitchell Hutchins/Kidder, Peabody Equity Income Fund, Inc. dated March 13, 1995, appearing in the annual report to shareholders for the year ended January 31, 1995 and to the reference to us under the caption "Miscellaneous-Experts" appearing in the Prospectus/Proxy Statement, which also is part of such Registration Statement. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP New York, New York July 26, 1995 EX-99.14(C) 11 CONSENT OF ERNST & YOUNG LLP EXHIBIT 14(c) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Highlights" and "Experts" and to the incorporation by reference of our report dated October 26, 1994 on PaineWebber Growth and Income Fund (a series of PaineWebber America Fund), in this Registration Statement (Form N-1A) of PaineWebber America Fund. /s/ Ernst & Young LLP Ernst & Young LLP New York, New York July 26, 1995 EX-99.17(A) 12 DECLARATION OF RULE 24F-2 EXHIBIT 17(a) Rule 24f-2 NOTICE FOR PAINEWEBBER AMERICA FUND PAINEWEBBER DIVIDEND GROWTH FUND (1933 Act File No. 2-78626) 1. The Fiscal period for which the notice is filed: September 1, 1993 to August 31, 1994 2. The number or amount of securities of the same class or series, if any, which had been registered under the Securities Act of 1933 other than pursuant to this section but which remained unsold at the beginning of such fiscal period: None 3. The number or amount of securties, if any, registered during such fiscal period other than pursuant to this section: None 4. The number or amount of securities sold during such fiscal period: $42,783,768 representing 2,083,641 shares of beneficial interest ($0.001 par value) 5. The number or amount of securities sold during such fiscal period in reliance upon registration pursuant to this section: $42,783,768 representing 2,083,641 shares of beneficial interest ($0.001 par value) 6. The calculation of filing fee: (a) The total amount of registered shares of beneficial interest ($0.001 par value) sold including sales load: $42,783,768 (b) Less the total amount of registered shares of beneficial interest ($0.001 par value) redeemed or repurchased: (367,141,350) ------------- (c) Difference (i.e., (a) less (b)): ($324,357,582) ============= (d) Filing fee pursuant to section 6(b) of 1933 Act (Line (c) Amount x 0.00034483): $0 ============= /s/ Ann Moran ---------------- Ann Moran Assistant Treasurer and Vice President PaineWebber America Fund Date: October 25, 1994 EX-99.17(B) 13 PROXY CARDS PROXY PAINEWEBBER INVESTMENT SERIES -- PAINEWEBBER GLOBAL ENERGY FUND SPECIAL MEETING OF SHAREHOLDERS -- OCTOBER 6, 1995 The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A. Urena and each of them (with power of substitution) to vote for the undersigned shares of beneficial interest of the undersigned at the aforesaid meeting and any adjournment thereof with all the power the undersigned would have if personally present. The shares represented by this proxy will be voted as instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF PAINEWEBBER INVESTMENT SERIES. YOUR VOTE IS IMPORTANT Please date and sign this proxy on the reverse side and return it in the enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer Park, NY 11729. PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" FOR AGAINST ABSTAIN 1. Approval of an Amended and Restated Agreement and Plan of Reorganization and Termination between PaineWebber Growth and Income Fund and PaineWebber Global Energy Fund ("Fund"). / / / / / / CONTINUED AND TO BE SIGNED ON REVERSE SIDE This proxy will not be voted unless it is dated and signed exactly as instructed below If shares are held jointly, each Shareholder named should sign. If only one signs, his or her signature will be binding. If the Shareholder is a corporation, the President or a Vice President should sign in his or her own name, indicating title. If the Shareholder is a partnership, a partner should sign in his or her own name indicating that he or she is a "Partner". Sign exactly as name appears hereon. ______________________________(L.S.) ______________________________(L.S.) Date ________________________, 1995 PROXY ----- MITCHELL HUTCHINS/KIDDER PEABODY EQUITY INCOME FUND, INC. SPECIAL MEETING OF SHAREHOLDERS -- OCTOBER 6, 1995 The undersigned hereby appoints as proxies Dianne E. O'Donnell and Giovanni A. Urena and each of them (with power of substitution) to vote for the undersigned all shares of beneficial interest of the undersigned at the aforesaid meeting and any adjournment thereof with all the power the undersigned would have if personally present. The shares represented by this proxy will be voted as instructed. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MITCHELL HUTCHINS/KIDDER PEABODY EQUITY INCOME FUND, INC. YOUR VOTE IS IMPORTANT Please date and sign this proxy on the reverse side and return it in the enclosed envelope to Alamo Direct Mail Services, Inc., 10 Lucon Drive, Deer Park, NY 11729. PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" FOR AGAINST ABSTAIN 1. Approval of an Amended and Restated Agreement and Plan of Reorganization and Liquidation between PaineWebber Growth and Income Fund and Mitchell Hutchins/ Kidder Peabody Equity Income Fund, Inc. / / / / / / CONTINUED AND TO BE SIGNED ON REVERSE SIDE This proxy will not be voted unless it is dated and signed exactly as instructed below. If shares are held jointly, each Shareholder named should sign. If only one signs, his or her signature will be binding. If the Shareholder is a corporation, the President or a Vice President should sign in his or her own name, indicating title. If the Shareholder is a partnership, a partner should sign in his or her own name, indicating that he or she is a "Partner." Sign exactly as name appears hereon. ______________________________(L.S.) ______________________________(L.S.) Date ________________________, 1995